LexM/S. ORIENT TRADING COMP ANY LIMITED versus COMMISSIONER OF INCOME TAX CALCUTTA
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A M/S. ORIENT TRADING COMP ANY LIMITED -+- v. COMMISSIONER OF INCOME TAX CALCUTTA JANUARY 21, 1997 B [S.C. AGRAWAL AND G.T. NANAVATI, JJ.] Income Tax Act; 1961-Sections 14 and 28(ij--Excess value of shares ~~ received by the assessee on swrendeling the shares of one company in ex- change of the shares of another company-Held : can be regarded as realisa- c ti on of the secwity and has to be treated as profit of the assessee and there/ ore assessable as income. The assessee was holding 14,500 shares of a company of the face value of Rs.10 each as its stock-in-trade. The shares were valued by the assessee at Rs. 1,45,000 at the end of the assessment year 1962-63 and were D included in the closing stock. In the assessment year under reference, the '?-- assessee exchanged these sharies with 55100 shares of another company. The face value of the shares of the second company was Rs.10 per share. The assessee, however, valued the shares of the second company also at Rs.1,45,000 being the cost prke of the shares of the first company. Th,e E Income Ta" Officer did not accept the contention that the assessee had not earned any profit in the transaction. He valued the shares of the second company at Rs.10 per share aml held that Rs. 5,51,000 was the value of the shares of the second company. He therefore held that the assessee had earned a profit of Rs. 4,06,000 in the said transaction and brought that F amount to tax. The appeal med by the assessee was dismissed by the Appellate Assistant Commissioner as also by the Tribunal. Ultimately the question raised by the assesse1e whether the exchange of one security for another could be described as realisation of the security resulting in profit, was referred to the High Court, which had answered it against the a~sessee and in favour of the Revenue. Hence this appeal by the assessee. It was G interalia contended that as the shares were not sold at a higher price than the book price and were merely exchanged with the shares of another company, it could not be held to have earned profit. + Dismissing the appeal, this Court H HELD: 1. The High Court is right in holding that the exchange of 446 MIS ORIENT TRADING CO. v. C.I.T. 447 shares of one company with the shares of other company has to be treated A as realisation of security. This view is in consonance with the established principles governing the law in this field. [ 449-G-H; 450-A] 2. The High Court has rightly taken the view that as a result of having taken the shares in the second company in exchange of the shares of the first company the assessee had made realisation of the value of the shares of the first company and the difference between the price of the shares of the first company and the second company on the date of such exchange, has to be treated as a profit of the assessee and has been rightly assessed as income of the assessee. [ 453-C-D] Raja Mohan Raja Bahadur v. CIT, (1967) 66 ITR 378, relied on. Wesminster Bank Ltd. v. Osler (Inspector of Taxes), (1993) 1 ITR 65; Royal Insurance Co. Ltd. v. Steplu;m,(1928) 14 TC 22; Califomia Copper Syndicate Ltd. v: Harris, 5 TC 159 and British South Africa Co. v. Varty B c (Inspector of Taxes), (1966) AC 381, referred to. D CIT. v. Motors and General Stores Pvt. Ltd., (1967) 66 ITR 692, held inapplicable. Orient Trading Co. Ltd. v. CIT, (1981) 131 ITR 477 (Cal), affirmed. CIVIL APPELLATE JURISDICTION : Civil Appeal No. 353 (NT) of 1981. From the Judgment and Order dated 25.8.78 of the Calcutta High Court in l.T.R. No. 279 of 1973. H.K. Puri for the Appellant. B.S. Ahuja and N.K. Prasad for the Respondent. The Judgment of the Court was delivered : This appeal by the assessee arises out of Income Tax Reference No. 279 of 1973 made at the instance of the assessee which was disposed of by the Calcutta High Court by the impugned judgment dated August 25, 1978. Out of the two questions referred to it for its opinion, the High Court declined to answer question No. 1 as it did not arise from the judgment E F G of the Income Ta': Appelfate Tribunal (hereinafter referred to as 'the H 448 SUPREME COURT REPORTS [1997] 1 S.C.R. A Tribunal') and question No. 2 was answered against the assessee and in favour of the Revenue. The said question was in these terms : B "Whether the Tribunal was right in holding that on the facts and circumstances of the case the exchange of one security for another could be desc
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