TaxTMI 
TaxTMI 
1979 (8) TMI 8
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....is case shall also govern the disposal of Misc. Civil Cases Nos. 104/76, 105/76, 106/76, 107/76, 108/76 and 109/76. Though the seven cases relate to different periods, the controversy arising out of them is common. The parties are the same and the facts are also similar. The Income-tax Appellate Tribunal refused to draw up the statement of the case and hence the above applications. The assessment years in question are 1961-62, 1962-63, 1963-64, 1964-65, 1965-66, 1968-69 and 1969-70 and the corresponding previous years are calendar years 1960, 1961, 1962, 1963, 1964, 1967 and 1968. The brief facts necessary for appreciating the controversy in the above cases are these: The erstwhile Maharaja of Gwalior was carrying on the business of b....
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....ere given a book value at the time of transfer and the ITO as also the AAC and the Income-tax Appellate Tribunal found that the book value thus shown was not inflated and was shown correctly. When the securities were sold year after year, an income was made by the assessee-bank and this income, according to the assessee, was the sale price minus the book value at which the securities bad been purchased. The Department does not agree with this contention. According to the Department, since the assets of the Maharaja were transferred at a low price and a saving was made at that stage, this saving should be proportionately added to the sale price of the securities. The assessee made the following sales of the securities: &nbs....
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....nbsp; 17,605 For the 3rd year 5,517 For the 4th year 36,202 For the 5th year 33,935 For the 6th year 4,445 For the 7th year 4,140 The ITO, as already stated, took the view that when the assessee company started, it had taken over net assets worth Rs. 67,48,098 from the Maharaja, by allotting to him shares of the face value of Rs. 24,94,950. The difference between the two amounts represented the saving which the asses....
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....while taking over the assets and since the bad debts written off were less than 22% of the value of the debts taken over, the assessee was not entitled to any deduction. The AAC in appeal took the view that the real value of the shares of the assessee-company allotted to the Maharaja was not the face value at Rs. 24,94,950 but Rs. 67,48,098, which was the value of the net assets taken over by the assessee-company. He, therefore, deleted the addition made by the ITO on account of the profit on sale of securities and he also allowed Rs. 1,27,628 as bad debt for the first year. The Income-tax Appellate Tribunal endorsed the view taken by the AAC and held that the assessee-company had not effected any saving in acquiring the assets as allege....
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....as income of the assessee. It was permissible in law to allot shares for considerations other than cash. There was nothing wrong in transferring the assets worth Rs. 67,48,098 for 49,899 shares of Rs. 50 each. The Tribunal had found that there was no manipulation of the accounts and the value of the assets and liabilities represented at the time of transfer is the correct value of the assets and liabilities. In CIT v. Standard Vacuum Oil Co. [1966] 59 ITR 685, the Supreme Court examined the question whether or not the excess of the net value of assets so transferred over the par value of the shares issued could be considered as income. The Supreme Court laid down that the difference between the value of assets taken over and the value of....
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.... of the assets so transferred over the par value of stock issued and the serial bonds were entered in the books in the account styled " Capital paid in surplus". The Income-tax Appellate Tribunal held that the difference between the value of the assets taken over and the value of stock and serial bonds issued by the assessee-company was premium realized from the issue of its shares and retained in the business within the meaning of r. 3 of Sch. II and was in any event reserve not allowed in computing profits within the meaning of r. 2(1). The Supreme Court held that the surplus over the par value of the shares issued was premium realised from the issue of shares and in that view the same could not be taxed as income. In view of the decis....