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TMI Blog1983 (4) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... in the names of various members of the family. The details of these shares are as follows : Rs. 1. 2,000 preference shares in the name of Rai Bahadur Dalip Narain Singh @ Rs. 100 per share 2,00,000 2. Ordinary shares for Rs. 2,501 2,501 3. One lakh ordinary shares of Re. 1 in the name of Smt. Muneshwari Devi, W/o Shri Raghubar Narain Singh 1,00,000 4. 2,632 preference shares of Rs. 100 in the name of Shri Raghubar Narain Singh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner that four lakhs rupees was income from undisclosed sources in the transaction between the assessee-petitioner and Shri A. K. Das regarding the transfer of Pacific Bank shares and the management and there was also a capital gain of Rs. 1,94,299 arising out of such transfer of shares and the management to Shri A. K. Das. It was submitted before the ITO by the assessee that the fixed 'deposit was arranged by Shri A. K. Das who purchased the shares of the petitioner and his family members for Rs. 7,60,000. This was disbelieved by the ITO who added Rs. 4,00,000 as income from other sources. Thereafter, the ITO computed the capital gain on the sale of shares in the hands ,of the assessee-petitioner. He deducted the cost on shares of Rs. 5,65,701 from the sale proceeds of Rs. 7,60,000 and, thereafter, computed the capital gain at Rs. 1,94,299, which is the subject-matter of dispute in this reference. We are not concerned in this reference with the above four lakhs as income from other sources. The only question referred before us is whether, on the facts and in the circumstances of this case, the entire sum of Rs. 1,94,299 could be treated and taxed as a capital gain of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nection, he has drawn our attention to the copy of agreement dated April 3, 1946, which is annex.-B to the statement of case referred to by the Income-tax Appellate Tribunal. " Capital gain " has been defined in s. 12B of the Indian I.T. Act, 1922 (hereinafter referred to as " the -old Act "). Section 12B says that the tax shall be payable by an assessee under the head " Capital gains " in respect of any profits or gains arising from the sale, exchange, relinquishment or transfer of a capital asset. Sub-section (2) of s. 12B deals with the computation of the amount of a capital gain, after making certain deductions from the full value of the consideration for which the sale, exchange, relinquishment or transfer of the capital asset is made. There are certain other provisos in this section, but we are not concerned with that part. Sub-section (2) of s. 12B says that any expenditure incurred solely in connection with such sale and the actual cost to the assessee of the capital asset including any expenditure of a capital nature incurred or borne by him shall be excluded from the sale proceeds while computing the capital gains of an assessee. The agreement, annexure B, between th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for a consideration of Rs. 7,51,000 in the year 1938. In 1946, this firm sold to a third party 65,012 shares held by it in the company together with its managing agency rights for an amount calculated at Rs. 65 per share. The income-tax authorities, for the purpose of computing capital gains under s. 12B of the old Act.) held that the full value of the consideration for the sale of shares must be taken to be Rs. 65 per share while the contention of the assessee was that the full value of share was only the market value of the share at the time and his firm had fixed the inflated value only on account of its parting with its managing agency. The Tribunal rejected the assessee's contention and did not bifurcate the price of the share and the price of the managing agency. It was held (in 31 ITR 643) that as the consideration received by the firm was really a composite consideration for transfer of the shares and the assignment of the managing agency, and the real market value of the share at the time of the sale was only Rs. 46 per share, therefore, for the purposes of S. 12B, the sale price of the share should be taken at Rs. 46 and not at Rs. 65 per share. On the basis of this dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not trading profit, was in accordance with law. The High Court answered the question in the affirmative. In my opinion, this case does not apply to the instant case, because, in the instant case, the object was not only to acquire the office of the managing directorship (sic). Similarly, the case Rameshwar Prasad Bagla v. CIT [1973] 87 ITR 421 (SC), does not help the Department. There also the object was for acquiring managing agency. I do not feel persuaded to agree with the submissions made by Mr. Rajgarhia. From an examination of sub-s. (2) of s. 12B of the old Act, it is clear that certain deductions are admissible in computing the capital gains of an assessee. Such deductions cannot be ascertained unless the income-tax authorities apportion the entire sum under different heads. The agreement (annexure B) has not been challenged by the Department. The Income-tax Appellate Tribunal has rejected the contention of the assessee on the ground that the petitioner was not the competent authority to delegate the power of managing directorship to Shri Das under the Indian Companies Act. In my opinion, the Tribunal has approached this question on a wrong assumption. I am not here to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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