TMI Blog1970 (2) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 12B of the Income-tax Act, 1922 ? (2) If the answer to the above question is in the affirmative, whether the distribution in question is covered by the first proviso to section 12B(2) of the Act ? " The facts appear in the statement of the case. The respondent is the assessee-firm which acted as the managing agents of Messrs. India United Mills Ltd. The assessment year in question is 1957-58, the financial year being S.Y. 2012 Maru (November, 1955, to October, 1956). Prior to May 23, 1955, the assessee-firm earned a very large amount of commission from the above mills company. On May, 23, 1955, out of the Commission earned, the assessee-firm purchased 63,550 ordinary shares and 6,100 deferred shares of the mills company for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x. The above findings of the Income-tax Officer were confirmed by the Appellate Assistant Commissioner in appeal filed by the assessee-firm. The Income-tax Appellate Tribunal by its appellate order, dated August 10, 1962, held in favour of the assessee-firm that a transfer was not involved in the transaction mentioned above as required under the provisions of section 12B(2). For that reason, the Appellate Tribunal directed that the above sum of Rs. 87,681 treated as capital gains be deleted from the income of the assessee. In connection with the above transaction, the questions mentioned above have been referred to us for decision. To appreciate the contentions made by Mr. Joshi for the applicant (Income-tax Commissioner), it is neces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on April 26, 1956, by the assessee-firm in favour of each of the partners of the firm in law involved relinquishment or transfer and was a transaction with the parties who were directly connected with the assessee-firm. The findings to the contrary made by the Appellate Tribunal should be set aside. (2) Since at the date of the transaction on April 26, 1956, the market value of the shares was in excess of the cost price by Rs. 87,681, the transaction involved capital gains. The direct result of this fact was that the assessee-firm effected the transaction with the object of avoidance or reduction of the liability of the assessee-firm under section 12B. In developing his second contention, Mr. Joshi repeatedly emphasised that the intenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In respect of the transaction in question which had been made on April 26, 1936, admittedly, the provisions of section 12B were applicable. He, therefore, submitted that the proviso was liable to be applied to the transaction with full rigour and the submission made by Mr. Kaka as mentioned above was unjustified and untenable. Now, it is quite clear that having regard to the contents of the proviso quoted above, in respect of capital assets transferred by the assessee to a person directly or indirectly connected with the assessee, capital gains tax would be payable, i.e., the provisions in section 12B would be applicable, in the event of its being proved that the transaction was effected with the object of avoidance or reduction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Now, the above discussion appears to us to be sufficient to dispose of the question of liability of the assessee-firm to pay capital gains tax. In our view, question No. 1 is rendered academic and we accordingly do not deem it necessary to give any answer in respect of question No. 1. In the result, question No. 1 is answered as follows : " Academic and unnecessary for decision. " Question No. 2 is reformulated as follows : Whether the transfer of the shares on April 26, 1956, by the assessee-firm to the partners of the firm was made with the object of avoidance or reduction of the liability of the assessee under section 12B ? " The question is answered " in the negative ". The Commissioner will pay costs of the respondent. - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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