1953 (12) TMI 27

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....sessee company), on account of nationalization scheme. At the time of the incorporation of this company the business concerns that were amalgamated handed over to the company their vehicles as well as their route permits. In lieu of these vehicles, they were allotted fully paid-up shares. Some of these vehicles, which had been purchased from the shareholders for sum of Rs. 89,731 were sold for Rs. 53,650 in the following year. For the assessment year 1945- 46, the assessee company claimed the benefit of this loss of Rs. 36,081 under Section 10(2)(vii) of the Income-tax Act. At the same time, it claimed depreciation on the cost of vehicles, which were in business used and which, according to the company, was Rs. 5,73,211. Out of this sum Rs.....

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....ee company was Rs. 5,73,211. The Income-tax Officer determined, by some method, which we need not here critically examine, the true value of the vehicles and proceeded on that basis. The assessee company applied to the Income-tax Appellate Tribunal for referring the question of law arising in their case under Section 66(1) and the following is the question referred by the Appellate Tribunal:- "Whether, in the circumstances of the case, the Income-tax authorities were justified in law in going behind the contract of sale in determining the written down value, (i.e., the original cost to the assessee) for the purposes of making an allowance under clauses (vi) and (vii) of Section 10(2) of the Income-tax Act?" Learned counsel for t....

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....nestly regards the consideration for he transfer or allotment of shares as adequate its estimate cannot be critically examined. The second case, Craddok v. Zevo Finance Co. Ltd. [1944] 1 All E.R. 566, also contains words to a similar effect. In Osborne v. Steel Barrel Co. Ltd. [1942] 1 All E.R. 634, it is stated that the issue of shares at discount is illegal but it is pointed out that in law such issue must be based on an honest estimate of the value of the assets transferred by the person concerned. It cannot reasonable be argued that even if the persons is charge of the company do not act bona fide the Income-tax authorities are bound by the transactions of transfer of shares. If this proposition were accepted the Income-tax Act could....