(1) STATEMENT OF THE CASE

AS directed by their Lordships of the Hon;ble Calcutta High court we hereby draw up the following agreed statement of the case and refer it to High court at Calcutta under S. 66(2) of the Indian Income Tax Act 1922.

(2) THE assessment year concerned is 1951-52, for which the relevant amounting year is the financial year 1950-51.

(3) THERE was a joint venture run by one Messrs. Bhagwan Raja Patel & Co. and Messrs. Premier Suppliers Ltd., for purchase and sale of machinery from the disposal department of Assam, and each was having half share in the joint venture. On the 22/10/1949, Messrs. Premier Suppliers Ltd. sold their interest in the venture to the assessee-company and Messrs. Bhagwan Raja Patel sold their interest to Patel Engineering Company, so that the persons now interested in the venture were the assessee-company and Messrs. Patel Engineering Co. Ltd. The stock of the disposal machinery remaining unsold were thereafter divided between the assessee and Patel Engineering Co. Ltd. The assessee received machinery valued at Rs. 2,06,372.00 as its share, in the Assessees account books for 1949-50 the value was written up by Rs. 4,00,000.00 an equivalent sum having been credited to a capital Reserve account. During this accounting period the assessee;and Patel Engineering Go. Ltd., formed a partnership firm known as "Hind patel Co." in which each had an eight annas share and the assessee transferred his stock of machinery at the book value of Rs. 6,06,372.00 to the new firm. Messrs. Patel Engineering Co. Ltd., also transferred their share of machinery, which they received on the dissolution of the joint venture, to the new firm after appreciating the value of their share of the machinery in the like manner as the assessee did. The machinery, thus valued at Rs. 6,06,372.00 by each of the partners, remained the investment of each one of them in their partnership firm, Messrs. Hind Patel Co. On 1/04/1950, the first day of the accounting year in question, counter debit and debit entries were made in the assessees and the firms books, respectively. The firm credited the capital account of the assessee with Rs. 6,06,372.00 and debited the machinery account with an equal amount. Same type of entries were made in the case of the other partner, Messrs. Patel Engineering Company. It may be mentioned here that no depreciation was allowed either on the original cost or on the appreciated value of such machinery in the assessment year 1950-51 nor during the year under-consideration.

(4) IT was contended before the Income Tax Officer that the aforesaid sum of Rs. 4,00,000.00 could not be treated as the assessees profits on the ground, inter alia, (1) that the assessee had never debit in the purchase and sale of machinery either before or after; (2) that the capital appreciation by Rs. 4.00 lakhs was made in the-financial year 1949-50, which was not the relevant accounting year for the purpose of assessment for the year in question; and (3) that the disposal machinery which were acquired at Assam were mainly for the purpose of executing their own contracts, namely, the contracts of earth work etc., which required such machinery as had been obtained and not for sale.

(5) THE Income-Tax Officer held, disagreeing with the assessees contention, that it was a sale of machinery and the amount for which it was actually sold to the firm fell not within the financial year 1949-50 but during the year under consideration. The Income Tax Officer further observed that earlier balance-sheets of the assessee showed that it had transferred machinery, furniture, office-equipments, etc., from time to time as necessity arose to the firm Messrs. .Hind Patel Co. With regard to the purpose for which the machinery had been acquired at Assam as stated by the assessee, the Income Tax Officier observed that the purpose for which the machinery were acctually acquired was not at all material for determinin