COMMISSIONER OF INCOME TAX Vs. AMALGAMATIONS P LIMITED

JUDGEMENT

(1.) THE first two questions in T. C. No. 239 of 1971 and the two questions in T. C. No. 160 of 1969 arise out of identical facts. T. C. No. 160 of 1969 relates to the assessment year 1958-59, and T. C. No. 239 of 1971 is a common reference for the assessment years 1958-59 to 1962-63. THErefore, we consider the first two questions in T. C. No. 239 of 1971, along with the two questions in T.C. No. 160 of 1969.

(2.) THE assessee is a company incorporated on 22nd December, 1938, as a private limited company. THE objects of the company cover a very wide field. THE acquisition of shares, stacks, debentures, etc., taking part in the formation, management, supervision or control of the business or operations of any company or undertaking and for that purpose to act as directors are some of the objects with which this company came into existence. It held shares in several companies, such as Simpson and Company Ltd., Addison & Company Private Ltd., George Oakes (Private) Ltd., Addision Paints and Chemicals Private Ltd., India Pistons Private Ltd., etc. Out of the issued capital of 7,50,000 shades of Rs. 10 each in Simpson & Company Ltd., the assessee held at the material time 7,06,933 ordinary shares. Simpson & Company Ltd. had a subsidiary by name Simpson and General Finance Company (Private) Ltd., carrying on the business of financing by way of hire purchase transactions to outsiders and by way of loans and advances to the companies of this group. Till the Companies Act, 1956, came into force on April 1, 1956, there was no legal difficulty in Simpson and General Finance Company (Private) Ltd. in carrying on its financing activity in the manner done by it. As on 1st July, 1956, a sum of Rs. 1,85,16,000 was due to it from the assessee-company.

(3.) THE Income-tax Officer went into the question whether this claim of capital loss was correct. He was of the view that the price structure approved by the department of Company Law Administration for the transfer of the aforesaid shares was pure and simple on an ad hoc basis and meant to serve the limited purpose of approval to be given under Section 372 of the Companies Act of 1956. He considered that the price at which the sales took place could not, therefore, be taken to represent the fair market value of the shares. In his view, there was a reduction of the liability to capital gains. He took the break-up value as on 1st January, 1954, for the purpose of computation of capital gains and revised the sale prices as shown in the table. In this process he arrived at Rs. 6,95,082 as the net capital gains. Even according to his computation, there were certain capital losses which were adjusted as against the capital gains determined by him. In the case of S.R.V.S. (Private) Ltd. he took the break-up value as on 1st January, 1954, at Rs. 36,35,350 and their sale value at Rs. 21,88,395 resulting in the capital loss of Rs. 14,46,955. THEre were sales of certain other shares also in which the capital gains or loss arose but they need not be gone into for our purpose.