Jaganmohan Reddy, J.
(1) The income tax appellate Tribunal, Hyderabad , has stated a case as directed by this court under section 66(2) of the Indian Income Tax Act, 1922, in I. T. C. M. P. No. 5478 of 1961, on the following questions, namely :
(1) Whether the transaction dated 19-9-1956 amounts to a sale within the purview of the second proviso to section 10(2) (vii) of the Indian Income tax Act
Whether the consideration for the sale is not the market value of the shares as on the date of the transaction, namely Rs. 95/- per share, but the face value of the shares.
(2) The assessment with respect to which the reference has been made is for the year 1956-57 relating to the accounting period of 1955-56. The facts as set out by the Tribunal in the statement of the case is that the assessee is a private limited company, a cinema house from which it was deriving income by exhibiting films. In a meeting of the Board of Directors held on 9-9-1955, it was resolved that the Managing Director, the Raja of Bobbili, may be authorized to negotiate with the Zamindar and the Zamindarini of negotiate with the Zamindar and the Zamindarini of Chikkavaram and or their nominees for sale of the entire concern known by the name of Sri Rama Talkies, Bobbili, with all its equipment, machinery, fittings spares, accessories, the old projector, the jeep car bearing No. MSP 928 purchased from its funds, all the buildings and out-houses, wither newly constructed or mentioned in the registered sale deed No. 1464/ 5-9-1949 together with the entire premises covered thereby and the cash deposits lying with the various distributors and the Commercial Tax Department of the State Government and also the good will of the concern for a consideration of Rs. 1,20,000/-, which amount was to be received in the shape of transfer of 5% tax free cumulative Preference shares of M/S. Sri Rama Sugars and Industries Ltd., Bobbili, of the face of Rs. 1,20,000/- held by Srimathi Rani Ravu Saraswathi Devi Varu, wife of Raja R. J. K. Rangarao Bahadur Varu, Zamindarini of Chikkavaram.
This resolution of the Board of Directors was later confirmed on 4-10-1955, in pursuance of which the property mentioned aforesaid was conveyed by a deed, known as the deed of exchange dated m21-2-1956 in consideration of the transfer of 5% cumulative preference shares of M/s. Sri Rama Sugars and Industries Ltd., Bobbili of the face value of Rs. 1,20,000/- owned by the Zamindarini of Chikkavaram. It was further stated that the assessment's books showed a profit of Rs. 9, 823/- on account of the said transaction, which was treated by the assessee as a capital receipt and was shown in section 'D' of the return of its income. The Income tax Officer, however, after taking into consideration the various items, assessed the total value of the assets transferred at Rs. 76,432/- While doing so, he took into consideration the written down value of the depreciable assets comprised in the aforesaid transfer and thus computed the profits under section (10(2) (vii) of the Act at Rs. 43,568/- and added this to the income of the assessee. The assessee appealed to the appellate Assistant Commissioner and contended firstly, that the sale of the cinema concern is only a realisation of assets and as such the excess realised cannot be treated as profits liable to tax; secondly, that the good will was not allowed and thirdly, that it is incorrect for the Officer to treat the face value of the shares as the sale price while the market value of such shares is by far less.
In the supplementary grounds of appeal, it was urged that the Income-tax officer was not right in deducting from the written down value the initial depreciation allowed on the machinery and the building in the first year, and that the property in the cinema was only exchanged for shares in a limited liability company and that the transactions did not amount to a sale and as such fell outside the purview of S. 10(2) (vii) of the Act. The Appellate Assistant Commissioner rejected all these contentions and held that on the terms of the resolution and of the deed dated 21-2-1956, the transaction was a sale and not an exchange as sought to be made out by the assessee. he also rejected the plea of the assessee. He also rejected the plea of the assessee that in computing the profits. allowance, should be made on account of the good will which was the subject matter of the transfer. The claim of the assessee that while computing the profits the market value of the shares should be taken into consideration was also rejected by him as according to him, what was purported to be the consideration was the value of Rs. 1,20,000/- of the assets in lieu of which the assessee agreed to accept shares worth Rs. 1,20,000/- as such, the consideration amounted to Rs. 1,20,000/- the assessee thereafter appealed to the Tribunal, which rejected similar pleas taken before it by the assessee except for allowing a sum of Rs. 5000/- as representing the cost of the good will.
(3) It is trite law that the nature of an instrument should be regarded not so much by the description of the document given therein by the parties but on what the real nature of the transaction is. In other words, the real and true meaning of an instrument should be ascertained irrespective of the description given to it in the instrument by the parties, even though the parties may have believed that its effect and operation was something quite different to what in effect the document is purported to achieve. If, in truth and in effect, the parties intended to execute a sale deed but the nature of the transaction is an exchange, or if they intended to effect an exchange but in fact the document purports to be a sale deed, effect must be given to the instrument and not to the alleged or purported intention of the parties, the case law particularly in respect of stamp duty to be levied is replete with instances where this principle has been given effect to. The legal nature of a document, therefore, must be determined by its contents and not by its description and no extrinsic evidence , dehors the instrument, would be admissible except in certain limited cases, to determine the nature of that document or of the transaction.
(4) In this case, the facts disclose beyond doubt that the transaction was one where the cinema and the other property belonging to the assessee was not sold for a money price. The consideration for the transfer of the property was transfer of 5% Cumulative Preference shares of the face value of Rs. 1,20,000/- In order to determine whether this transaction is a sale or exchange, within the meaning of S. 10(2)(vii) of the Income-tax Act, 1922 it is necessary to ascertain the meaning of the word 'sold' occurring therein.
(5) It is only if there is sale of the cinema house and the other assets that the taxable profits and gains are to be computed under S. 10 (2) (vii) as the amount by which the written down value exceeds the amount for which the assets are actually sold. The word 'sale' or 'sold' has not been defined in the Income-Tax Act, 1922 and consequently, those words must be constructed by reference to other enactments. section 54 of the Transfer of property Act defines 'sale' as a transfer of ownership in exchange for price paid or promised or part paid and part promised. This definition, however, does not say what is meant by price. Decisions of the Courts have interpreted that word to mean money. It is probably for this reason that the word 'price' for the purpose of a contract of sale of goods in section 4(1) of the sale of Goods Act, has been defined under S. 2(1) as meaning the money consideration for the sale of goods. A contract of sale under section 4(1) of the sale of Goods Act is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. A part from this, under S. 118 of the Transfer of Property Act, the word 'exchange' has been defined as follows :
'When two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things being money only, the transaction is called an exchange.
This definition of exchange is not limited to immoveable property, Exchange is therefore not only exchange of land put also barter of goods. If one of the items transferred is money, the transaction is not an exchange but a sale. It is a clear, therefore, that both for the purposes of the sale of Goods Act as well as the Transfer of Property Act, dealing with moveable and immoveable properties sale is a transfer of property in the goods or in the ownership in property, as the case may be for money. Mr. Kondaiah for the Department referred us to Stroud's Judicial Dictionary, vol. 3, P 2288, for the meaning of the word 'price' as the sum of money or its equivalent at which a thing is valued . This is what the Oxford Dictionary also gives, i.e., money or other equivalent by which anything is bought or sold'. But we are not concerned here with the meaning given by courts outside this country in respect of statutory provisions which are not in pari materia nor with the dictionary meaning. In our view, the meaning given to these terms in other statutes should be taken into consideration.
A Bench of this Court in Chittoor Transport Co. (pr.) Ltd. v. Income Tax Officer : 55ITR159(AP) had also taken a similar view, namely, that there being no definitions for the expressions 'sale' and 'transfer' in the Income-tax Act, 1922, we have to turn to the definitions of sale and transfer as contained in the other enactments. It is true, Harris, C. J. in Calcutta Electric Supply Corpn v. Commissioner of Income Tax, : 19ITR406(Cal) did refer to the definition of 'price' given in the Oxford Dictionary. But he was not dealing in that case with the question whether price is money or not, but whether the transaction in question, viz., a compulsory requisition under the Defence of India rules, was a sale. Here again the learned chief Justice refers to the English Dictionary for the definition of 'sale' as involving an agreement . It is in this context the learned Chief Justice says that a sale ordinarily means a voluntary act, the transferring of property voluntarily by the buyer to seller at a price, and considered the dictionary meaning of price. In fact, what fell for determination in that case was whether the requisition of the property by the Government under the Defence of India Rules and payment of the compensation was a sale The Bench held that it was not, because the element of a voluntary transfer was lacking. The High courts of Bombay , Madras and Calcutta have however, held that the word 'price' as one of the elements held that the word price as one of the elements constituting a sale meant money. In 696 Chandavarkar, J., delivering the opinion of the Full Bench, referred to the meaning of the word price. as given in the illustration to S. 78 of the Indian contract Act. At. P. 698 he observed thus :
'Though the word 'price' is capable of being understood either as money or any other recompense in value, it is clear from the illustration to section 78 of the contract Act that it is used there in the former sense. In regard to the sale of goods ' the price must consist of Money paid or promised.' (Benjamin on sale, 4th Edition, Pages 2 and 89). The difference between a sale and exchange is this, that in the former the price paid in money, whilst in the latter it is paid in goods by way of barter'. (Chitty on Contracts, 12th Edition Page 430) The distinction has been observed by the Legislature in this country, a s will appear on a reference to sections relating to sales in the Transfer of property Act. The subordinate Judge's view is also supported by the decisions of the Madras High Court in queen Empress v. Appavu, ILR 9 Mad 141 and Volkart Brother v. Vettivelu ILR 11 Mad 459.'
Later however, in madam Pillai v. Badrakali Ammal. ILR 45 Mad 612 : AIR 1922 AD 311 a Full bench of the Madras High court had to consider the observations of Sadasiva Ayyar, J. in Ariyaputhira v. Muthukumaraswami, ILR 37 Mad 423 : AIR 1914 Mad 489 in relation to the decisions in ILR 9 Mad 141 and ILR 11 Mad 459 Sadasiva Ayyar, J. in ILR 37 Mad 423 : AIR 1914 Mad 489 had stated:
'If two persons mutually fix the value of the exchange things in current coin and then exchange them as of equal value, they might be held to effect sales and to pay prices (the word not being apparently interpolated in the Report) and not merely to effect an exchange.'
It is with respect to these observations that the full Bench expressed its view . Schwabe, 'C. J., said at page 617 (of ILR Mad) : at pp. 312-313 of AIR):
'In this case one has to consider whether there was a price paid or promised by the transferee. Now 'price' has a well defined meaning. It means money, but not necessarily money handed over in current coin at the time but includes money which might be already due, or might be payable in the future. I think the law is well expressed in the commentaries of the Transfer of Property Act by Shephard and Brown, page 175. ' Price includes money only for if the thing given in exchange for land consists of goods and not money, there is no sale but an exchange. A transfer not made in exchange for a money consideration, e. g a transfer made in pursuance of a compromise of a family dispute the provisions of the Act.' There being in my view, no price paid or promised in this case, the transaction was not a sale. We are referred on this point to ILR 37 Mad 423 : AIR 1914 Mad 489 and to certain observations of Sadasiva Ayyar, J. therein which apparently he would extend price so as to cover all cases where articles are exchanged, one against the other, provided that the parties went through the mental process of fixing in their own minds the value of the articles to be exchanged. I must say that I think that that was going beyond anything that one can find in the Act. It seems to me that those observations were quite unnecessary for the decision which was arrived at in that case, and I confess that I cannot agree that the mental process gone through of valuing in one's mind the different articles to be exchanged can possibly turn an exchange transaction into a sale.'
Coutts Trotter, J., and Kumaraswami Sastri, J., agreed with the conclusions of the learned Chief Justice Coutts Trotter, J., referred to the Oxford English Dictionary for the definition, and found this quotation from Adam Smith's wealth of Nations - 1776 : - ' The real price of everything, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. Labour was the first price, the original purchase money that was paid for all things. At page 618 (of ILR Mad) : at p. 313 of AIR the learned Judge expressed his opinion in the following passage :-
'But it seems to me that the answer is to be found in what I said during the course of the arguments that a trained English lawyer never use the word price unless it be to connote something other than perfectly familiar phrase 'valuable consideration', which would naturally occur to his mind; and it seems to me that the whole of Mr. Krishnaswami Ayyar's ingenious argument comes to this; that the we are to construe price as meaning the familiar term 'valuable consideration' I think that the word price was put ;into the section to connote something different and something more limited, that is, money'.
Mr. Kondaiah's entire argument, if we may say so, was in terms of the observations of Sadasiva Ayyar, J., in ILR 37 Mad 423 : AIR 19194 Mad 489 He contended that the parties intended that there should be a sale because in the resolution they specifically authorised the managing agent to negotiate with the Zamindar and the Zamindarini of Chikkavaram or their nominees for the sale of the entire concern for a consideration of Rs, 1,20,000/- ignoring the essential requisite that it should be received in the shape of transfer of 5% cumulative preference shares of M/s. Sri Rama Sugars and industries Ltd. he further refers to the use of words 'buyers' and seller in clause 4 of the resolution. In the document, which was termed a document of exchange it was pointed out that the consideration of Rs. 1,20,000/- was split up and Rs. 60,000/- was apportioned for immovable properties and Rs. 20,000/- for moveable properties and the balance for the goodwill. He also states that in the balance sheet also Rs. 1,20,000/- has been shown as sale and the assessee has computed profits on that account in his books. Probably it is for this reason that the Appellate Assistant Commissioner stated :
'It is a well established principle of law that if certain document is presented to the Income-tax Officer it is not binding on him to accept it in toto and that he is entitled to go behind to go determine the true purport of it and also to decide what really took place, while the narration in the document may be different.'
We know of no such principle much less of it being an established one. Where statutorily the parties have to reduce a certain transaction into writing, which transaction can only be evidenced in writing, it is not open to the Courts or any other authority to permit oral evidence to be adduced by the parties or to entitle them to go behind the statements made in the document. Income-tax authorities also are subject to the ordinary law. NO greater power or authority is vested in them except that which the law confers. A cursory perusal of sections 91 and 94 of the evidence Act limits that power, subject of course to the exceptions stated in section 91 - 92. The Department could either accept the document as representing a genuine transaction or reject in on valid and substantial grounds which are tenable in law but they cannot, while accepting it as a genuine transaction, re-write the document contrary to what the parties have in fact effected, or give a construction by reference inadmissible in evidence or go behind the transaction. In this connection, it may be useful to cite the terse observations of Lord Shaw, in Inland Revenue Commrs. Fisher's Executors, (1926) 10 Tax Cas 302 :
'It is incorrect in principle to attempt to get behind that transaction, legal and competent and regular in form, and to endeavour to construct a canon of liability to Income Tax out of conjecture as to the motive or scheme for the defeat of the Revenue which underlay its various stages.'
In our view, a citizen cannot be taxed merely with a view to swelling the revenues, ignoring the legal position by regarding 'the substances of the transaction'. As we stated, unless the document is impeached, which is not the cause here, it is not permissible to go beyond the legal effect of the document constructed in accordance with ordinary rules, or to consider 'the substance of the matter.' The so-called doctrine that in revenue cases the substance of the matter may be regarded as distinguished from the strict legal position, was emphatically demurred to in may English cases of highest authority and finally set at rest by the House of Lords in Duke of Westminster v. Inland Revenue Commrs. (1935) 19 Tax Cas 490 and by the privy council in Bank of Chettinad v. Commr of Income-tax Madras In the former case, Lord Tomlin Lord Russell of Killowen and Lord Wright expressed strong disapproval of the suggestion of the existence of such a doctrine. Lord Tomlin dealing with the contention that in revenue cases there is a doctrine that the Court may ignore the legal position and regard what is called 'the substances of the matter'. stated at page 520. 'This supposed doctrine seems to rest for its support upon a misunderstanding of language used in some earlier cases. The sooner the misunderstanding is dispelled and the supposed doctrine given its quite the better it will be for all concerned, for the doctrine seems to involve substituting the uncertain and crooked cord of discretion for the golden and straight mete wand of the law'. The learned Law Lord observed.
'Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then however unappreciative the Commissioners of Inland Revenue or his follow tax-prayers may be of his ingenuity he cannot be compelled to pay an increased tax. This so-called doctrine of 'the substance' seems to me to nothing more than an attempt to make a man pay notwithstanding that he has ordered his affairs that the amount of tax sought from him is not legally claimable.' Lord Russell of Killowen expressed his disapproval of the doctrine in these words : I confess that I view with disfavour the doctrine that in taxation cases the subject is to be taxed if, in accordance with a court's of what it considers the substance of the transaction, the court thinks that the case falls with in the contemplation or spirit of the statue. the subject is not taxable by inference or by analogy but only by the plain words of a statue applicable to the facts and circumstances of his case.' He then cited the observation of Lord Cairns in Partington v. attorney General (1869) LR 4 HL 100 and referred to the case of Scoble v. Secretary of State for India (1903) 4 Tax Cas 618 Lord Wright said at page 529 ; ' And once it is admitted that the deed is a genuine document, there is in my opinion no room for the phrase in substance. Or, more correctly the true nature of the legal obligation and nothing else is 'the substance'. I need not develop this point, as I agree with what has been said by my noble and learned friends, Lord Tomlin and Lord Russell of Killowen.'
(6) In the latter case the Privy Council disposed of the matter in an emphatic disavowal of the so called doctrine in the following words: Their Lordships think it necessary once more to protest against the suggestion that in revenue cases 'the substance of the matter' may be regarded as distinguished from the strict legal position. They cited the passage of Lord Russell of Killowen in (1935) 19 Tax Cas 490 with approval.
(7) It is therefore, obvious that it is not open to the income-tax authorities to deduce the nature of the document from the purported intention by going behind the document or to consider the substance of the matter or to accept it in part and reject it in part or to re-write the document merely to suit the purposes of Revenue. Inasmuch as the consideration for the transfer was not money but only transfer in question is not a sale but an exchange.
(8) In view of what has been held on the first question, the alternative question does not arise. But having regard to the arguments addressed before us by both sides and the submission of the learned advocate for the Department that we should express our view on this question also, we do so, the contention of the assessee's advocate is that when the Income-tax Officer is computing the profits and reducing the value of the property by writing down its value, he must likewise take the market rate and not the face value of the shares while Mr. Kondaih on the other hand, relies on the specific reference to the values fixed by the parties, viz., that the property was valued at Rs. 1,20,000/- and as much as the consideration was Rs. 1,20,000/- If however, the market value of the shares was more than the face value the assess's ;learned Advocate asks, whether the department would not have taken that value. Face value of the shares is not a criterion for determining the assessable values of the shares. The market value is the value which would be taken into account for computation either of profits or of its wealth. In many instances, where shares are allotted to the Directors or employees of a company at face value when the market value is higher, the allottees were held in a series of cases to be assessable to the tax on the difference between the par value actually paid for the shares and their market value. (See Weight v. Salman, (1935) 19 Tax Cas 174 ; Abbott v. Philbin, 1960 39 Tax Cas 82 and Bentley v. Evans, 1959 39 Tax Cas 132. We therefore think that the Income tax Officer should have taken the market value of the shares into consideration in computing the profits, if any.
(9) Our answer to the first question, therefore, is in the negative and to the second question, therefore, is in the negative and to the second question, in the affirmative, i. e. that it is the market value that has to be taken into consideration. The reference is answered according with costs. Advocate's fee Rs. 200/-.
(10) Answer according .