COMMISSIONER OF INCOME TAX Vs. BADRINARAYAN RAMESHWAR

JUDGEMENT

(1.) THIS is a reference under Section 66(1) of the Indian Income-tax Act, 1922 at the instance of the Commissioner. Income-tax, Madhya Pradesh, and the question for decision is whether the assessee is liable to pay tax only at the reduced rates under the Part B States (Taxation Concessions) Order, 1950, on a sum of Rs. 2,96,143/-.

(2.) THE question relates to the assessment for tax purposes in the assessment year 1951-52 of the assesses Badrinarayan Rameshwar, who was resident of Indore in the Part-B State of former Madhya Bharat, during the material period. One Pyarelal Sakseria who also resided in Indore, was indebted to the assesses to the extent of Rs. 18,07,968/-. Under an agreement entered into in 1946 between Pyarelal Sakseria and M/s. Famous Pictures Ltd., of Bombay, Pyarelal Sakseria advanced Rs. 17 lakhs to the Company on certain terms and was entitled to receive from the said Company a sum of Rs. 21,75,357/- on 21-10-1950. Pyarelal Sakseria assigned on 21-10-1950 all his rights and obligations under the agreement to the assesses in fall satisfaction of the debt he owed to the assessee.

(3.) THE Privy Council referred to the decisions in Califorman Copper Syndicate Ltd. v. Harris, 1904 5 Tax Cas 159 and Westminster Bank Ltd. v. Osler, 1933 A.C. 139. In the former cases, a Company formed for the purpose inter alia of acquiring and re-selling mining property, first acquired and worked various mines and then it re-sold the whale to a second company receiving payment not in cash but in fully paid shares of the latter company. THE Income-tax department took the view that the difference between the purchase price and the value of the shares was the profit assessable to income-tax. THE Company contended that the case was one of substitution of one kind of capital for another and that in any case no tax could be levied until the value of these shares has been realised in money. THE Court rejected this contention and held that the view taken by the Income-tax department was correct. Lord Trayner said as follows :