COMMISSIONER OF INCOME TAX Vs. MEATTELS LIMITED

JUDGEMENT

(1.) The following question of law along with the statement of the case was referred to this Court under Section 66 (1) of the Indian Income Tax Act 1922, herein called the Act, by the Income-Tax Appellate Tribunal Delhi Bench B, at the instance of the Commissioner of income Tax, Delhi, Central & Rajasthan, Delhi

(2.) The matter relates to the assessment year 1957-58, the relevent accounting year ending on September, 30, 1957. The assessee-company, Meattels Private Limited had been carrying on two distinct businesses, viz (1) the business of speculation in shares and the other commodities and (2) business of Flour Milling in the factory known as Crown Flour Mills. Since a number of years, the loses in its speculation business were wiping out the profits earned in the milling bussiness. The assessee-company, therefore, decided to transfer the Crown Flour Mills to its subsidiary company, The Hindustan Cold Stores and Refrigeration Limited. A resolution was passed by the assessee-company on February 1, 1957, approving two drafts agreements relating to the sale of the Crown Flour Mills and its stock in trade etc. to the said subsidiary company in consideration of Rs. 8,75,000.00 and Rs. 3,75,063-12-10 respectively. The consideration for the sale of the Mills was received to have been accepted in equity shares of the subsidiary company of the face value of Rs. 8,75,000.00. Rs. 3,75,063-12-10 the consideration for the sale of stock in trade and other assets and liabilites was to be treated as loan to subsidiary company repayable at interest at the rate of 5 per cent per annum.

(3.) The subsidiary company on its part had passed a resolution dated December, 29, 1956 for the purpose of starting negotiations for acquiring the Crown Flour Mills. Resolution was passed by the subsidiary company on February, 1957 approving the aforesaid draft agreements for the purchase of the Crown Flour Mills and its stock in Trade and other assets and liabilites. In February, 1, 1957 two separate agreements were executed between the two companies in pursuance of the above resolutions. The first agreement related to the sale of Crown Flour Mills for Rs. 8,75,000.00 on the terms and conditions set out there-in and was executed on a stamp paper of Rs- 1/8.00. The agreement provided for immediate delivery and possession of Mills to the subsidiary company, allotment of fully paid up equity shares of the suusidiary-company of the value of Rs. 8,75,000.00 to the assessee company within three months from the date of the agreement and execution of a proper sale deed by the assessee company at the expense of the subsidiary company within three months from the date of the receipt of fully paid up shares. The subsidiary company was made liable to pay all taxes and outgoings relating to the Crown Flour Mills with effect from the date of the agreement. A second agreement was also executed between the two companies relating to the sale of stock in trade and other moveable properties for Rs. 3,75,063-12-10; but the present reference is not concerned with this agreement.