INDIA MACHINERY STORES (P) LTD. vs. COMMISSIONER OF INCOME-TAX, BIHAR

CIVIL APPEAL No. 376/1967Supreme Court[1971] 1 S.C.R. 53906 May 1970Bench: 3 JudgesAuthor: J.C. SHAH, K.S. HEGDE, A.N. GROVER B7 pages
AI SummaryDismissed

What were the facts?

The appellant, India Machinery Stores (P) Ltd., agreed to purchase the business of vendors, including all assets, at book value as of August 1, 1956. For the assessment year 1958-59, the Income-tax Officer noted a discrepancy: the vendors' closing stock was valued at Rs. 1,77,285, while the appellant's opening stock was valued at Rs. 2,10,225 on the same day. The officer added Rs. 33,000 (the difference) to the appellant's income, deeming it a violation of the agreement. This was upheld by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal. The Patna High Court, in a reference, also upheld the Tribunal's decision and subsequently certified the case as fit for appeal to the Supreme Court under Section 66A(2) of the Indian Income-tax Act, 1922.

What did the Supreme Court hold?

The Supreme Court held that the certificate granted by the High Court under Section 66A(2) of the Indian Income-tax Act, 1922, was incompetent. The Court reasoned that while Section 66 allows for questions of law to be referred to the High Court, a certificate under Section 66A(2) for appeal to the Supreme Court requires a question of "great public or private importance." The High Court's certificate merely stated it was a "fit case" without specifying the grounds or the question of law, which contravened the established practice laid down by the Judicial Committee of the Privy Council. The Court found that no question of law arose from the Tribunal's order regarding the stock valuation discrepancy, as the appellant had made no attempt to explain the violation of the agreement. Therefore, the reference itself was deemed incompetent. The appeal was dismissed.

What were the issues?

1. Whether the High Court's certificate under Section 66A(2) of the Indian Income-tax Act, 1922, was competent, given that it did not specify the question of law or state that a question of great public or private importance arose. Assessee's Contention: The appellant argued that the High Court's certificate under Section 66A(2) was sufficient, and any technical defect should be ignored, as the High Court exercises advisory jurisdiction on references, implying a substantial question of law. They also pointed to the common practice of some High Courts issuing certificates without detailed reasons. Revenue's Contention: The Revenue contended that the certificate was incompetent because it failed to set out the question of law and did not disclose any question of public or private importance, which is a mandatory requirement for a certificate under Section 66A(2).

Which sections of the Income-tax Act were involved?

Section 66A(2),Section 66(1),Section 66(2)

AI-generated summary — verify with the full judgment below

A B c D E F G H INDIA MACHINERY STORES (P) LTD. V, COMMISSIONER OF INCOME-TAX, BIHAR May 6, 1970 539 [J. C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.] income-tax Act, 1922, s. 66A(2)-Certificate of fitness to appeal to S11pren1e Court-High Court tn11st 1nention grounds-Certificate justified only l-v·hen question of great public or private importance is at issue.

The appellant was a private limited company incorporated with the object of taking over the business carried on by another company. By an agreement dated August 2, 1956, the appellant company agreed to pur- chase all the assets goodwill etc. of the vendors.

By cl. 4 of the agree- ment it was provided that all assets of the vendors in respect of their busi· ness "shall be taken over at the book value standing in the book• of accounts of the vendors" as on August 1, 1956. The Income-tax Officer in proceedings 'for the assessment year 1958-59 found that in the books of the vendors the 'value of stock' as on August 1, 1956 was Rs. 1,77,285 but in the books of the appellant company the opening stock taken one was valued on the same day at Rs. 2,10,225. The latter valuation also appeared in the Schedule

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