1959 (4) TMI 6 - SC - Income Tax

Whether under the facts and circumstances of the case the amount of Rs. 1, 30, 785 being the excess of sale proceeds of the building plant and machinery over the written down value of the business of the said newspapers publications could in law be termed to be income profits and gains of the petitioner ? Held that - The question as it has been framed is not aptly worded and we therefore reframe it as under - Whether under the facts and circumstances of the case the amount of Rs. 1, 30, 785 being the excess of sale proceeds of the building plant and machinery over the written down value thereof could in law be termed to be income profits and gains of the petitioner ? We accordingly allow the appeal and send down the question as reframed to the High Court for doing the needful in the matter in the exercise of its jurisdiction under section 66(2) of the Indian Income-tax Act

Summary

Issues:
Refusal by High Court to require the Income-tax Appellate Tribunal to state a case and refer a question of law regarding the excess sale proceeds of building, plant, and machinery being termed as income, profits, and gains.

Analysis:
The appellant, a sole proprietor of a newspaper publishing business, converted it into a private limited company, transferring assets to the new company. The Income-tax Officer considered the difference between the original cost and the written down value of the assets, along with the appreciated sale price, as profits taxable in the appellant's hands for the assessment year 1950-51. Appeals to the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal were unsuccessful, leading to a request for a case to be stated. The Tribunal and subsequently the High Court refused to refer the question to determine if the excess proceeds could be deemed as income.

The appellant contended that the question raised was a legal one, citing precedents highlighting the need to examine the real parties to the transaction and the possibility of lifting the corporate veil. The argument was made that the profits earned from the transfer should not be taxable as they essentially involved a transfer from the appellant to a company closely linked to him. The Court reframed the question to focus on whether the excess sale proceeds could be considered as income, profits, and gains of the appellant under the circumstances. The Court held that the question raised was indeed a legal one, which should have been referred to the High Court for a decision. Consequently, the appeal was allowed, and the reframed question was sent to the High Court for consideration under section 66(2) of the Indian Income-tax Act. The appellant was awarded costs for the reference before the High Court, while the respondent was to bear their own costs for the appeal.