1977 (8) TMI 41 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of the proviso to section 10(5)(a) of the Indian Income-tax Act, 1922.
2. Determination of the written down value (actual cost) of transferred assets.

Summary:

Issue 1: Applicability of the proviso to section 10(5)(a)
The court examined whether the proviso to section 10(5)(a) of the Indian Income-tax Act, 1922, was attracted in the case of M/s. Ginners & Pressers Pvt. Ltd., a 100% subsidiary of M/s. Kilachand Devchand & Co. Ltd. The assets were transferred at Rs. 13,50,000, while their written down value for the parent company was Rs. 2,21,142. The Income-tax Officer reopened the assessments and considered the written down value under the proviso to section 10(5)(a). The assessee contended that the transfer was for commercial expediency and not for tax reduction. However, the Income-tax Officer rejected this, concluding that the transfer aimed to reduce tax liability by claiming depreciation on the enhanced cost. The Tribunal upheld this view, rejecting the valuer's report due to lack of supporting material. The court agreed with the Tribunal, stating that the proviso to section 10(5)(a) was attracted as the main purpose of the transfer was tax reduction, inferred from the circumstances and the adverse inference drawn from the non-production of valuation material.

Issue 2: Determination of the written down value (actual cost)
The court addressed whether the basis for fixing the written down value adopted by the department was in accordance with the law. The assessee argued that the actual cost should be the fair market value on the date of transfer. The Income-tax Officer, with the approval of the Inspecting Assistant Commissioner, determined the actual cost as the written down value plus the balancing charge under section 10(2)(vii). The court found this method reasonable and upheld the Tribunal's view that the determination of the actual cost was in accordance with the requirements of law.

Conclusion:
1. The proviso to section 10(5)(a) was attracted, and the main purpose of the transfer was to obtain a reduction in tax liability.
2. The basis adopted by the department in fixing the actual cost of the transferred assets was in accordance with the requirements of law.

The assessee was ordered to pay the costs of the reference to the revenue.