1. This is a reference under Section 66(1) of the Indian Income-tax Act, 1922, The assessee is a firm. Till the end of February, 1947, the firm consisted of four partners. Under a deed of partnership, dated February 28, 1947, Messrs. Gillanders Arbuthnot & Co. Ltd. was admitted into the partnership. This company was floated in 1935 ; but it did little business. The said limited company purchased from the then partners of the assessee-firm certain specified shares and securities of the assessee-firm for a sum of Rs. 75,00,000 ; on payment of a further sum of Rs. 14,90,000 the said limited company was admitted as a partner of the firm, the shares of the company in the goodwill and in the profits of the firm being 99%, The partners of the firm and the shareholders of the company were the same.
2. The aforesaid sum was agreed to be satisfied by allotment of 64,900 ordinary shares of Rs. 100 each, to the then partners and a further allotment of 25,000 redeemable, cumulative and preferential shares of Rs. 100 each to the said the then partners, vendors,
3. The firm was originally assessed with respect to its income for the year 1947-48 on August 28, 1948. About one year before the said order, the deed of partnership admitting the limited company as a partner was registered with the income-tax department on August 8, 1917. The original assessment proceeding was 'with respect to the year ending on March 31, 1947. No assessment was made with regard to capital gain, if any, made by the assessee-firm by the said sale to the limited company. Hereafter, the phrase 'the limited company' would mean 'Gillanders Arbuthnot & Co. Ltd.', and the phrase 'assessee-firm' would learn the assessee-firm, Messrs. Gillanders Arbuthnot & Co.
4. Subsequently, a notice under Section 34(1)(a) was issued on May 2, 1949, to reopen the said assessment for the year 1947-48, as capital gain to the firm by the sale aforesaid escaped taxation.
5. Before the Income-tax Officer the assessee-firm appeared through its representatives. The assessee-firm also filed a return showing the same income as it was assessed originally and further submitted that the assessee-firm by the said transaction made no gain ; on the other hand there was a loss.
6. The Income-tax Officer found that the consideration for the sale of the securities by the firm was really Rs. 1,23,82,688, which was considered to be the market value of the shares and securities which the firm sold. That figure was obtained from the prospectus of the limited company aforesaid. The Income-tax Officer further found that there was a direct connection between the buyer and seller. Therefore, the sale was effected at a lower price with the object of reducing the liability to capital gains tax. He also found that the actual cost of the shares and securities was Rs. 47,75,988 on January 1, 1939. The Income-tax Officer finally found that the capital gain on the sale of the shares and securities was Rs. 75,86,960. The Income-tax Officer further found that the value of goodwill should be valued at Rs. 1,13,97,474 on the date of sale and the actual cost of the goodwill on January 1, 1939, was Rs. 86,67,648. Hence, he found a total capital gain of Rs. 1,03,16,768, the gain by the sale of goodwill being Rs. 27,29,826.
7. Against this order there was an appeal to the appellate authority and the first objection of the assessee was that levying of capital gain was 'ultra vires' the Constitution and further that the Government of India, as it was constituted on relevant dates, could not collect tax in respect of gains or profits which accrued due before August 15, 1947. It was further urged that the notice under Section 34 should have no retrospective effect in respect of income earned prior to August 15, 1947, and that the amended Section 34, as in 1948, had no retrospective effect. The first objection was overruled by the Assistant Commissioner on the basis of the decision of the Supreme Court and the second objection was overruled because of the decision of this court in the case of Calcutta Discount Co.,  23 I.T.R. 454, The third objection was that all material facts required for the purpose of assessments were disclosed by the assessee at the time of original assessment and, therefore, the provision of Section 34(1)(a) would not be attracted, and that the Income-tax Officer who issued the notice had merely a different opinion, on the very same facts. The appellate authority was of the opinion, on a consideration of the materials on record, that the assessee failed to disclose all material facts which he admitted later and therefore the Income-tax Officer was quite justified in issuing a notice under Section 34(1)(a). It was further urged before the Assistant Commissioner that the transaction was not a sale in the commercial sense and therefore the said provision (section 34) would not apply. The Appellate Assistant Commissioner overruled all these objections and determined the total value of the shares sold to the limited company to be Rs. 2,04,72,500 ; regarding cost price of the said shares, securities and goodwill to the assessee, the appellate authority agreed with the Income-tax Officer and found the same to be Rs. 1,34,63,376 and thus capital gain was found to be Rs. 70,09,124. The result was that the appeal was allowed and the capital gain was reduced by Rs. 33,07,622. Against the order of the appellate authority, there was an appeal by the assessee-firm to the Tribunal. The Tribunal found that the total amount of capital gain of the assessee-firm by the transaction aforesaid would be Rs. 46,76,784, the shares of the limited company being each valued at Rs. 187.50 each.
8. Against the order of the Tribunal, both the Commissioner of Income-tax as well as the assessee-firm applied for referring the matter to this court. Five questions were referred to this court by the Tribunal. We shall now refer to each of the questions. The Second Question. The second question is as follows :
'Whether the Tribunal was right in holding that the present Government of India was competent to reopen an assessment for the purpose of assessing capital gain and realising the tax in respect of such capital gain which arose prior to August 15, 1947 ?'
9. Dr. Debi Pal, who appears for the assessee, submitted that he would reserve his right to place this point before the Supreme Court; he would not give it up but at the same time he was not inclined to urge the matter in this court. The Tribunal overruled the point for reasons stated in paragraph 22 of their order. Nothing has been urged before us for which we can take another view. We, therefore, answer question No. 2 in the affirmative.
10. The Fourth Question.
11. Question No. 4 is to the following effect:
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the first proviso to Section 12B(2) was not attracted ?'
12. Mr. Pal, for the department, placed this issue which was framed at the instance of the department but we must answer the said question in the affirmative. We find that the negotiation for the sale began in 1946, at a time when Section 12B was not in the statute book at all. This section was introduced in the statute book in 1947. The Tribunal referred to a judgment of this court in George Henderson & Co. Ltd. v. Commissioner of Income-tax, where it was observed:
'That there can be no doubt that the matter does not come within the mischief of the first proviso to Section 12B(2) above-mentioned because the transfer was effected at a time when Section 12B was not in the statute and, therefore, it could not possibly have been made with the object of avoidance or reduction of liability of the assessee under the said Act.'
13. We are of the same opinion and we may observe further that the aforesaid decision of this court went to the Supreme Court in appeal, Commissioner of Income-tax v. George Henderson and Co. Ltd., : 66ITR622(SC) , but the said finding of this court, was set aside. We are therefore of opinion that question No. 4 be also answered in the affirmative,
14. The First Question.
15. We shall now refer to the first question.
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the proceedings under Section 34(1)(a) have been validly initiated '
16. This question was at the instance of the assessee.
17. The assessment year in question is 1947-48. Dr. Debi Pal says, the law that would govern the assessee with respect to income, profits or gains earned during any year would be the law as on April 1, 1947. In Karimtharuvi Tea Estates Ltd. v. State of Kerala,  60 I.T.R. 262 (S.C.) it has been held by the Supreme Court that, 'it is well settled that the Income-tax Act as it stands on the 1st day of April in a financial year must apply to the assessment of the year.' Section 34 of the Income-tax Act was amended in 1939 and in 1948. We shall, for our present purpose, refer to the said section as in 1939 as 'the old Section 34' and as it stands after 1948 as 'the new Section 34 '. Dr. Debi Pal then referred to C.A. Abraham v. Income-tax Officer, Kottayam : 41ITR425(SC) and to Kalawati Devi Harlalka v. Commissioner of Income-tax : 66ITR680(SC) , where the Supreme Court considered the meaning of the word 'assessment', and Dr. Debi Pal urges that all the sections in Chapter IV, as on April 1, 1947, would apply to the assessment in question; hence, the old Section 34 will apply. Dr. Pal nextsays, the assessee had the liability to have the assessment reopened as under the old Section 34. Such right, according to Dr. Pal, is a 'vested right' of the assessee and the assessee could not be deprived of the same. He further says that the right to reopen under the old section is now barred. In support of the proposition he refers to the majority view in Prashar v. Vasantsen Dwarkadas : 49ITR1(SC) , where it has been held by the Supreme Court as follows :
'An important right accrues to a party when the remedy against him is barred by the existing law of limitation and a vested right cannot be affected except by express terms used by the statute'.
18. He also refers to S.S. Gadgil v. Lal & Co.,  53 I.T.R. 23 (S.C.), where it has been held that: 'the period prescribed by Section 34 is not a period of limitation ; the section imposes a fetter on the power of the Income-tax Officer'. Dr. Pal. urges, as the period referred to in the old Section 34 has long expired, that the assessee has acquired a vested right not to have his original assessment reopened. He says, as such right has accrued to the assessee under the old law, his assessment could not be reopened under Section 31(1)(a). He also says that Section 34(1)(a) cannot govern the assessment as it came into force with effect from 28th March, 1948, long after the assessment year in question which ended on March 31, 1947.
19. Dr. Pal further suggests that the said question is not a new question but a new contention or a new aspect, with respect to the question No. 1 referred to this court. For this purpose he relies on the decision in Commissioner of Income-tax v. Scindia Steam Navigation Co.,  42 I.T.R. 585 (S.C.) and T.D. Kumar v. Commissioner of Income-tax : 63ITR67(SC) .
20. The new question or the aspect of the question No. 1 thus raised is really in two parts. The first part is, whether the assessee had a right vested or otherwise to have the assessment reopened under the old Section 34. The second part is, that not being done, whether it acquired a vested right not to have the assessment reopened at all. The question whether the right is now barred or not is beyond this reference.
21. We would not allow this question to be raised for more than one reason. Firstly, if the legal proposition, as Dr. Pal states it, is correct and if the assessee had taken the said point before the Income-tax Officer, the Union of India had enough time to issue or cause to be issued another notice under the old Section 34 to the assessee. We may remember that the notice was seat on May 2, 1919. Original assessment for the year 1947-48 was completed on August 18, 1948. The Union of India would not now be competent to issue another notice under the old section even if that would be required by law. Hence, the Union of India would lose a valuable right for no fault of itself. It would therefore be improper to allow the assessee to raise this new question or even this new aspect of the question, after a period of 19 years when the other party may have lost a valuable right not because of negligence of itself, but because of negligence or unfair conduct of the assessee in not raising the same at the proper time.
22. Secondly, we are of opinion that the question is a new question and not a new contention nor a new aspect of the question No. 1 referred to. It is one thing to say that right, vested or otherwise, is or was acquired under old Section 34 and it is quite a different thing to say that a notice under new Section 34 is or was not valid. The inquiries would be different. Acquisition of right under the old Act would require an investigation into the basic facts for the application of the old section. A different inquiry is necessary with regard to basic facts that may attract the new Section 34.
23. An authority, namely, the Income-tax Officer, could ordinarily initiate a proceeding only under the law, existing at the date of such initiation. But Dr. Pal urges that under Section 6(e) of the General Clauses Act, the Income-tax Officer would be authorised to issue a notice under the old Section 34 even if it was repealed and even if the amendment came into force on the relevant date, i.e., on May 2, 1949. The Income-tax Officer would be so authorised under Section 6(e) of the General Clauses Act to start a proceeding under the old Section 34 if the said officer had acquired any right under the old Section 34; but it is forgotten that the Income-tax Officer has no right against the assessee. He has his duty to perform under the statute. It is true that the Union of India has rights to assess taxes, with regard to all income including escaped income. But the Union of India has the right to tax under Section 3 of the Income-tax Act. Section 34, old or new, did not confer that or another right to tax. The Union of India acquired no new rights, under Section 34, to tax. Section 34 recognises the right of the Union of India to tax and provides the machinery for such assessment. Section 6(e) of the General Clauses Act, which refers to initiation of a proceeding under the repealed law, would not apply because no right as under Section 6(b) of the General Clauses Act accrued to the Union of India by the old Section 34. Hence, Section 6(e) of the General Clauses Act would not authorise the said Union or its officers to start a proceeding under the repealed law, i.e., old Section 34, which created no new right to tax. Hence, at the date of the notice the assessee had no right to have the assessment reopened by the old section. Regarding vested right I may now refer to Prashar v. Vasantsen Dwarkadas, where it has been held :
' ...an important right accrued in favour of a party, when the remedy against him is barred by the existing law of limitation and such vested right cannot be affected except by express terms used by the statute or the clearest implication flowing therefrom,'
24. A clear provision in the new Section 34 is that on a notice under the new Section 34, the Income-tax Officer in May, 1949, could reopen any assessment within four years of the assessment year under certain circumstances and within 8 years under certain other circumstances. There is a clear provision that the Income-tax Officer was authorised to issue a notice under Section 34(1)(a) on May 2, 1949, in cases where the previous assessment was for the year 1947-48, I may also refer to Ahmedabad Manufacturing & Calico Printing Co. v. S.G. Mehta, Income-tax Officer : 48ITR154(SC) , where it has been held that, 'they (Sections 34 and 35) do not create an exemption in favour of the assessee or grant an absolution on the expiry of the period. The liability is not enforceable but the tax may again be exigible if the bar is removed and the taxpayer is brought within the jurisdiction of the said machinery by reason of a new power.'. Besides, on the date the notice under Section 34(1)(a) was issued (May 2, 1949), no vested right under the old or new section had been acquired by the assessee because 8 years or 4 years had not till then passed. Hence, the proceeding under Section 34(1)(a) was then validly initiated.
25. The question urged before the Tribunal below was that all material facts being fully and truly disclosed at the time of the original assessment, no notice under Section 34(1)(a) could be issued. Dr. Debi Pal says that original assessment was of a firm. Hence, the Income-tax Officer must have enquired whether the firm was registered or not. It could not but be disclosed that the firm was registered ; if the question of registration arises, the relevant questions are who were the partners and did any new partner come to the partnership. The last paragraph of the original order of the Income-tax Officer dated August 28, 1948, shows that assessment and the renewal of the registration of the firm was made on the same date. Hence, the partnership deed was placed before the Income-tax Officer and it was disclosed that a new partner was admitted. It could not but be disclosed that the limited company had purchased certain shares of the firm and had been admitted as a partner into the firm; the deed of partnership would also show in paragraph 6 that the company had 99% of the shares of the firm; hence, that was also disclosed. Whether or not any capital gains were made was not disclosed by the assessee because, according to the assessee, the shares and securities had not been really sold in the proper sense of the term. The assessee was of opinion that no actual sale took place and so no question of capital gains arose. Dr. Debi Pal refers to Calcutta Discount Co. Ltd v. Income-tax Officer : 41ITR191(SC) , where it has been held that there is no duty on an assessee to disclose any inference from facts. The consideration for the sale was unnecessary to be disclosed, because there was no real sale but a mere adjustment of business relations.
26. Let us suppose everything in favour of Dr. Pal. The question is whether all material facts for the purpose of assessment were truly and fully disclosed. This question is prima facie a question of fact. But if any fact that is considered by an authority to be material is not relevant at all, the consideration of such irrelevant facts by the authority concerned would be an error of law. This is held by Das Gupta J. in the Supreme Court in the case of Calcutta Discount Co. There are legal principles determining relevant facts. The principle regarding the relevancy of facts may be found in the Evidence Act. The Evidence Act may not be applicable in terms. Even though the Income-tax Officer may be a court within the meaning of that Act, the proceeding before him is not quite a 'judicial proceeding' but the Supreme Court has considered it to be an administrative one (referred to S.S. Gadgil v. Lal and Co.,  53 I.T.R. 231) but even then the principles underlying there sections of the Evidence Act would apply. There is, thus, law determining relevancy of facts. The Tribunal has considered that certain materials were not then disclosed. These materials are relevant matters but, according to Dr. Pal, the said material facts refer to Sub-section (2) of Section 34 and relates to computation. No question of computation according to Dr. Pal arises on the inference of the assessee. It did not disclose those matters as unnecessary ; but as the Tribunal has considered those relevant matters to be material facts for disclosure, whether rightly or wrongly, we cannot interfere with this finding, unless the Tribunal has taken into account some facts which according to law are not relevant. The facts taken into consideration by the Tribunal may be unnecessary for the purpose of Section 12B(1) but they were relevant for the purpose of Section 12B(2); facts relevant for an enquiry whether there was capital gain would at once include facts referred to in Sub-section (2); it is therefore beyond our power to interfere with that finding of fact.
27. Mr. Pal, for the department, urged that according to rules only two questions were relevant for the matter of registration of the firm. They are (1) whether the application was in form and (2) whether the firm is a bogus one or not, and according to Mr. Pal, it was not necessary for the Income-tax Officer at the time of the registration of the firm to go into any other matter. I do not think this matter is of any importance to us. The Tribunal was the final authority on facts. The partnership deed was before the Tribunal; the date of its original registration was before the Tribunal. A copy of the original assessment order and of the renewal order registering the firm were also before the Tribunal; they had also the sale deed before them. All these materials were relevant. The Tribunal considered these materials. They also considered facts not originally disclosed ; they also are relevant, The Tribunal on a consideration of allrelevant materials came to a finding that all materials were not disclosed. This is a finding on facts by the final authority. Therefore, we must answer the said question No. 1 in the affirmative.
28. Questions Nos. 3 and 5.
29. We now deal with questions Nos. 3 and 5, which are as follows:
'3. Whether, on the facts and in the circumstances of the case, any capital gains within the meaning of Section 12B of the Income-tax Act, 1922, could be said to arise by the transaction involving transfer of investment held by the assessee-company, admission of the company as a partner in the assessee-firm and issue of shares of the company to public ?
5. Whether, on the facts and in the circumstances of the case, the, Tribunal was justified in law in computing the capital gains at Rs. 46,76,784?'
30. Regarding question No. 3.
31. Dr. Debi Pal urges that, even if the transaction is in the form of a sale and satisfies prima facie all elements of a sale, no capital gains under Section 12B arose out of the transaction because it was a mere readjustment of business relation of the Gladstones who are the partners of the assessee-firm. Dr. Pal refers to the findings of the authorities below and says the partners of the firm and the shareholders of the limited company were the same. The said partners formerly realised their profits through the medium of the firm and after the so-called sale, the same persons would realise their profits in the same business, through the medium of a limited company or, to be more accurate, through the media of the limited company as well as of the firm. For this purpose he refers to the decision in Commissioner of Income tax v. Mugneeram Bangur & Co.,  47 I.T.R. 565 which is a decision of a Bench of this court. The question there related to the interpretation of Section 10(2)(vii). He also refers to the decision of the Bombay High Court in Rogers & Co. v. Commissioner of Income-tax,  34 I.T.R. 336 and Commissioner of Income-tax v. Sir Homi Mehta's Executors,  28 I.T.R. 928.
32. But we are now concerned with Section 12B. Section 12B, at the relevant time, was as follows :
'(1) The tax shall be payable by an assessee...in respect of any profits or gains arising from the sale, exchange or transfer of a capital asset effected after the 31st day of March, 1946, and before the 1st day of April, 1948.'
33. This part of the section, prima facie, includes all sorts of transferwhether by act of parties or by operation of law. But even though theoperative portion of the section is wide, its operation has been curtailed bythe provisos following. The second proviso excludes from its operationsale, exchange or transfer of some property which was possessed by theassessee or his parent for not less than seven years. The third provisoexempts cases of compulsory acquisition of property for a public purpose,even though it is a transfer by operation of law ; it also exempts from itsoperation property distributed by partition among the members of a Hindujoint family; when property is distributed on the dissolution of a firm orother association or on the liquidation of a company they are exempted fromthe operation of the section; where a property is transferred by a deed ofgift or bequest or by will or by irrevocable trust, such transfer as aforesaid will not be treated as sale, exchange or transfer within the meaningof Section 12B. The fourth proviso is more material for our purpose; thatshows that when a company transfers capital assets to a subsidiary companyand the entire capital of the subsidiary company is held by the parentcompany, the said transaction would not be treated as a sale, exchange ortransfer. We, therefore, get a provision in Section 12B that Section 12Boperates with regard to all transactions of sale, exchange or transfer but itwould not operate with regard to certain classes of transfer which wouldordinarily come within the meaning of 'sale, exchange or transfer'. Thelegislature, therefore, having provided for taxation with regard to 'sale,exchange or transfer' generally excluded certain transactions from thecategory of 'sale, exchange or transfer', and exempted them from theoperation of the section. The question here, as urged by Dr. Pal, is that thepartners of a firm transferred 99% of their shares to a limited company andat the relevant date of the transfer, shares of the limited company wereheld by the said partners and none else though there was a provision forissue of shares to the public but nothing like that happened within theassessment year. It is therefore urged that this no 'transfer, sale orexchange' which gives rise to any 'capital gain'. The reason urged isthat a transaction by the partners to a company or by one group of partnersto a public company sponsored by the said partners were considered to beno transaction in the commercial sense. It was considered in the aforesaidcases to be a mere readjustment of business relation of the parties. It isnot necessary to discuss all the cases of the aforesaid type because all thosecases are under Section 10(2)(vii) where the phrase used by the legislatureis 'actually sold', the word sale is there qualified by the word 'actually'.The Bombay High Court, while considering this matter in Rogers & Co. v.Commissioner of Income-tax or in Commissioner of Income-tax v. Sir HomiMehta's Executors, had to find out whether there was 'actually' a 'sale'.In the aforesaid cases under Section 10(2)(vii) of the Act there were transferdeeds, and the transfers appeared to be sales but the court had still to enquirewhether what appeared prima facie to be a sale was 'actually' so. Indetermining that matter it was held that in the said Section 10(2)(vii) a'sale' should be in the commercial sense and not merely in the legal sense. In Rogers & Co. v. Commissioner of Income-tax, the partners of a firm transferred assets to a limited company and it was found that the said partners were shareholders of the limited company and it was decided that it was not a sale in the commercial sense. It was merely a readjustment of the business relation but not a sale within the meaning of Section 10(2)(vii) of the Income-tax Act. Similar observations were made in the case of Commissioner of Income-tax v. Sir Homi Mehta's Executors. It is true that in the decision of this court reported in Mugneeram Bangur's case it was observed as follows:
'For the purpose of income-tax a transaction must be looked at from a commercial point of view and in trying to determine whether a certain transaction resulted in profits, we must come to a conclusion that the transaction resulted in real profits, profits which from the commercial point of view meant a gain to the person who entered into the transaction, not profits from any narrow, technical or legalistic point of view.'
34. These observations, bereft of the context, may appear to mean that in all the sections of the Income-tax Act the word 'sale' is to be construed in the aforesaid manner but their Lordships were construing Section 10(2)(vii) and did not mean to say anything as to what 'sale' would mean in the other sections of the Act. The aforesaid observations should be limited to the interpretation of the phrase 'actually sold' in Section 10(2)(vii). The Tribunal thought that the principle of the aforesaid cases should apply to interpret Section 12B but the Tribunal further thought that this court limited its decision with respect to a public company where a sizeable proportion of the shares were not issued to the public; the Tribunal found that, as the company in question offered a sizeable proportion of shares to the public, so the assessee would not get the benefit of the observations in the aforesaid decision. Dr. Pal urged that during the relevant year no sizeable or other proportion of the shares of the limited company were sold to the public.
35. But in our opinion it is not safe to impose the interpretation of certain words in one section upon another, particularly when the sections themselves are worded differently. In Section 12B, the word 'actually' is very conspicuous by its absence. In Section 10(2)(vii) the phrase is 'actually sold' ; in Section 12B, the phrase 'sale, exchange or transfer' was used but none of them was qualified by the word 'actually', therefore, the question whether a sale is actually a sale or not, does not arise in Section 12B. What is the meaning of the word 'actually' does not therefore arise for consideration and it cannot therefore be stated that the phrase 'sale, exchange or transfer' must be a sale, exchange or transfer in the commercial sense, not in the legal sense. So the question, whether a sale by the partners of a firm to a limited company where the partners are the shareholders of the company would be considered to be 'actually' a 'sale' or not, does not arise in this case.
36. In Section 12B we have the phrase 'sale, exchange or transfer'. In the provisos we get a list of transactions which, though ' a sale, exchange or transfer', would not come within the category of that phrase for the purpose of Section 12B.
37. A transfer by a parent limited company to a subsidiary company has been exempted by a provision. A similar transaction by a parent firm to a subsidiary firm has not been granted similar relief, it may be unfair or unjust not so to include. Then again, where the partners of the firm have transferred capital assets to a limited company, which is undoubtedly a different legal person, the question is, can the court by way of construction add something to the list of exemptions which is not there. I have no doubt that the answer must be in the negative. The question arose in Union of India v. Commercial Tax Officer, West Bengal 0065/1955 : 2SCR1076 , where the Supreme Court held that the exemptions created by the provision of Section 5(2)(A)(II) of the Bengal Finance Act must be construed strictly and cannot be extended to a sale to another Government department.
38. Crawford, in Article 258, on Construction of Statutes, observes :
'Provisions providing for an exemption may be properly construed strictly against the person who makes the claim for exemption'.
39. He referred to various reasons for the aforesaid rule of interpretation. He refers to the judgment of Justice Brewer in Stahl v. Education Association of the Methodist Church, 54 Kan. 542, where it is observed :
'The obligation to pay taxes is co-extensive with the protection received. An exemption from taxation is a release from this obligation. It is the receiving of protection without contributing to the support of the authority which protects. It is an exception to a rule...... they whoclaim under an exemption must show themselves within its terms'.
40. second reason is:
'The exemption laws are in derogation of equal right, and this is an equally important reason for construing them strictly (Jones v. William., 121 Tex. 94)
The third reason appears in Bank of Commerce v. Tennessee, 161 U.S. 134: no implication will be indulged in for the purposes of construing the language used as giving the claim for exemption, where such claim is not founded upon the plain and clearly express intention of the taxing power.'
41. Section 12B provides for taxation. It also provides for exemption from taxation. The provision which relates to exemption may be construed liberally but in favour of the taxing power (Crawford, Article 257). Various exemptions have been included in Section 12B of the Act but no further exemption can be granted. In the case of Union of India v. Commercial Tax Officer, West Bengal, referred to above, deductions were granted with respect of sales to Indian Stores Department, the special department of the Government of India, and to railway or water transport administration. The question was whether sales tax would be payable or not in cases of sale to the Ministry of Supplies, Government of India. The answer was such sale would not be exempted ; because the exemptions should be construed strictly and whatever is not included in the language granting exemption shall be excluded from exemption. We are bound by the aforesaid principle of interpretation by the Supreme Court.
42. In such circumstances we do not think it is necessary to discuss all the cases on Section 10(2)(vii) which have been relied upon by the learned advocates on either side. We agree with Mr. Pal that the sale in question was a real sale because the real partners transferred to a juristic person, namely, the limited company ; the subject-matter sold was equally real and the consideration for the sale was also real.
43. On the third question Dr. Debi Pal's point may at its highest be stated as follows:
44. No capital gain accrued to the assessee-firm by the aforesaid transaction. The shares and securities were sold by all the partner of the firm, i.e., the firm. The price was stipulated at Rs. 75 lakhs. But that was not paid. In lieu of Rs. 75 lakhs, the company allotted its shares to the partners of the firm. The value of the shares of a company depends upon its capital assets. The capital assets of the firm, at that time, were the shares and securities sold. Hence, the partners sold the shares and securities and they as shareholders got them back in the cover of the shares of the limited company. The partners transferred 99% of the goodwill to the limited company but the firm got it back as the company joined the firm.
45. While interpreting revenue law, we need remember that there is a question of administration of revenue law and that is a matter of high public policy. Such interpretations of the statute should not be made as would make it unworkable.
46. We shall now consider what was sold. The agreement for sale says in paragraph 1 as follows:
'The existing partners shall sell and the company shall purchase the shares and securities (particularly described in a list) for a sum of Rs. 75,00,000' ; so far as this sale is concerned, (a) the sale was by persons competent to sell, (b) the thing sold was shares and securities described clearly, (c) consideration for the sale was Rs. 75,00,000 and (d) they were soldto the limited company, a person entitled in law to purchase and different from the vendors.
47. Hence, it could not be said that nothing was sold. It may be Rs. 75 lakhs was not paid but shares were allotted in lieu of it. The question how liability to pay purchase money would be discharged is a question apart from the question of reality of the sale. If the shares of the limited company were not allotted to the vendors, and if the claim for Rs. 75,00,000 was barred by time, the transaction could not become invalid after the expiry of the period of limitation. The character of the transaction was that of a sale for a specified sum of money called the price. I may refer to Commissioner of Income-tax v. R. Ramakrishna Pillai : 66ITR725(SC) , where the Supreme Court has held that a transaction of sale would still be considered to be a sale, if the consideration money would be discharged by allotment of shares. In this connection we may refer to Section 10(2)(vib) where the word ' sold ' was used ; a limited company sold certain buses to the partners of a firm for a stated price; and the shareholders of the limited company and the partners of the firm were the same; after such a sale the limited company carried on as usual its business. The question was whether there was a sale where the word used in the statute was 'sold' and the Supreme Court in Chittoor Motor Transport Co. (P.) Ltd. v. Income-tax Officer : 59ITR238(SC) held as follows :
'...there was a sale by the company to the partners. The transaction would be a sale under the Sale of Goods Act and it would be a sale in any other proper meaning of the word 'sale'. Whether it resulted in profit or not, it came within the purview of Section 10(2)(vib).'
48. Similarly, in section 12B where the word used is 'a sale' and the transaction satisfied all the elements of a sale, the question is whether there was capital gain or not will depend on computation as in Section 12B(2). The second term of the agreement for sale is as follows: 'In consideration of the sum of Rs. 14,90,000 the existing partners shall admit the company as a partner in the firm......the share of the company in the goodwill and in the profit of the firm being 99% thereof.'
49. This transaction is not the form of a transfer by the firm. On payment of the aforesaid sum a particular partner was admitted. So far as thefirm is concerned it is a matter of reconstitution of the firm. So far as the'existing partners' of the firm are concerned, each of them might have soldhis share in the goodwill except to the extent of 1/4%. Hence, the transactionswould be sales of their shares in the goodwill of the firm. But the firm isthe assessee and not the partners. The partners might have individuallymade capital gains by sale of goodwill, but not the firm. For the purpose ofincome-tax, the firm is a unit or entity different from the partners of thefirm. The question is, is this transaction a 'sale, exchange or transfer'within the meaning of Section 12B, so far as the firm is concerned. The firm has not transferred its goodwill. The firm is merely reconstituted. I may refer to Commissioner of Income-tax v. A. W. Figgies & Co., : 24ITR405(SC) , where the Supreme Court held :
'The partners of a firm are distinct assessable entities while the firm is a distinct and separate unit for assessment.'
50. Let us examine the transaction relating to goodwill more closely. First, we find that the transaction has not been described in a manner to satisfy the elements of a sale by the firm. The firm is not selling its goodwill but the partners are. The firm has no share in the goodwill, it has the goad-will. Secondly, when goodwill is transferred, it is always done with the intention that the transferee would exploit that goodwill and the transferor would be prevented from exploiting that goodwill which is sold. It is clear from paragraph 22 of the deed of partnership that the limited company would exploit the said goodwill of the partnership firm upon the dissolution of the firm but until that event occurs, the limited company will merely have a share in the goodwill of the firm ; the firm will carry on its business with its 100% of goodwill. Hence, the firm retained its goodwill by the transaction and did not sell its goodwill, though the 'existing partners' of the firm did so. The transaction here was no sale of goodwill so far as the assesses is concerned because goodwill of the firm would not be transferred to the company except on dissolution and thus the limited company would then get not 99% of the goodwill but 100% of it. The firm could not sell the goodwill and still exploit it. Hence, the firm retained the goodwill but the partners sold the shares less 1/4%. They are not the assessees. Such reconstitution of the firm which carried on the same business as before will not affect it as an unit for assessment. It would still be same unit (vide Commissioner of Income-tax v. A. W. Figgies & Co.). We hold that there was no sale of goodwill by the assessee-firm to the limited company.
51. The two transactions are different. By the sale of shares and securities, the partners and the firm lost them. The purchaser-company joined the firm and the shares and securities might have been available to the firm but they became the property of the limited company and not of the firm. By the transfer of goodwill, the partners lost it but the firm retained it, till dissolution.
52. The Fifth Question.
53. Coming now to the last question regarding the computation of capital gain we have to find out the value of the stocks and shares, sold to the company, we are asked by Mr. Pal to take into consideration the 'full value' of the shares of the limited company. Mr. Pal has referred to the following observation of the Supreme Court in Commissioner of Income-tax v. George Henderson & Co. Ltd. The expression 'full value' of consideration for which sale, exchange or transfer of capital assets is made appearing in Section 12B(2) of the Indian Income-tax Act, 1922, does not mean the market value of the assets transferred but the price bargained for by the parties to the sale. According to Mr. Pal, the sum of Rs. 75 lakhs was never intended to be paid ; hence the 'full value' of the shares allotted would be market value of the shares of the limited company and Mr. Pal says the market value of the limited company should be at Rs. 175 per share. Dr. Pal, for the assessee, on the other hand, says, merely the money value of the thing transferred should be taken into account when the Supreme Court used the word 'money's worth' ; it referred to cases of exchange and not to cases of sale. Where there is a sale there is a pecuniary consideration for the same and if that pecuniary consideration is not paid, the only right of the transferor is to get that price by selling the assets of the transferee. The transferor in the case of a sale has no right to get anything more than that, The Supreme Court has also observed in the aforesaid case as follows:
'The expression 'full value' means the whole price without any deduction whatsoever and it cannot refer to the adequacy or inadequacy of the price bargained for. Nor has it any necessary reference to the market value of the capital asset which is the subject-matter of the transfer.'
54. On the facts of this case the shares and securities after the transfer became the capital assets of the transferee-company. As they became capital assets of the transferee-company, the value of the shares of the company would again be the value of those shares and securities transferred. Hence, if we try to find out the market value of the shares of the limited company, we really get the market value of the capital assets of the company and that is the value of the shares and securities transferred. But in a sale as under the Sale of Goods Act or, as the word 'sale' is ordinarily understood, the consideration for a sale is the pecuniary value agreed to. A thing is sold for a price; no question arises of the value of that price.
55. 'Full value' is not the fair market value except when the proviso to Section 12B(2) applies. The Supreme Court observed, in the aforesaid case, as follows :
'If the conditions of the first proviso to Section 12B(2) are not satisfied, the Income-tax Officer must take into account the 'full value' of the consideration. This 'full value' in the case of a sale means the price without any deduction.'
56. We have held that the proviso to 12B(2) does not apply. Hence the 'full value' is Rs. 75,00,000 and the cost price of the shares is admitted by both the lawyers to be Rs. 47,75,988 on January 1, 1939. Hence, capital gain by sale of securities was Rs. 27,04,272. We have already foundwhile considering question No. 3 that there was no sale of the goodwill so far as the assessee-firm is concerned either in form or in substance. The intention was that the firm would retain 100% of its goodwill till it is dissolved and on dissolution the limited company would gain 100% goodwill. So far as the assessee-firm is concerned, goodwill of the firm will be transferred to the limited company on the dissolution of the firm and not before that, but the shares of the then partners in the goodwill were transferred to the limited company to the extent specified; the said partners are not the assessees. Hence, there was no question of capital gain so far as goodwill is concerned on admission of a partner into the firm. We, therefore, answer the fifth question in the negative, and hold that the capital gain amounted to Rs. 27,04,272. The third question is answered in. the affirmative with respect to the sale of investment and in the negative so far as admission of the company as a partner in the assessee-firm.
57. Hence, our answer to question No. 1 is in the affirmative, to question No. 2 is in the affirmative, to question No. 3 is in the affirmative, so far as the transfer of investments, and in the negative so far as the admission of the company as a partner in the assessee-firm, to question No. 4 is in the affirmative, to question No. 5 is in the negative and the capital gain was Rs. 27,04,772.
58. In view of the divided success, each party will bear his costs.
Sankar Prasad Mitra, J.
59. I agree.