COMMISSIONER OF INCOME TAX GUJARAT II AHMEDABAD Vs. R M AMIN T R OF THE LATE SHRT CHUNNTBHAT J AMTN BARODA

JUDGEMENT

(1.) This appeal on certificate is against the judgment of Gujarat High Court whereby the High Court answered the following question referred to it under Section 256 (1) of the Income-tax Act, 1961 (hereinafter referred to as the Act of 1961) in favour of the assessee-respondent and against the revenue:

(2.) The matter relates to the assessment year 1962-63, for which the accounting previous year was calendar year 1961. The assessee who is an individual held 192 shares of Kawelongoji Ginneries Ltd., Kampala, a private limited company incorporated in Uganda (hereinafter referred to as the Uganda company). Those shares were acquired by the assessee sometimes before January 1, 1954 and he paid Sh. 1000 for each share. The amount thus paid by the assessee for the 102 shares was Sh. 1,92,000 equivalent to Rs. 1,28.000. The said company went into voluntary liquidation as per special resolution dated July 10, 1961. The liquidators sold the assets of the company in due course and the liquidators account was finally drawn up on July 31, 1961. As per this account, the assessee became entitled to receive Sh. 4,68,489 at the rate of Sh. 2440.0493 per share as return of capital. The above amount was equivalent to Rupees 3,12,326. There was thus an excess of Rs. 1,84,326. This amount was received by the assessee during the accounting year.

(3.) The Income-tax Officer treated the amount of Rs. 1,84,326 as capital gains liable to tax within the meaning of section 45 of the Act of 1961. It was pointed out by him that the Uganda company was not a company within the meaning of Section 2 (17) of the Act of 1961 and the shareholders thereof could not be said to be entitled to the benefit provided under Section 46 (2) of the Act of 1961. Accordingly, the entire amount was liable to be taxed as above. On appeal before the Appellate Assistant Commissioner reference was made on behalf of the assessee to the definition of the word "transfer" in Section 2 (47) of the Act of 1961, according to which transfer in relation to a capital asset includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law. There was no dispute that the present was not a case of sale, exchanged or compulsory acquisition of capital asset within the meaning of Section 2 (47) of the Act of 1961. The only question was whether there was "relinquishment of the asset or the extinguishment of any rights therein." The Appellate Assistant Commissioner held that for the relinquishment of an asset, the asset must continue to be in existence. Applying that criterion, the Appellate Assistant Commissioner held that there was no relinquishment of the asset. There was, however, in the opinion of the Appellate Assistant Commissioner, extinguishment of the rights in the capital assets as represented by the shares and therefore the amount was liable to be taxed to capital gains tax. The appeal of the assessee was accordingly dismissed. On second appeal the assessee, apart from contesting the taxability of the amount of Rs. 1,84.326 as capital gains, raised two other contentions. One of those contentions was that in any event the capital gains should have been computed by deducting the fair market value of the asset as on January 1, 1954 from the amount received by the assessee. The other contention was that having regard to the provisions of Section 114 of the Act of 1961, the levy of capital gains tax should have been much less than the amount actually calculated by the Income-tax Officer. We are in the present case not concerned with the second contention. The first of these two contentions was, however, accepted and it was held that taking into account the value of the shares as on January 1, 1954 the capital gain, if chargeable would work out to be Rs. 1,23,590. The Tribunal then went into the question as to whether there was transfer of capital assets and came to the conclusion that there was no such transfer within the meaning of Section 2 (47) of the Act of 1961. The contention of the revenue that there had been extinguishment of the rights of the assessee was repelled. In the result the appeal of the assessee was accepted. On the application made by the appellant, the question reproduced above was then referred to the High Court.