- (1.) This is an appeal by certificate. It arises from the decision of the Calcutta High Court in a reference under Section 66(1) of the Indian Income-tax Act, 1922 (to be hereinafter referred to as the 'Act'). Three questions of law were referred to the High Court for ascertaining its opinion. Those questions are:- (1) Whether in view of the fact that the Tribunal's order dated 22nd July, 1964 was an interlocutory order the Tribunal was competent to entertain an application purported to be under Section 66 (1) of the Indian Income-tax Act, 1922, in respect of such order (2) If the answer to question No.1 above be in the affirmative, whether on the facts and in the circumstances of the case the Tribunal exercised its discretion judicially in not allowing the applicant's petition for raising the additional grounds (3) Whether on the facts and in the circumstances of the case, the Tribunal erred in dismissing the appeal summarily on the grounds stated in its appellate order dated 3-9-1964
(2.) The High Court answered the first question in favour of the assessee and came to the conclusion that it was unnecessary to answer the remaining two questions. Mr. Manchanda, learned Counsel for the Revenue did not seek to get any answer from us on Questions 1 and 2. His arguments were confined to Question No.3.
(3.) The material facts of the case as could be gathered from the case stated by the Tribunal are as follows :- Herein we are concerned with the assessment of the assessee for the assessment year 1947-48, relevant accounting year being the financial year 1946-47. The assessee company floated a subsidiary company named Messrs. Clive Row Investment (Holding) Co. Ltd., during the relevant previous year and transferred to that subsidiary company various shares held by it. In return the subsidiary company transferred to the assessee company its shares of the value of Rs.1,38,81,173/-. The book value of the shares transferred by the assessee company to its subsidiary was Rs.1,66,69,391. Thus the assessee company sustained a loss of Rs.27,02,398 but it did not claim that loss in the return made on the ground that the transfer in question was made to its own subsidiary. The Income-tax Officer valued the shares transferred by the assessee company to its subsidiary at the market rate and on that basis came to the conclusion that the assessee company must be deemed to have made a profit of Rs.1,02,40,548. The Income-tax Officer did not hold that the transaction between the assessee company and its subsidiary was not a bona fide transaction or the assessee company had made any secret profits out of that transaction. In other words, according to the Income-tax Officer even though the assessee company had not made any profits in fact, it must be deemed to have made a profit of Rs.1,02,40,546 solely on the ground that the market value of the shares transferred by the assessee company to its subsidiary is much more than their book value.;