1973 (4) TMI 6 - SC - Income Tax

Court emphasizes proof of actual profits, criticizes procedural focus over substance in tax appeal

Commissioner of Income-Tax, West Bengal Versus Calcutta Discount Company Limited

Commissioner of Income-Tax, West Bengal Versus Calcutta Discount Company Limited - [1973] 91 ITR 8 (SC), 1974 AIR 1358, 1973 (3) SCR 952, 1974 (3) SCC 260 Issues Involved:1. Competence of the Tribunal to entertain an application under section 66(1) of the Indian Income-tax Act, 1922, in respect of an interlocutory order.2. Judicial discretion of the Tribunal in not allowing the applicant's petition for raising additional grounds.3. Error of the Tribunal in dismissing the appeal summarily based on its appellate order dated September 3, 1964.Issue-wise Detailed Analysis:1. Competence of the Tribunal to entertain an application under section 66(1) of the Indian Income-tax Act, 1922, in respect of an interlocutory order:The High Court answered this question in favor of the assessee, concluding that the Tribunal was competent to entertain such an application. The Supreme Court did not delve further into this issue as the revenue counsel did not seek an answer on this point.2. Judicial discretion of the Tribunal in not allowing the applicant's petition for raising additional grounds:Similarly, the Supreme Court did not address this issue because the revenue counsel did not pursue it. The High Court had found it unnecessary to answer this question after deciding the first issue in favor of the assessee.3. Error of the Tribunal in dismissing the appeal summarily based on its appellate order dated September 3, 1964:The material facts reveal that the assessee transferred shares to its subsidiary at book value, resulting in a loss which was not claimed in the return. The Income-tax Officer valued the shares at market rate, deeming a profit of Rs. 1,02,40,546. The Appellate Assistant Commissioner set aside this valuation, remitting the case back to the Income-tax Officer to ascertain if actual profits were made. The Tribunal dismissed the Income-tax Officer's appeal summarily, citing procedural technicalities.The Supreme Court criticized the Tribunal's approach, stating it was unduly influenced by procedural technicalities rather than substance. The Court emphasized that no specific formula is necessary for seeking relief if the necessary grounds are taken in the appeal memo.The Appellate Assistant Commissioner and all authorities under the Act concluded that the transaction was bona fide with no secret profits. The Court upheld that unless actual profits are proven, fictional income cannot be added back. The Court referenced similar cases, including the Madras High Court's decision in Sri Ramalinga Choodambikai Mills Ltd. v. Commissioner of Income-tax and the Supreme Court's decision in Commissioner of Income-tax v. A. Raman & Co., which established that income not actually earned cannot be taxed.The Court rejected the revenue's reliance on the House of Lords' decision in Sharkey v. Wernher and the Supreme Court's decision in Dooar's Tea Co. Ltd. v. Commissioner of Agricultural Income-tax, distinguishing these cases as they involved self-use of goods rather than bona fide sales at concessional rates.The Supreme Court concluded that the Appellate Assistant Commissioner's decision was correct in law, making it unnecessary to answer the third question. Consequently, the appeal was dismissed with no order as to costs.