SANKAR PRASAD MITRA, J. - (1.) THIS reference under s. 66(1) of the Indian IT Act, 1922, relates to the asst. yr. 1947-48. The assessee floated a subsidiary company called "M/s Clive Row Investment (Holding) Co. Ltd." during the previous year. To the newly formed company the assessee transferred various shares which the assessee had held. In lieu of these transfers the assessee received shares of the new company valued at Rs. 1,38,81,173. The cost price of the shares which the assessee transferred to its subsidiary was Rs. 1,66,69,391. Apparently, by this transaction the assessee suffered a loss but in the assessee's P and L a/c this loss was not claimed as a deduction on the ground that the transfer of shares to the subsidiary was not a business transaction.
(2.) THE ITO found that the market price of the transferred shares was Rs. 2,69,09,937. He called for an explanation for these transfers at a rate which was below the market rate and even the cost price but was not satisfied with the explanation offered. He added the difference between the market price and the cost price amounting to Rs. 1,02,40,546 as the assessee's profit on the sale of shares to its subsidiary. Before the AAC it was urged that there was complete identity in the instant case between the transferor and the transferee and, therefore, no profit should have been computed on the transaction. The contention, however, did not find favour with the AAC. He was of the view that the assessee's subsidiary, as a public limited company, was a separate and distinct entity and the plea of identity between the transferor and the transferee was not sustainable but he observed that in this case, there was no suggestion that the assessee received anything more than the sale price. In his view, therefore, it was "impossible to sustain the addition of Rs. 1,02,40,546 representing the difference between the cost price and market price of the shares transferred by the appellant as the income of the assessee- company". The AAC remitted the case back to the ITO directing the latter to bring on record further materials to justify the addition. The ITO while appealing against the AAC's order did not include any ground of appeal against the aforesaid direction of the AAC. After the appeal before the Tribunal had commenced and was partly heard, the ITO tried to raise the following additional grounds : 1. The AAC was wrong in setting aside the order of the ITO ; and 2. In view of the fact that the AAC had set aside the assessment order he was wrong in issuing a direction to bring on record the evidence in support of his conclusions, if any, that the assessee actually received the difference of Rs. 1,02,40,546 on the sale of shares to the subsidiary company fettering thereby the ITO's discretion to make a fresh assessment in accordance with law.
(3.) THE Tribunal refused to entertain these additional grounds. THEreafter, it dealt with the maintainability of the appeal and eventually dismissed it. THE Tribunal passed its "interlocutory order" on the additional grounds on the 22nd July, 1964, and its final order of dismissal on the 3rd September, 1964. In the final order it stated, inter alia, in the context of its "interlocutary order" on the 22nd July, 1964, rejecting the additional grounds, that when the ITO "has no grievance against the order of the AAC setting aside the assessment and directing a fresh assessment, on the lines indicated by the AAC, it would be purposeless to dispose of the grounds of appeal actually taken by the ITO." The following questions have been referred to this Court : "Whether, in view of the fact that the Tribunal's order dated the 22nd July, 1964, was an interlocutory order the Tribunal was competent to entertain an application purported to be made under s. 66(1) of the Indian IT Act, 1922, in respect of such order ? 2. If the answer to question No. 1 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 the appellate order dated September 3, 1964 ?" Now, sub-s. (4) of s. 33 of the Indian IT Act, 1922, provides : "The Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, and shall communicate any such orders to the assessee and to the CIT." ;