Case: Commissioner Of Income-Tax, West Bengal Calcutta Vs. Calcutta Discount Co., Ltd

2. The High Court answered the first question in favour of the assessee and came to the conclusion that it was unnecessary to answer the remaining two questions. Mr. Manchanda, learned Counsel for the Revenue did not seek to get any answer from us on Questions 1 and 2. His arguments were confined to Question No.3.3. The material facts of the case as could be gathered from the case stated by the Tribunal are as follows :-Herein we are concerned with the assessment of the assessee for the assessment year 1947-48, relevant accounting year being the financial year 1946-47. The assessee company floated a subsidiary company named Messrs. Clive Row Investment (Holding) Co. Ltd., during the relevant previous year and transferred to that subsidiary company various shares held by it. In return the subsidiary company transferred to the assessee company its shares of the value of Rs.1,38,81,173/-. The book value of the shares transferred by the assessee company to its subsidiary was Rs.1,66,69,391. Thus the assessee company sustained a loss of Rs.27,02,398 but it did not claim that loss in the return made on the ground that the transfer in question was made to its own subsidiary. The Income-tax Officer valued the shares transferred by the assessee company to its subsidiary at the market rate and on that basis came to the conclusion that the assessee company must be deemed to have made a profit of Rs.1,02,40,548. The Income-tax Officer did not hold that the transaction between the assessee company and its subsidiary was not a bona fide transaction or the assessee company had made any secret profits out of that transaction. In other words, according to the Income-tax Officer even though the assessee company had not made any profits in fact, it must be deemed to have made a profit of Rs.1,02,40,546 solely on the ground that the market value of the shares transferred by the assessee company to its subsidiary is much more than their book value.4. Aggrieved by the decision of the Income-tax Officer the assessee went up in appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner opined that the basis adopted by the Income-tax Officer was unsustainable and hence set aside the order of the Income-tax Officer and remitted the case back to that Officer for finding out whether the assessee had really made any profits in the transaction in question. As against that order the Income-tax Officer went up in appeal to the Income-tax Appellate Tribunal. In the appeal memo the Income-tax Officer took only three grounds,For that on the facts and in the circumstances of the case the learned Appellate Assistant Commissioner of Income-tax should have held that the shares transferred by the assessee company to its subsidiary during the year of account should be valued, for the purposes of assessment under the Indian Income-tax Act, at their market price.(2) For that the learned Appellate Assistant Commissioner of Income-tax misappreciated the facts of the present case and wrongly applied the decision of the Madras High Court in 28 ITR 952  .(3) For that the learned Appellate Assistant Commissioner ignored the principle that in the cases of the present type the sum to be taken for the disposal of the stock-in-trade of the assessee is not what the assessee has chosen to treat as his receipt but what he would normally have received for it in the due course ofdid not plead that the order of the Appellate Assistant Commissioner was incorrect in law and therefore, should be set aside. It appears that at the hearing, the counsel for the assessee took the plea that as the Income-tax Officer had not taken the ground that the order of the Appellate Assistant Commissioner was not in accordance with law, consequently it should be set aside, the Tribunal could not grant the relief asked for by the Income-tax Officer. At that stage, as seen from the reocrds, the Income-tax Officer applied for amending his appeal memo but that prayer was rejected by the Incme-tax Appellate Tribunal. Ultimately the Tribunal dismissed the appeal of the Income-tax Officer summarily on the ground that necessary pleas have not been taken. Thereafter, at the instance of the Revenue the questions set out earlier were referred to the High Court.5. The procedure adopted by the Tribunal appears to us to be somewhat strange. The Tribunal instead of dealing with the substance of the matter appears to have been unduly influenced by procedural technicialities. We are also not impressed with the conclusion of the Tribunal that the appeal memo was not in accordance with law. No specific formula is necessary for seeking relief at the hands of any court or Tribunal if the necessary grounds are taken in the appeal memo.6. Had we come to the conclusion that the decision of the Income-tax Appellate Commissioner was wrong in law we would have had no hesitation in answering the three questions formulated above in favour of the Revenue and directing the Tribunal to reconsider the matter. But, in the view that we are taking into answers to those questions would become purely academic.7. The Appellate Assistant Commissioner came to the conclusion that the assessee and its subsidiary were two different legal entities. This conclusion was not and could not be challenged. All the authorities under the Act have come to the conclusion that the transaction between the assessee and its subsidiary company was a bona fide transaction and the assessee had not made any secret profits out of the transaction in question. It may be that the assessee had transferred its valuable shares at cost price to its subsidiary in order to so arrange its affairs its valuable shares at cost price to its subsidiary in order to so arrange its affairs as to reduce its tax burden.

Court's reasoning:
8. As seen earlier the Appellate Assistant Commissioner came to the conclusion that unless the Income-tax Officer on the basis of material before him is able to come to the conclusion that the assessee had really made profits in the transaction, it is not permissible for him to add back to the assessees return any fictional income. In our opinion that conclusion is fully in accordance with law.9. The question that when an assessee transfers some of his stock-in-trade to another person at a price less han the market price, whether that assessee can be considered to have made any profit merely because he has transferred some of his stock-in-trade not at the market price but at a lesser price, came up for consideration before the High Court of Madras in Sri Ramalinga Choodambikai Mills Ltd. v. Commr. of Income-tax, Madras, 28 ITR 952   = (AIR 1956 Mad 145  ). The facts of that case as set out in the head-note are: a limited company sold certain goods showed in its stock-in-trade to its managing agency firm and to another firm in which one of its directors was interested. The sales inquestion were held to be bona fide sales. At the same time it was held that the goods were sold at a concessional rate. The Income-tax Officer sought to tax the assessee therein after computing the profits earned by that firm on the basis of the market price of the goods sold and not the actual price at which those goods were sold. The assessee challenged the said basis. The Tribunal upheld the contention of the assessee. It came to the conclusion that the assessee had, in reality, made no profits at all.The High Court agreed with the conclusion reached by the Tribunal. It opined that in the absence of any evidence to show either that the sales were sham transactions or that the market prices were in fact paid by the purchasers the mere fact that the goods were sold at a concessional rate to benefit the purchasers at the expense of the company would not entitle the Income-tax Department to assess the difference between the market price and the price paid by the purchasers, as profits of theis a well accepted principle of law that an assessee can so arrange his affairs as to minimise his tax burden.Hence, if the assessee in this case has arranged his affairs in such a manner as to reduce his tax liability by starting a subsidiary company and transferring its shares to that subsidiary company and thus foregoing part of its own profits and at the same time enabling its subsidiary to earn some profits, such a course is not impermissible underratio of the decision in Wemhers as well as in Dooars Tea Co.s case does not bear upon the question of law arising for decision in this case. Therein what the courts had to consider was where a person carrying on a trade disposes of a part of his goods not by wayof sale in the course of trade but for his own use, whether the production cost of such goods or the market price of those goods should be taken into consideration. But, in the present case we are called upon to consider the question whether when one trader transfers his goods to another trader at a price less than the market price, the taxing authority can taken into consideration the market price of those goods, ignoring the real price fetched. As mentioned earlier the latter question is no more res integra. It is concluded by the decision of this court in A. Raman and Co.s case, 67 ITR 11   = (AIR 1968 SC 49  ) (supra).12. For the reason mentioned above we are of the opinion that the conclusion reached by the Appellate Assistant Commissioner in accordance with law and it would be as exercise in futility to answer the third question set out above in favour of the Reserve and remit the case back to the Tribunal. In this view of the matter we do not propose to answer that question.