R KRISHNASWAMY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question referred at the instance of the assessee is.:

(2.) THE assessees are two, the father and the minor son. The assessees held shares in four companies viz., Rajalakshmi Mills Ltd., Lakshmi Mills Co. Ltd., Premier Mills Ltd., and Premier Breweries Ltd. from the year 1969. On 9th Nov., 1983, an affidavit was filed before the AO wherein it was declared that the shares held by them in these companies were being converted into stock -in -trade in the names of Krishnaswamy Associates and Rajesh Associates. On 14th Dec., 1983, a company Krishnaswamy Investments (P) Ltd. was incorporated whose only shareholders were the assessee Krishnaswamy, his wife Smt. Srivalli and their son, who is the other assessee Rajesh. On 16th Dec., 1983, these shares were sold by Krishnaswamy Associates and Rajesh Associates to that newly incorporated private limited company, the day after it was registered.

(3.) THE AO rejected their claim that the shares were required to be regarded as stock -in -trade. It was noticed by him that Krishnaswamy Associates and Rajesh Associates had only held the same shares without doing any business by using those shares as stock -in -trade and had, within less than a month, transferred all those shares to a private limited company of which the assessees and their family members were the only shareholders. It was also noticed by him that in the subsequent years there were no activities of purchase or sale of shares in Krishnaswamy Associates and Rajesh Associates. He concluded that this was only a device with the sole object of evading capital gains tax which should have been payable on the sale of the shares held by the assessees in these companies to their newly formed company Krishnaswamy Investments (P) Ltd.