9911796707
TMI Blog1972 (3) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... shares held by it in Madura Insurance Company Ltd. to Pachnayaki Private Ltd., Coimbatore, for a sum of Rs. 60,000 and Rs. 75,000, respectively. The cost price of the 800 East India Corporation Ltd. shares was Rs. 81,201 and that of the 1,000 Madura Insurance Company Ltd. was Rs. 1,00,000. On the same day the assessee also sold its 499 shares in pudukottah Company Private Ltd, to Padmanabha Company Private Ltd. for the cost price of Rs. 4,990. The shares in East India Corporation Ltd., Madura Insurance Company Ltd. and Pudukottah Company Private Ltd. are not quoted in stock-market. It has now been ascertained in the order of the Tribunal that the break-up value on the date of sale of the 800 shares in East India Corporation Ltd. was Rs. 1,72,800 and the 1,000 shares in the Madura Insurance Company Ltd. was Rs. 1,54,000. Deducting the cost price of Rs. 81,201 and Rs. 1,00,000 respectively from the above said break-up value, a sum of Rs. 91,599 and Rs. 54,000 respectively have been determined as the capital gain under the first proviso to section 12B(2) of the Act in respect of the sale of shares in East India Corporation Ltd. and Madura Insurance Company Ltd. The Tribunal gave a fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) of the Act. In T.C. No. 99/66 the assessee is Pudukottah Corporation Private Ltd., which is a private limited company with a paid up capital of 4,250 shares of the face value of Rs. 100 each with Rs. 50 per share paid up and the shareholders during the material time Were Padmanabha Private Ltd. holding 1,100 shares, Saroja Mills Ltd. holding 2,125 shares and Sree Meenakshi Mills Ltd. holding 1,025 shares. On March 14,1957,the assessee sold its 800 shares in East India Corporation Ltd.for a sum of Rs. 60,000 to Maragadavalli Private Ltd., the cost price of these shares was Rs. 80,919. The break-up value as on the date of sale of these shares was found to be Rs. 1,72,800 and after deducting the cost price of Rs. 80,919 the capital gain was ascertained at Rs. 91,881. On this capital gain of Rs. 91,881 the Tribunal held that, the assessee was liable to pay tax under the first proviso to section 12B(2) of the Act. In all these cases, in the original proceedings for assessment for the year 1958-59, it was held by the Appellate Assistant Commissioner, accepting the contention of the respective assessees, that the profit or loss on the sale of the aforesaid shares should not be consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t effected with the object of avoidance or reduction of the liability of the assessees for capital gain. This explanation was not accepted by the Tribunal and it was characterised as an afterthought. The assessees in T.Cs. Nos. 98 and 99 of 1966 have repurchased the shares sold at a later date for the same price but in the case of the other assessees in T.Cs. Nos. 79 and 83 of 1966 there was no such repurchase. In all these cases the shares sold were not quoted in stock market but the break-up value of the shares were much more than the consideration for which they were sold. On these material facts found, the Tribunal inferred that " there was some premeditation and concerted action in regard to these transactions " and that the department was justified in applying the first proviso to section 12B(2) of the Act. The learned counsel for the assessees submitted that the Tribunal was not correct in law in drawing the inference on the facts found that the sales were effected with the object of avoidance or reduction of liability of the assessees for capital gain. But, the learned counsel for the revenue, relying on the decision of the Supreme Court in Commissioner of Income-tax v. Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the liability for capital gain. In this connection we have to keep in mind that the burden of proving that the sales were effected with the object of avoidance or reduction of liability for capital gain was on the department. Except for the fact that the explanation offered by the assessees was not acceptable to, the Tribunal and a strong suspicion on the real motive which prompted the assessee to sell the shares, there was nothing positive to suggest that the sales were eftected with the object of avoidance or reduction of liability for capital gain. The next point that arises for consideration is whether, on the facts and circumstances of the case, the first proviso to section 12B(2) applies. The scope of the proviso came up for consideration by a Division Bench of this court in Sundaram Industries Private Ltd. v. Commissioner of Income tax. The facts of the case were these : The assessee-company purchased 669 shares in Southern Roadways Private Ltd. in August, 1954, for a sum of Rs. 93,660 and sold them in December, 1968, for Rs. 66,900 to three ladies. The Income-tax Officer determined the market price of the shares as on March 31, 1958, at Rs. 1,56,064 and treated the differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int on the basis of certain observations of the Supreme Court in Commissioner of Income-tax v. George Henderson & Co. Ltd. He contended that in cases falling under the first proviso to section 12B(2) if the sale consideration was less than the fair market value then the difference between the fair market value and the cost price shall be deemed to have been received by the assessee, and taxable as such. In other words, according to the learned counsel, " deemed gain " is the subject-matter of the proviso. In our opinion, the observations of the Supreme Court do not warrant such a contention. In that case the share's book value was Rs. 136 and the same was sold on April 1, 1946, for Rs. 136 though the market value as on that date was found to be Rs. 620. The Income-tax Officer held that the first proviso to section 12B(2) was applicable. But the Tribunal held that it was not a sale with the object of avoiding or reducing the tax liability. The revenue conceded before the Supreme Court that the transfer did not come within the mischief of the first proviso to section 12B(2) because the transfer was effected at a time when section 12B had not been enacted and the transfer could not, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961, the proviso is dealt with as a separate provision in section 52. But, in the context in which the proviso is placed in section 12B of the Act, we consider that it is also a part of the machinery or computation provision and as a machinery provision it is intended merely to provide for the method of assessment or collection of the tax and not to increase or vary it. On a reading of the entire provisions in section 12B of the Act, we are of the opinion that what is intended to be taxed is the real capital gain and not a fictional gain. The first proviso to section 12B(2) deals with cases of avoidance of the tax liability. In this connection we may also usefully refer to the decision in Commissioner of Income-tax v. Sakarlal Balabhai in which the meaning of the expression " has thereby avoided " occurring in section 44F of the Income-tax Act was considered. That provision also is a provision against avoidance of tax. It was held therein : " Tax avoidance postulates that the assessee is in receipt of the amount which is really and in truth his income liable to tax but on which he avoids payment of tax by some artifice or device. Such artifice or device may apparently show the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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