Transfer of assets by one company to another can constitute a transaction of sale in a commercial sense, and the difference between the written down value and the cost price may be liable to be included as income in the process of assessment under S. 10(2)(vii) of the Indian Income-tax Act, 1922.

Judgment

SHAH, J. : M/s. Phelps and Company Ltd., was registered as a private limited company on September 30, 1939 to carry on the business of "Clothiers and Tailors". On March 21, 1952 under an order made under S. 11(4) of the Indian Companies Act, 1913 the name of the Company was altered to Messrs. Associated Clothiers Ltd. On the same day a company styled "Messrs Phelps and Co. Ltd" was incorporated. By a written agreement also of the same date the appellant Company agreed to transfer its assets and liabilities to Messrs. Phelps and Co. Ltd., in consideration of allotment of shares of the value of Rs. 12,30.000 of Messrs. Phelps and Co. Ltd., and Rs. 23,291-10-5 payable in cash, and Messrs. Phelps and Co. Ltd., taking, over liabilities of the appellant Company of the aggregate amount of Rs. 6,05,601-0-6. Under the terms of the agreement the appellant Company purported to transfer seven items of property described in the Schedules annexed to the deed : one of the properties so agreed to be transferred was described in the second schedule - a building at Cannaught Place, New Delhi, valued at Rs. 2,24,673 No deed of conveyance was executed in pursuance of the agreement. It is, however, common ground that on July 1. 1952, Messrs. Phelps and Co. Ltd. took over possession of the properties agreed to be sold.

2. The original cost of the building described in the second schedule was Rs. 97,258 and the written down value of the building after deducting depreciation allowed from time to time in the records of the Income-tax Officer was Rs. 57,011. In the balance sheet of the appellant Company dated March 31 1958 the building was valued at Rs. 2,24,673 the price for which it was agreed to be sold. In proceedings for assessment for the account year 1952-53 the Income-tax Officer, Companies District IV, Calcutta, brought to tax the difference between the original cost and the written down value of the building on the date of the transfer as deemed profit of the appellant Company under the second proviso to S. 10 (2) (vii) of the Indian Income-tax Act, 1922 . Before the Appellate Tribunal it was contended that the sale of assets to the appellant Company was "in substance to self" and on that account no profit had resulted to the Company and the amount sought to be brought to tax was not liable to be included in the Company s profit. The Tribunal relying upon the decision of the Bombay High Court in Commr. of Income-tax, Bombay City v. Sir Homi Meht s Executors, (1955) 28 ITR 928: upheld that contention.

3. At the instance of the Commissioner of Income-tax, Calcutta the following question was referred to the High Court of Calcutta:

"Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the sum of Rupees forty thousand two hundred and forty-seven could not be deemed to be profits of the assessee company under second proviso to S. 10(2) (vii) of the Indian Income-tax Act? "The High Court answered the question in the negative. Against the order passed by the High Court, with certificate under S. 66-A(2) of the Indian Income-tax Act, this appeal is preferred.

4. The High Court was of the view that the principle of the decisions in Sir Homi Mehta s Executors case, (1955 ) 28 ITR 928: and in Rogers and Co. v. Commr. of Incometax, Bombay City II, (1958) 34 ITR 336: did not apply to the facts of the present case, since at all material times there were in existence two corporations which were distinct and the transfer by one corporation of its assets to another cannot be deemed to be a transfer to self: that the transaction by which the appellant Company transferred its assets to Messrs. Phelps and Co. Ltd. was a transaction of sale, and the doctrine of "lifting the veil of corporate personality" had application only to a limited class of cases, and the case of the appellants could not be brought within that class; and since the two companies "continued to exist side by side for many years after the appella