Case: M/s. Orient Trading Company Limited Vs. Commissioner of Income Tax, Calcutta

The matter relates to the Assessment Year 1963-64 for the relevant previous year ended on 31-7-1962. The assessee is a company dealing in shares. It was holding 14, 500 shares of Asiatic Oxygen & Acetylene Company Limited (hereinafter referred to as "the first Company"), of the face value of Rs. 10 each as its stock-in-trade. The said shares were valued by the assessee art Rs. 1, 45, 000 (the cost price) at the end of the Assessment Year 1962-63 and were included in the closing stock. In the assessment year under reference a new company, Asiatic Oxygen Ltd. (hereinafter referred to as "the second company") had made an offer to obtain shares of the first company in exchange for the allotment of its own shares at the rate of 38 equity shares in the second company for 10 equity shares in the company. The assessee accepted the said offer and received 55, 100 shares of the second company in exchange of the aforesaid holding of 14, 500 shares in the first company. The face value of the shares of the second company was Rs. 10 per share. The assessee, however, valued the shares of the second company also at Rs. 1, 45, 000 being the cost price of the shares of the first company. The Income Tax Officer did not accept the contention of the assessee that it had not earned any profit in the transaction. He found that the market quotation of the shares of the second company, as on 11-8-1962, i.e., only 11 days after the close of the relevant previous year, was Rs. 10.12 per share. He valued the shares of the second company at Rs. 10 per share and held that Rs. 5, 51, 000 was the value of the shares of the second company. He, therefore, held that the assessee had earned a profit of Rs. 4, 06, 000 in the said transaction and brought that amount to tax as the assessees income from share dealings.1. This appeal by the assessee arises out of Income Tax Reference No. 279 of 1993 [(Cal)] made at the instance of the assessee which was disposed of by the Calcutta High Court by the impugned judgment dated 25-8-1978 [(Cal)]. Out of the two questions referred to it for its opinion, the High Court declined to answer Question 1 as it did not arise from the judgment of the judgment of the Income Tax Appellate Tribunal (hereinafter referred to as "the Tribunal") and Question 2 was answered against the assessee and in favour of the Revenue. The said question was in these terms"Whether the Tribunal was right in holding that on the facts and in the circumstances of the case the exchange of one security for another could be described as realisation of the security resulting in profits ?" *2. Thematter relates to the Assessment Year 1963-64 for the relevant previous year ended on. The assesseeis a company dealing in shares. It was holding 14, 500 shares of Asiatic Oxygen & Acetylene Company Limited (hereinafter referred to as "the first Company"), of the face value of Rs. 10 each as its stock-in-trade. The said shares were valued by the assessee art Rs. 1, 45, 000 (the cost price) at the end of the Assessment Year 1962-63 and were included in the closing stock. In the assessment year under reference a new company, Asiatic Oxygen Ltd. (hereinafter referred to as "the second company") had made an offer to obtain shares of the first company in exchange for the allotment of its own shares at the rate of 38 equity shares in the second company for 10 equity shares in thecompany. Theassesseeaccepted the said offer and received 55, 100 shares of the second company in exchange of the aforesaid holding of 14, 500 shares in the firstcompany. Theface value of the shares of the second company was Rs. 10 pershare.The, however, valued the shares of the second company also at Rs. 1, 45, 000 being the cost price of the shares of the firstcompany.TheIncome Tax Officer did not accept the contention of theassesseethat it had not earned any profit in the transaction. He found that the market quotation of the shares of the second company, as on 11-8-1962, i.e., only 11 days after the close of the relevant previous year, was Rs. 10.12 pershare.He valued the shares of the second company at Rs. 10 per share and held that Rs. 5, 51, 000 was the value of the shares of the secondcompany.He, therefore, held that theassesseehad earned a profit of Rs. 4, 06, 000 in the said transaction and brought that amount to tax as thes income from share dealings.Theappeal filed by theassesseewas dismissed by the Appellate Assistant Commissioner and on further appeal the Tribunal rejected the contention of theassesseeand that the transaction did not result in any profit.TheTribunal rejected the application of theassesseefor referring but the High Court for its opinion the questions raised by theassesseebut the high Court by order dated 18-2-1974 directed the Tribunal to state a case and refer the two questions raised by theassesseeand consequently the two questions were referred by the Tribunal out of which Question 2 has been answered against theassesseeby the High Court by the impugned judgment

Reasoning: 13. Having regard to the principles laid down in the decisions aforementioned, it must be held that the High Court has rightly taken the view that as a result of their having taken the shares in the second company in exchange of the shares of the first company theassesseehad made realisation of the value of the shares of the first company and the difference between the price of the shares of the first company and the second company on the date such exchange, i.e., Rs. 4, 06, 000, has to be treated as a profit of theassesseeand has been rightly assessed as income of the