K.L. Roy, J. -
(1.) Venesta Foils Ltd., a company incorporated in the U. K., manufactures and markets aluminium foils and allied products extensively in the U. K. and in other countries throughout the world. On the 17th March, 1939, another company called the Foil Centre Ltd. was incorporated under the English Companies Act with an authorised capital of 100 divided into 100 shares of 1 each of which only two shares were issued as fully paid-up and held by Venesta Foils Lfd. On the 20th April, 1961, at an extraordinary general meeting of Foil Centre, resolutions were passed changing the name of that company to India Foils Ltd. and also increasing the authorised capital by a further sum of 900 devided into 900 shares of 1 each. By an agreement dated the 30th November, 1961, Venesta agreed to transfer all its immovable properties, factories, plants, machinery and other movable and immovable assets in India to the petitioner, India Foils Ltd., the present petitioner, at the value shown in the books of Venesta while the petitioner undertook to meet all the liabilities of Venesta incurred on account of its Indian business including a loan of 204,328 due by Venesta to Messrs. Reynolds T. I. Aluminium Ltd. It was further agreed that after setting off the liabilities from the aforesaid book value of the assets the residue of the consideration for the said sale would be paid and satisfied by the issue to Venesta or its nominees of 998 shares of 1 each credited as fully paid in the petitioner-company. As a result Venesta held all the 1,000 shares constituting the authorised capital of the petitioner-company and the petitioner-company became a hundred per cent. subsidiary of Venesta. The petitioner closed its accounts for the first time on the 30th November, 1961, and filed its return for the assessment year 1962-63 (the accounting period being from 1st January, 1961, to 30th November, 1961) and in the said return claimed depreciation on the basis of the written down value of the fixed assets as determined in the previous assessment of Venesta. Subsequently, by a letter dated the 3rd December, 1962, Messrs. Price Waterhouse Peat & Co., the petitioner's accountants, furnished an amended statement of depreciation and development rebate on the basis of the actual cost of the fixed assets to the assessee, viz., the value of these assets as shown in the books of Venesta on the date of the sale. For the assessment year 1962-63, the Income-tax Officer making the assessment accepted the petitioner's contention after considering the terms of the aforesaid agreement dated 30th November, 1961, and determined the depreciation as per the assessee's computation at Rs. 10,96,630. For the subsequent assessment years 1963-64,1964-65 and 1965-66 different Income-tax Officers also accepted the assessee's contention as to the actual cost of these fixed assets in determining the depreciation allowance in each of these years. By a notice purported to be under Sections 154/155 of the Income-tax Act, 1961, dated the 11th March, 1969, the respondent-Income-tax Officer notified the petitioner that he intended to rectify a mistake apparent from the records of the assessment for the year 1962-63 and as such rectification would have the effect of enhancing the assessment the petitioner was asked to appear either in person or by an authorised representative if he wanted to be heard thereon. In the said notice the nature of the mistake proposed to be rectified was stated to be a "mistake in allowing depreciation on certain assets". The reason for the respondent-Income-tax Officer's issuing the notice under Section 154 is disclosed in paragraph 9 of the affidavit-in-opposition affirmed by the respondent-Income-tax Officer, in showing cause to the rule issued in this case which is to the following effect:
"I say that the assets acquired by the petitioner are far in excess of the consideration paid as the book value of the assets transferred is much more than the consideration paid. Therefore, assets for the acquisition of which no consideration has been paid by the petitioner are not entitled to depreciation as their cost of acquisition is nil. Inasmuch as the depreciation of assets of which cost of acquisition is nil has been allowed by mistake, there is a mistake apparent from the record."
(2.) It is now well-settled that either under Section 35 of the Income-tax Act, 1922, or under Section 154 of the 1961 Act, the jurisdiction of the Income-tax Officer to rectify any mistake in any assessment order or refund order must be confined to a mistake which is apparent from the record. The courts in this country including the Supreme Court has had to consider what is meant by the expression " apparent from the record " as used in these sections and it is now well-settled that the mistake contemplated is not one which is to be discovered as a result of an argument or on which two "opposite views might be possible. It must be an error which is apparent and in regard to which no argument is called for.
(3.) Dr. Pal for the petitioner submitted that when assets are acquired in exchange for fully paid up shares, what is the exact amount of the consideration paid for such acquisition is always a very difficult question for determination. The face or par value of the shares is not the only criterion to be taken into consideration. If as the result of such a transfer the transferee-company acquires assets which is in excess of the par value of the shares paid for such acquisition, then the excess is to be credited to the capital reserve account or share premium account. It could not be said that the assets have been acquired at only the par value of the shares. Dr. Pal referred me to the provisions in the English Companies Act as stated in Palmer's Company Law, page 718. In Commissioner of Income-tax v. Standard Vacuum Oil Co., the Supreme Court had to consider this question. In that case the assessee-company was incorporated in the U.S.A. with the object of taking over the assets of two other giant oil companies, viz.. the Socony Vacuum Oil Co. and the Standard Oil Co. (New Jersey). The assets of the transferor-companies were valued at astronomical figures in millions of dollars and were satisfied by allotment to each of the vendor-companies of shares in the petitioner-company together with certain serial bonds of the value of over 13 million dollars. The assessee-company entered in its books of accounts the book value of the assets taken over from the vendor-companies and the excess of the net value of the assets transferred over the par value of the stock issued was carried to an account styled " capital paid in surplus ". The question arose whether the amount in the account " capital paid in surplus " was a reserve within the meaning of Rule 3 of Schedule II to the Business Profits Tax Act., The Supreme Court held that the difference between the book value of the assets transferred and the par value of capital stock issued was " premium" realised from the issue of the scares. The court further observed that a share was not a sum of money: it represented an interest measured by a sum of money and made up of diverse rights contained in the contract evidenced by the articles of the company. In the absence of any restriction in the law against the issue of shares otherwise than for cash when shares were issued for consideration other than cash, the value of the assets transferred in excess of the par value of the shares issued would be regarded as premium for the purpose of our system of law. It is to be noticed that it was nowhere suggested in that case that by issuing shares whose par value was much below the value of the assets acquired the assessee-company was acquiring the assets not at the value declared in the instruments of transfer but at the par value of the shares. In any event Dr. Pal is certainly justified in his contention that the question when assets are transferred in consideration of fully paid-up shares the question whether the actual consideration paid would be only the par value of the shares is an intricate question which cannot be decided off-hand. Mr. S. C. Sen, the learned counsel for the department, contended that the question of ascertaining the actual cost was always a question of fact and the Income-tax Officer is entitled to determine such actual cost according to his own valuation and for this proposition he relied on a recent decision of this court in the case of Jogta Coal Co, Ltd. v. Commissioner of Income-tax.,  55 I.T.R. 89 (Cal.). But, in that case what was held by this court was that the Income-tax Officer was not bound to accept the figure given in a contract or conveyance and if he is of opinion that a fictitious price has been put on such assets it was open to him to refuse to accept that price, go behind the contract and ascertain what the original cost was. I do not think that that case supports the contention of Mr. Sen that in any event the Income-tax Officer is entitled to determine the actual cost of the assets of the assessee irrespective of other considerations.;