Case: India Machinery Stores (P) Ltd Vs. Commissioner Of Income-Tax, Bihar

1. This appeal is filed with certificate granted by the High Court of Patna under S. 66A (2) of the Indian Income-tax Act, 19222. The Indian Machinery Stores (P) Ltd., is a private company incorporated with the object of taking over the business carried on by the India Machinery and Mills Stores - hereinafter called the vendors. By an agreement dated August 2, 1956, the Company agreed to purchase all the assets of the vendors, goodwill and the "book-debts and other liabilities and claims against the Company" as on the date of transfer in consideration of allotment of 260 fully paid-up shares of the Company of the nominal value of Rs. 2,60,000/-. It was provided by cl. 4 of the agreement:"That all assets of the vendors in respect of all its business shall be taken over at the book value standing in the books of accounts of the vendors as on the 1 August One Thousand Nine Hundred Fifty-six."3. In a proceeding for assessment to tax for 1958-59, the Income-tax Officer found that in the books of the vendors the "value of stock" as on August 1, 1956 was Rs. 1,77,285/- while in the books of the Company the opening stock taken over by the Company was valued on the same day at Rupees 2,10,285/-. The Income-tax Officer held that the valuation by the Company of the opening stock was in "clear violation of the terms of agreement between the vendors and the Company" and added a sum of Rs. 33,000/- representing the difference between the value of the closing stock I n the books of account of the vendors and the opening stock in the books of account of the Company. The order was confirmed in appeal by the Appellate Assistant Commissioner and by the Income-tax appellate Tribunal4. The High Court of Patna recorded their answer in the affirmative on the following question referred by the Tribunal :"Whether on the facts and circumstances of the case and upon a construction of the agreement of 2nd August 1956, the Tribunal was justified in holding that the sum of Rupees 33,000/- forms part of the assessable profits of the assessee Company ?"A Division Bench of the High Court certified the case under S. 66A (2) of the Act as fit for appeal to this Court, observing:"That the case fulfils all the requirements of S. 66A (2) of the Indian Income-tax Act, 1922, and is a fit case for appeal to the Supreme Court."

Reasoning: 12. Mr. Chagla contended that the rules laid down by the Judicial Committee applicable to a certificate issued under Section 109 (c) of theCode of Civil Procedure, 1908, and under S. 596 of the Code of 1882, in regard to appeals in civil matters have no bearing in determining the meaning of S. 66A (2), for the High Court exercises advisory jurisdiction on a reference on questions of law and on that account even if the question of law which in the view of the High Court arises is not stated in the certificate, it may be presumed when the High Court has certified a case to be fit for appeal, that a substantial question of law is involved, and the technical defect in the certificate may be ignored. We are unable to accept that argument. It is true that under S. 66 (1) and (2) of the IndianIncome-taxAct,1922,only a question of law may be referred to the High Court for opinion, but the right to obtain a certificate under S. 66A (2) arises only when in the proposed appeal a question of great public or private importance arises.It cannot be held that because a question of law alone may be referred to the High Court under S. 66 of the IndianIncome-taxAct,in the proposed appeal a question of law of great public or private importance necessarily arises. Any other view, would make every opinion of the High Court in a reference under S. 66 appealable to this Court14. In our judgment, there is again no merit in the appeal. By cl. 4 of the agreement dated August 2, 1956, it was expressly provided :"That all assets of the vendors in respect of all its business shall be taken over at the book value standing in the book of accounts of the vendors as on the 1st August One Thousand Nine Hundred Fifty-six."It is undisputed that the stock-in-trade was entered in the books of account of the vendors on the date of transfer of the undertaking at Rs. 1,77,285/- and the Company valued the stock-in-trade at Rs. 2,10,285/-. It is true that to the deed of transfer is annexed a Schedule of the assets and liabilities taken over by the Company and in the Schedule the value of stocks at Patna, Muzaffarpur and Purnea is shown at Rs. 2,10,285.87. No attempt was made to explain the discrepancy between the operative part of the agreement and the valuation shown in the Schedule. TheIncome-taxOfficer was of the view that the Company had inflated the opening stock so as to reduce the ultimate profits. That view was confirmed by the Appellate Assistant Commissioner and by the Tribunal. No question of law arose out of the order of the Tribunal. The reference itself was incompetent.