1967 (7) TMI 12 - HC - Income Tax

Purchase and sale of shares - the right to the issue of deferred shares went to the assessee along with 5, 100 shares taken over by him and that was clearly capital in his hands - there is nothing to show that it was converted by him as his stock-in-trade - If assessee realised a profit by sale of this right it must be regarded as a capital receipt in his hands

Summary

Issues Involved:
1. Vires of Section 34(1A) of the Income-tax Act, 1922.
2. Treatment of 5,100 shares taken over by the assessee.
3. Determination of the proper accounting year for the assessee's share in the profit of the joint venture.
4. Nature of the sum of Rs. 13,000 realized by the assessee.

Detailed Analysis:

1. Vires of Section 34(1A):
The first question challenges the vires of section 34(1A) but in view of the decision of the Supreme Court in K.S. Rashid & Son v. Income-tax Officer, this question is not pressed by the assessee and it is conceded that the answer to this question must be against the assessee.

2. Treatment of 5,100 Shares:
The second question raises the controversy whether the 5,100 shares were taken over by the assessee in lieu of his capital and share in the profit of the joint venture or they were withdrawn by him from the stock-in-trade of the joint venture at cost. The Tribunal found that these shares were taken over by the assessee as part of his share in the profit of the joint venture and added Rs. 76,500 to the assessable income of the assessee. However, the court found that the statement of account showed the 5,100 shares were withdrawn by the assessee at cost and no profit accrued to the joint venture in respect of those shares. The court concluded that the addition of Rs. 76,500 in the assessable income of the assessee was not justified.

3. Determination of the Proper Accounting Year:
The third question relates to the proper accounting year for the assessee's share in the profit of the joint venture. The revenue adopted the calendar year 1944 as the previous year, but the court found that the financial year 1944-45 was the proper previous year for the income arising from the joint venture. However, the court noted that this question was academic because, according to the Tribunal, the income from the joint venture accrued to the assessee only in September 1944, making the controversy regarding the previous year immaterial. The court found it unnecessary to answer this question.

4. Nature of the Sum of Rs. 13,000:
The fourth question concerns whether the sum of Rs. 13,000 realized by the assessee from the sale of the right to the issue of deferred shares was a capital receipt. The court found that this right went to the assessee along with the 5,100 shares and was clearly capital in his hands. There was nothing to show that it was converted by him into stock-in-trade. Thus, the court concluded that the sum of Rs. 13,000 represented a capital receipt in the hands of the assessee.

Conclusion:
- Question No. 1: Not pressed.
- Question No. 2: The addition of Rs. 76,000 in respect of profit alleged to be embedded in 5,100 shares taken over by the assessee was not right in law.
- Question No. 3: Not answered.
- Question No. 4: The sum of Rs. 13,000 represented a capital receipt in the hands of the assessee.

Each party should bear and pay their own costs.