TMI Blog1982 (9) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Act. The agreement also provided that in case the whole block of 1,19,760 shares were not so transferred, the vendor was to repay all moneys received, from the purchaser and that the latter was to return or retransfer all the shares delivered or transferred. Shares held by the two petitioners herein were also covered by the agreement and 1,700 shares belonging to each were actually transferred on March 31, 1977. They filed returns under the I.T. Act showing long-term capital gains on the sales so effected, and the ITO assessed them under s. 143(1). It so transpired, however, that permission was not obtained from the Reserve Bank in time for transferring 40,000 shares held by another member of the family, who was a non-resident Indian. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver the written down value of the machinery, but the High Court held that the substance of the transaction consisted of only change from the business of the firm to the business of the company. The Supreme Court disagreed with the High Court, holding that the taxing authorities were bound to go by the legal effect and character of the transaction, and not by the substance of the matter. Referring to the doctrine relating to the substance of a transaction, their Lordships observed that the question of taxability or non-taxability had to be determined on the basis of the legal rights and liabilities flowing from the contract of the parties, and not on the basis that they were different from what they were in law. What then were the legal ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missions, approval or sanctions from the Government of India, Reserve Bank or any other authorities and also of the consent of the authorities and also of the consent of the other shareholders mentioned in the schedule hereunder and if in the event of the aforementioned 1,19,760 shares are not transferred to the purchaser and/or its nominees or duly registered in the registers of the said company in the names of the purchaser and/or its nominees, the vendor shall repay all moneys paid by the purchaser and the purchaser shall return or retransfer all shares which have been transferred or delivered to the purchaser or its nominees. " On a careful examination of the above terms, it is difficult to reach any conclusion other than that as and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the transfers effected by the petitioners on March 31, 1977, were conditional and had not taken effect at any time. The agreement was not for conditional transfer of shares, but for full legal transfer in lots, with a condition added that the lots sold were to be bought back under certain circumstances. The theory that there was no completed transfer and that there was "no taxable point giving rise to capital gains " is also belied by the circumstance that the petitioners themselves had included the long-term capital gains in the returns filed by them. They themselves were then of the view that the transfers had become effective, and in proceedings under art. 226 of the Constitution, this court cannot also now permit them to take up a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
