TMI Blog1983 (4) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... ers of the family. The details of these shares are as follows : Rs. 1. 2,000 preference shares in the name of Rai Bahadur Dalip Narain Singh @ Rs. 100 per share 2,00,000 2. Ordinary shares for Rs. 2,501 2,501 3. One lakh ordinary shares of Re. 1 in the name of Smt. Muneshwari Devi, W/o Shri Raghubar Narain Singh 1,00,000 4. 2,632 preference shares of Rs. 100 in the name of Shri Raghubar Narain Singh 2,63,200 -------- Total 5,65,701 -------- Before this petitioner, the father of the petitioner, Rai Bahadur Dalip Narain Singh, was the karta. For the assessment year 1947-48, the ITO, Monghyr, assessed Rai Bahadur Dalip Narain Singh as karta along with his son, Raghubar Narain Singh, the petitioner, on an income of Rs. 29,884. Subsequently, there was a partition in the family between Rai Bahadur Dalip Narain Singh and the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er held shares of the Pacific Bank of India Ltd. to the extent of Rs. 5,65,701 in the following manner: (i) Rs. 2 lakhs face value preference shares plus Rs. 2,501 face value ordinary shares in the name of Rai Bahadur Dalip Narain Singh; (ii) Rs. 2,63,200 -face value preference shares in the name of Raghubar Narain Singh?, (iii) Rs. 1 lakh face value ordinary shares in the name of Smt. Muneshwari Devi, wife of Raghubar Narain Singh. It was agreed between the petitioner's family and Shri A. K. Das that all the shares which the family possessed would be transferred to Shri A. K. Das and the petitioner would resign from the office of managing director and the price for the transfer of shares and resignation of the petitioner's office of the managing director was fixed at Rs. 7,60,000. Shri A. K. Das agreed to this and the sum of Rs. 7,60,000 was paid. The Income-tax Appellate Tribunal, while considering this question, gave a finding that the price received by the petitioner was the price for the sale of the shares and not the price for delegating the power of the office of managing director, because even if it is assumed that the petitioner delegated the power to Shri A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid bank in favour of the first party and whereas by virtue of his powers and authorities vested in him, the first party is competent to appoint such person or persons, as he may think fit, for the better and efficient management of the affairs of the said bank and to delegate to him such power or powers as may be necessary for this purpose and whereas the first party being desirous of disposing of his shares approached the second party who had agreed not only to take over the said shares but also the management of the affairs of the said bank. It was agreed by and between the parties that in consideration of the sum of Rs. 7,60,000 paid by the said second party, the said first party shall also appoint the said second party as the general manager of the said Pacific Bank of India Ltd. and will delegate to him such power or powers that were vested in the said first party for the purpose of carrying on business of the said Pacific Bank of India Ltd. From a perusal of annexure B (deed of agreement), it is manifest that the consideration amount of Rs. 7,60,000 does cover not only the value of the shares held by the assessee but also the consideration for the transfer of the office of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the petitioner for the sale of the shares only and not as the price for transferring the power of managing director also. Mr. B. P. Rajgarhia, appearing on behalf of the Department, contended that the question framed should be answered in favour of the Department, because the -entire sum of Rs. 1,94,299 could be treated and taxed in law as a capital gain of the assessee. His line of argument is that because the assessee has received the capital gains of Rs. 1,94,299 on account of the transfer of his shares as well as on account of the delegation of power of managing director to Shri Das, it can be assessed under S. 12B of the old Act. According to his submission, the income-tax authorities are not bound to make any apportionment under the two heads. He vehemently argued that because the petitioner has sold the entire shares held by him in the said bank and, as such, Shri Das by virtue of being the holder of the entire shares became the managing director of the said bank. For being the managing director of the said bank, Shri Das had not paid any consideration money to the petitioner, therefore, according to his submission, the entire capital gains accrued on account of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the petitioner has power or not to transfer the office is not the question here to be determined, but whether the petitioner has received some consideration for delegating his power to Shri Das. It is well settled that the taxing authorities are not entitled to ignore the legal character of the transaction, which is the source of the receipt. It is wrong to proceed on what the authorities regard as the substance of the matter. The taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction. Even if the parties have chosen to conceal by a device the legal relation, it is open to the authorities to unravel the device and to determine the true character of the relationship. The legal effect of the transaction cannot be displaced by probing into the substance of the transaction. In the instant case, the income-tax authorities have come to the conclusion that the entire amount of capital gains has accrued from the sale of the shares of the petitioner ignoring the legal character of the agreement (annexure B) which, in my opinion, is not correct in law. A reference may be made to the case, Addl. CIT v. Govindoss Purshothamdos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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