JUDGMENT
Khosla, J.
1. This is a reference under Section 66 of the Income-tax Act. The Appellate Income Tax Tribunal has referred the following two questions for our decision:
(i) Whether the gratuitous transfer of 30 shares by L. Shorilal, the managing director of the assessee company to L, Kedarnath on 22nd February, 1941, attracts the provisions of Section 10A of the Excess Profits Tax Act, 1940, considering that the transfer made by the managing director would affect the liability of the assessee company to excess profits tax on its profits made in the calendar year 1943 and the subsequent chargeable accounting periods;
(ii) Whether in the circumstances of the case the Tribunal was competent in law to overrule the decision of the Appellate Assistant Commissioner dated 14th November, 1946 ?
2. The facts briefly are that the Amritsar Rayon & Silk Mills, Ltd., started as a private limited liability company in 1934. The total issued capital of the company consisted of 140 shares of Rs. 500 each. The managing director of the company, Shorilal, acquired 40 of these shares. On 21st April, 1935, the share capital was increased to 180 shares and on 5th January, 1938, to 400 shares. After this Shorilal acquired 20 more shares bringing his total holding to 60 shares: On 22nd February, 1941, he transferred 30 of these shares to. his half-brother Kidar Nath. On 10th May, 1943, the issued capital was increased to 670 shares, so that the holding of Shorilal became less than 5 per cent, of the total issued capital. During the accounting period 1st January, 1943, to 31st December, 1943, the assessee company contended that a sum of Rs. 28,780-12-0 should be allowed as a deduction from the assessment on account of the remuneration paid to Shorilal, Managing Director, under Rule 7 of Schedule I to Excess Profits Tax Act on the ground that he held less than 5 per cent, of the total number of shares and he as managing director devoted substantially the whole of his time to the management of the company. The Excess Profits Tax Officer held that the transfer of 30 shares in favour of Kidar Nath was a gratuitous transaction the main object of which was to avoid or reduce the amount of excess profits tax payable and that in reality Shorilal still continued to hold 60 shares. On this ground the remuneration paid to Shorilal was not allowed to be deducted under the provisions of Section 10A of the Excess Profits Tax Act.
3. Section 10A, Sub-section (1), of the Excess Profits Tax Act reads as follows:
10A (1). Where the Excess Profits Tax Officer is of opinion that the main purpose for which any transaction or transactions was or were effected whether before or after the passing of the Excess Profits Tax (Second Amendment) Act, 1941, was the avoidance or reduction of liability to excess profits tax, he may, with the previous approval of the Inspecting Assistant Commissioner, make such adjustments as respects liability to excess profits tax as he considers appropriate so as to counteract the avoidance or reduction of liability to excess profits tax which would otherwise be effected by the transaction or transactions.
4. It is clear that on a proper interpretation of this section where there is material on the basis of which the Excess Profits Tax Officer can form the opinion that a certain transaction was effected with the main object of avoiding or reducing the amount of excess profits tax payable, he is entitled to make suitable adjustments as respects liability to excess profits tax and his decision cannot be questioned by having recourse to the provisions of Section 66 of the Income-tax Act, for it is the opinion of the Excess Profits Tax Officer which is the determining factor, and this opinion need not necessarily be arrived at by a judicial process. All that is required is. that there must be a transaction which resulted in the avoidance or reduction of the amount of excess profits tax payable and there are circumstances existing which justify the opinion formed by the Excess Profits Tax Officer. In the present case the transfer by Shorilal in favour of his half-brother had the result of reducing his own holding and when further capital was floated his holding became less than 5 per cent, of the total issued capital and this circumstance had the result of reducing considerably the excess profits tax payable. The Excess Profits Tax Officer and the Appellate Income-tax Tribunal, took the view that the series of transactions were intended mainly to reduce the excess, profits tax payable and that the transfer of the shares to Kidar Nath and the subsequent increase of the issued capital were all part of the same scheme. It may be argued that another Excess Profits Tax Officer would have come to a different conclusion or that the. opinion formed by him was not wholly justified, but the fact remains that there were circumstances and material upon which a certain opinion could be formed and the Excess Profits Tax Officer chose to form the opinion that the main purpose of the transfer by Shorilal was the avoidance or reduction of liability to excess profits tax. This opinion cannot be questioned in any way and the first question therefore must be answered in the affirmative.
5. One other point was raised in connection with question No. 1, namely that the transfer was not made by the assessee in this case and Section 10A contemplates transactions effected by the assessee. The wording of Section 10A, Sub-section (1)., however, does not warrant such an interpretation. The transaction may be entered into by anyone and as long as its main purpose is the avoidance or reduction of excess profits tax the provisions of Section 10A would be attracted. There is therefore no force in this argument.
6. With regard to the second question, Mr. Bajaj, who Appeared on behalf of the assessee, was not able to point to any provisions of law whereby the decision of the Appellate Assistant Commissioner could be held as res judicata or binding in the present case. ‘The Appellate Assistant Commissioner had on 14th November, 1946, held that these shares were; originally the property of a joint Hindu family consisting of Shorilal and Kidar Nath. In the present case the finding is that the shares were held by Shorilal alone and the transfer in favour of Kidar Nath was gratuitous. The finding in the first case is dearly not res judicata. The second question also therefore must be answered in the affirmative.
7. In the circumstances I would answer this reference by replying to both the questions proposed in the affirmative. In the circumstances of the case, however, I make no order as to costs. Counsel’s fee in -this case is assessed at Rs. 200.
Harnam Singh, J.
8. I agree.