COMMISIONER OF INCOME TAX Vs. MADHUSUDAN AGARWALLA

JUDGEMENT

(1.) This income-tax reference relates to the assessment years 1960-61 and 1961-62. The assessee was the owner of 2,328 shares of Ashoke Oil Industries Ltd., Baroda. These shares formed part of the capital assets of the assessee and their cost of acquisition was Rs. 28,906. The said company went into liquidation on November 21, 1958, and on March 6, 1970, the assessee received from the liquidator Rs. 81,480 as dividend, which relates to the assessment year 1960-61 and Rs. 46,560 as dividend on March 15, 1961, which relates to the assessment year 1961-62. These two sums were assessed as capital gains, under Section 12B of the Indian Income-tax Act, 1922, and under Section 46(2) of the Income-tax Act of 1961, respectively, in the hands of the assessee in these two assessment years by the Income-tax Officer. The appeal filed by the assessee was dismissed by the Appellate Assistant Commissioner. The Tribunal has, however, allowed the second appeal filed by the assessee and has referred the following questions to this court :

(2.) The submission of Mr. B L Pal, the learned counsel for the revenue, is that these receipts are capital gains in the hands of the assessee, for the liquidator has paid these sums out of the assets of the company, but there is no merit in this contention. No capital gain can arise in this case inasmuch as these shares were not sold or transferred by the assessee to the liquidator not to speak of exchanging these shares or relinquishing his interests in them in lieu of any money. The assessee was entitled to receive these sums as surplus available for distribution from the liquidator as a shareholder of the company. Hence, these receipts are not at all capital gains in his hands, in view of the decision of the Supreme Court in Commissioner of Income-tax v. Madurai Mills Co. Ltd. and the judgment dated May 19 and 20, 1975, of this court in I.T. Ref. No. 227 of 1968 (Commissioner of Income-tax v. Ram Kumar Agarwalla and Brothers . Therefore, it must be held that these sums are not capital gains within the meaning of Section 12B of the Indian Income-tax Act, 1922.

(3.) The next contention of Mr. B. L. Pal is that the Income-tax Officer is bound to assess Rs. 46,560 under Section 46(2) read with Section 297(2)(b) of the Income-tax Act, 1961. To appreciate his contention it is necessary to state a few facts. The assessment year 1961-62 ended on March 31, 1962, and this sum was received by the assessee on March 15, 1961, that is to say, in assesssment year 19.61-62, as already stated. The Income-tax Act'of 1961, which repealed the Indian Income-tax Act, 1922, came into operation on 1st April, 1962, and, thereafter, the assessee filed his return of income for the assessment year 1961-62. Now, Section 46(2) of the Income-tax Act, 1961, reads as follows;