1979 (8) TMI 8 - HC - Income Tax

Tribunal Upholds Treatment of Securities Surplus as Premium and Allows Bad Debts Deduction

The Income-tax Appellate Tribunal was justified in refusing to state the case and refer questions of law arising from orders in various assessment years. ... Certificate Proceedings Issues:1. Whether the Income-tax Appellate Tribunal was justified in refusing to state the case and refer questions of law arising from the orders of the Tribunal in various assessment years.2. Whether the surplus realized by the assessee-company from the sale of securities should be considered as income and subjected to taxation.3. Whether the bad debts written off by the assessee should be allowed as a deduction.Detailed Analysis:1. The judgment involved multiple applications by the Additional Commissioner of Income-tax seeking direction to the Income-tax Appellate Tribunal to state the case and refer questions of law from orders in different assessment years. The controversy was common across the cases, with the Tribunal refusing to draw up the statement of the case. The parties and facts remained consistent across the cases, leading to the applications for direction.2. The dispute centered around the surplus realized by the assessee-company from the sale of securities acquired during the transfer of the banking business. The Department contended that the saving made during the asset transfer should be added proportionately to the sale price of the securities. The Tribunal, however, found no manipulation in the accounts and upheld that the surplus should be considered as premium, not income, based on the principles established in CIT v. Standard Vacuum Oil Co. The Tribunal's decision was based on the understanding that the surplus over the par value of shares allotted could not be treated as saving but as premium, following the Supreme Court's precedent.3. Another issue addressed was the allowance of bad debts written off by the assessee. The Income Tax Officer disallowed the deduction, citing the alleged saving made during asset transfer. However, the Appellate Tribunal disagreed, allowing the deduction of bad debts as the real value of shares allotted to the Maharaja was considered to be the net assets' value taken over by the company. The Tribunal held that the cost of assets should be based on the recorded book value, rejecting the notion of any saving during asset acquisition.In conclusion, the judgment clarified that the surplus from the asset transfer should be treated as premium, not income, in line with established legal principles. The Tribunal's decision was upheld, emphasizing that the surplus over the par value of shares issued cannot be considered as saving. The judgment also allowed the deduction of bad debts, considering the real value of shares allotted and rejecting the notion of any saving during asset acquisition.