1983 (2) TMI 109 - AT - Income Tax

Issues Involved:
1. Whether the Commissioner (Appeals) erred in treating the gain of Rs. 5,583 as long-term capital gain and not as trading profit.
2. Whether the deletion of Rs. 1,83,384 included by the ITO under section 2(24)(iv) of the Income-tax Act, 1961 was justified.
3. Whether the assessee obtained any benefit as a result of the acquisition of 650 shares of DDIL.
4. Whether the fair market value of the shares obtained was more than Rs. 10 each and whether the same has rightly been fixed under the Wealth-tax Rules.
5. Whether the benefit, if any, has been obtained by the assessee from DCBL.
6. Whether the provisions of section 2(24)(iv) were applicable to the facts of the case.

Issue 1: Long-term Capital Gain vs. Trading Profit
The Commissioner (Appeals) treated the gain of Rs. 5,583 as long-term capital gain, not as trading profit. The assessee, a minor represented by his father and guardian, sold 200 shares of Orissa Cement Ltd. to his father, realizing a capital gain of Rs. 5,583. The ITO considered the assessee a dealer in shares and treated the amount as revenue profit. However, the Commissioner (Appeals) examined the history of the assessee's share transactions since the assessment year 1968-69 and found the absence of frequent transactions, concluding that the assessee was not a dealer. The transactions were within a close circle of relatives, indicating no business motive. The Tribunal upheld the Commissioner (Appeals)'s order, referencing a similar decision in IT Appeal No. 876 (Delhi) of 1978-79.

Issue 2: Deletion of Rs. 1,83,384 under Section 2(24)(iv)
The ITO included Rs. 1,83,384 under section 2(24)(iv), asserting that the assessee acquired 650 fully paid ordinary shares of DDIL at Rs. 10 each from DCBL, where the assessee's father was a director. The ITO determined the market value of these shares to be Rs. 292.13 each based on the balance sheet dated 30-9-1976, using the break-up method. The Commissioner (Appeals) found the ITO's findings confusing and based on conjectures. The Commissioner (Appeals) noted that the shares were offered to the public at Rs. 10 per share through a prospectus, and there was no evidence that the market value exceeded Rs. 10 at the time of acquisition. The Tribunal upheld the Commissioner (Appeals)'s decision, agreeing that the fair market value was not above the par value and that section 2(24)(iv) was not applicable.

Issue 3: Benefit from Acquisition of DDIL Shares
The Commissioner (Appeals) concluded that the assessee did not obtain any benefit from acquiring 650 shares of DDIL at Rs. 10 per share, as these shares were offered to the public at the same rate. The Tribunal supported this view, noting that the shares were available in large numbers at Rs. 10 per share, and there was no indication of a higher market value at the time of acquisition. The Tribunal emphasized that the shares were freely transferable and available to the public, and there was no special benefit conferred on the assessee.

Issue 4: Fair Market Value of Shares
The ITO rejected the quotation value of Rs. 10 per share and used the break-up method to determine the market value as Rs. 292.13 per share. The Tribunal found this approach inappropriate, referencing the Supreme Court decision in CGT v. Smt. Kusumben D. Mahadevia, which stated that the break-up value is not suitable for a going concern. The Tribunal agreed with the Commissioner (Appeals) that the market value should be based on the public issue price and the stock exchange quotation, both indicating a value of Rs. 10 per share.

Issue 5: Benefit from DCBL
The Tribunal agreed with the Commissioner (Appeals) that the assessee did not obtain any benefit from DCBL. The shares were offered to the public at Rs. 10 per share, and there was no special arrangement or understanding between DCBL and the assessee. The shares were acquired through a public offer, and there was no evidence of any benefit conferred by DCBL.

Issue 6: Applicability of Section 2(24)(iv)
The Tribunal concluded that section 2(24)(iv) was not applicable, as the assessee did not derive any benefit from acquiring the shares at Rs. 10 per share. The shares were available to the public at the same rate, and there was no indication of a higher market value at the time of acquisition. The Tribunal upheld the Commissioner (Appeals)'s decision to delete the addition of Rs. 1,83,384.

Conclusion
The Tribunal upheld the Commissioner (Appeals)'s order, treating the gain of Rs. 5,583 as long-term capital gain and not as trading profit. The Tribunal also supported the deletion of Rs. 1,83,384 included by the ITO under section 2(24)(iv), concluding that the assessee did not obtain any benefit from acquiring the shares at Rs. 10 per share, and the market value was not higher than the par value. The provisions of section 2(24)(iv) were not applicable to the facts of the case.

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