Velu Pillai, J.
1. The two questions referred by the Income-tax Appellate Tribunal, which may be referred to as the Tribunal, under Section 66(1) of the Indian Income-tax Act XI of 1922, or simply the Act, are :
'(i) Whether there were materials for the Tribunal to hold that the transfer of the assets of the aforesaid business to the limited company aforesaid was on or after 1-4-46?
(ii) If the answer to question (i) is in the affirmative, whether Rs. 47,207 the capital gain on the sale of goodwill is assessable under Section 12B?'
They arise on the following facts : -- The asses-see owned and carried on a business in Ceylon, the assets of which, movable and immovable, were purported to be transferred by him under two deeds bearing the date 3-5-1946, to a limited company, hereafter called the company, newly formed and incorporated in Ceylon on 15-4-1946, for a total consideration, of 5 lakhs of rupees, which was accounted for by allotting 5000 fully paid-up shares of the face value of Rs. 100 per share, to the assessee, though the book value of such assets for him, was only Rs. 1,87,642.
One of the contentions of the assessee was, that the transfer had been made by him orally on 31-3-1946, and not on 1-4-1946, the date on which the account books of the company were opened, or on 3-5-1946, the date on which the deeds referred to above were executed. For the assessment year 1947-48, corresponding to the accounting year which ended 31-3-1947, the Income-tax Officer made an assessment under Section 12-B of the Act on the sum of Rs. 3,12,358, being the excess of the consideration, for which the assets were transferred, over their book value. While making a return of its income for the assessment year, the company bad, addressed a covering letter to the Income-tax Officer, which mentioned the date of the company's taking over the business as 1-4-1946.
Though later, the company's representative filed an affidavit that the business was taken over on 31-3-1946 itself, it was found by the Income-tax Authorities, including the Tribunal, that the transfer of the assets to the company was made only on 3-5-1946. The first question referred to this Court arises' out of this contention of the assessee. The second question relates to the goodwill of the business, which was assigned a value of Rs. 60,000 upon the transfer of the assets, which was in excess of its book value for the assessee, by Rs. 47,207. His contention in this respect was, that being intangible property, goodwill is not a capital asset, as to attract tax liability under Section 12-B of the Act; but the Tribunal negatived this contention and the second question covers this.
2. The assessee had a further contention before the Tribunal, that the transfer of the assets having been made in consideration of the allotment to him of shares in the new company as aforesaid, in truth and reality, it brought no profit or gain to him, and that therefore there was no 'capital gain' within the meaning of Section 12-B. The Tribunal disposed of this contention by paragraph 8 of its order which reads :
8. 'The last argument is answered by the Appellate Assistant Commissioner whose reason we fully endorse.'
The reason adduced by the Appellate Assistant Commissioner which was so endorsed by the Tribunal was stated thus by the former :
'The face value of a share in the company was Rs. 100; 5,000 shares of this face value were transferred to the appellant, either in his name or in the name of his nominees. However, in addition, 1,870 shares were issued for cash to 16 outsiders. These persons actually paid cash at the rate of Rs. 100 per share. They would certainly not have done so, if they were not satisfied that the shares were intrinsically worth so much. It is therefore clear that the shares had a market value at par with the face value. Hence the shares allotted to the appellant were equivalent to Rs. 5 lakhs in cash. There was therefore nothing imaginary or inflated in the sale price. It may also be noted that even in the agreement, dated 31-12-1945 previously referred to, the appellant had undertaken to value the assets as reasonably as possible (Clause 11.)'
The assessee therefore requested the Tribunal to refer the following question also to this court :
'Whether on the facts and in the circumstances of the case, the assessment on Rs. 3,12,358 on the applicant is right in law especially having regard to the value of the items transferred and the consideration being satisfied by the issue of shares which could not have had a market value on the date of transfer?'
But it was not so referred, although in paragraph 16 of the statement of the ease, the Tribunal did advert to the contention of the assessee, that 'the consideration accepted in shares does not reflect accurately the sale price of the assets'. In making this reference on the two questions, the Tribunal referred to the grounds set out in paragraphs 5 to 9 of its order, of which paragraph 8 has been extracted above. Though this is a reference of the year 1955, the assessee has preferred a civil miscellaneous petition, numbered as 5361 of 1959, on 30-11-1959, requesting this court 'to reframe or resettle the questions referred' so as to cover the third contention adverted to above. The reference and the civil miscellaneous petition were accordingly heard together, and this order relates to both.
3. The learned counsel who appeared for the assessee, did not press his contention on the first question referred. We are also satisfied, on the order of the Tribunal and on the statement of the case that the first question is one of fact and that further, there was ample material for the Tribunal to hold that the transfer of the assets of the business to the limited company took place only after 1-4-1946. On the second question, the learned counsel for the assessee wanted to urge, that the consideration for the transfer having been received by the assessee only in the form of shares in the company, the excess value, if any, of the goodwill has not so far been realised by him, and that the shares have no market value.
This is really the third contention of the assessee referred to above, as applied to the transfer of the goodwill. The second question was referred, as observed, on the ground that goodwill of a business is not a capital asset. In paragraph 7 of the order the Tribunal held, that goodwill is a capital asset, although intangible in nature. The goodwill transferred was assigned a value, separate and distinct from that of other assets upon transfer. In the application made by the assessee to the Tribunal for reference question (ii) was drafted, by hint in the following form :
'Whether on the facts and in the circumstances of the case, goodwill being an intangible asset comes within the definition of Section 2(4A) of the Indian Income-tax Act so as to come within the provision of Section 12B and assessable under tax on Capital Gains?'
According to Adamson's valuation of assets, the value of goodwill is ascertained by valuing the business as a whole and by deducting from it the value of the tangible assets--See Venkoba Rao's commentaries on the Companies Act, 1956, 195/ Edition, Volumes II and III, page 564. It was not disputed, that though intangible in nature, goodwill is very often of substantial value, to a business.
The definition of 'Capital asset' in Section 2(4-A) of the Act as 'property of any kind held by the assessee, whether or not connected with the business, profession or vocation' is of such wide amplitude as to take in an intangible asset of this kind. Indeed, the learned counsel was placing more reliance on the third contention as applicable to goodwill, that its value, also received by the assessee in shares, has not been realised and has not brought him any profit, a contention, which we have endeavoured to point out was not the basis of the reference on the second question relating to goodwill. On these grounds we answer question (ii) in the affirmative, that is, that 'Rs. 47,207, being the capital gain on the sale of goodwill is assessable under Section 12-B'.
4. It remains to dispose of C. M. P. 5361 of 1959. Clearly, if the matter covered by it were to fall within Section 66(2) of the Act, the petition is out of time; this was not disputed. The petition purports to be made, and at the hearing was sought to be maintained, under Section 66 (4) of the Act. The prayer in the petition, as already noted, was however to reframe and resettle the questions referred, so as to admit of the contention that the amount of Rs. 3,12,3.58 received on allotment of shares in the company, did not represent capital gain to the assessee. We may at once state, that on the scope of the reference, there can be no case for refraining or resettling the questions referred, as they are clear as to their content, which cannot be altered or enlarged. The learned counsel for the assessee, therefore, pressed us, to direct the Tribunal to state a case on the additional question, as if it had omitted to do so, asserting that there is power in the Court under Section 66 (4) for the purpose.
5. It is, therefore necessary to examine the Scope of Section 66, Sub-sections (2) and (4) of the Act. Section 66(4) reads;
'If the High Court is not satisfied that the statements in a case referred under this section are sufficient to enable it to determine the question raised thereby, the Court may refer the case back to the Appellate Tribunal to make such additions thereto or alterations therein as the Court may direct in that behalf.'
The terms of Section 66(4) are no doubt wide, but it seems to us, that they can be attracted only on the fulfilment of the basic condition, that the High Court must find itself unable to determine the question raised by the Tribunal, upon the statement in the case referred; in other words, the additional statements or the alterations in the statement to be called for, must relate to the questions already raised by the Tribunal, and not to any other. This has been so held by Chagla, C. J. in Pannalal Nandlal v. Commr, of Income-tar, Bombay City : 30ITR57(Bom) ,
The learned Chief Justice observed at p. 141 : (of ITR) : (at p. 500 of AIR) that 'there must be a connection between the question raised by the Tribunal and the further statement called for by the High Court under this section, because the operative words of Sub-section (4) are, that the High Court must not be in a position to determine the question raised by the Tribunal'. In Balbhadhar Mal Kuthiala v. Commr. of Income-tax, Punjab the petition to the High Court was, under Section 66 (4) of the Act and under Arts. 226 and 227 of the Constitution, to direct the Tribunal to state a case, also with reference to an application, which had been dismissed, for the restoration of the appeal, which the Tribunal had previously dismissed for default.
The Punjab High Court in that case held, that only those questions which arise out of the Tribunal's order under Section 33(4) could be referred, and after examining the scope of Section 66 (4) observed that 'the High Court may refer the case back to the Appellate Tribunal to make additions thereto or alterations therein, if the court is satisfied that the statements in the case referred, are not sufficient to enable it to determine the question raised by the Tribunal. Here again, no new questions can be raised or required to be raised. The case can be sent back for clarification of the statement or filling up any lacuna that may be found therein, but this ought to be with a view to enable the High Court to determine the questions that have actually been raised'. The court ruled, that Section 66 (4) does not apply, when the Tribunal states a case on certain questions of law, but refuses to state a case on others, which the assessee or the Commissioner may desire to raise.
6. The Supreme Court had occasion to examine the scope of Section 66(4), though in a different context in New Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax : 37ITR11(SC) but the observations of the Court appear to support the view, that we are taking on Section 66 (4). In that case, the question referred to the High Court was, whether the receipt of cheques in Bhavanagar, amounted to the receipt of sale proceeds there; the High Court, purporting to act under Section 66 (4), called for a supplementary statement of the case from the Tribunal so as to cover the question which had not been referred, 'whether there was any request by the assessee, express or implied, that the amounts which are the subject-matter of these cheques should be remitted to Bhavanagar by post', in order to determine whether the post office acted as the agent of the assessee in transmitting them.
This no doubt opened a new line of enquiry before the Tribunal, and enabled the assessee or the Commissioner to make out a case, which neither of them had, at any previous stage. In deciding against the competency of the High Court to do this, the Supreme Court observed, that Section 66 (4) enabled the High Court to refer the case back, 'only for the purpose of determining the question referred to it. ..... .It is only in those cases where the statements of the case. ..... .are not sufficient to enable the High Court to determine the question raised thereby, that the High Court is empowered to refer the case back to the Tribunal....'. It was also ruled, that the power under Section 66 (4), though wide, must be exercised within the four corners of Section 66 (1) and Section 66 (2) of the Act.
7. A different view of Section 66(4) was taken by the Allahabad High Court in Mahabir Prasad Kiranjanlal v. Commissioner of Income-tax : 20ITR472(All) in which Malik, C. J. observing, that there is no clear provision in the Act, which will apply to a case where the Tribunal has not refused to state a case, but has referred only some of the questions of law, and not others, however, held that the power under Section 66 (4) may be availed of by the High Court to direct the Tribunal to make a reference on the other questions too, and that, to such a case, Section 66(2) is not applicable. He relied on a decision by Kania J. in N. V. Khandvala v. Commissioner of Income-tax : 14ITR635(Bom) where the question in this form did not arise.
There, on a reference under Section 66 (2) of the Act, the assessee made a motion to the High Court to direct the Tribunal to refer four more questions, to which a preliminary objection was taken, that it ought not to be entertained before the case was taken up for hearing. It was held, that the correct procedure was, for the assessee to take out a notice of motion, and bring it to the notice of the Court when the reference itself came up for hearing, and (or the Court to hear them together. The applicability of Section 66 (2) or Section 66 (4) was not raised or determined and on this ground, the case was distinguished by Chagla, C. J. in : 30ITR139(Bom) . The learned Chief Justice also disagreed with the view taken in : 20ITR472(All) .
8. It seems to us, that Section 66 (2) can take in a case, in which on a motion under Section 66 (1) by the assessee or by the Commissioner to refer certain questions, the Tribunal refers only some of them but not all, because there is a refusal to refer some of the questions. There is no warrant for the extreme position taken by counsel before-Chagla, C. J. in the case cited, that Section 66 (2) is confined to a wholesale and does not deal also with a partial refusal. No doubt the words in Section 66 (2) 'on the ground that no question of law arises' create some difficulty in interpretation. Section 66(3) deals with cases of rejection on the ground of limitation and stands by itself; under Section 66 (1), on the prescribed conditions being fulfilled, when a question of law arises out of an order of the Tribunal under Section 33(4) of the Act the Tribunal 'shall. .... .draw up a statement of the case and refer it to the High Court.' If the right and proper view to take is, that the object of Section 66 of the Act is to provide for all eventualities in dealing with a petition for reference to the High Court, Section 66 (4) being out of the picture, Section 66(1), (2) and (3) must, between themselves, be deemed to be exhaustive; in this view, the words 'on the ground that no question of law arises' in Section 66 (2) may be explained, not as limiting the scope of the 'refusal' under it, but only as distinguishing it from a case under Section 66 (3) which the legislature has treated differently, and also from a case under Section 66(1). It has also to be observed that Section 66 (2) does not insist upon the grounds being stated expressly, and it seems to us, that the appropriate ground under Section 66 (2) may even be inferred, when Section 66(1) and (3) do not come in.
A case of inadvertence is not to be presumed too lightly, and in the present case, as already observed, the Tribunal had expressed its approval in paragraph 8 of its order, of the finding of fact, by the Appellate Assistant Commissioner, that the market value of the shares which the assessee obtained in the company was Rs. 5 lakhs. We are, therefore, of the view, that the present case is governed by Section 66 (2). Even if Section 66 (2) is inapplicable for the reason that there was no refusal or that the refusal was not on the ground stated in it, we are of the view that Section 66(4) being inapplicable, it is then a case of omission on the part of the legislature, and the assessee cannot succeed.
9. When the hearing was about to conclude, we were told, that the petitioner had just put in a petition under Article 226 of the Constitution, for a writ of a mandamus to compel a reference; the petition was not posted before us, and we do not propose to say anything further about it.
10. The questions referred are both answered in the affirmative. On the reference, the assesseeshall pay costs, including advocate's fee Rs. 100.The civil miscellaneous petition is dismissed without costs. A copy of this judgment under the sealand the signature of the Registrar of this Court shallbe sent to the concerned Appellate Tribunal.Answers in the affirmative.