TMI Blog1993 (4) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts and the way the case proceeded before the income-tax authorities and the Tribunal, it would appear that the question as framed by the Tribunal requires to be reframed with a view to bring out the real controversy which we will do a little later. The facts are : Messrs. Sankey Electrical Stampings Ltd. ("S. E. S.") was a subsidiary company of Messrs. Guest Keen Williams Limited ("G.K.W."), the latter holding 83.64 per cent. of the share capital of the former. The remaining 16.36 per cent. of the share capital of S. E. S. was held by the assessee. It may be mentioned that the assessee held 15,606 shares of S. E. S. of the book value of Rs. 16,43,900. The assessee had acquired 14,470 shares before December 11, 1960, for Rs. 15,30,300 and 1,136 shares were acquired on December 28, 1962, for Rs. 1,13,600. The shares of G.K.W. were and are quoted at the Calcutta Stock Exchange. The shares of S. E. S. were not quoted on any stock exchange. It appears that some time in 1962-63, G. K. W. decided to merge S. E. S. with it for the purpose of ensuring an efficient and economic working of S. E. S. and to enable G.K.W. to obtain additional capital required for expansion. To facilitate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderson Ltd., 4 Clive Row, Calcutta-1. The shares represented by this letter of allotment for any dividend that may be declared hereafter pari passu with the existing equity shares of the company. " On the aforesaid facts, the assessee took up a stand before the Incometax Officer that no capital gains had arisen in the aforesaid transaction as the assessee received shares of G. K. W. in place of the shares of S. E S. on amalgamation of S. E. S. with G. K. W. The Income-tax Officer, however, did not accept the assessee's contention as according to him, the aforesaid transaction was indeed a transfer within the meaning of section 2(47) of the Act and the assessee was liable to capital gains. The Income tax Officer, however, made the following observation : "As a result of this amalgamation, there has been extinguishment of rights in capital assets which was the shareholding of the assesseecompany in Sankey Electrical Stampings Ltd. and gains as a result thereof would be taxable under the head 'Capital gains'. " Before the Appellate Assistant Commissioner, the assessee contended that once the Income-tax Officer had accepted that the assessee received shares of G. K. W. on amal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was fully justified in subjecting to tax the gains arising out of transfer of Sankey shares by the appellant to G. K. W. " Aggrieved by the order of the Appellate Assistant Commissioner, the assessee went up in appeal before the Tribunal and reiterated the sub-missions which were made before the Income-tax Officer as well as the Appellate Assistant Commissioner and strongly urged that the income-tax authorities were not justified in coming to the conclusion that the assessee's case fell within the meaning of the expression "transfer" contained in section 2(47) of the Act. It may be mentioned that on behalf of the assessee elaborate submissions were made and the Tribunal has recorded the same in paragraphs 24 to 28 of its order running into seven foolscap pages. Barring the repetition, the main contentions of the assessee were : (a) that there was no transfer within the meaning of section 2(47) of the Act in the aforesaid transaction ; (b) there was no intention of any sale or exchange of the shares; (c) taking the entire development as a whole, the shares of G. K. W. were received by the assessee on the amalgamation of S. E. S. with G. K. W. (d) since the transfer was mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the assessee's right in the shares of S. E. S. for which the assessee got shares of G.K.W. He, therefore, urged that we should answer the question as reframed by us in the affirmative, that is, in favour of the Revenue and against the assessee. Learned counsel for the assessee, on the other hand, reiterated the submissions which were made before the income-tax authorities as well as the Tribunal and strongly urged that since the Tribunal has correctly appreciated the facts and circumstances obtaining in the instant case and has come to the conclusion that no capital gains arose in the aforesaid transaction, we should answer the question as refrained by us in favour of the assessee and against the Revenue. In this connection, he made two further submissions, viz., if we were to appreciate the material brought on record in the proper perspective then it can be discerned that the assessee got shares of G. K. W. not in exchange of the shares of S. E. S. held by it but due to the amalgamation of S. E. S. with G. K. W. His other submission was that even assuming for the sake of argument that the aforesaid transaction falls within the definition of the word "transfer" as containe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecisions cited on behalf of the assessee, more so, when in the reported decisions, the statutes concerned are quite different from the provisions of the Act with which we are concerned in this reference. It is pertinent to note that in the reported decisions, which are cited on behalf of the assessee, the courts were not concerned with the interpretation of the definition of the expression "transfer" contained in section 2(47) of the Act which has very wide meaning and cannot be narrowed down by referring to the provisions of other statutes which are quite different and applicable in different contexts. In view of the aforesaid discussion, we answer the question as reframed by us in favour of the Revenue and against the assessee. The next issue raised in the second question referred to us relates to all the three years under reference and reads as under : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that both the deficit in depreciation allowance and the excess development rebate provided in the accounts should be taken into account for computing the 'distributable income of the previous year' as defined in Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to a problem which might prove intractable if it were to be answered by reference to the realities of a given case." Since the issue pertains to the interpretation of a certain portion of section 236 of the Act, it would be necessary to reproduce the said section in extenso : "236. Relief to company in respect of dividend paid out of past taxed profits.-(1) Where in respect of any previous year relevant to the assessment year commencing after March 31, 1960, an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends within India, pays any dividend wholly or partly out of its profits and gains actually charged to income-tax for any assessment year ending before April 1, 1960, and deducts tax therefrom in accordance with the provisions of Chapter XVII-B, credit shall be given to the company against the income-tax, if any, payable by it on the profits and gains of the previous year during which the dividend is paid, of a sum calculated in accordance with the provisions of sub-section (2), and, where the amount of credit so calculated exceeds the income-tax payable by the company as aforesaid, the excess shall be refun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------- Assessment Dividend Per Per Income-tax year declared assessee Officer --------------------------------------------------------------------------------------------------------------------------------------------------- Rs. Rs. Rs. 1962-63 4,65,04,499 46,50,449 4,31,420 1963-64 4,65,04,823 46,52,482 45,04,651 1964-65 4,88,56,378 *22,86,335 *21,27,554 --------------------------------------------------------------------------------------------------------------------------------------------------- *These figures are arrived at after considering the current years profits of Rs. 2,59,93,028 by the assessee and Rs. 2,75,80,833 by the Income-tax Officer. In order to appreciate better the rival stands of the parties, we would advert to the assessment year 1962-63 wherein the parties have computed "distributable income" as per their understanding of the provisions of section 236 of the Act. Per assessee : Rs. Rs. Total income assessed to tax Nil Less : Income-tax, supertax, wealth-tax, etc. Nil Donations 1,50,000 1,50,000 ----------------------------------------- (--) 1,50,000 Add : Excess of depreciation and develop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1961-62 amounting to Rs. 21,70,781. It may be mentioned that similar was the position in respect of the other two years under reference. In appeal before the Appellate Assistant Commissioner, the assessee once again urged that keeping in view the provisions of section 236 of the Act, more particularly Explanation 2, clause (b) thereof, in order to find out the distributable income for any previous year, we have not to consider the allowances and provisions itemwise but they have to be considered together. If that is done then the tax credit as worked out by the assessee was quite in order and the Income-tax Officer ought to have accepted the same. The Appellate Assistant Commissioner, however, upheld the action of the Income-tax Officer in the following manner : "A simple reading of sub-clause (iv)(b) of the above Explanation would show that if in the assessment any excess allowance has been allowed which the company has not taken into account in the profit and loss account, to that extent adjustment is called for ; vice versa is not provided for in the Act. The use of the words 'any allowance' in sub-clause (iv)(b) also shows that each allowance is to be considered separ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be available for distribution, in the case of an excess provision for any allowance the company should be assumed to have taken the amount of the excess provision not to be available to it for distribution. To take into account the former but to ignore the latter would result in assuming that the company considered an amount available to it for distribution of dividend which was, in fact, not so available as per its accounts. It would be absurd and illogical to assume that the company could have declared dividend of an amount exceeding the amount which it reasonably considered to be available to it for such distribution with reference to its accounts. If we accept the Revenue's construction, it would lead to such an absurd position. We must, therefore, accept the construction advocated by Mr. Palkhivala which is quite logical and consistent with the underlying object of the provision. We, accordingly, accept the contention of Mr. Palkhivala and direct the Income-tax Officer to allow relief under section 236 on this basis for all these three years." Learned counsel for the Revenue once again relied on the orders of the income-tax authorities and justified their action. In this c ..... 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