M/S Guzdar Kajora Coal-Mines Ltd.
Calcutta Vs. The Commissioner of Income Tax, Calcutta [1972] INSC 158 (31 July
1972)
GROVER, A.N.
GROVER, A.N.
HEGDE, K.S.
PALEKAR, D.G.
CITATION: 1972 AIR 2373 1973 SCR (1) 742 1972
SCC (2) 436
ACT:
Income Tax Act (11 of 1922), ss. 10(2) (vi)
and 10(5)'Original cost to assessee', meaning of-Power of Revenue Authorities
to go behind the valuation and allocation in sale deed.
HEADNOTE:
The appellant purchased on July 1, 1945, the property of a colliery company and the consideration of Rs. 6 lacs was allocated
in the sale deed in a certain manner among the various items purchased. From
the assessment year 1946-47 to the assessment year 1952-53, the appellant
claimed depreciation on the basis of the written down value of the assets as
per the. assessment record of the vendor-company, and the Income-tax officer
allowed depreciation on that basis. For the assessment year 1952-53, however,
the appellant contended that the depreciation should have been worked out on
the basis of balance-sheet valuation of the assets as per the audited accounts
submitted by the appellant and as claimed in their return. The Appellate
Assistant Commissioner held against the appellant.
On appeal, the appellate Tribunal remanded
the matter to the Income-tax Officer, and the income-tax Officer, after
inquiry, held that some of the directors of the vendor company and the
appellant were the same, that the valuation of the depreciable assets had been
written up while that of the non-depreciable assets was written down and that
no provision was made for the goodwill of the vendor company even though it was
making good profits. He made the allocation of Rs. 6 lacs in a different
manner, and included the goodwill of the vendor also as having been sold to the
appellant, and made provision for it from out of the Rs. 6 lacs. The Tribunal
accepted the report of the Income-tax Officer and held that when the settled
practice was sought to be reopened by the appellant the Income-tax Officer had
a right to see whether there was any justification ,for the departure, that the
breakup of the valuation in the sale deed was in fact arbitrary and that it was
unlikely that the goodwill was provided for in the break up of the valuation in
the sale deed.
On reference, the High Court also held that
the Income-tax Officer was competent to go beyond the conveyance and refix the
valuation and that he bad correctly worked out the valuation of the goodwill
after examining all the relevant facts and reports of experts and that the method
adopted was not challenged by the appellant.
Dismissing the appeal to this Court,
HELD : In the case of an asset, other than
ocean-going ships, with regard to which depreciation allowance is claimed
under's. 10(2)(vi) of the Income-tax Act, 1922, in view of s. 10(5), the
original actual cost to an assessee of the asset has to be ascertained for the
purpose of finding out its written down value. For the purpose of getting the
benefit of cl. (c) of the proviso to s. 10(2) (vi) also the original cost to the
assessee,that isthe person who owns the asset and who is being assessed, has to
be ascertained. [748F-H] 743 The original cost of a particular asset is a
question of fact which has to determined on the evidence or on the material
produced before or available to the Income-tax authorities. Any document or
formal deed mentioning the consideration or the cost paid for the purchase of
an asset by an assessee would be a piece of evidence and prima facie the
statements or figures given therein show how much the cost of the asset to the
assessee is. But if circumstances exist showing that a fictitious price has
been put on the asset or there is fraud or collusion between the vendor and the
vendee and there has been inflation or deflation of value for ulterior purposes
it is open to the Income-tax authorities to refuse to accept the price
mentioned in the deed or alleged by the assessee and to ascertain what the
actual original cost was. [749C-E] Even if it is not expressly mentioned that
goodwill has been sold it can be shown and ascertained by evidence whether it
has been purchased or not by the assessee. [749F-G] Commissioner of income Tax,
Madras v. The Buckingham & Carnatic Co. Ltd. Madras, [935] I.T.R. 384;
Jogta Coal Co. Ltd. V. Commissioner of Income Tax, West Bengal 36 I.T.R.
521; Pindi Kashmir Transport Co. Ltd. v.
Commissioner of Income Tax, Lahore 26 I.T.R. 595; and Kalooram Govindranm v. Commissioner
of Income Tax, Madhya Pradesh, Nagpur and Bhandara, 57 I.T.R. 335, referred to.
tax Therefore, in the circumstances of this
case it was open to the Incomeauthorities to go behind the valuation as also
the allocation given in the deed of conveyance and to determine afresh the
valuation as well as the allocation between the depreciable and non-depreciable
assets. [749G-H]
CIVIL APPELLATE JURISDICTION: C.A. Nos. 2132
and 2133 of 1970.
Appeal by certificate from the judgment and
order dated June 22, 1965 of the Calcutta High Court in I.T. Reference No. 36
of 1961.
Sukumar Mitra J. L. Hathi, T. A.
Ramachandran, K. L. Hathi and P. C. Kapur, for the appellant.
V. S. Desai, R. N. Sachthey and B. D. Sharma,
for the respondent.
The Judgment of the Court was delivered byGrover,
J. These appeals have been brought by certificate from a judgment of the
Calcutta High Court in two Income tax References.
It is most unfortunate that the statement of
the case contains certain omissions and errors and does not appear to have been
drafted with the usual care with which such statements are drawn.
The assesses Guzdar Kajora Coal Mines Ltd.
which was incorporated on July 4, 1945 purchased by a deed of conveyance dated
April 3, 1966 executed by the liquidators of Guzdar 744 Kajora Colliery Co.
Ltd. all the colliery lands, hereditaments and premises, mines, minerals,
powers and privileges and all ,other hereditaments together with the machinery
thereon belonging to the latter company. It was stipulated in the deed of
,conveyance that the sale was to be effective from July 1, 1945. The
consideration for the transfer was Rs. 6 lacs and was allocated as follows :"(a)
the value of the machinery plants stores including stock of goods grains coals
at the pithead and other movable properties appertaining to the said colliery
the property in which is capable of passing by delivery being .... Rs.
3,50,000/-.
(b) the value of the buildings and structures
be longing to the said colliery being Rs. 1,50,000/-.
(c) the value of the rest of the properties
appertaining, to the said colliery not capable of being passed by delivery
being Rs.
1,00,000/-" Soon after the assessee
company came into existence it took over the business from the vendor company
and claimed depreciation for the assessment year 1946-47 on the basis of, the
figures the comparative statement of which is given in the statement of the
case. This statement contains the written down value as per the assessment
record of the vendor company the valuation of the assets as per the balance
sheet of the vendor company and the valuation by the assessee company as per
balance sheet as on December 30, 1945. The Income tax Officer 'allowed
depreciation on the basis of those figures. This state of affairs continued
till the assessment year 1952-53 when the Income tax Officer again allowed
depreciation on the old basis. Before, the Appellate Assistant Commissioner the
assessee raised a ground ,that the Income tax Officer should. have worked ,out
the depreciation figures on the basis of balance sheet valuation of the assets
as per the audited accounts submitted by the assessee and as claimed in the
return.
With regard to the assessment year 1953-54
the same position was taken up. The assessee appealed to the Income tax
Appellate Tribunal, having failed in its contentions before the Appellate
Assistant Commissioner.
It was contended before the Appellate
Tribunal by the assessee that although it had paid a sum of Rs. 6 lacs as
consideration for the transfer of the mines the value taken by the department
for the purpose of determining depreciation Was much lower. It was pointed out
that the purchase had been made after obtaining, the 745 opinion of an expert
and the assessee was being subjected to great hardship depreciation being
determined only on the old written down value of the assets and not on the
basis of the original cost of acquisition. The Appellate Tribunal was of the
view that substantial injustice would result to the assessee if the
depreciation continued to be allowed on the old basis if the case of the
assessee had any substance.
It was felt that a proper investigation as to
the value paid by the assessee in taking over the old company was necessary.
The matter was remanded to the Income-tax Officer to hold an inquiry after
giving an opportunity to the assessee to place all the available material in
support of its claim. With regard to the assessment year 1953-54 also the case
was remanded with similar directions.
The Income-tax Officer made a report on July
6, 1960.
According to his findings some of the
Directors and Shareholders of the two companies were the same and they were
connected in many ways. Furthermore the valuation of the depreciable assets and
the consumable stores had been written up whereas the valuation of the
non-depreciable assets like mines etc. had been written down. As regards the
report of the expert A. N. Mitter dated September 1, 1945 he was unable to
contact him in spite of making an effort to do so. The report made by the
second expert S. N.
Mullick dated October 19, 1955 and January
30, 1957 together with the clarification made by him on November 20, 1959 were
considered by him. He also examined 8. N. Mullick under S.
37 of the Indian Income-tax Act, 1922,
hereinafter called the 'Act'. He came to the conclusion that the vendor had
been making good profits but no provision had been made for the goodwill of the
company in the business and if such a provision had been made it would have
worked out at Rs.
2,56,960/having regard to the profits made
for the preceding four years. He made an allocation of Rs. 6 lacs as follows
"(1) Good-will Rs. 2,56,960/(2) Mines and development as per balance-sheet
of M/s.
Guzdar Gajore Colliery Co. Ltd. as at
30-6-45. Rs.2,48,323/(3) Stores and stock Rs.60,744/and worked out the value of
other depreciable assets at Rs. 33,973/-" Before the Appellate Tribunal
the remand report of the Income-tax Officer was assailed on behalf of the
assessee on various grounds. The Tribunal observed that when the assessments
for the years 1946-47 and 1947-48 were made the assessee 13-Ll52SupCI/73 746
chose to give the valuation in its balance-sheet on a certain basis which was
accepted and no appeal was taken to the higher authorities and although the
rule of estoppel could not be applied but "acquiscence of the assessee
shows which way the wind blew". When a settled thing was sought to be
reopened the Income-tax Officer had a right to see whether there was any
Justification for the "radical departure from the settled practice".
It was held that the Income-tax Officer was to go behind the valuation. As
regards the goodwill the contention raised on behalf of the assessee was that
the same was included in the item of one lakh mentioned in the sale deed.
According to the report of Mr. Mullick it was included in the item of Rs.
3,50,006.
This is what the Tribunal proceeded to
observe:
"It seems to us, the simple truth of the
matter is that the figure of Rs. 3,50,000/-, Rs. 1,50,000/and Rs. 1,00,000/were
arbitrarily put. and there was no clear cut or understandable break up of
valuation (?) clause 3 of the break up in the deed of 3rd April 1946, which talks
of the value of the rest of the properties appertaining to the said colliery
not capable of being passed by delivery being valued at Rs. 1,00,000/shows that
these properties which had I not been in clause 1 and 2 were comprised in this
and it seems too much to say that good-will is included in this. it would be
more true to say that good-will was thought of or conceived of but not provided
for in the break up of valuation".
The appeals were consequently dismissed.
The, assessee moved the Tribunal for referring
certain questions of law to the Tribunal. The following question was framed by
the Tribunal and referred to the High Court :
"Whether on the facts and in the
circumstances of the case the Income-tax Officer was competent to go beyond the
conveyance and fix a valuation of the assets on his own ?" The High Court
was of the view that the Income-tax Officer was competent to make a fresh
computation as to the value of the assets of the assessee if the facts and
circumstances of a particular case justified following such a course. Even on
the question of valuation of the good-will it was observed " Further, it
should be remembered that although the Income-tax Officer has made the
valuation of the goodwill by working out the normally accepted method of taking
the profits of the four preceding years, this 747 method of calculation or this
normal practice has not been challenged by the assessee. The revenue has.
examined all the relevant facts of the case including the reports of Mr.
Mitter and Mr. Mullick and the Tribunal has
agreed with those findings of facts and we do not think that we can interfere
with those findings".
The answer to the question referred was given
in the affirmative.
Learned counsel for the assessee has assailed
the decision of the High Court on a number of grounds. It has been urged inter
alia that the High Court had not kept in view the general and well established
principle that the statement with regard to valuation contained in a formal
document should be prima facie accepted as cornet. There can be no
justification, it has been pointed out, for any court or Tribunal "to rip
up a transaction not impeached as dishonest and not proved to be such, merely
because the company may have paid an extravagant price for their property".
A great deal of emphasis has been laid on behalf of the assessee on the report
submitted by the experts justifying the valuation given in the deed of
conveyance. In the absence of fraud, collusion, inflation or false transaction
made with an ulterior purpose the Income tax authorities, it is said, were
precluded from going behind the agreement of purchase in determining the
purchase price fixing their own valuation. The other point canvassed on behalf
of the assessee is that good-will was not included in the valuation given in
the deed of conveyance nor was it ever intended that any good-will of the
business should be sold by the vendor company. This contention, however,
appears to run counter to What was argued before the High Court and the
Tribunal nor can it be said to be covered by the question which was referred.
On the case as put before the Appellate Tribunal and the. High Court and the
question referred with regard to the two assessment years in question we are
unable to see any such error or infirmity that would Justify interference by us
in these appeals._ It has been strenuously urged on behalf of the assessee that
since the decision of the Tribunal or the High Court could not operate as res
judicata for other assessment years with regard to which assessments are still
pending, the assessee would be entitled to raise all the points which are
relevant with regard to the question of valuation for the purpose of
determining depreciation. We have been pressed to indicate broadly the
principles for future guidance as it will be open to the assessee to raise all
the points relevant for the purpose of determination of the amount of
depreciation allowance in the assessments which are still pending and have not
been finally disposed of.
748 Section 10(2) (vi) of the Act, to the
extent it is material is as follows "(2) Such profits or gains shall be
computed after making the following allowances, namely:(vi) in respect of
depreciation of such buildings machinery, plant or furniture being the property
of the assessee, a sum equivalent, where the assets are ships other than ships
ordinarily plying on inland waters, to such percentage on the original cost
thereof to the assessce as may in any case or class of cases be prescribed and
in any other case, to such percentage on the written down value thereof as may
in any case ,or class of cases be prescribed;-------------Provided that-(a)..........
(b)..........
(c) The aggregate of all allowances in respect
of depreciation made under this clause and clause (vi-a) or under any Act
repealed hereby, or under the Indian Income-tax Act, 1886 (II of 1886), shall,
in no case exceed the original cost to the assessee of the buildings,
machinery, plant or furniture, as the case may be;" Keeping in view sub-s.
(5) of S. 10 of the Act, the original actual cost to the assessee of the asset
with regard to which depreciation allowance is claimed has to be ascertained
for the purpose inter-alia of finding out the written down value in case of
assets other than ocean going ships. For the purpose of getting the benefit of
clause (c) of the proviso to sub-section (2)(vi) also the original cost has
also to be ascertained. The Privy Council laid down in Commissioner of Income
tax, Madras v. The Buckingham and Carnatic Co., Ltd. Madras(1), that the word
"assessee" in s. 10(2)(vi) of the Act refers to the person who owns
the assets and who is being assessed and depreciation allowance has to be based
on the original cost of such property to such person. This principle was laid
down in a case where the assessee had acquired the business of another assessee
and it was emphasised that the original cost to be considered was the original
cost to the person who was being actually assessed and not the original cost of
those assets to the previous (1) [1935] I.T.R. 33 749 owner of the business.
Reference was made to the above decision of the Privy Council in the judgment
of this Court in Jogta Coal Co. Ltd. v. Commissioner of Income tax West
Bengal(1) and it was observed "We do not think that there is any doubt on
the wording of the section or on the interpretation that has been put upon
those words that the cost to be calculated for the purpose of depreciation
allowance is the cost to the assessee and not to the person who makes the
sale..........
Now the original cost of a particular asset
is a question of fact which has to be determined on the evidence or the
material produced before or available to the Income tax authorities. Any
document or formal deed mentioning the consideration or the cost paid for the
purchase of an asset by an assessee would be a piece if evidence and prima
facie the statements or figures given therein would show how much the cost of
the asset to the assessee is. But if circumstances exist showing that a
fictitious price has been put on the asset or there is fraud or collusion
between the vendor and the vendee and there has been inflation or
deflation-of-value for ulterior purposes it is open to the Income tax
authorities to refuse to accept the price mentioned in the deed or alleged by
the assessee and to ascertain what the actual cost was: See Pindi Kashmir
Transport Co. Ltd. v. Commissioner of Income-tax Lahore (2 ) and Kalooram
Govindram v. Commissioner of Income tax Madhya Pradesh, Nagpur and Bhandara(3).
In this view' of the matter it is open to the Income tax authorities to
determine and to the assessee to show. whether the good-will of the business is
or is not included in the consideration or the price paid for the acquisition
of the asset. In other words even if it is not expressly mentioned that
goodwill has been sold it can be shown and ascertained by evidence whether the
same has been purchased or not by the assessee. The expression
"good-will" has been considered and explained by this Court in S. C.
Cambatta & Co. P. Ltd. v. Commissioner Excess Profits Tax, Bombay(4) and nothing more need be said about it. The principles stated by us are by no
means exhaustive and are mainly illustrative.
Keeping in view the facts of the present case
we may make it clear that if circumstances exist for going behind the valuation
as 'also the allocation given in the deed of conveyance it was and is open to
the Income tax authorities to determine the valuation as well as the allocation
between depreciable and non-depreciable assets.
(1) 36 I.T.R. 521 (2) 26 I.T.R. 595 (3) 57
I.T.R. 335 (4) 41 I.T.R. 500 750 The present appeals, however, must fail for
the reasons stated earlier and are hereby dismissed. We make no order as to
costs in this Court.
V.P.S. Appeal dismissed.
Reproduced in accordance with s52(q) of the Copyright
Act 1957 (India).
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