GREAVES J B Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under s. 66(1) of the Indian IT Act. The assessee before us is one Mr. J.B. Greaves. He held 2,300 shares out of 2,500 shares of the entire paid capital of Greaves Cotton & Co. Ltd., a private limited company. The remaining 200 shares were at the material time held by one Mr. N.G. Hunt. The managing agency of Greaves Cotton & Co. Ltd. was held by Greaves Cotton & Co., a partnership firm consisting of Mr. J.B. Greaves and Mr. N.G. Hunt. The terms of the managing agency agreement were reduced to writing under a deed dt. 10th April, 1929, which is annexure `A' to the statement of the case. Clause 10 of the said agreement provided that "It shall be lawful for the said firm to assign this agreement and the rights of the said firm hereunder to any person, firm or company having authority by its constitution to become bound by the obligations undertaken by the said firm hereunder and upon such assignment being made and notified to the said company, the said company shall be bound to recognise the person or firm or company aforesaid as the agents of the said company in like manner as if the name of such person, firm or company had appeared in these presents in lieu of the names of the partners in the said firm and as if such person, firm or company had entered into this agreement with the said company and the said company shall forthwith upon demand by the said firm enter into an agreement with the person, firm or company aforesaid appointing such person, firm or company the agents of the said company for such term as the firm may elect and with the like powers and authorities, remuneration and emoluments and subject to the like terms and conditions as are herein contained".

(2.) ON 31st Aug., 1946 M/s Karamchand Thapar & Bros Ltd. (hereinafter referred to as Thapars) wrote a letter to the said Mr. Greaves and Mr. Hunt, making an offer to purchase the said 2,500 shares held by them for a price of Rs. 50 lakhs. By the same letter, Thapars also offered a price of Rs. 27,34,325 for getting the right to the management of Greaves Cotton & Co. Ltd., from 1st April, 1946, which then was held by Mr. Greaves and Mr. Hunt. Thapars also offered to pay interest at 2-1/2 per cent per annum on the said amount of Rs. 27,34,325 from 1st April, 1946, to the day of payment. In paragraph 5 of the said letter, Thapars offered to pay Rs. 10 lakhs by way of earnest money on acceptance of the offer. Thapars further stipulated that on or before the completion of the sale Mr. Greaves and Mr. Hunt should deliver Thapars letters of resignation of several other directors of the company and should also secure appointment of three or more nominees of Thapars. Mr. Greaves on behalf of himself and also in his capacity as the duly constituted attorney of Mr. Hunt, wrote a letter of date 29th Sept., 1946, accepting the aforesaid offer made by Thapars for the purchase of the shares and the managing agency. A direction was given by Mr. Greaves in his letter to Thapars to credit to his account in Lloyds Bank Ltd., Bombay, the amount of earnest money. Annexure `L' to the statement of the case shows that a sum of Rs. 65 lakhs out of the aforesaid amount of Rs. 77,34,325 was paid under the contract, and the order of the AAC discloses that before him it was not in dispute that the entire purchase money was actually paid in January, 1947, including the stipulated interest to the date of payment.

(3.) OUT of the total capital gains of Rs. 21,16,149 the ITO computed the capital gains to the assessee on 2,300 shares at Rs. 19,46,857. The assessee preferred an appeal to the AAC challenging the order of the ITO. It also appears that before the AAC, the ITO claimed that the amount of capital gains computed by him be enhanced by Rs. 5,44,832, Rs. 2,44,832 by reducing the value of the assets and Rs. 3,00,000 by reducing the amount of goodwill. The AAC in appeal did not accept the contentions of the assessee, but, on the other hand, partially accepted the contentions of the ITO, and enhanced the amount of capital gains by Rs. 4,34,210. The computation made by the AAC is as follows: Rs. Rs.