Grover, J. - (1.) This is an appeal by special leave from an order of the Calcutta High Court directing the Income-tax Appellate Tribunal, 'B' Bench, Calcutta, to draw a statement of case relating to four questions of law which, it was stated, arose out of the order of the Tribunal in the matter of assessment of the appellant which was the assessee in respect of the assessment year 1962-63. The Appellate Tribunal had rejected the application of the Commissioner of Income-tax requiring it to refer those questions to the High Court. The High Court being moved, issued a rule nisi and then made it absolute after full arguments without giving any reasons whatsoever.
(2.) The assessee is a 100% subsidiary of Imperial Chemical Industries Ltd., incorporated in the United Kingdom (hereinafter referred to as I.C.I. for convenience). I.C.I. advanced large amounts by way of loans to the assessee from time to time. This, it was claimed, was done for subscribing to shares in three Indian Companies called Indian Explosives Ltd., Alkalai and Chemical Corporation of India and Atic Industries Pvt. Ltd., (hereinafter called as I.E.L., A.C.C.I. and A.T.I.C. respectively). Subsequently the assessee transferred the shares in the aforesaid companies at par to I.C.I. in satisfaction of the loans advanced by that company. The Income-tax Officer applied S. 52 of the Income-tax Act 1961 (hereinafter called the 'Act') and assessed the assessee to capital gains. The Appellate Assistant Commissioner took the contrary view and held that on the facts which had been established, the assessee was not liable to capital gains under the aforesaid section. The Tribunal upheld the decision of the Appellate Assistant Commissioner by a detailed and well reasoned order.
(3.) Broadly, the case of the assessee was that I.C.I wanted to make investments in India in sterling currency. The assessee was already in existence but the other three companies which have been mentioned, were incorporated later. I.C.I. devised a scheme by which it could make the investment as desired by it and by which it could also take advantage of the tax relief which could be availed of by the new enterprises under Sections 15 (C) and 56 (A) of the Income-tax Act 1922. The scheme in short was that I.C.I. would arrange to let the assessee hold shares in the three companies by investing the money which was to be given by I.C.I. to the assessee. The modus operandi was that I.C.I. would give that money by way of loans to the assessee who agreed that the shares in the three companies would be transferred to I.C.I. in satisfaction of the loans at par or issue price as and when desired by I.C.I. All this was done after negotiation with the concerned Department of the Government of India at the highest level and with the approval of the Reserve Bank of India. The entire scheme was conceived and was put into operation prior to 30th November 1956 when the Finance Bill was introduced re-imposing capital gains tax which had remained abolished for certain years. There was a provision for charging interest by the I.C.I. From the assessee at a rate not exceeding 1/2% above the Indian Bank rate which came to 51/2% per annum but the interest was not to exceed in any case the dividends received by the assessee from those shares. It was claimed on behalf of the assessee that this arrangement was advantageous both to I.C.I. and the assessee. I.C.I. having taken the risk (of depreciation in shares or otherwise) attached to the new business pioneering adventures, ensured that capital appreciation of the shares, if any, also went to itself. The assessee did not suffer any disadvantage because it had to pay no interest if no dividend was received and it could keep and get the benefit of any dividend in excess of 51/2%. As a result of I.C.I. investments being held through the assessee instead of directly, I.C.I. achieved an advantage of saving tax in U. K. amounting to £68,000 in the relevant years.;