COMMISSIONER OF INCOME TAX Vs. KRISHNARAM BALDEO BANK PRIVATE LIMITED

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal has referred the following question of law for our determination :

(2.) THE brief facts relevant for knowing why the amount of Rs. 42,53,148 was sought to be taxed are these : On January 4, 1958, the assessee-bank was incorporated as a private limited company. It was established with the sole object of taking over the banking business carried on by the erstwhile Maharaja of Gwalior. A licence to carry on such banking business was obtained by the assessee from the Reserve Bank of India. THE company's paid up capital was Rs. 25,00,000 consisting of 50,000 shares with Rs. 50 paid up per share. 101 shares were taken up by 6 persons, namely :

(3.) THE assessee adopted the calendar year as accounting year and the original assessment for the year 1959-60 was made on March 16, 1960, when only an income of Rs. 3,30,261 was considered for taxing purposes. Later on, the assessment was reopened under Section 147(b) on the ground that the assessee-company had been under assessed by Rs. 42,53,148 which amount represented the difference between the book value of the trading assets taken over and the consideration paid therefor. It appears the reassessment proceeding had started when the Maharaja of Gwalior claimed a capital loss of Rs. 39,00,000 on the sale of the banking business in question under the indenture dated November 1, 1958. THE assessee contended that the sum of Rs. 42,53,148 merely represented the capital and it could not be treated as income as there was no sale of any stock-in-trade made by the assessee-company. THE ITO, however, treated the entire sum as business profit.