INDIAN MACHINERY STORES PRIVATE LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Patna, Bench, has stated this case under section 66(1) of the Indian Income-tax Act, 1922, and has formulated and referred for answer by the High Court the following question of law :

(2.) THE assessee, Indian Machinery Stores (Private) Ltd., is a private limited company having its registered office in Patna and was incorporated with t he object of taking over the business carried on by a partnership firm called Indian Machinery and Mills Stores. By an agreement in writing executed on the 2nd August, 1956, by the assessee-company and the said firm, the former agreed to purchase and the latter agreed to sell and transfer the running business carried on by the partnership firm with all its assets and liabilities including the goodwill as also the book debts and other claims of the firm. THE consideration fixed for the sale and transfer was Rs. 2,60,000 to be paid up by issue of shares to the nominees of the vendor-firm. THE fourth clause of the agreement provided :

(3.) THE next submission made on behalf of the assessee was that when in the schedules the value of the stock was shown as Rs. 2,10,285.87 nP., it ought to have been taken that the said amount was paid as the value of the stock, and even if it was apparently in conflict with what was provided in clause 4 of the agreement, the specific and definite value of the stock mentioned in the schedule ought to have been given more weight and ought to have prevailed upon the provisions of the fourth clause of the agreement. I find no substance in this point either. As I have already stated, as a matter of fact, the total sum of Rs. 2,60,000 was paid not only for the assets minus the liabilities as shown in the schedule appended to the agreement, but also for some more properties as mentioned in the first clause of the agreement. That being so, it is manifest that the assessee was actually not losing any thing any paying any more price by inflating the value of the stocks in the schedule appended to the agreement; but it did so in order to inflate the value of the opening stock and to minimise its profits. In that view of the matter, the Tribunal is justified in saying in its appellate order;