MAHARAJADHIRAJ SIR KAMESHWAR SINGH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) In this case the assesses, Maharajadhiraj of Darbhanga, floated a private limited company called "The Newspapers and Publications Limited" (hereinafter referred to as the Company) having an authorised capital of Rs. 25,00,000/- made up of 25,000 shares of Rs. 100/- each. The first paragraph of the Memorandum of Association of the Company states as follows: -

(2.) Under Section 66 (2) of the Indian Income-tax Act the Income-tax Appellate Tribunal has stated a case on the following question of law:-

(3.) The argument presented on behalf of the assessee is that the transaction of the 30th September, 1948, was not a sale by the appellant to the newly floated private limited company. It was submitted that in substance the assessee owned practically all the shares of the Company and it was open to the High Court to lift the veil of corporate entity and look behind the same in order to see who were the real parties to the transaction. It was submitted that the Company was not distinct and separate from the assessee himself and that the present case comes within the doctrine that no man can make a profit out of himself. I see no warrant for accepting the submission made on behalf of the assessee. From the juristic point of view the Company is a legal personality entirely distinct from its members, and the Company is capable of enjoying rights and of being subjected to duties which are not the same as those enjoyed or borne by its members. An illustration of the principle is the decision of the Court of Appeal in John Foster and Sons, Ltd. v. Commrs. of Inland Revenue, (1894) I QBD 516. In that case there was a deed between eight partners composing a firm of the first eight parts, and a limited company of the ninth part, and there was a recital in the deed that the partners were desirous that their business should be reconstructed as a limited company, and had agreed that the whole of the undertaking, property, and liabilities of the firm should be transferred to a company, to be formed of all the partners in the firm exclusively, for the purpose of taking over the same; and that there should be allotted amongst the partners, in proportion to their shares in the partnership, the whole of the shares in the Company. The deed then recited that such a company had been registered, and that all its shares were taken and held by the partners in specified proportions; and it was thereby witnessed that, "in pursuance of the said arrangement, and for the purpose of giving effect to the said scheme, and of vesting the real estate of the partnership in the company,'' the eight partners conveyed and assigned to the company ail the real estate and trade-marks of the partnership. It was held by the Court of Appeal in these circumstances that the deed was a transfer of property from individuals to a corporation in consideration of "stocks or securities" within the meaning of Section 71 of the Stamp Act, 1870, and that accordingly it was a "conveyance on sale" chargeable with an ad valorem duty within the schedule to the Act; and it was nonetheless so because the eight partners who conveyed the property were also the individuals who constituted the corporation. At p. 527 of the report Lindley, L. J., states:-