P.B. Mukharji, J.
1. In this Reference under Section 66(2) of the Income-tax Act the High Court directed the Tribunal to refer the following question for its decision:
'Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the sum of Rupees forty thousand two hundred and forty seven could not be deemed to be profits of the assessee company under second proviso to Section 10(2) (vii) of the Indian Income-tax Act?'
2. The assessee is Associated Clothiers Ltd. of 21, Old Court House Street, Calcutta and is a private Limited Company. It was formerly carrying on business as clothiers and dealers under the name of M/S Phelps and Company Limited. M/S Phelps and Co. started as a partnership on the 5th February, 1912 and was later converted into a Limited Company on the 30th September, 1939, On the 21st March, 1952 the name of Phelps and Company Ltd. was changed into the name of the assessee. But on the same day a new Phelps and Co. was incorporated. On this 21st March, 1952, there was an agreement between the Associated Clothiers Ltd., the assessee, described as having its registered office at 5, Mission Row Extension, Calcutta and called the Vendor and this Phelps and Co. Ltd. described as having its registered office at 21, Old Court House Street, Calcutta as the purchaser. It is found as a fact that Phelps and Co. Ltd. transferred all its assets and liabilities to the assessee, although the agreement of the 21st March 1952 says 'a part', and it is also further found as a fact that all the shares of the purchaser company were held by the assessee. It has also been admitted by the assessee that all the shareholders and all the Directors of these two companies were the same at the relevant time and their objects in the Memorandum and Articles of Association were for all practical purposes identical.
3. The controversy arises with regard to a building at 9A, Connaught Place, New Delhi. It was an asset of the assessee as on the 21st March 1952, By Clause 9 of the Agreement dated 21st March, 1952, the transfer of the said premises was deemed to take effect from the 1st July, 1952 and the purchaser company was entitled to all rents issues and profits of the said premises and was responsible for payment of all rents, taxes and other outgoings accruing due from that date. No deed of conveyance was executed and registered. But it is common case that the purchaser entered into possession of the said premises on the 1st July, 1952 which was the date stipulated in the deed of agreement. The transfer of the assets and liabilities of the business was effected on the basis of the figures disclosed in the books of the assessee.The balance-sheet of the assessee as on the 31st March, 1953 showed that the building was transferred to the new company for Rs. 2,24,637/-. The original cost of the building was determinedat Rs. 97,258/- and the written down value of the building in the records of the Income-tax Officer was Rs. 57,011/-. The difference between the original cost and the written down value was Rs. 40,247/- which the Income-tax Officer assessed as profits deemed to have been earned by the assessee. This assessment was, therefore, made under the second proviso to Section 10(2)(vii) of the Indian Income-tax Act. It is also found as a fact by the Income-tax Officer that although no deed of conveyance was executed the premises in question had been 'sold' within the meaning of the second proviso to that section and he added the amount of Rs. 40,247/- to the total income of the assessee. The Appellate Assistant Commissioner confirmed this assessment.
4. Before the Tribunal there was no dispute or controversy that the property in fact was sold within the meaning of Section 10(2)(vii) of the Income-tax Act. The controversy arose over the question of the nature and character of that sale. On behalf of the assessee, the Associated Clothiers Ltd., the contention was that the transfer was from self to self and a part of the organisation of the company and therefore it was not a commercial sale yielding any profit which was liable to taxation. The Tribunal, however, found that the assessee, the Associated Clothiers Ltd. held ail the shares of the purchaser company and there was he change of ownership in substance and applied the decision of the Bombay High Court in the Commissioner of Income-tax, Bombay City v. Sir Homi Mehta's Executors reported in : AIR1956Bom415 , and ordered exclusion of Rs. 40,247/- from the total income of the assessee company.
5. The point involved in this Reference is short but the arguments at the bar have been long and elaborate. Independently of all cases and authorities none of which incidentally is directly on the point involved, the whole question in this case is whether it is at all a sale from self to self. In other words, whether this particular sale by one limited company to another limited company as two distinct legal and juristic entities could be regarded as a sale from self to self on the ground that their share-holders and directors are the same. It raises the proverbial question whether the Court can and should lift the veil in this context.
6. It is best to remember the actual language of the second proviso to Section 10(2)(vii) of the Income-tax Act. Before actually quoting the provision of the second proviso it may be recalled that section deals with business and says that the tax shall be payable by an assessee under the head 'Profits and gains of business, profession or vocation' in respect of the profits or gains of any business or profession carried on by him and then it is followed by Sub-section (2) dealing with computation of such profits and gains after making allowances mentioned there. Section 10(2)(vii) of the Income-tax Act represents one such allowance namely in respect, inter alia, of a sale of building, the amount by which its written down value exceeds the amount for which the building is actually sold. But this allowance is qualified by an exception engrafted in the second proviso which I shall now quote:
'Provided further that where the amount for which any such building, machinery or plant is sold, (whether during the continuance of the business or after the cessation thereof), exceeds thewritten down value, so much of the excess as does not exceed the difference between the original cost and the written down value shall be deemed to be profits of the previous year in which the sale took place.'
7. In other words, the second proviso means that although an allowance is made in respect of the excess of the sale price over the written down value, yet the statute expressly provides that so much of the excess as does not exceed the difference between the original cost and the written down value, shall be 'deemed' as profits of the previous year in which the sale takes place.
8. The significant fact in the case is that these two companies -- Phelps and Co. Ltd. and the Associated Clothiers Ltd. continued to exist side by side us two separate limited companies for at least 10 years from 1952 to 1962 when the Associated Clothiers went into voluntary liquidation. This is not a case where one company completely effaces itself by amalgamating with another company as a part of the readjustment or reorganisation. It is not a case again where a partnership completely effaces itself and converts into a limited company by transfer of all the assets of the partnership lc the limited company. This is also not a case where an individual converts himself to a limited company by transfer of all his properties and assets to the limited company. These three main significant features must be borne in mind in this particular Reference in order to avoid wrong application of certain decisions to the facts of this case.
9. Dr. Pal, on behalf of the assessee, contends that because the share-holders and the directors of these, two companies are the same therefore these two companies are in essence and sub- stance and reality the same. Therefore, the sale is from self to self. On an anxious consideration of this proposition and the arguments advanced in support thereof we are unable to accept this contention. A company is not the same as its share-holders; a company is distinct from its shareholders. A company is not the same as its directors; it is distinct from its directors. The separate legal character of the limited company is recognised by law. The leading case for holding this view is of course Salomon v. Salomon and Co., (1897) AC 22. One of the most recent decisions on the point is of the Privy Council in Catherine Lee v. Lee's Air Farming Ltd. reported in 1961 AC 12. Lord Morris at page 27 in 1961 AC 12 said that an incorporated company was a distinct legal entity separate from its governing director. In another recent decision of the English Court of Appeal in Tunstall v. Steigmann reported in 1962 (2) WLR 1045 the same principle is laid down that a limited company and the individual or individuals forming the company are separate legal entities, however complete the control might be by one or more of the individuals over the company. In the arguments at the Bar on behalf of the assessee, it has been contended before us that there have been a number of departures from the principle of 1897 AC 22 in order that the Courts may give effect to what has been described as the reality of the situation. Three main streams of case-law are discernible in this respect. The first line of cases is represented by the observation of the Master of the Rolls In re Yenidje Tobacco Co. Ltd., (1916) 2 Ch 426 where it is said that the Court would look behind the fact of incorporation if the incorporation was in reality the incorporation of a partnership and would treat the matter for the purposes of winding-up as though it were a partnership. The second line of cases in which theCourts have lifted the veil is provided by instances arising under the Trading with the Enemy legislation of the 1914-18 war, where unquestionably companies registered in the U. K. were treated as enemy aliens such as in the well known case of Daimler Co. Ltd. v. Continental Tyre and Rubber Co., (Great Britain) Ltd., (1916) 2 AC 307. The third line of cases is supplied by Special Acts and Special jurisdictions such as in applying the Rent Restriction Acts the Court has always looked to the reality of the transaction and would not allow the purpose of the Acts to be defeated by the use of the Companies Acts, as for instance, in Samrose Properties Ltd. v. Gibbard, (1958) 1 WLR 235. A similar approach was made in the Prize Court e.g. in The Tommi and The Rothersand, (1914) P. 251 and The St. Tudno, (1916) P. 291., But these instances are really not departures from the principle that a limited company is a separate legal entity apart from its constituents or components, but can be reconciled by the following view expressed by Ormorod, L. J. in (1962) 2 WLR 1045 at p. 1050:
Whilst it may be argued that in the above circumstances the Courts have departed from a strict observance of the principle laid down in (1897) AC 22, it is true to say that any departure, if indeed any of the instances given can be treated as a departure, has been made to deal with special circumstances when a limited company might well be a facade concealing the real facts.'
10. In other words, the Courts, would not normally lift the veil to discover if the two distinct separate legal and juristic entities in the shape of two limited companies are really identical and one, unless of course it is a case of fraud, the entities being a mere cover or facade to conceal the fraud. No question of fraud in fact arises in the facts of this case. They are admittedly two separate genuine companies doing business side by side. The fact, therefore, that they had the same directors and the same shareholders does not make them the same self. A, a company and B, a company may be two separate limited companies with the same directors and same shareholders and even doing same business, e.g., in coal or steel bit even then, they are separate companies and legal entities, and transactions between them or sales and purchases between them, cannot be regarded as transactions or sales from self to self. Modern legislation, independently of any question or case of fraud, has however, introduced instances where the veil is and can be lifted and we shall presently indicate them. But before doing so it is necessary to clear the smoke screen created by the overworked Judicial passion of 'looking at the substance of the thing' in tax cases.
11. This doctrine of lifting the veil is a doctrine of limited application and is guarded by many rules of wholesome caution. The desire for 'looking at the substance of the thing' has often led to a misapplication of the doctrine of lifting the veil and specially in taxation cases it has been severely criticised by Lord Russell of Killowen in Duke of Westminster v. Commissioners of Inland Revenue reported in (1935) 39 Tax Cas 490 at page 524 in the following manner:
'This simply means that the true legal position is disregarded and a different legal right and liability substituted in the place of the legal right and liability which the parties have created. 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 view of what it considers the substance of the transaction, the Courtthinks that the case falls within the contemplation or spirit of the statute. The subject is not taxable by inference or by analogy, but only by the plain words of a statute applicable to the facts and circumstances of this case.'
Thereafter Lord Russell quotes the well known observation of Lord Cairns in Partington v. Attorney General, (1869) 4 HL 100 at page 122 and then concludes with these observations:
'If all that is meant by the doctrine is that having once ascertained the legal rights of the parties you may disregard mere nomenclature and decide the question of taxability or non-taxability in accordance with the legal rights, well and good. That is what this House did in the case of Secretary of State in Council of India v. Scoble, (1903) AC 299; that and no more. If, on the other hand, the doctrine means that you may brush aside deeds, disregard the legal rights and liabilities arising under a contract between parties, and decide the question of taxability or non-taxability upon the footing of the rights and liabilities of the parties being different from what in law they are, then I entirely dissent from such a doctrine.'
Lord Wright in the same case at page 529 of the report already quoted made similar observations in the following terms:
'And once it is admitted that the deed is a genuine document, there is in my opinion no room for the phrase 'in substance''.
In fact, the Judicial Committee of the Privy Council in Bank of Chettinad Ltd. v. Commissioner of Income-tax, Madras reported in quotes the above observation of Lord Russell with approval and lays down that the doctrine that in revenue cases the 'substance of the matter' may be regarded as distinguished from the strict legal position, is erroneous. At p. 526 of that report (ITR): (at p. 185 of AIR) Sir Lancelot Sanderson delivering the advice of the Privy Council says:
'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.'
12. Speaking for myself, this slogan for 'looking at the substance' even on its own tenets, is an empty sound. Let us look at it a little more closely, and let us even look at the substance. What is the substance? Is it intended to say that the substance of a company is the share-holder? Is it intended to say that the substance of the company is the director? If that be so, then what happens to the company, when the share-holder or the director changes? Surely then the company still remains. In other words, the substance of the company remains. Therefore, neither the share-holder nor the director, nor its staff nor furniture nor building for the matter of that, is the substance of the company. The doctrine that a limited company is an entirely independent separate legal entity is not a mere doctrine of form. It is equally and more fundamentally, a doctrine of substance because a company continues even though its assets or liabilities or share-holders or directors change.
13. This principle has been not only well settled but embedded in the company jurisprudence in India. As early as 1886 a Bench of three learned Judges including Chief Justice, W. Comer Petheram in re, Kondoli Tea Co. Ltd., ILR 13 Cal 43 being a Reference from the Board of Revenue under the Stamp Act (1 of 1879) at page 46 made the following observation:
'The document, upon the face of it, professes to be a conveyance of a tea garden from eightgentlemen to the Kondoli Tea Company, Limits in consideration of 43,320, the said consideration being payable in shares and debentures of the Company taken at par.
It is said that that is not what the real transaction is: because the only share-holders in the Kondoli Tea Company are the eight gentlemen who conveyed the estate, and that therefore it was not really a conveyance or transfer by way of sale, hut a mere handing over of the property from them m one name to themselves under another name.
I think that is a fallacy. Whoever the shareholders in the Kondoli Tea Company, Limited, were, I think, the Kondoli Tea Company, Limited, was a separate person, a separate body, and a conveyance to the Kondoli Tea Company, Limited, of property which was the property of the sharers in their individual capacity, was just as much a conveyance, a transfer of the property as if the share-holders in the company had been totally different persons.
This is the only thing that I think it necessary for us to say in giving judgment, namely, that, in my opinion, the Kondoli Tea Company, Limited, is a separate body; and for the purpose of seeing what their transactions are, I do not think it is possible to look at the Register of Shareholders to ascertain who the share-holders were;and, consequently, although the conveying parties here were share-holders of the company there was just us much a sale and transfer of the property and a change of ownership as there would have been if the share-holders had been different persons.'
A little later the English Court, of Appeal in John Foster and Sons v. Commissioners of Inland Revenue reported in (1894) 63 LJ QB 173 (176) expresses the same view. Lord Justice Lindley in delivering the judgment in that case observed:
'What is it except a conveyance on a sale? What else can you call it? It is certainly not a gift; it is not an exchange; it is not a partition; it is not a mortgage. I do not know what it is unless it is a conveyance on sale. I do not know what is necessary to constitute a sale except a transfer of property from one person to another for money, or, for the purposes of the Stamp Act, for stock or marketable security. But then it is said, 'Oh, it is only a redistribution of property'. But is it? I do not consider it a redistribution at all. It is an entire transfer of property from one set of people to another body altogether; and whether there are, as there may well be hereafter, additional persons taking shares in this company is perfectly immaterial.'
This really also indicates that this is not a caseof redistribution or reorganisation of the property.
14. Dr. Debiprasad Pal, appearing for the assessee, has tried to attract us with decisions which are not under Section 10(2)(vii) of the Income-tax Act and not as between two limited companies existing side by side but which deal with the general theory of lifting the veil and transactions from self to self. He first relied on the decision of the Bombay High Court in : AIR1956Bom415 . That case is distinguishable on many grounds from the present Reference before us and we do not think the principle laid down there has any application to the facts of the present case. In the first place, this was not a case under Section 10(2)(vii) of the Income-tax Act. In the second place, it was not a case of sale by one limited company to another limited company but was a case where the assessee and his sons formed a private limited company and transferred to that company shares in several joint stock companies which the assessee had jointly held with his sons. In the third place, there is no question of readjustment or reconstruction in this Reference. Reliance was then placed on behalf of the assessee on the decision of the Supreme Court in Commissioner of Income-tax Bombay City v. Bipin Chandra Maganlal and Co., Ltd. : 41ITR290(SC) . This was a case concerning distribution of dividends under Section 23A of the Income-tax Act. As indicated there, the difference between the written down value of an asset and price realised by the sale thereof is not really income but is made taxable income only for the purpose of computation of the assessable income by the fiction in the second proviso to Section 10(2)(vii) of the Income-tax Act and all that the case said was that on that account it did not become commercial profit to be taken into consideration under Section 23A for distribution of dividends. The case really is against the contention of the assessee. What cannot be done under Section 23A is expressly by fiction made taxable income for the purposes of the second proviso to Section 10(2)(vii) of the Income-tax Act. Thirdly, the decision in Kikabhai Premchand v. Commissioner of Income-tax (Central) Bombay reported in : 1SCR219 was invoked. This decision of the Supreme Court was explained by the later decision of the Supreme Court in Commissioner of Income-tax v. Bai Shirinbai K. Kooka, reported in : 46ITR86(SC) . These two decisions of the Supreme Court however were not cases under Section 10(2)(vii) of Income-tax Act. In Kooka's case : 46ITR86(SC) the Supreme Court at page 92 of the report (ITR) : (at p. 480 of AIR) just quoted held that Kikabhai's case, : 1SCR219 was the converse of Kooka's case. In Kikabhai's case : 1SCR219 a part of the stock-in-trade was withdrawn from business and there was no sale nor any actual profit. The ratio in Kikabhai's case : 1SCR219 was explained by saying that under the Income-tax Act the State had no power to tax a potential future advantage made in the relevant accounting year. In Kooka's case, however, there was a sale of the shares in pursuance of the trading or business activity and actual profits resulting from the sale. Therefore, the Supreme Court says in Kooka's case : 46ITR86(SC) that the question there is not whether the state has a power to tax potential future advantage but the question is how should actual profits be computed when admittedly there has been a sale in the business sense and actual profits have resulted therefrom. The Supreme Court also took into consideration the leading English decision in Sharkey v. Wernher reported in (1956) 36 Tax Case 275. It is said in Kooka's case : 46ITR86(SC) by the Supreme Court that in both Sharkey's case, (1956) 36 Tax Cas 275 as. well as in Kikabhai's case : 1SCR219 what had happened was that a part of the stock-in-trade was withdrawn and the question was at what figure in the trading accounts the withdrawal should be accounted for. In Kikabhai's case : 1SCR219 the Court came to the conclusion that the withdrawal should be at the cost price. In Sharkey's case, (1956) 36 Tax Cas 275 the House of Lords came to the conclusion that the proper figure-should be the market value which gave a fairer measure of assassable trading profit. The Supreme Court in Kooka's case : 46ITR86(SC) did not ultimately re-examine the ratio of the decision in Kikabhai's case : 1SCR219 because the facts were different. Lastly, reference was made on behalf of the assessee to the authority of the Bombay High Court in Rogers and Co. v. Commissioner of Income-tax, Bombay reported in : AIR1959Bom150 . This certainly was an authority on Section 10(2)(vii) of the Income-tax Act. But the case is distinguishable on the ground that there the partners of a firm formed themselves into a private limited company, the shares allotted to each of the former partners in the company being in the same proportion as the shares as held by them in the firm. The assets of the firm having the written down value of Rs. 3,81,848 were transferred to the company at the original cost of Rs. 4,85,354. The question there was whether the difference between the original cost and the written down value was liable to income-tax under the second proviso to Section 10(2)(vii) of the Income-tax Act. The Court held that it was not liable on the ground that the transfer of the assets of the firm to the company was really merely a readjustment made by the members to enable them to carry on their business as a company rather than as a firm. Here this is not a case of a firm in the present Reference before us. It is a case of two limited liability companies. It is not even also a case where one company merges or amalgamates into the other. But it is a case where two companies continue as two separate and legal entities in existence side by side.
15. As a measure of last resort Dr. Pal, for the assessee, tried to rely on the authorities of the English decision in re: London Housing Society, Limited's Trust Deeds. -- Moreland v. Woodward reported in 1940 1 Ch D 777 in order to contend that there the veil was lifted from the face of company in order to find that it was formerly a society registered under the Industrial and Provident Societies Act, 1893. But the ratio of that decision is inapplicable. There the society was converted into a limited company under Section 54 of the Industrial and Provident Societies Act, 1893 in consequence of certain change in recent legislation there and the objects of the Company were identically the same as the objects of the society and the staff of the society were also the staff of the company. It was, therefore, argued there that the funds vested in the trustees of the deeds were now held upon the same trusts as before for the benefit of the same persons, now the employees of the company. That case, therefore, cannot help the assessee in the present Reference before us.
16. It is, therefore, plain from the authorities and principles discussed above that the doctrine of lifting the veil of incorporated company is a doctrine of limited application. Only in exceptional cases the veil is lifted and those cases also are limited in their application and they proceed on broad general principles. In the first place, the veil of incorporation is not intended to conceal the internal affairs of the company from view because the Companies Act itself recognises it as an essential feature of corporate personality that it should be accompanied by the widest publicity. These special instances may be classified as (1) under express statutory provisions, as for instance, members being liable under the Companies Act if the numbers of the company are allowed to fall below the prescribed minimum or in the case of fraudulent trading or misdescription of company or in the case of drawing distinction between holding and subsidiary companies vis-a-vis the principal company. It has been said the only outside creditor in whose favour the Salomon rule has been substantially mitigated is the revenue. There are many cases and examples of lifting the veil infavour of the revenue. Although normally Courts, as a rule are disinclined to rend the veil and it will be inappropriate to struggle to discover any fixed or rigid principle guiding Courts as to when they should and they should not, the present position in law may be stated in a few broad propositions. Ordinarily the Courts are generally precluded by Salomon's case, 1897 AC 22 from treating a company as the 'alias, agent, trustee or nominee' of its members. (2) The Courts will nevertheless do so if corporate personality is being used as a cloak for fraud or illegal conduct. (3) The Courts will also rend the veil where agency can be established in fact, either in respect of particular transactions or even as regards the whole of the company's business. (4) The Courts will be more inclined to hold that agency is established where the controlling share-holder is another company and indeed there is evidence of a general tendency to ignore the separate legal entities of various companies within 'a group' and to look instead at the economic unity of the whole group. But this is only generally when the statute gives a lead in that respect and not otherwise.
17. An argument has been advanced before us that the courts are inclined to pierce the veil in order to find out whether a company is an ordinary joint stock company or a Government company so that its employees may be regarded as Government employees and not as ordinary private' employees of a company. The general tendency of the courts in such cases is not to pierce the veil. It has not been held as yet in any case that even in cases of state enterprises in what are known as the Government companies under the Companies Act its employees are regarded as Government employees in 'spite of many controls, financial and administrative that the Government may have in respect of such companies. The case of Bombay Mutual Life Assurance Society Ltd. v. Commissioner of Income-tax, Bombay City : AIR1952Bom63 on which Dr. Pal for the assessee wanted to rely cannot help him. He relied on the decision of the Division Bench of this Court in Calcutta Hospital and Nursing Home Benefits Association Ltd. v. Commissioner of Income-tax, West Bengal reported in : 47ITR247(Cal) to which I was a party, and specially 'the observations made there at page 270 (of ITR) : (at p. 608 of AIR) on the fundamental proposition or general application that one cannot trade with oneself and make profit. That observation cannot help the assessee in this case because the whole question here is that whether it is a case of trading with one self in a different context. The whole* question here is, whether two legally different incorporated companies can be said to be identical self. On the authorities discussed above we have no hesitation in holding that they are not the same self but are different. Dr. Pal also tried to rely on another decision of this Court reported in the same volume of : 47ITR565(Cal) (Commr. of Income-tax (Central) Calcutta v. Mugneeram Bangur and Co..) (Cal). But then that case is not at all under Section 10(2) (vii). It is also a case of partnership which ceased to exist after such transfer.
18. Palmer in the Twentieth Edition of Company Law at pages 130-137 summarises the five main instances in which modern Company Law would disregard the principle that the company is an independent legal 'entity by lifting the veil and we are of the opinion that the present Reference does not come within any one of the five instances which Palmer classifies as follows :
1) Where companies are in the relationshipof holding and subsidiary companies. The Act there requires, on principle, group accounts;
2) Where a share-holder has lost the privilege of limited liability and has become directly liable to certain creditors of the company on the ground that, with his knowledge, the company continued to carry on business six months after the number of its members was reduced below the legal minimum.
3) In certain matters pertaining to the law of taxes, death duties and stamps, particularly where the question of the 'controlling interest' is in issue.
4) In the law relating to exchange control, specially when the question of controlling of foreign company is concerned, and
5) In the law relating to trading with the enemy where the test of control is adopted.
Finally Palmer gives really the answer to the major argument that has been advanced before us in this Reference, and which will distinguish the cases on partnership transferring their properties and forming into limited companies. At page 137 the learned editors of the Twentieth. Edition of Palmer's Company Law state the law, in the following terms :
'The principle that, apart from exceptional cases, the company is a body corporate, distinct from its members, lies at the root of many of the most perplexing questions that beset company law. It is a fundamental or cardinal distinction--a distinction which must be firmly grasped. The principle, is thrown into clear relief by contrasting an incorporated company with a partnership, for under English law (though not under Scottish law or that of most Continental systems) a firm or partnership is not a separate entity from its members.'
In Indian law the partnership is also, like the English law, -- not a separate legal entity from its members.
19. We are, therefore, satisfied that it is not possible for this Court to pierce the veil in the present Reference. We can at least find six outstanding reasons, apart from the grounds and authorities already discussed, for not lifting the veil in this case. In the first place, the assessee and Phelps and Cp. Ltd. are two separate incorporated companies existing side by side carrying on business at least for 10 years from 1952 to 1962. In the second place, it is now admitted by the assessee that the assessee has gone into liquidation by a resolution of the company on the 6th January, 1962 and which resolution has been published in the Calcutta Gazette on the 18th January, 1962. A copy of the Calcutta Gazette is directed to be filed herewith and should be kept on the records. It cannot, therefore, be contended that the liquidation of the assessee has also meant the liquidation of Phelps and Co. Ltd., which continued to carry on its business. Therefore, they cannot be the same self. Thirdly, from the minutes of the extraordinary general meeting of the assessee held on Saturday, the 6th January, 1962 whereby under a special resolution the assessee was resolved to be wound up, we find that there was another h resolution which expressly describes Messrs. Phelps and Co. Private Ltd. to be a 'subsidiary' of the assessee. Now if Phelps and Co. Ltd. was a subsidiary of the assessee, as it must be held on the assessee's own admission by virtue of that resolution. the admitted copy of which is directed to be filed herewith and should be kept with the records of this Reference, then it is difficult to see how the two different companies the principal and the subsidiary, should be regarded as the sameself. Limited companies carrying on businesses are separate taxable persons and profits and gains of their separate business are separate profits and gains for the purpose of Income-tax. It has been held that it is nonetheless so, even if one of the companies should be the parent company, and the other or others its subsidiaries of which the shares are held or owned by the parent company. Viscount Maugham in Odhams Press Ltd. v. Cook a decision of the House of Lords, reported in 1941 9 ITR (Sup) 92 at p. 109, observed as follows:
'My Lords, there can be no doubt that limited companies who carry on business are separate taxable persons, and the profits and gains of then several businesses are separate profits and gains for the purposes of the Income-tax Acts. This is none-the-less true if one of the companies should be the parent company, and the other or others may be its subsidiaries of which the shares are held or owned by the parent company.
It is equally plain that the Appellants stood towards Coming Fashions, Ltd., in a two-fold relationship. They were, in a sense, proprietors of that concern, in so far as they held all the shares in it. Its dividends, if any, came to the Appellants, and on a winding up of Coming Fashions, Ltd., its assets after payments of debts, liabilities-and costs wouid be the property of the Appellants. On the other hand, there was also another and a quite different relationship between the two com-panic, that of tradesman and customer.'
Fourthly, we find that the assessee in this case treated Phelps and Co., Ltd. as quite distinct and separate and so represented to the whole world. It recognises this difference in the agreement for sale dated 21st March, 1952 by describing the assessee as the vendor and the Phelps and Co. Ltd. as the purchaser. Then again, in the recital it is expressly recited :
'Whereas the purchaser Company is desirous of acquiring a part of the' undertaking and property of the Vendor Company.'
That means, therefore, there was no complete merger or amalgamation between the two companies. The purchaser company was acquiring only a 'part' and not the whole of the undertaking and property of the vendor company.
20. In the fifth place, the assessee brought proceedings under the Stamp Act before the pun-jab High Court which is now reported as Associated Clothiers Ltd. v. Union of India through the Secretary, Central Board of Revenue, reported in , and obtained an exemption that they claimed by way of remission of the stamp duty chargeable on the instrument of transfer of property in cases where 90% of the issued share capital of the transferee company was for the benefit of the transferor company. Therefore, these two companies were treated as separate and not as the same self.
21. Finally, on this vexed question of lifting the veil of corporate personality the proposition must be emphasised that the persons veiled by the corporate personality are as a rule not themselves allowed to lift the veil which they have put on. The decision of the House of Lords in Macaura v. Northern Assurance Co., Ltd., and, reported in 1925 A. C. 619 according to which neither a share-holder nor a simple creditor of a company has any insurable interest in any particular asset of the company indicates the law that, if the assessee itself in this case has put the veil of incorporation, then it becomes difficult to see how it can now plead that the veil should be lifted. This Court can understand a claim by theRevenue Authorities to lift the veil in appropriate cases of corporate personality. But surely the corporate personality which itself creates and wears the veil cannot ask to be unveiled or unmasked for that would be permitting a person or Corporation to blow hot and cold at the same time.
22. For the reasons stated above, we hold that the Tribunal came to a wrong decision and misapplied the authority of the Bombay High Court in : AIR1956Bom415 to the facts of this case which do not attract that decision.
23. This Court, therefore, answers the question asked in the negative by holding that the Tribunal was wrong in excluding the same sum of Rs. 40,247/- from being deemed profits of the assessee under the second proviso to Section 10(2)(vii) of the Income-tax Act.
24. The assessee shall bear the costs of this Reference, subject, however, to the order for costs that we have already made in these proceedings.
25. Certified for two Counsel.
26. I agree.