AGARWALA, C.J. -
(1.) THIS reference by the income-tax Appellate Tribunal arises out of two applications by the assessee under section 66(1) of the Income-tax Act. One relates to the assessment of income-tax made section 23(3) of the income-tax Act and the other to the assessment under Section 14(1) of the Excess Profits tax Act. The facts relevant to both applications are precisely the same and raise only one question.
(2.) IN 1935 the assessee, a Hindu undivided family, obtained a licensee under the Electricity Act to supply the town of Ranchi with electricity current. Thereafter, buildings were acquired and the necessary machinery and plant installed. The supply of current to consumers began in April, 1937. The Ranchi Electric Supply Co., Ltd., was then floated by the assessee and the permission of Government was sought on the 2nd July to assign the licensee to the company. Permission was granted and the licensee and business of supplying electric current was transferred to the company for a considerations of Rs. 4,70,483 on the of July 20, 1940. The amount expended by the assessee up to the dated of transfer was Rs. 394,332 and there were outstanding dues amounting to Rs. 29,516. The net value of the assets was, therefore, Rs. 3,64,816. The difference between this sum and the stated amount of the considerations was, therefore, Rs. 1,05,667. Under the terms of the license the income -holder was entitled to 15% above the value of the assets in the event of the concern being compulsorily acquired by Government. The sum of Rs. 1,05,667 was stated to represent (a) this 15% (b) the value of the goodwill of the business, and (c) the amount by which the plant, machinery, mains etc., had appreciated in value.
In assessing the assessees income for 1941-42 the Income-tax officer treated the whole of the sum of Rs. 1,05,667 as profits and gains, holding that it was the fruit of an adventure in the nature of trade. This decision was affirmed by the Appellate Assistant Commissioner on appeal and by the Appellate Tribunal under Section 33.
On the application of the assessee the Tribunal referred the following question to this Court under section 66(1) :-
Whether there is material justifying the finding that the transaction of sale, in the circumstances of the case, constitutes adventure in the nature of trade, so as to make the whole of the surplus of Rs. 1,05,667 realised by the sale, assessable to income-tax
When the reference was heard question arose whether, in any event, the whole sum of Rs. 1,05,667 was taxable. The Bench which heard the reference refered the case back to the Tribunal for findings on four points, namely :-
(1) What was the real market value of the shares with a face value of Rs. 3,60,000 on the date of the transfer to the undertaking by the assessee to the Ranchi Electric Supply Company, Limited ?
(2) What was the price of the goodwill of concern of the date of transfer stated above ?
(3) What was the difference between the original cost and the written down value of the undertaking on the date of the transfer as stated by the Tribunal in paragraph 19 of the their order dated on the May 30, 1944
(4) Whether Rs. 4,66,267 is composed of any other item which may come within the word etcetera so as to represent a capital or a non-taxable receipt
These question appear to have been considered necessary for the determination of the the question whether the whole sum of Rs. 1,05,667 could be regarded as the actual profits accruing to the assessee in the event of it being held that the sale to the company was an adventure in the nature of trade. The relevance of the first of these question was that the consideration for the transfer to the company was only Rs. 1,10,483 in cash amount, the balance of Rs. 3,60,000 being in the form of fully paid shares issued to the vendor. The Tribunal has now held that market value of these shares on the date of transfer was Rs. 3,60,000.
(3.) WITH regard to the second question, the companys prospectus having stated that nothing was payable to the vendor an account of goodwill, the Tribunal held that no such amounts was included in the consideration for the transfer.
With regard to the third question, the Tribunal found the difference to be Rs. 29,323, i.e., depreciation on original cost for the years 1938-39 and 1939-40.
With regard to the fourth question, the Tribunals a finding is in the negative.