TMI Blog1975 (11) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... ry, 1958. The shares and securities which the shareholders were to receive in accordance with the said scheme of reduction of capital were valued at Rs. 97,75,539 as per the market rates prevailing on the 10th of January, 1958, which was the date of the said special resolution for reduction of capital. Even after that resolution was confirmed by the High Court, it, however, took some time to go through the formalities consequent on the order of that court, with the result that it was only on the 20th March, 1958, that the said shares and securities were handed over by the company to the respective share-holders, presumably, along with the relative transfer forms. In the meantime, the market value of the said shares and securities had appreciated, with the result that the market value thereof as on the 20th of March, 1958, was Rs.1,04,63,157. The Gift-tax Officer took the view that the difference between the market value of the said shares and securities as on the 20th of March, 1958 viz. Rs. 1,04,63,157 and Rs. 97,75,539, being their market value as on 10th January, 1958, which was the date of the passing by the company of the special resolution for reduction of capital, amounting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of the foregoing, includes .............." (The rest of that clause is not material for the parpose of the present case). It was sought to be contended by Mr.Joshi on behalf of the revenue that once there was a delivery of the share certificates by the company to the shareholders, there was a " transfer of property " within the meaning of that expression in section 2(xxiv) of the Act, and that took place on the 20th of March, 1958, on which date the market value of the said shares and securities, being in excess of the consideration for the reduction of capital by the sum of Rs. 6,87,618, there was a deemed gift of that amount by the company to its shareholders within the meaning of section 4(a) of the Act., In answer to that contention of Mr. Joshi, Mr. Kolah on behalf of the assessee-company pointed out that the definition of " transfer of property " in section 2(xxiv) is prefaced by the words " unless the context otherwise requires ", and that in the context of the reduction of the share capital of the company, there is no scope for applying the definition of "transfer of property " in section 2(xxiv) of the Act. It was the contention of Mr. Kolah that when a company reduces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer, as clearly appears from the decision of the Supreme Court in Madurai Mills' case [1973] 89 ITR 45 (SC). What happens on a reduction of the share capital of a company is much the same as what happens in the case of the winding-up of a Company, as in Madurai Mills' case [1973] 89 ITR 45 (SC) in so far as what the shareholders get is only what they are entitled to by the very fact of their being shareholders of that company, and such a transaction cannot amount to a transfer. If it cannot amount to a transfer, it cannot fall within the concept of the deemed gift artificially created by section 4(a) of the Gift-tax Act. Reliance was placed by Mr. Joshi on another decision of the Supreme Court, and that was in the case of Mrs. Bacha F. Guzdar v. Commissioner of Income-tax [1955] 27 ITR 1 (SC) in which it was observed (at page 5) that though a shareholder acquires a right to participate in the profits of the company, it is not possible to accept the position that the shareholder acquires any interest in the assets of the company, or any right in the property of the company, and that the company, being a juristic person, distinct from its shareholders, it cannot be said that the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own that the court, if satisfied with respect to the matters stated therein, " may make an order confirming the reduction on such terms and conditions, as it thinks fit ", and sub-section (1) of section 103 provides that the Registrar of Companies is to register the court's order and minute and sub-section (2) thereof enacts " on the registration of the order and minute, and not before, the resolution for reducing share capital as confirmed by the order, shall take effect ". As Mr. Kolah has rightly submitted, these statutory provisions relating to reduction of capital clearly show that what is effective for the purpose thereof is the special resolution itself, and that what the court does is merely to confirm that resolution with-or without modifications, or to refuse to confirm the same. If the resolution is confirmed by the court whether it be confirmed, with or without any modification, it is the resolution which takes effect for the purpose of reducing the share capital of the company, and that is clear, particularly from the language of sub-section (2) of section 103 of the Companies Act, to which I have already referred, read along with sub-section (1) of section 102 thereof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of taking the market value of the shares received by the shareholders from the com pany. As far as the third date, viz., the 20th of March, 1958, which was taken by the Wealth-tax Officer and the Appellate Assistant Commissioner, is concerned, in my opinion, that date is of no consequence as, in the case of a reduction of share capital, what is effective is the special resolution of the company for the reduction of share capital, and what follows is merely in the nature of formalities. In that connection, Mr. Joshi referred to the decision of the Rajasthan High Court in the case of Commissioner of Income-tax v. Smt. Sura Bai [1972] 84 ITR 774 (Raj) in which, after referring to two decisions of the Supreme Court and a decision of the Madras High Court, the view taken was that when the beneficial interest in the shares is transferred by the donor to the donee by the delivery of share certificates, a gift must be held to be complete within the terms of the Gift-tax Act. In my opinion, the two Supreme Court decisions on which reliance, was placed by the learned judges of the Rajasthan High Court in Suraj Bai's case [1972] 84 ITR 774 (Raj) do not justify the conclusion at ..... X X X X Extracts X X X X X X X X Extracts X X X X
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