SHANTHA RANGARAJAN Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN these tax cases, at the instance of the assessees, the Tribunal referred the following common question for our opinion :

(2.) THESE tax cases relate to various assessment years. The case of the assessee, Sri N. Govindarajan alias N. Ravi (in Tax Case No. 297 of 1981), for the assessment year 1971-72 may be taken as a typical case, which is common for all the assessees. He was a shareholder in Kasturi Estates Pvt. Ltd. The company effected a reduction in its share capital on May 8, 1962, after getting the requisite sanction of the High Court. The High Court, by order dated April 20, 1962, sanctioned the reduction of capital of the company as resolved on and effected by the special resolution passed at an extraordinary general meeting of the said company held on November 30, 1961, to reduce the share capital of the said company. Shri N. Govindarajan alias N. Ravi held 135 equity shares of Rs. 1,000 each in Kasturi Estates Pvt. Ltd. Since the company effected reduction of its capital by Rs. 790 per share, the value of the assessee's holding was reduced by Rs. 790 x 135, i.e., Rs. 1,06,650. An amount of Rs. 1,06,650 was to be returned to the assessee in consequence of the reduction of capital in respect of 135 equity shares held by him. Towards this reduction of capital and return of money as per the order of the High Court referred to above, the assessee obtained cash of Rs. 60,683 and the following assets. The book value of the assets came, it would appear, to Rs. 45,967 (Rs. 1,06,650 minus Rs. 60,683) while the market value as per wealth-tax assessment is at the figures against each item : <FRM>JUDGEMENT_104_ITR215_1995Html1.htm</FRM>

(3.) THE question, however, remains whether the value of the asset under consideration is really unascertainable only because its bank value was taken into consideration at the time of transfer to the present assessees. This court finds no justification for such a submission. Since the transfer was from the company to its shareholders it was open to them to take a decision in their favour and transfer the asset based on book value only. This, however, cannot go further and entitle them to benefits by changing the position as aforesaid. In the instant case, the value of the property in question has been clearly identified and stated in the resolution dated May 8, 1962. THE argument of learned counsel for the assessee that they have only got what they have actually paid and, therefore, there is no cost of acquisition cannot really be accepted to a sum of Rs. 790 per share. Taking advantage of their own decision that this amount can be paid either in cash or in kind they have given its equivalent in terms of tangible assets. Under the circumstances, it is clear that they are getting the property in lieu of money to which they were really entitled as a result of reduction in paid-up capital. It is, therefore, not a case where the assessees have got what they have paid to the company. It is on the contrary a case where they have got a tangible asset in lieu of money which they had paid and to which they have become entitle. In this connection, reference be made to the decision of this court in Addl. CIT v. Govindoss Purushothamdoss [1980] 124 ITR 319. It was a case involving a partnership and the partners deciding to obtain an asset in lieu of the amount to which they had become entitled. THE assets were valued on the basis of the book value and the question arose whether the book value or the market value of those assets should be taken for computing the capital gains tax. This court, on an examination of all the facts and circumstance of the case and relying upon the Supreme Court decision in Kalooram Govindram v. CIT [1965] 57 ITR 335, held that the value shown at the time of transfer of the assets would be the value relevant for the purpose. It is true that this case related to a partnership-firm and the cases before us deal with case of reduction of paid-up share capital in a company under the company law. But, the question involved in both the cases is the same, i.e., where the value of the asset shown at the time of its transfer to the present assessee should be the proper value for the purpose of determining the capital gains tax or it should be the market value of the said asset. THE principle contained in this case would, in our opinion, squarely govern this case and hence, there would be no justification for holding any other value except the one which has been shown in the resolution of the company transferring the property as the value of acquisition of the asset.