Income Tax Appellate Tribunal - Nagpur
Commissioner Of Income-Tax, U.P. & C.P. vs Seth Mathuradas Mohta. on 24 January, 1939
Equivalent citations: [1939]7ITR160(NAG)
JUDGMENT
This case, stated under Section 66(2) of the Income-Tax Act, raises 2 questions, viz :-
"(1) In the stated circumstances of this case, was the sum of Rs. 5,000 assessable in the hands of the assessee as income, profits and gains accruing or arising without British India to a person resident in British India within the meaning of Section 4 (2) of the Act ?"
"(2) In the circumstances of this case, was the Income-tax Officer precluded by law from going behind the deed of partition in order to ascertain the original cost of the machinery and building to the assessee by reason of the fact that such cost had been stated in the partition deed as Rs. 29,22,050 and the share of the assessee in the assets of the Hindu undivided family had been made up on the footing of such valuation ?"
As to question 1, the circumstances are that the assessee (who inter alia, is a money-lender) had a branch outside British India. He was communicated with by post by a person whom we will call A. A requested a loan. The loan was granted. It took the form of a negotiable hundi sent by post and capable of being converted into cash in Calcutta where A resided. It is suggested that when that hundi was sent from without British India into British India it amounted to a receiving in or a bringing into British India of profits or gains. It is not disputed that the sum in question can be regarded as a profit or gain of the business. The question is whether it was received in or brought into British India. It is not disputed that to fall within Section 4 (2) it must be so received or brought in by or on behalf of the assessee. It is said that it was so brought in by the assessee when the assessee put the hundi, which can be treated as so much money, in the post addressed to an address in British India.
In our opinion in circumstances such as are here present, A by his agent the post office, brought the money (assuming the hundi can be treated as money) into British India. It is as though A had gone to the assessees branch outside British India and borrowed the money there or as though he had arranged the loan by post and then sent a messenger to bring back the money advanced. We therefore answer the first question in the negative.
In Dunlop v. Higgins (1 H.L.C. 381; 9 Eng.R. 805) it was held that the acceptance of an offer, which offer had been made by post, was complete when the letter of acceptance was posted. The letter in fact never arrived at its destination, yet the contract was treated as complete. The reason given in Household Fire Insurance v. Grant (4 Ex.D. 216) is that when A communicates to B by post he impliedly authorises B to reply by post and if B does so it is as though B handed the letter to A at the time of posting. See Henthorn v. Fraser (1892) 2 Ch.D. 27 at pp. 32, 33. In the last case (and in Dunlop v. Higgins) the matter was also put on the usage of trade. See loc. cit. p. 35. Even on the view taken in the last cited case by Kay, L.J., who sought to restrict the effect of Dunlop v. Higgins, this would be a case where the hundi (i.e., the "profits or gains") was handed to the Post Office outside British India as an agent of A to carry to A. The second question arises out of these circumstances. A joint Hindu family possessed items of property X and Y. We are concerned with X. The members we will call A and B. A and B decide to separate. They divided Y into two equal parts. X (which is a ginning factory - a going concern comprising very numerous items) cannot conveniently be divided, so A and B resort to a well known mode of effecting a division. They each bid for it. The highest bidder takes the whole and notionally pays the purchase price which is divided in half. That item, X, at one time some years before the partition, had been bought by the joint Hindu family composed of A and B. As was the highest bid at the time of partition. Accordingly A took X and was debited with the amount of his bid. That resulted in his having on balance to pay some money (far less that the amount bid) to B. X was bought by joint Hindu family for Rs. 23,11,510, i.e., roughly 23 lakhs. For it on partition A bid Rs. 28,22,050, i.e., roughly 28 lakhs.
A subsequently claimed depreciation deductions based on the figure he bid. The proper figure is admittedly the original cost to the assessee. The assessee is admittedly A. The question therefore is what, on the above facts, is the "original cost" to A, Rs. 23,11,510 or Rs. 28,22,050 or some other figure ?
There is no question of fraud here. It is not suggested that A gave an inflated bid to cheat the Income-tax authorities. There is a suggestion that A was defrauded by B into giving a larger bid than the property was worth but with that we are not concerned except to note that if that conclusion was even established in a suit to reclaim the loss the figure of Rs. 28,22,050 would of course be in effect reduced in the result.
We proceed, however, in this matter on the assumption that the 28 lakhs and odd bid was a fair and proper bid representing the value A put upon X and was willing to acquire X for.
At first sight that appears to be the original cost of X to A. But it will be seen that A is bidding for a property that, as to half, was already his. Had his bed been Rs. 20 the result would be that he gets X and Rs. 10 (X what fall to his share and Rs. 10 half the sum bid). If his bid were Rs. 30 the result would be X plus Rs. 15. Thus an increase of Rs. 10 in the results in a cost of Rs. 5 to him.
Thus under no view could the cost to him on the facts here present, be more than Rs. 23,11,510 plus 1/2 (28,22,050-23,11,510). That fact alone makes us to answer the second question put in the negative.
But the question really raises a wider question because the Rs. 28,22,050 were paid for a great number of items together making X and many of these items are not items in respect of which depreciation can be claimed. It is not a matter now in contest that the figure of Rs. 28,22,050 has to be adjusted so as to relate only to such items as are items upon which depreciation can be claimed. That, however, is not a question with which we are concerned. The broad question as developed in argument is whether the eventual figure is to be based on original cost of the whole of Rs. 23,11,510 or Rs. 28,22,050 or of some other figure.
The question is not an easy one. We put in argument several cases. X and Y both cost Rs. 10,000. Both items are workshops. A bids Rs. 15,000 for X and B bids Rs. 15,000 for Y. A gets X and B gets Y. Obviously on those facts the "original cost" to A of X is Rs. 10,000. He (as distinct from the family) has paid nothing. He has got X. X cost the family Rs. 10,000. If later A required the Income-tax authorities to value X at Rs. 15,000 for depreciation purposes the Income-tax authorities would be justified in looking beyond the bid to the real cost. The bid there appears as a mere mode of choosing properties. In other words, A values (we are assuming all absence of fraud and arrangement, between A and B to inflate prices) X at Rs. 15,000 but X costs A Rs. 10,000.
The next case is X and Y as before and Z. Z cost Rs. 1,000 but A (thinking that Z is valuable, e.g., believing it is diamondiferous) bids Rs. 21,000 for Z. B bids Rs. 10,000 for X and Rs. 10,000 for Y. Result B gets X and Y plus Rs. 10,000. A gets Z plus Rs. 10,500 plus Rs. 10,000. Net result (for the Rs. 21,000 and 10,000 and Rs. 10,000 bids do not result in the parting with any money) by gets X and Y and A gets Z. What has Z cost A ? Rs. 1,000 or Rs. 21,000 or some other figure ? What he has in fact given at one time or another (looking at his as a shareholder of half in a joint Hindu family) is 1/2 (10,000) for X, 1/2 (10,000) for Y, and 1/2 (1,000) for Z. In other words he has given for Z at one time or another money or property worth Rs. 10,500/-.
The difference between the 2 cases is of course due to the fact that in the first, each gave an exaggerated bid for each item whereas in the second case one gave an exaggerated bid for each item. In the first case the exaggerations being on both sides they neutralize one another and one is left with the original cost to the joint family as the real, as distinct from the notional, cost to the member in question. In the second case put there is no such neutralizing factor.
We are of the opinion that the Income-tax authorities cannot go into minutia about the respective values of this item and that in a partition so as to determine whether or not there are or are not neutralizing factors and the proper course to take is that taken by the Income-tax authorities in this case. The cost of acquiring title is to be ascertained at the time when the property is acquired by the coparcenary. Thereafter one is not concerned with cost strictly so called but one is concerned with a mode of partition. As a result of the partition each (fraud, overreaching and the like being put on one side) is to be regarded as having got half by the mode of division adopted whether that mode be through Court, arbitration, private auction or drawing the lots or any other mode agreed upon. The original cost of the property is not increased though one side might in the result get what a third person would regard as less that half though what the person concerned (at least in the case of private auction) though at the time was at least equal to half; otherwise he would not have bid so much.
These observations arise out of the argument and are probably unnecessary for the purpose of answering the question put. That question is, in our opinion, to be answered in the negative.
Of course the matter is beyond doubt if the transaction is regarded as in any way tainted with fraud or lacking in bona fides : In re Bisseswarlal Brijlal (I.L.R. 57 Cal. 1336), but no fraud was alleged here. We do not think the present is in any way comparable with the case reported in 1938 Income-Tax Reports 733 (In the matter of Messrs. Chouthmal Glopachand). Nor do we think that this falls within so-called doctrine of rests so as to come within the observations made in Sankaralinga Nadar v. Commissioner of Income-Tax, Madras (I.L.R. 53 Mad. 420 to 435). No such point is raised in the question stated. The Rs. 100 deposited by the non-applicant will be received by the applicant by way of costs.
Reference answered accordingly.