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I.T.R. No. 797 of 1972, decided on 11th May, 1987.

---S. 136(3)--Income-tax Act (XI of 1922), S. 66(4)--Reference- Powers of High Court--Two provisions compared--High Court, if not satisfied that the statement in a case referred to under S. 66(4) is sufficient to enable it to determine the question raised thereby, High Court can refer the case back to the Tribunal to make such additions thereto or alterations therein as the Court may direct in that behalf.

Under section 66(4) of the Income-tax Act, 1922 the High Court is empowered if not satisfied that the statements in a case referred to under this section are sufficient to enable it to determine the question raised thereby, to refer the case back to the Appellate Tribunal to make such additions thereto or alterations therein as the Court may direct in that behalf. A similar provision though in not exactly identical terms is incorporated under section 136(3) of the Income-tax Ordinance, 1979. The only difference seems to be that in subsection (4) of section 66 the Court is empowered to require the Appellate Tribunal to make such additions to the statement or alterations therein as the Court may direct in that behalf while in subsection (3) of section 136 the words 'such additions thereto or alterations therein' have been substituted by the words 'to make such modifications therein'. Therefore, the effect of the two subsections remains the same.

Commissioner of Income-tax v. Publix Industries 1969 P T D 622 ref.

Commissioner of Income-tax (Investigation), Karachi v. Jan Muhammad & Brothers, Karachi P L D 1982 Kar. 911 distinguished.

Mrs. Rashida Patel for Applicant.

Ali Athar for Respondent.

Date of hearing: 11th May, 1987.

.--This is a reference under section 66(1) of the Income-tax Act, 1922 (hereinafter referred to as the Act) by the income-tax Appellate Tribunal, Karachi which has been made at the instance of the Commissioner of Income-tax (West), Karachi. By this reference the following question has been referred to this Court for answer:-- '

"Whether on the facts and in the circumstances of the case the Income-tax Appellate Tribunal was justified in holding that the transaction of transfer of fixed assets was not a sale, so as to attract the provisions of section 10(2)(vii) of the Income-tax Act

The brief facts stated in paragraph 2 of the reference are that Messrs Sultan Textile Mills Ltd. Karachi manufactures textile goods and owns two factories, one at Sargodha and the other at Karachi. In 1963 Messrs Sultan Textile Mills Ltd. was incorporated and the assets and liabilities of earlier business carried on under the style of Messrs Crescent Textile Mills were revalued and transferred to Sultan Textile Mills Ltd. Karachi. As a result of this valuation and transfer of assets of Messrs Crescent Textile Mills to Sultan Textile Mills Ltd. certain profits accrued under section 10(2)(vii) of the Act and were included in the taxable income to the extent of Rs.24,156/- and Rs.1,78,801/- on the transfer of building and machinery respectively. Messrs Sultan Textile Mills Ltd. contended before the Tribunal that in fact in these transactions no sale was involved within the meaning of proviso to section 10(2)(vii) of the Act and consequently no taxable income could arise. The Tribunal accepted this contention in view of the decision of this Court reported as Commissioner of Income-tax v. Publix Industries 1969 P T D 622 and held that the profits so accruing could not be taxed under the aforesaid provisions. Initially the Tribunal was not inclined to refer the question although it was a question of law and arose out of its order because of earlier decision but when the Tribunal was informed that the Department has gone in appeal against the judgment of the High Court to the Supreme Court and the appeal is pending there, the Tribunal drew up this statement and referred the question to this Court.

The above statement of facts, in our view, is not sufficient to answer the question for firstly, the documents by which the assets were transferred have not been annexed to the petition or their substance is incorporated in the statement of facts under section 66(1) of the Act and, secondly, the balance sheet is also not annexed so as to examine whether the transfer was in fact a sale or not or whether it was exempted under the proviso to section 10(2)(vii) of the Act.

Under section 66(4) of the Act the High Court is empowered if not satisfied that the statements in a case referred to under this section are sufficient to enable it to determine the question raised thereby, to refer the case back to the Appellate Tribunal to make such additions thereto or alterations therein as the Court may direct in that behalf. A similar provision though in not exactly identical terms is incorporated under section 136(3) of the Income-tax Ordinance, 1979. The only difference seems to be that in subsection (4) of section 66 the Court is empowered to require the Appellate Tribunal to make such additions to the statement or alterations therein as the Court may direct in that behalf while in Subsection (3) of section 136 (ibid) the words 'such additions thereto or alterations therein' have been substituted by the words 'to make, such modifications therein'. Therefore, the effect of the two subsections remains the same.

Mr. Ali Athar learned counsel for the respondent referred to Commissioner of Income-tax (Investigation), Karachi v. Jan Muhammad & Brothers, Karachi P L D 1982 Kar. 911 in support of the contention that we should decline to answer the question. However, we are of the view that in that case the statements contained in the reference application were absolutely insufficient to answer the question. That is not the case here. We would therefore not follow the cited case.

We may however record that Mrs. Rashida Patel states that the assessment order Annexure 'A' to the statement of facts which forms part of the statement of facts, shows the price of the building and price of the machinery separately but this, in our view, will not be sufficient to determine the question referred for we are not required by the question to value the machinery or price of the factory building but to answer the question whether any income accrued to the assessee which is taxable. When we ask for the transfer documents such as transfer deed and resolutions, the purpose is to look who is the transferor and who is the transferee and what is in fact the nature of the transfer.

We would, therefore, direct the Tribunal to submit further statement with regard to the documents by which the transfer of assets was affected and also the statement containing substance of the balance sheet or submit a copy of the balance sheet so that the true nature of the transactions could be determined in accordance with law.

M.B.A./C-16/K Order accordingly.

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