TMI Blog1972 (10) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... t for the assessment years 1952-53 and 1953-54, the relevant previous years being the years ending October 31, 1951, and October 31, 1952, respectively. During these assessment years, the assessee was a private limited company and its share capital was held by the members of the Mahindra family and their nominees. The assessee-company's business consisted, amongst others, in import and sale of diesel engines. In or about the year 1947, the assessee-company came across a suggestion regarding manufacture of diesel engines in India, for lift irrigation purpose from one Kilberi, an American citizen. The said manufacture was to be done with the machinery to be acquired from an American company called Vess Sevenin Machine Company Inc. (hereinaf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to India by the 30th of June, 1949. For the purpose of carrying out this project, the assessee-company floated another company in India in May, 1948, and the business was to be carried on in Calcutta. Between February, 1948, and August, 1948, 4,50,000 dollars were remitted to America. The balance of 50,000 dollars out of the sanctioned foreign exchange was kept reserved for payment of freight, shipping charges, etc. The capital of the machine company was 30,000 U.S. dollars divided into 250 shares of 120 dollars each. On February 11, 1948, the assessee-company entered into an agreement with the shareholders of the machine company and purchased the entire share capital for 30,000 dollars. The balance of 4,20,000 dollars was paid ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber 27, 1949. The pound sterling was devalued in September, 1949, and the rupee was also simultaneously devalued. The rupee value of 2,25,000 dollars remitted to India after the devaluation came to Rs. 10,68,500. This capital is paid out of the paid in surplus in the new company. Thereafter, between July, 1951, and October, 1952, there were remittances aggregating to 2,30,562 dollars. These remittances were from the sale proceeds of 100 shares held by the assessee in the new company and 137 shares in the machine company. The remaining 113 shares in the machine company were held by Kilberi and Webster. They were given to them for the help rendered by them to the assessee-company in October, 1949. As a result of these remittances during the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd machinery to be tied up with an order for sale of 1,000 diesel engines to the Government. He also pointed out that it is apparent from the remand report submitted by the Income-tax Officer that the value of the fixed assets of the machine company was only 39,471 dollars whereas the value of the finished parts and goods as on July 31, 1948, was at 3,34,807 dollars. He also pointed out that in purchasing 250 shares of the machine company only a sum of 30,000 dollars was utilised while the balance of 4,20,000 dollars was given by way of loan for which a promissory note was passed by the machine company. He submitted that every accretion invested in trade is income, and the two sums of Rs. 4,38,472 and Rs. 2,27,342 cannot be regarded as capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d all the 250 shares of the machine company and advanced to it as and by way of loan a sum of 4,20,000 dollars on a promissory note. The assessee-company never traded in the shares of the machine company and the purchase thereof did not form part of its trading activity. The purchase of shares of the machine company does not mean purchase of stock- in-trade of that company. The machine company continued its business and sales of its products. The profit and loss belonged to that company. A shareholder of the machine company had merely a right to get dividends, if they were declared. When the project was abandoned all the 100 shares of the new company and 137 shares of the machine company were sold. The profits realised as a result of liquid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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