COMMISIONER OF INCOME TAX Vs. HARI MACHINES LIMITED

JUDGEMENT

(1.) In this reference under Section 256 (1) of the Income Tax Act, 1961 ('Act'), relevant for the assessment year 1974-75, the following question has been referred for our opinion:

(2.) The Assessee had a paid up capital of Rs.25 lakhs. According to the Assessee, the intrinsic value of the equity shares was Rs.19,53,680/- and therefore, taking a realistic view of the matter, the Assessee decided to reduce the share capital to Rs.20 lakhs. In accordance with the provisions of the Companies Act, 1956 the Assessee applied to the Calcutta High Court for permission to reduce the share capital. By its order dated 21st December, 1972, the Calcutta High Court permitted the reduction of capital and cancellation of 5000 fully paid-up equity shares of Rs.100/- each.

(3.) The Assessing Officer was of the view that the reduction of share capital did not represent a loss incurred by the Assessee and therefore, taxed the amount of Rs.5 lakhs. This was upheld both by the Commissioner of Income Tax (Appeals) [CIT (A)] as well as by the Income Tax Appellate Tribunal ('Tribunal').