- (1.) BY these applications, which are consolidated, the Commissioner of Income -tax Excess Profits Tax, Bombay City I, requires the Appellate Tribunal to refer to the High Court a question of law which is said to arise out of the Tribunal's order in I. T. A. No. 7032 and E. P. T. A. No. 547 of 1951 -52. Inasmuch as, in our opinion, a question of law does arise out of the aforesaid order, we hereby draw up a statement of the case agreed to by the parties and refer it to the High Court of Judicature at Bombay under section 66(1) of the Indian Income -tax Act.
(2.) THE late Sir Homi Mehta, hereinafter referred to at times, as the assessee, was assessed by the Income -tax Officer for the year 1942 -43, the year of account being the calendar year 1941 on a total income of Rs. 14,16,274 after deduction of excess profits tax of Rs. 2,37,665. The total income before deduction of E. P. T was Rs. 16,53,939 which included a sum of Rs. 11,00,000 taken by the Income -tax Officer as surplus realised by the assessee on the transfer of certain shares to a private limited company called Homi Mehta and Sons Ltd. The shares were transferred to Homi Mehta and Sons Ltd. for Rs. 40,97,000 which was their market value. According to the assessee, the excess of the transfer price over the cost price was Rs. 10,51,983, but the Income -tax Officer taxed Rs. 11,00,000 inasmuch as in his opinion, the cost price of these shares, which according to the assessee was Rs. 30,45,017 was not properly proved. We shall presently state the circumstances in which the shares were transferred to Homi Mehta and Sons Ltd. The assessee was the promoter, chairman and founder of several joint stock companies, both public and private. He was, one may say, one of the financial magnates of Bombay. He dealt in shares, both ready and forward.
(3.) THE assessee floated a private limited company called Homi Mehta and Sons Ltd. with a capital of Rs. 60 lacs. The memorandum of association of the company forms part of the case. It is not printed but the assessee is directed to produce copies thereof before the High Court at the time of the hearing of this reference. In pursuance of an agreement dated 18th August, 1941 (a copy of which is annexure 'A' and forms part of the case) with that company, the assessee transferred to Homi Mehta and Sons Ltd. several businesses and shares of 26 joint stock companies. The assets were valued at Rs. 69,05.281 -II -0. This included, the sum of Rs. 40,97,000 referred to in paragraph 2 above. Along with the transfer an over -draft bank account of Rs. 9,05,281 -II -0 was also transferred to Homi Mehta and Sons Ltd. In short, property worth Rs. 60 lacs was transferred to Homi Mehta and Co. Ltd. In return thereof the assessee got 6,000 shares of Rs. 1000 each. 5600 shares were allotted to the assessee by the company and 400 shares were allotted by the company, at the instance of the assessee to his four sons. All this happened in 1941. In 1942 the assessee created a trust of trusts in respect of 5,400 shares.;