TMI Blog1977 (8) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... pany named M/s. Kilachand Devchand Co. Ltd., hereinafter referred to as "the parent company". The object of formation of the assessee-company was to take over some oil and ginning mills, factories and lands belonging to and used in its business by the parent company. These assets were taken over by the assessee-company at a cost of Rs. 13,50,000. Their written down value for the transferor (parent company) was only Rs. 2,21,142 while their original purchase cost to the parent company was Rs. 5,52,475. Admittedly, the assessee-company did not pay cash to the parent company for those assets acquired by it but made payment by issuing fully paid up shares of that value. It appears that while making the original assessment for 1953-54 to 1956-57, the Income-tax Officer allowed depreciation to the assessee-company on those assets on their book value of Rs. 13,50,000. Later on, these assessments were reopened under section 34. After reopening the assessment, the Income-tax Officer for the assessment years 1953-54 to 1958-59 considered the question of fixing the written down value (actual cost) of those assets under the proviso to section 10(5)(a) of the Act. It was contended on behalf o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent years. The assessee-company appealed to the Appellate Assistant Commissioner against the fixing of written down value (actual cost) of the above assets for all the assessment years and the self-same contentions were urged in appeal. The Appellate Assistant Commissioner observed that, since the shares in both the assessee-company and the parent company were held by the same persons or their nominees, the transfer was not an ordinary commercial transaction in the strict sense of the term and since all the requirements of the proviso to section 10(5)(a) were present, he upheld the Income-tax Officer's order as well as the basis on which the written down value (actual cost) was determined by him. The matter was carried further to the Tribunal by the assessee-company by way of second appeal. It was contended on behalf of the assessee-company that, prior to actual transfer of those assets by the parent company to the assessee-company, those assets had been got valued by the valuers and it was on the basis of such valuation report that the assets had been transferred by the parent company to the assessee-company for Rs. 13,50,000 and since the sale of those assets being at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proviso to section 10(5)(a) of the Act. He also contended that the Tribunal erred in rejecting the valuers' report and the material that was placed before it to arrive at the correct market value of the transferred assets. Secondly, he contended that even if it is assumed that the proviso to section 10(5)(a) was attracted to the facts of the case, simply because the valuers' report produced by the assessee-company was rejected, was no ground for the taxing authorities or the Tribunal to come to the conclusion that the actual cost (written down value) to the assessee-company of the assets transferred would be the written down value of those assets in the parent company's records on the date of transfer plus the balancing charge arising under section 10(2)(vii) of the Act. He urged that actually the taxing authorities and the Tribunal ought to have determined the market value of the assets transferred on the date of transfer and then proceeded to decide what depreciation should be allowed to the assessee-company. After giving our anxious consideration to the aforesaid submissions which were made by Mr. Dwarkadas and after considering the same in the context of the relevant provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urged that it was true that the transfer in question was between the parent company and the assessee-company--100% subsidiary company of the former,--that it was also true that the transfer of assets had been effected for consideration of Rs. 13,50,000 and it was further true that this price was paid not in cash but in the shape of fully paid up shares. But he urged that even if these facts were accepted, these would not lead to an inference that the purpose of transfer was the reduction of a liability to income-tax by claiming depreciation with reference to an enhanced cost. He did not dispute that the first condition was satisfied, for, obviously these assets had been used by the parent company for their business before they were transferred to the assessee-company. He urged that the inference that the second condition was satisfied could only be drawn if the taxing authorities as well as the Tribunal had arrived at the market value of the assets as on the date of their transfer and if such market value was less than the consideration for which the transfer had been effected. It cannot be disputed that the aforesaid three facts, about which there is no dispute between the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had fixed the valuation were available or not, and what is more, he stated that even if the notes were available with him he would not have produced the same for perusal or scrutiny before the taxing authorities or the Tribunal. When such was the answer given by the valuer, it was difficult to place any reliance upon the valuation report. In our view, the taxing authorities as well as the Tribunal were perfectly justified in rejecting the valuation report, for, in the absence of reasoning or grounds for the opinion given by the valuer, the expert evidence would not be of any value. Apart from that, the Tribunal, in our view, was also further justified in drawing an adverse inference against the assessee-company to the effect that, had such material been produced, the same would have gone against the assessee-company, which, in other words, means that the correct market value of the assets transferred might have been lower than the consideration for which the transaction was effected and if such adverse inference has been correctly drawn by the Tribunal, it is obvious that the proviso to section 10(5)(a) would be clearly attracted. What would be the normal market value of the assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of the case. Now, admittedly, in the instant case, the assessee-company did not lead any evidence or produce any material before the taxing authorities as well as the Tribunal to arrive at the correct determination of the actual cost of the assets transferred and, placed in that situation, it does appear that the Income-tax Officer proceeded to fix or determine the actual cost (written down value) of the assets transferred by adopting the written down value of those assets transferred in the books of the transferor of the assessee-company as on the date of transfer and added to that figure the balancing charge arising under section 10(2)(vii) of the Act. It cannot be disputed that this method, if adopted, would clearly give the actual cost of the assets transferred to the transferor-company as on the date of transfer and we do not see any reason why if the same value is taken to be the actual cost to the transferee-company, as on the date of transfer, the determination would be irrational or unreasonable. If the Income-tax Officer adopted this method of determining the actual cost of the transferred assets with the approval of the Inspecting Assistant Commissioner it wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
