COMMISSIONER OF INCOME TAX Vs. RAMAKRISHNAN

JUDGEMENT

(1.) THIS is a reference made by the Income-tax Appellate Tribunal, Madras Bench, under section 66(2) of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act), in compliance with the direction of this court in O. P. No. 296 of 1964. The year of assessment is 1960-61 and the accounting period is from 1st April, 1958, to 25th August, 1959. The question referred is :

(2.) THE assessee was carrying on business of manufacture and sale of packing cases. Pursuant to a sub-contract which he entered into with a firm called Messrs. Moothadath and Sons, he supplied railway sleepers and timber to the firm during the period between 1st April, 1958, and 25th August, 1959. THE business resulted in heavy loss which, as computed by the assessee, amounted to Rs. 84,747. This was accepted by the Income-tax Officer subject to some adjustments for inadmissible expenditure and depreciation.

(3.) THE assessee filed an appeal from the aforesaid order and contended before the Appellate Assistant Commissioner that the transaction did not involve any sale and that it was only a surrender of the business in settlement of his debts and it did not attract section 12B of the Act. This contention was rejected and the appeal was dismissed. THE assessee filed a second appeal before the Appellate Tribunal, repeating the same contention. He also contended before the Appellate Tribunal that the consideration shown in the deed of transfer had nothing to do with the actual price of the assets surrendered and that "the assets conveyed, if valued at the prevailing market rate, would have fetched only far less than the amount of debt" for discharging which the assets were transferred. THE Appellate Tribunal seems to have been attracted by the latter contention and it held :