COMMISSIONER OF INCOME TAX Vs. AMIN R M

JUDGEMENT

(1.) : This reference raises a very interesting question of law relating to the construction of s. 45 r/w s. 2 (47) of the IT Act, 1961. The question is whether a certain amount received by the assessee on liquidation of Kowolongojo Cinneries Ltd., Kampala, a private limited company incorporated in Uganda (hereinafter referred to as the Uganda company), in respect of 192 shares held by him in that company to the extent to which it exceeded the value of those shares on 1st January, 1954, represents capital gain within the meaning of s. 45 r/w s. 2(47) of the Act. The assessee held, in the share capital of the Uganda company, 192 shares of the aggregate face value of shillings 1,92,000, that is, Rs. 1,28,000. The Uganda company went into voluntary liquidation by a special resolution dt. 10th July, 1961, and in the liquidation, the assets of the Uganda company were sold by the liquidator and after payment of debts and liabilities, the final account in respect of liquidation was drawn up by the liquidator on 31st August, 1961. The assessee, according to the statement of the case, became entitled to receive shillings 4,68,489 at the rate of shillings 2,440.0492 per share as and by way of return of capital in respect of 192 shares held by him, the equivalent in terms of Indian currency being Rs. 3,12,326. The assessee thus obtained an excess of Rs. 1,84,326 over the aggregate face value of the said 192 shares. The Revenue sought to treat the amount of Rs. 1,84,326 as capital gain chargeable to tax under s. 45 on the ground that it was profit or gain arising from relinquishment of a capital asset or the extinguishment of any rights in it within the meaning of s. 2(47). Both the ITO and, in appeal, the AAC took the view that the amount of Rs. 1,84,326 represented capital gain and was taxable as such under s. 2(47). The assessee thereupon preferred an appeal to the Tribunal and before the Tribunal two contentions were advanced on behalf of the assessee : the first related to the applicability of s. 45 r/w s. 2(47), and the other related to the quantum of the capital gain in case it was found that capital gain chargeable to tax had arisen to the assessee. The Tribunal took the view, disagreeing with the ITO and the AAC, that the amount of Rs. 1,84,326 did not arise to the assessee from relinquishment of any capital assets or extinguishment of any rights in it and there was, therefore, no capital gain chargeable to tax under s. 45 and that in any event even if any capital gain arose to the assessee which was taxable, it was only in the sum of Rs. 1,23,590 representing the difference between the amount received by the assessee in respect of 192 shares and the value of those shares on 1st January, 1954. The CIT was obviously dissatisfied with the view taken by the Tribunal and he, therefore, brought the present reference to this Court challenging the decision of the Tribunal.

(2.) THERE are two sections in the Act which levy the charge of capital gains tax. The first is s. 45 which is the general charging section. It says that :

(3.) BEFORE we examine the language of the provision it would be convenient first to ascertain the nature of the capital asset in respect of which capital gain alleged to have arisen to the assessee is sought to be assessed. The capital asset here consists of 192 shares in the Uganda company and it, therefore, becomes necessary to inquire what is the legal nature of a share. The word "share", as pointed out by Gower in his book on Modern Company Law, third edition, at page 344 :