COMMISSIONER OF INCOME TAX Vs. LIONEL EDWARDS LTD

JUDGEMENT

(1.) In this reference under Section 256(1) of the I.T. Act, 1961, the following question has been referred at the instance of the CIT, West Bengal-1 :

(2.) The material facts relating to these proceedings as found and/or admitted are, inter alia, as follows: Lionel Edwards Ltd., Calcutta, the assessee, sold 2,500 non-cumulative preference shares of Khemka Properties P. Ltd. in the assessment year 1962-63 at the rate of Rs. 48.50 per share. The shares were of the face value of Rs. 100 each. The ITO held that the shares had been sold at a value less than the value which would have obtained in a normal transaction and, therefore, concluded that Section 52(2) of the I.T. Act, 1961, applied to the facts. With the approval of the IAC he held that the face value of the shares was their market value and accordingly he disallowed the loss claimed by the assessee,

(3.) Being aggrieved, the assessee preferred an appeal. The AAC on the basis of the W.T. (Amend.) Rules, 1967, computed the value of the said shares to be Rs. 81'51 each. He further found that there was a direct connection between the assessee and the purchaser of the shares. This according to him established that the obvious intention of the assessee was to avoid liability under Section 45, because had the sale been made at market value, there would have been either no or a less capital loss than that declared and the assessee would have been entitled to carry forward a lesser amount as loss. The liability to pay capital gains was reduced either in the year in question or in a subsequent year by the assessee's action. He, however, proceeded on the basis that Section 52(1) of the Act had been invoked and applied by the ITO.