TMI Blog1993 (11) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal was justified in investigating the nature of the shares held by the assessee in Chrestian Mica Co. Ltd. when both the assessee and the income-tax authorities had treated them as the stock-in-trade of the assessee as a dealer in shares for every assessment year since 1949-50 and proceeded on the same basis for the instant assessment year ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the shares held by the assessee in Chrestian Mica Co. Ltd. were not its stock-in-trade for dealing in shares? (3) If the answer to question (2) be in the negative, then, whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of rupees thirty-two lakhs twenty-five thousand and five hundred and fifty was not assessable in the hands of the assessee? " The assessee is a partnership-firm. The accounting year relevant to the assessment year 1956-57 was the year ending on December 31, 1955. The Income-tax Officer made an assessment on a total income Of Rs.36,41,544 which included a sum of Rs. 32,25,550 representing the surplus which the assessee received during the previous y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court then considered the question whether the amount received by the assessee from the liquidator was in lieu of the shares held by it. Following the decision of the Court of Appeal in Commrs. of Inland Revenue v. George Burrell [1924] 9 TC 27, it held that whatever is received by a shareholder on the liquidation of a company is not the income of the property but the property itself. The High Court referred to certain other English and Indian decisions and observed that as a general rule, what is distributed in a liquidation is capital whatever may have been its source. It also observed that there was no sale or transfer of the shares held by the assessee-"the liquidator sells the assets of the company and not the shares of the shareholders", it observed. Reference was also made to the provisions of section 211 of the Indian Companies Act, 1913, and section 511 of the Companies Act, 1956. For all the said reasons, the questions referred were answered in favour of the assessee. Dipak Kumar Sen J., delivered a separate concurring opinion. The learned judge did not place much reliance upon the English decisions. He pointed out that in none of the English decisions relied upon be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of a company held by a person constitute his capital or his stock-in-trade, is not a pure question of law but essentially one Of fact. While one person may hold the shares of a company by way of investment, the other may hold them as his stock-in-trade. In this case, it is clear beyond any doubt that the assessee has been holding the shares of the aforesaid company as its stock-in-trade. In the earlier years, it claimed a trading loss on the footing that they represented its stock-in-trade. Even in the assessment proceedings for the assessment year 1956-57 (concerned herein), it took the very same stand though at the stage of Tribunal and High Court, it sought to wriggle out of the said admission unsuccessfully. The High Court has held rightly that it cannot do so and that it is bound by its admission and its course of conduct over the past several years. The High Court, it may be recalled, has also rejected its further submission that the said shares ceased to be its stock-in-trade on the conversion of the company from a public limited company to a private limited company. If so, it follows that if the assessee receives any surplus amount in lieu of the said shares, it mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. Once the distribution takes place, the shares and the shareholding come to an end. The fact that the shares may technically continue until the name of the company is struck off the register of the company is of little significance. After the distribution of the assets, nothing remains of the shares. To say that the assets a shareholder receives on the liquidation of the company are unrelated to his shareholding is to be blind to the reality. Such an argument ignores the basic reality recognised by section 511 of the Companies Act. The same comment holds good about the argument that the amount received is an accretion to the shares. It is true that a liquidator does not sell the shares. It is equally true that there is no transfer of shares by the shareholder to the liquidator or to any other person. That is not really necessary. So long as money is received in lieu of shares, there is a receipt and where an assessee is a dealer in shares, any surplus amount received by him constitutes his income. As stated above, where a company goes into liquidation and the liquidator distributes the assets of the company among the shareholders, what each shareholder gets is in lieu of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with this view, for they speak of the 'property of the company' being distributed as therein stated. I agree that the fact that the surplus assets of a company upon its winding up are capital in the hands of the liquidator is not conclusive upon the question whether the respective shares of them handed out to the members are likewise in their respective hands capital also. But prima facie beyond doubt they are. Some businesses may consist of dealing with capital assets ; for example, a company whose business is that of buying and selling real property or stocks and shares. In the case of such a company, no doubt the capital share of the surplus assets in a liquidation would be no less a trading receipt than the proceeds of sale of any other of the assets it had acquired for the purposes of its business." Learned counsel says that the said statement of law runs counter to the decision of this court in Madan Gopal Radhey Lal [1969] 73 ITR 652. He also invited our attention to Hari Prasad Jayantilal and Co. v. V. S. Gupta, ITO [1966] 59 ITR 794 (SC), to contend that the principle of this decision also runs counter to the decision in Madan Gopal Radhey Lal [1969] 73 ITR 652 (SC). It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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