1. These two references arise almost out of the same facts and will be disposed of by one judgment.
2. The references relate to the assessment years 1965-66 and 1966-67. The facts giving rise to these references may be briefly summarised as follows :
M/s. Devson Ltd. was a private company which was engaged in retail sale of liquors. In 1961 this concern set up a branch named M/s. Kashmir Fruit and Chemical Industries and the undertaking obtained a licence for manufacture of alcoholic spirit and consequently this new business was being carried on by the aforesaid branch. The business lasted up to June 28, 1962, whereafter a new company, M/s. Kashmir Fruit and Chemical Industries Ltd., was floated as a public concern on June 29, 1962. This company carried on the manufacture of alcoholic spirit. An agreement to sell was executed between M/s. Devson Ltd. and the new company and the agreement to sell was later adopted by the purchasing company. . In the new company M/s. Devson Ltd, became shareholder to the extent of 1,715 shares out of 2,165 shares. This company claimed rebate in accordance with the provisions of Section 84 of the Income-tax Act, technically known as tax holiday, on the ground that it was a new business and was, therefore, entitled to rebate for a period of five years. M/s. Devson Ltd. as a major shareholder also claimed a rebate in their capacity as shareholders. Reference No. 7 relates to the rebate claimed by the shareholders of M/s. Devson Ltd. and the other Reference No. 8 is in respect of the rebate claimed by the new company mentioned above. The Income-tax Officer held that no new company came into existence and M/s. Devson Ltd. sought to reconstruct the same business in a new manner and, therefore, the conditions of Section 84(2)(i) of the Income-tax Act were not fulfilled. The assessee went up in appeal to the Appellate Assistant Commissioner who reversed the decision of the Income-tax Officer and held that, as the new company came into existence by purchasing the business of M/s. Devson Ltd., it was entitled to rebate under Section 84 of the Income-tax Act. The revenue then went up in further appeal to the Income-tax Appellate Tribunal, Chandigarh, which remanded the case to the Appellate Assistant Commissioner of Income-tax, Jammu Range, Amritsar, for reconsidering the facts particularly in the light of the decision of the Punjab and Haryana HighCourt. The Appellate Assistant Commissioner reaffirmed his decision on remand and held that the assessees were entitled to rebate under Section 84 of the Income-tax Act. The Appellate Assistant Commissioner also held that the Punjab and Haryana ruling referred to by the Tribunal had no application to the facts of the present case. The Tribunal upheld the order of the Appellate Assistant Commissioner and dismissed the appeal filed by the revenue department. Thereafter, the Tribunal was approached by the department for making a reference to tm> court and, having agreed to do so, the following question of law has been referred to us in both these cases :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee-company was entitled to the exemption provided under Section 84 of the Income-tax Act, 1961 ?'
In our opinion, the answer to the reference lies within a narrow compass and on the facts found by the two Tribunals of fact a question of law hardly arises in this case. The Appellate Assistant Commissioner as also the Tribunal have concurrently found that when a new company was floated, it actually purchased the business of M/s. Kashmir Fruit and Chemical Industries and even though M/s. Devson Ltd. were the major shareholders in the new company, it was not a case of reconstruction but of sale. The question under what circumstances Section 84(2)(ii) would apply would depend on a number of facts, namely, what was the nature of the transaction, whether there was an out and out sale or reconstruction, whether the new business came into existence by virtue of the sale, and whether the control and management vested with the erstwhile company which had sold its assets. On these facts, the findings are against the revenue department.
3. Mr. Bhan, however, argued that in view of the fact that M/s. Devson Ltd. had allocated to themselves the dominant control over the new business, is a pointer to the fact that there was no sale but reconstruction of the old business and, therefore, the case admittedly did not fall within the purview of Section 84(2)(ii) of the Income-tax Act. Section 84(2)(i) runs thus:
'It is not formed by the splitting up, or the reconstruction, of a business already in existence.'
The first condition contemplated by this provision is that the business should not come into existence by a mere splitting up or reconstruction. If, however, a new business has come into existence by virtue of succession or sale, then the question of reconstruction does not arise at all. It may be mentioned here that the Appellate Assistant Commissioner at page 54 of the paper book observed as follows:
'It may also be observed that this was a case of succession of business. The successor was a different entity in law and had purchased outright the running business of the predecessor. The Supreme Court decision in Commissioner of Income-tax v. B. M. Kharwar : 72ITR603(SC) is material on this point. The legal effect of the transaction has to be taken into consideration.'
This finding of fact has been affirmed by the income-tax Appellate Tribunal in para. 7 of its order appearing at page 63 of the paper book, which is to the following effect:
'After a careful perusal of the records and the orders of the authorities , below, including the, statement of the case by the assessee and the remand report of the Appellate Assistant Commissioner, we are of the view that the assessee is entitled to the exemption under Section 84 because the company satisfies all the conditions as laid down under Section 84(2).
In para 6 of the, statement of the case drawn up by the Tribunal, it is observed as follows :
'According to' the Appellate Assistant Commissioner, M/s, Devson Ltd. and M/s. Kashmir Fruit and Chemical Industries Ltd. were two separate and distinct entities and that the relationship between them was purely that of vendor and vendee. He, therefore, came to the conclusion that the Bombay case supported the case of the assessee and not the department.'
The Tribunal has mentioned in its judgment that when the draft statement was circulated to the parties the departments representative had no suggestion to make. Thus, in these circumstances, the findings of fact were that M/s. Devson Ltd. arid M/s. Kashmir Fruit and Chemical Industries Ltd. were two separate and distinct entities and that the relationship between them was purely that of vendor and vendee, The revenue bad at no stage sought to challenge this finding of fact nor it approached the Tribunal to refer this question to this court.
4. Mr. Bhan, however, relied upon the Bombay High Court ruling inCommissioner of Income-tax v. Gaekwar Foam and Rubber Co. : 35ITR662(Bom) and particularly to the observations of their Lordships where they observed that if theownership of a business or an undertaking changes hands not ostensiblybut in reality and effectively, that would not be reconstruction. On theother hand, reorganisation of the business on sounder lines or alterationsin the mode or method of scope of the activities or control of the businesswould be no more than reconstruction of the business if it is substantiallythe same business carried on by substantially the same persons. It is contended that in the instant case also the new company which came intoexistence was owned substantially by M/s. Devson Ltd. who had purchasedthe large majority of the shares. Their Lordships in that case, however,prefaced their observations by the fact that where there is an out and out sale, the question of reconstruction did not arise. In this connection their Lordships made the following observations :
'Now, in these matters, we have to look at the substance of the transaction and not the form. If looking at the substance of the transaction, it is a sale, then the concept of reconstruction must be ruled out for in such a case there is no scope for speaking about any reconstruction of an existing business.'
This authority, therefore, clearly lays down that where an out and out sale has been proved as a fact, the question of reconstruction does not arise. Their Lordships have also indicated in that case that they were not at all considering a case of reconstruction of a business ; hence any observations made by them on the nature of reconstruction appear to be purely obiter dicta.
5. Finally, Mr. H, L. Bhagotra, appearing for the assessee, submitted that after M/s. Kashmir Fruit and Chemical Industries started manufacture of alcoholic spirits after taking a licence from the Government in 1961, it became a new undertaking and was, therefore, entitled to the benefit conferred on such an undertaking by Section 84(2)(ii) of the Income-tax Act. It was argued that even if the new company be deemed to be a continuation of the old company, since a new business had been started, the assessee was entitled to tax holiday under Section 84 of the Income-tax Act. In view of the finding of fact arrived at by the Appellate Assistant Commissioner as also the Income-tax Appellate Tribunal, we refrain from making any observation on this aspect of the matter.
6. Lastly, we might mention that this was not at all a case in which the Tribunal ought to have made a reference to this court. It is well settled that a reference to this court has to be made only if a clear question of law arises in the case.
7. In the instant case, no question of law arose on the findings of fact arrived at by the two Tribunals. In other words, the order of the Tribunal was clearly concluded by findings of fact. In a recent case reported in Tax Gazette, Volume I, 1973 (Additional Commissioner of Income-tax v. Sadiq Ali & Bros. a Division Bench of this court relying on a decision of the Supreme Court observed that an inference drawn from the facts proved is a question of fact and not of law, and the Tribunal's finding on that question is final. In this connection the Division Bench observed as follows:
'The Supreme Court in this case further held that an inference drawn by the Tribunal on the proved facts was a question of fact and could not be interfered with on reference. The High Court could interfere only if therewas a question of law.
In the instant case also the learned Tribunal on the facts of the present case has drawn a clear inference that it was a case of unproved cash deposit and this being a finding of fact no question of law arises for our decision.'
8. For these reasons, therefore, we answer the reference in the affirmative and hold that the Tribunal was right in deciding that the assessees were entitled to the exemption provided under Section 84 of the Income-tax Act of 1961.