TMI Blog1981 (2) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... rder to acquire the controlling interest in the company and that such controlling interest was a 'property' u/s. 2(14) of the Income-tax Act, 1961 ? (b) the controlling interest was not merely a side-effect of a block holding of shares ? and (c) hence the 'cost' for computing capital loss or capital gains was Rs. 76 per share and not Rs. 100 per share as claimed by the assessee ? M.C.C. No. 14 of 1981 is a reference made at the instance of this court requiring the Tribunal to state the case and refer the following questions of law to this court: " 1. Whether, on the facts and in the circumstances of the case, the controlling interest of the assessee in the Empire Dyeing Manufacturing Company Ltd. also passed on to the sons and hus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 1970-71, the assessee sold 11,900 shares, and on the sale of these shares, the assessee disclosed a capital gain of Rs. 1,60,939. The ITO did not accept the figures of capital loss or capital gain as claimed by the assessee. The ITO found that the assessee had purchased the shares in 1963 at the rate of Rs. 100 per share when the market value of the shares was only Rs. 76 per Share. According to the ITO, the extra price of Rs. 24 per share was paid by the assessee to acquire the controlling rights of the company. The ITO, therefore, held that the correct cost price of the shares sold in the assessment year 1967-68, after excluding the value of controlling rights, would be the prevailing market rate of Rs. 76 per share. On this basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of these sales, the ITO computed the capital gains at Rs. 5,61,190. The assessee contended that the charge to capital gains was not attracted as the place was the official residence of the Ruler and the income therefrom was exempt under s. 15(1)(iii) of the Part B States (Taxation Concessions) Order, 1950, hereinafter referred to as the " Taxation Concessions Order ". This claim was rejected by the ITO on the ground that exemption was in respect of the bona fide annual value of the official residence of the Ruler and not in respect of the capital gains. On appeal, the AAC and, on further appeal, the Tribunal also rejected that contention. An application for making reference in that behalf was rejected by the Tribunal and hence on an appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved in the case: " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the cost of acquisition for computing capital loss or capital gains was Rs. 76 per share and not Rs. 100 per share as claimed by the assessee? " Now, the Tribunal has found that the assessee had in fact paid the price of Rs. 100 per share when the assessee acquired the block of 42,000 shares of the company. It is true that the Tribunal has also found that the market price of the shares of the company at the material time was Rs. 76. But, if for acquiring a block of 42,000 shares the assessee was in fact required to pay Rs. 100 per share, then so far as the assessee was concerned, the cost of acquisition of each share was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other valuable right excepting the price of share sold by the assessee. The Supreme Court held that the contention of the assessee was untenable because no controlling power was held by the assessee. This decision cannot be held to be an authority for the proposition that " controlling power " is a distinct capital, asset, transfer in respect of which can be effected without transferring the shares. The other decision relied upon by the Tribunal is Baijnath Chaturbhuj v. CIT [1957] 31 ITR 643 (Bom). In that case, it was found that the consideration received by the assessee was really a composite consideration for the transfer of shares and the assignment of managing agency. No doubt, there can be a case of composite consideration but in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me or total world income of the person receiving them:... (iii) the bona fide annual value of the palaces of Rulers of Indian States which are declared by the Central Government as the official residences of such Rulers..." From a perusal of the aforesaid provisions, it is clear that what has been exempted is the bona fide annual value of the palace of a Ruler of an Indian State which is declared by the Central Govt. as the official residence of such Ruler. The exemption could by no stretch of imagination be held to embrace income in the nature of capital gains realised on the sale of land forming part of the official residence of a Ruler. In this view of the matter, the Tribunal was right in holding that the capital gains realised by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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