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TMI Blog1957 (5) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... e meaning of section 12B of the Indian Income-tax Act ?" The High Court answered the question in the negative. The appellant being dissatisfied with the judgment and order of the High Court asked for and obtained a certificate from the said High Court that the case is a fit one for appeal to the Supreme Court. The material facts may be very shortly stated. The assessee company is a private limited company, the shares of which were held by the then Maharaja Scindia of Gwalior and his nominees. At the material time, the assessee company was the managing agent of Madhowji Dharamsi Manufacturing Co. Ltd., hereinafter briefly referred to as the Dharamsi Company, and Sir Shapurji Broacha Mills Ltd., briefly referred to as the Shapurji Broacha Company. The assessee company held all the "conversion" shares of the Dharamsi Company and a substantial majority of the "conversion" shares of the Shapurji Broacha Company. The Dalmia Investment Company Limited, which will hereinafter be briefly referred to as the Dalmia Company, wrote two letters to the assessee company on September 14, 1946. In these two letters, the Dalmia Company offered to purchase 28,328 "conversion" shares of the Dharamsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ou, you as the present managing agents will give their (sic.) resignation, so that at the time of delivery of the shares and payment of moneys, your managing agency will have come to an end. In view of the above, it is not necessary to obtain any sanction of general meeting. (2) 1. Mr. Shriyans Prasad Jain, 2. Mr. Jaidayal Dalmia, 3. Mr. Shanti Prasad Jain, and 4. Mr. Vishnu Hari Dalmia will be appointed directors of both the Mills Companies and thereafter all the present directors will tender their resignation. (3) Qualification shares in the names of the above proposed directors will be transferred by you and the balance of the shares will be delivered to us along with the transfer deeds duly signed against payment. (4) You may communicate by a circular to the shareholders that you have resigned the managing agency. You may further mention in the circular that in accordance with the offer we are prepared to take up the deferred shares held by the shareholders which may be offered to us at the rate of Rs. 25 and Rs. 7-8-0 of Madhowji Dharamsi Manufacturing Co. Ltd., and Sir Shapurji Broacha Mills Ltd. respectively within two months of the date of letter of offer which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sale, exchange or transfer of a capital asset effected after the 31st day of March, 1946 ; and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange or transfer took place. " It is worthy of note that "capital gains" were charged for the first time by the Income-tax and Excess Profits Tax (Amendment) Act, 1947, which inserted section 12B in the Act. It taxed "capital gains" arising after the 31st March, 1946, and the levy was virtually abolished by the Indian Finance Act, 1949, which confined the operation of the section to "capital gains" arising before the 1st April, 1948. The Finance (No. 3) Act, 1956 (77 of 1956) re-introduced the section in wider terms so as to bring within "capital gains" "any profits or gains arising from the sale, exchange, relinquishment or transfer of a capital asset effected after 31st March, 1956, etc." We are not, however, concerned with the question whether the transaction under our consideration, which took place in 1946, resulted in capital gains within the meaning of section 12B as it stands after the enactment of the Finance (No. 3) Act, 1956 (77 of 1956). The question before us is whether the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be effected after 31st March, 1946. There is no doubt that the transaction before us was effected after 31 March, 1946. There is also no dispute that the managing agency of the two mills which the assessee company held was a capital asset. Therefore, the question boils down to this---did the profits or gains, namely, the sum of Rs. 1 crore which was computed as the value of the managing agency, arise from the sale or transfer of the managing agency ? The Income-tax authorities held that there was a sale of the managing agency; but the Appellate Tribunal held that there was no sale in the strict sense but only a transfer of the managing agency to the managed companies, that is, the Dharamsi Company and the Shapurji Broacha Company. The High Court held that there was neither a sale nor a transfer, because the letter of 7th October, 1946, substituted a different contract for the original contract entered into by the parties, and the true legal position with regard to the substituted contract was that the assessee company resigned the managing agency, or in other words, the managing agency was relinquished by the assessee company. The learned Solicitor-General, who has appeared for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral is that there was one indivisible consideration for the whole transaction, including the sale of the shares and of the managing agency. So far as the shares were concerned, the sale did take place and the entire consideration was paid; there was therefore a sale within the meaning of section 12B of the Act, and the consideration being one and indivisible, the transaction did result in capital gains within the meaning of that section. At the first blush, the argument has an apparent merit of plausibility, though it was not urged before the Bombay High Court in the manner in which it has been urged before us. On a closer scrutiny, however, it appears to us that this argument is not really available to the learned Solicitor-General. The parties and the Income-tax authorities, including the Appellate Tribunal, proceeded on the footing that part of the consideration, namely, the sum of Rs. 1 crore, was the consideration for the sale or relinquishment of the managing agency, the Department contending that the transaction was a sale or transfer and the assessee company contending that it was neither a sale nor a transfer but a mere relinquishment. In the agreed statement of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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