TMI Blog1972 (1) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... ng moved, issued a rule nisi and then made it absolute after full arguments without giving any reasons whatsoever. The assessee is a 100% subsidiary of Imperial Chemical Industries Ltd., incorporated in the United Kingdom (hereinafter referred to as I.C.I. for convenience). I.C.I. advanced large amounts by way of loans to the assessee from time to time. This, it was claimed, was done for subscribing to shares in three Indian companies called Indian Explosives Ltd., Alkali Chemical Corporation of India and Atic Industries Private Ltd. (hereinafter called as I.E.L., A.C.C.I. and A.T.I.C. respectively). Subsequently, the assessee transferred the shares in the aforesaid companies at par to I.C.I. in satisfaction of the loans advanced by that company. The Income-tax Officer applied section 52 of the Income-tax Act, 1961 (hereinafter called the " Act "), and assessed the assessee to capital gains. The Appellate Assistant Commissioner took the contrary view and held that, on the facts which had been established, the assessee was not liable to capital gains tax under the aforesaid section. The Tribunal upheld the decision of the Appellate Assistant Commissioner by a detailed and well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of dividends (under sections 16(2) and 18(5) of 1922 Act) was abolished and intercorporate dividends became liable to income-tax at each stage. Thus, the dividends passing from the three companies through the assessee to I.C.I. became liable to tax at two stages. This affected the net return of I.C.I. on its investments in the three companies substantially. In these circumstances, it was decided by I.C.I. that the investments in the three companies should be held by it directly. For that reason it called upon the assessee in February, 1961, to transfer to it the aforesaid shares in the three companies at the issue price in satisfaction of the sterling loans in accordance with the previous agreements. The approval of the Reserve Bank to these transfers was received in February, 1961, and the transfers were made in March/April, 1961. According to the assessee there was no question of the transfer of shares having been effected with the object of avoidance or reduction of the liability of the assessee to capital gains which alone could attract the applicability of section 52 of the Act. Section 52 is in the following terms : " Consideration for transfer in cases of under-stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntatives of I.C.I. met the officials of the Government of India. The Tribunal referred to the minutes of the meeting held on October 1, 1953, as also on the 6th October, 1953. In the final draft of the Declaration of Intention dated November 5, 1953, it was mentioned that the Government had agreed that if I.C.I. made a loan to the assessee the latter would hold the shares in I.E.L. and that the loan " may be repaid by a transfer of the shares to I.C.I. at any time ". On 21st December, 1954, the assessee applied to the Reserve Bank of India for formal sanction for borrowing Rs. 160 lakhs from I.C.I. for the purchase of shares in I.E.L, in terms of the agreement dated November 5, 1953. It was stated in the letter that I.C.I. would charge no interest until such time as the shares began to yield dividends. The loans were advanced from 30th September, 1954, to 30th June, 1957, by the I.C.I. to the assessee of the equivalent of Rs. 160 lakhs in sterling. The other correspondence relating to the aforesaid amount was also noticed by the Tribunal. In 1958 there was a rights issue by I.E.L. I.C.I. agreed to give a loan of Rs. 80 lakhs to the assessee to cover the sterling requirement of I.E. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount the correspondence and the documents referred to earlier it was satisfied with the assessee's case that the transfer of shares to London at issue price or at par was throughout the basis of the advances of loans to the assessee. It is necessary to reproduce paragraph 31 of the order of the Tribunal : " In October, 1953, there was no mention of any capital gains tax being revived. At that time the assessee could not have had any idea of avoiding or reducing any liability to capital gains tax. The learned counsel for the department laid some emphasis on the fact that there was no enforceable arrangement. The question as to whether there was an enforceable arrangement or not is not really material. What we have to find out is whether the object in putting through these transactions of taking over the shares at par or at issue price was one of avoidance or reduction of liability to capital gains tax. That object does not get established by the mere absence of an enforceable arrangement. Having regard to the assessee being the subsidiary of I.C.I., there is nothing surprising about the arrangement not being so formal or not being put through after complying with all the necess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight to interest on the loan until the commencement of the period in respect of which A.T.I.C. paid the dividend. There was a further loan of Rs. 35,00,000 on the same terms. These shares were also subsequently required to be transferred to I.C.I. in February, 1961. The Appellate Assistant Commissioner had referred to the affidavits which had been filed on behalf of the assessee and had mentioned that the department had not cross-examined the deponents. Before the Tribunal the counsel for the department stated that he accepted the affidavits as correct in so fat as facts were concerned but he only disputed the inferences therefrom. The Tribunal in this connection observed : " In our opinion, once the facts mentioned therein are taken as correct, the inference that the transaction was not for the purpose of avoiding or reducing liability to capital gains tax has to follow. " Finally, the Tribunal, as stated before, confirmed the decision of the Appellate Assistant Commissioner that the material on record did not justify the conclusion of the Income-tax Officer that the object of the transfer of the shares of all the three companies by the assessee to I.C.I. was the avoidance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Industries Ltd., London, at the issue price or par was throughout the basis of the advance of loans to the assessee ? (2) Whether, in arriving at the said finding, the Tribunal misdirected itself in law in basing the said finding on evidence covering some matters only and ignoring evidence on other essential matters ? (3) Whether, on the facts and in the circumstances of the case, and particularly in view of the finding that there was no enforceable agreement making it obligatory upon the assessee to transfer the shares to Imperial Chemical Industries Ltd., London, at par or issue price the conclusion of the Tribunal that the transfer of the shares by the assessee to the latter company at par was not effected with the object of avoidance or reduction of the liability of the assessee to capital gains tax was unreasonable or perverse ? (4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that section 52 of the Income-tax Act, 1961, was not applicable to the facts of the case ? " On the analysis of section 52 of the Act made by us at a previous stage and the clear, cogent and precise findings and conclusions of the Appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by making the transfers in question did not involve the application of any legal principles to the facts established by the evidence. The findings of the Tribunal were amply supported by evidence and were eminently reasonable. It is true that the amount involved is very large but that cannot justify a reference as under section 256 of the Act neither the Appellate Tribunal could make a reference nor could the High Court direct the reference to be made to it by the Tribunal on pure questions of fact. The learned counsel for the Commissioner has sought to invite our attention to certain parts of the order of the Tribunal and, in particular, to the statement extracted by us at an earlier stage about the question whether the assessee had held the shares beneficially and the point which was debated before the Tribunal whether there was any binding legal agreement between the assessee and I.C.I. for transfer of the shares at par. We are unable to see how these matters were relevant for the purpose of determining the intention or object underlying the transfer of the shares to I.C.I. by the assessee. Once the Tribunal came to the conclusion which was purely one of fact that before the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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