LexTHE COMMISSIONER OF INCOME-TAX, CALCUTTA versus GILLANDERS ARBUTHNOT & CO.
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437
THE COMMISSIONER OF INCOME-TAX, CALCUTTA
v.
GILLANDERS ARBUTHNOT & CO.
Vice Versa
September 27, 1972
;K. S. HEGDE, P. JAGANMOHAN REDDY, I. D. DUA AND
H. R. KHANNA, JJ.]
Income-tax Act 1922, Ss.
12B &
34---Capital gains-Transaction
whether a sdle, a readjustment or an exchange-Income-tax authorities
whethff can go to .-ubstance of transaction apart from legal relationship
creat('(/ by transaction-Shares-Full value of-Where there is a sale price
it >nLl.lt he treated as full value-Reopening of assessment-Validity of
notice under s. 24(1) (a).
The assessce, a registered firm carrying on mostly managing agency
hu>ine>1. originally consisted of four partners.
By partnership deed
dated February 28, 1947, a limited company (whose only shareholders
were the four partners of the assessee firm) was taken in as a fifth partner.
The c<>mpany was given a share of 99% in the newly constituted firm
in lieu of a sum of Rs. 14,90,000 to be paid by it to the existing partners.
Further. by an 'agreement of sale' dated February 28, 1947 the assessee
firm transferred its shareholdings to the company for a silm of Rs. 75
lakh;, The above sums of Rs. 14,90,000 and RB. 75 lakhs were satisfied
by the company allotting its shares to the existing partners at face value.
Jn re&pf(ct of ti.1e essessment year 1947-48 the Income-tax Officer made
originally an assessment without tciking into account any capital gains.
Later he issued a notice under s. 34 of the Income-tax Act, 1922, and
made a fresh assessment holding that the assessee firm had made capital
gain11. inter alia, on the sale of its shareholding for Rs. 75 lakhs, because,
the market value of the shares allowed by the company to the assessee firm
was much higher than RB. 75 lakhs, the face value. The validity of the
notice under s. 34 was upheld by the authorities as well as in reference by
the High Court. The High Court held that the transaction in question
was a 'sale' attracting the provisions of s. 12·B of the Act and that the
capital gain was Rs. 27,4,772 on the basis that the sale price received by
the assessee firm was Rs. 75 lakhs. In appeals filed by the Revenue as
wellas by the assessee firm the questions that fell for consideration were;
(i} whether the notice under s. 34(1}(a) was validly issued in the cir-
cumstances of the case; (ii) whether the transaction in question was
a
'sale' as it rurported to be under the 'agreement of sale' or a mere re-
adjustment as claimed by the assessee firm, or an exchange as contended
by the Revenue; (iii) whether the capital' gains were to be computed on
the basis of market ·value of the shares allotted to the assessee firm or on
the b.Sis of their value as shown in the 'agreement of sale' i.e. RB. 75 lakhs-
HELD : ( 1 ) Though at the time of the original assessment, the part-
nership deed entered into by the five partners was before. the Income-tax
Officer, the sale deed executed by the partners of the assessee firm in fav-
our of· the 'Company' on F~bruary 28, 1947 had not been placed before
him. There was no material before the Income-tax Officer on the basis of
which he could have concluded th2.t the assessee firm had sold any shares
and ;ecurities to the 'Company'; nor was there any material before the
Income-tax Officer as to the value of those shares and securities as on
438
SUPREME COURT REPORTS
[1973] 2 S.C.R.
January I, 1939.
Further no material was placed before him to show
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·that those shares and securities had been sold to the 'Company' for
a
sum of Rs. 75 lakhs.
Th~ Tribunal and the High Court rightly held that
the assessee had failed to disclose fully and. truly all material facts for the
purpose of ascertaining whether it had made any -capital gains or not.
[445 BJ
Calcutta Discount Co. Ltd. v. Jnco111e.fax Officer, Co111pa11ies District~l,
Calcutta and Anr., 41 I.T.R. 1g1, explained and applied.
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Con11nissioner of Jnco111e-tax, West Bengal and Aur. v. fft1ncl1andra
Kar and Ors, 77 I.T.R. p. I, Commissioner of Income·t<1x Gujarat v. 8/l(lnji
Lavji, 79 l.'f.R. 583 and Commissioner oJ' /nconrn•ta.t Calcutta v. 8111··
/011 Dealers Ltd., 79 !.T.R. 609, referred to,
(Ii) Section 12·B wns incorporated into the Act with effect from April
I, 1947. That bcln11 so, ;it the time the Hiiie trnnllf,ction touk plucc s.
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12·B waa not a part of the Act. Hence there wns no bnsi• for snyiJ1g thnt
the transfer was effected with the. obExcerpt shown. Read the full judgment & AI analysis in Lexace.