TMI Blog1987 (4) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase on the break-up value basis was Rs. 292.13 per share. We found that each of the petitioners had a relative who was a director in DCB or SI, as the case may be. He thus concluded that the assessee had been able to purchase for Rs. 10/ 11.20 a share whose real market value on the date of purchase was Rs. 292.13. He, therefore, held that each of the assessees was assessable on the difference between Rs. 292.13 and Rs. 10/ 11.20, the difference being treated as income by virtue of section 2(24)(iv) which in so far as is relevant reads as follows: " (iv) The value of any benefit or perquisite, whether convertible into money or not, obtained from a company ......... by a relative of the director . . . . . .` " The short question is whether this conclusion was justified. The Tribunal traced the history of the transaction. They found that the DDIL was originally a wholly owned subsidiary of DCB Ltd., all the 60,000 shares of the company being held by DCB Ltd. Some time later, the company issued a large number of shares to the shareholders of DCB Ltd. It was, however, the desire of the company to raise Rs. 24 lakhs by way of share capital and it proposed to do so by issuing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . DCB also made a public offer for the sale of its 21,000 shares and these were open to be subscribed by any member of the public and indeed several of the shares were also subscribed for. It was also pointed out that the DCB did not directly sell the shares to the petitioners but they were sold by appointing DDIL as an irrevocable power of attorney agent to sell the shares in pursuance of the prospectus. The Tribunal also pointed out that, in the light of the decision of the Supreme Court in CGT v. Smt. Kusumben D. Mahadevia [1980] 122 ITR 38, it was not proper to ascertain the market value of the shares of a going concern on the basis of the break-up value of the assets of the company. They, therefore, held that none of the assessees derived any benefit by the purchase of the above shares at the rates stipulated in the prospectus and that, in any event, there was no material to indicate that at the time of the sale of the shares, the market value of the shares was more than the consideration shown in the prospectus. As we have earlier mentioned, there are some slight differences in the material facts in the cases of the various petitioners before us. One of these, as we have al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to trace back the earlier financial history of DDIL. This company previously known as Dalmia Cements Ltd. had two cement factories in Pakistan. They were sold by the company to a public sector company in Pakistan known as Pakistan Progressive Cement Industries Ltd. (PPCI) on certain conditions which are not now relevant However, the National Bank of Pakistan (NBP) had guaranteed the due payment of the purchase price of the factories to the assessee. The balance-sheet of the company as on September 30, 1973, reflected a debit balance of Rs. 1,43,88,605 in the profit and loss account which primarily represented the purchase price of the factories due from the PPCI. Apparently, in the view that these proceeds were practically irrealisable, the company proposed to reduce its share capital. Accordingly, an application was filed in the Madras High Court seeking permission to reduce the share capital of the company from Rs. 5,00,00,000 to Rs. 3.56 crores and the paid-up capital to Rs. 6 lakhs consisting of 60,000 fully paid-up shares held by DCB Ltd. In other words, the company effected a substantial reduction of capital in June, 1974. Learned counsel for the Department submits that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, contends that the petitioners should be held to have received a benefit as a result of these transfers from the company of which their relatives were directors and that the value of this benefit, as worked out by the Income-tax Officer, was rightly assessable under section 2(24)(iv) of the Act. We think that the Tribunal has rightly rejected these contentions on behalf of the Department. In the first place, as against the positive evidence available in the face of actual allotments of the shares of DDIL to members of the public at Rs. 10 per share in April, 1976, there is no necessity to go in for some other method of ascertaining the market value of the shares such as the break-up value method. It is not the suggestion of the Department that the public issue for subscription in April, 1976, was a make-believe or a sham affair. On the other hand, as we have mentioned earlier, these shares have been subscribed for, to substantial extent, by members of the public. There is, therefore, positive evidence that at the relevant time, shares of the company were available in the market for allotment at Rs. 10 per share. This is a clinching circumstance under which, in our opinion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that the shares were intrinsically worth many times more than the face value, one would have expected the shares to be fully or oversubscribed. As we have already mentioned, it is not suggested that there was a mere ruse to issue the shares to the public and that the shares have been allotted among close relatives secretly. Actually, one can also appreciate the reason why the shares were not fully subscribed at that time. At that time the company had no doubt obtained awards against the NBP but proceedings were pending in the London High Court and judgment had not been given at the time the prospectus was issued. Of course, the judgment came in a few days later, i.e., on July 21, 1976, but even if subsequent facts are to be taken into account, the position was that the NBP had preferred an appeal. It was very difficult for anybody, particularly members of the public in India, to gauge with any sense of realism the prospect of the company eventually being able to recover the huge amount awarded earlier or to retain the benefit of the decree given by the High Court at London. At that time, there was only a litigation pending and the amount had been deposited in the bank account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the earlier year, they would have been entitled to the dividends payable in respect thereof for the year 1973-74. Actually, there was no dividend issued by the DDIL for the year 1974-75 in view of there having been losses in the company. But even assuming that there is some difference, there is no justification for treating the market value of the shares to be equal to the break-up value and bringing to assessment the large sums that are in question in the present case. Since the amounts involved are substantial and since there is also batch of cases on the same point, we have discussed the matter at some length. But we should like to make it clear that only a very short question is involved, namely, what was the market value of the shares in May, 1976, or February, 1977, as the case may be. Having regard to the public subscription on that day, the Tribunal has accepted the position that the market value of the shares as on that date was only the value for which the assessees purchased the shares. This is a simple conclusion of fact based on the ample material before the Tribunal. The Department is just attempting to make the matter look somewhat complicated by referring t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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