1. This is a reference under Section 66(1) of the Indian Income-tax Act, 1922. The assessee is a company. The assessment year is 1948-49. The previous year ended on May 31, 1947.
2. In the accounting year, the assessee sold at a profit its mining rights including its rights under a sub-lease to a 100% subsidiary company, Karkata Collieries Ltd. The Income-tax Officer has brought the surplus to tax by rejecting the contentions of the assessee that the assessment should be made under Section 12B of the Indian Income-tax Act, 1922, and that the said surplus should be exempted under the fourth proviso to that section.
3. There was also an excess on realisation over the written down value of the plant, machinery and the buildings transferred by the assessee to the said subsidiary company in the same accounting year. The excess, brought to tax by the Income-tax Officer, has been reduced to Rs. 10,171 by the Appellate Assistant Commissioner.
4. The Appellate Tribunal has, however, allowed the second appeal filed by the assessee. It has been held by the Tribunal that no taxable profit has accrued to the assessee by selling its mining rights including the rights under the said sub-lease to the said 100% subsidiary company. It has also been held by the Tribunal, by following the decision of the Gujarat High Court in the case of Commissioner of Income-tax v. B.M. Kharwar : 60ITR370(Guj) , that no profit has arisen to the assessee under Section 10(2)(vii) of the Act in respect of the sale of the said plant, machinery and buildings to the said company.
5. Thereafter, the Tribunal has referred the following questions to this court:
' 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that no taxable profit arose to the assessee under Section 10 of the Indian Income-tax Act, 1922, from the transfer or sub-lease of leasehold mineral rights to Karkata Collieries Ltd., a 100% subsidiary of the assessee-company ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the excess of Rs. 10,171 being the amount realised over the written down value of plant, machinery and building transferred by the assessee to Karkata Collieries Ltd. was not assessable under Section 10(2)(vii) of the Indian Income-tax Act, 1922 ?'
6. The contentions of Mr. B. L. Pal, the learned counsel for the revenue, on question No. 1 are as follows : (i) the assessee and the said subsidiarycompany are two different legal entities and accordingly the said sales were sales to an outsider ; and (ii) it being a commercial transaction, the surplus arising out of it is taxable as a revenue receipt. He has argued on question No. 2 that since the said decision of the Gujarat High Court has been reversed by the Supreme Court, whose judgment is reported in : 72ITR603(SC) , this question must also be answered in favour of the revenue.
7. Mr. J. C. Pal, the learned counsel for the assessee, has contended before us that it was not the case of the department that these sales were really a device to conceal the real nature of these transactions and, therefore, these sales should not be treated as sales to an outsider. It is his submission that with a view to minimise the tax liabilities and to readjust its business activities, the assessee has sold this mine and its mining rights under the sub-lease to this subsidiary company in order to carry on the same activity though not directly but indirectly through this subsidiary company and, therefore, the said surplus and the said excess on realisation are not taxable as income of the assessee.
8. We are not, however, impressed by the contentions of Mr. J.C. Pal. In Income-tax Reference No. 108 of 1968 [Commissioner of Income-tax v. Chrestian Mica Industries Ltd. : 109ITR517(Cal) ], it has been held by this court in its judgment dated July 4, 1975, that a company and its 100% subsidiary company are two independent legal entities and a sale by a parent company to its subsidiary company is a sale to a third party.
9. These sales are admitted. The properties in this mine and the mineral rights under this sub-lease have passed from the assessee to this subsidiary company for valuable consideration. The assessee and this subsidiary company are two different entities in the eye of law. The subsidiary company is also enjoying the fruits of these sales and, therefore, there is no merit in the contentions of Mr. J. C. Pal that these sales are not sales to an outsider.
10. It was wholly unnecessary for the department even to contend that the assessee has adopted a device to conceal the real nature of its activities by effecting these sales for the admitted fact is that the assessee has sold its mining rights*lnclu4ing its rights under the said sub-lease to this 100% subsidiary company. There is also no merit in the contention regarding the re-adjustment of the assessee's business activities. Their Lordships of the Supreme Court in B. M. Kharwar's case : 72ITR603(SC) said thus:
' Assuming that thereby readjustment of the business relationship was intended the liability to be taxed in respect of the readjustment had to be determined according to the strict legal form of the transaction. The company was a legal entity distinct from the partnership, under the general law. Transfer of the machinery was by the firm to the company; and thelegal effect of the transaction was to convey for consideration the rights of the firm in the machinery to the company. The transaction resulted in excess realisation over the written down value of the machinery to the firm, and the liability to tax, if any, arising under the Act could not be avoided merely because in consequence of the transfer the interest of the partners in the machinery was substituted by an interest in the shares of the company which owned the machinery.'
11. These principles laid down by the Supreme Court are equally applicable to the facts and circumstances of the case with regard to the surplus arising out of these sales and the excess on realisation over the written down value of the plant, machinery and buildings, and accordingly the contentions of Mr. J. C. Pal must also fail.
12. We may note here that Mr. B. L. Pal has also relied on the decision of the House of Lords in Odhams Press Ltd. v. Cook (H. M. Inspector of Taxes)  23 TC 233;  9 ITR (Supp) 92 in support of his contention that a parent company and a subsidiary company are two separate taxable entities and the profits and gains of their several businesses are separate profits and gains for the purpose of the Income-tax Acts. We also agree with the above decision of the House of Lords and return our answer to both the questions in the negative and in favour of the revenue.
13. Having regard to the facts and circumstances of the case, we do not propose to make any order as to costs.
Dipak Kumar Sen, J.
14. I agree.