Case: Commissioner of Income Tax, West Bengal, and Another Vs. George Henderson and Company Limited

Prior to January 1, 1939, they (hereinafter referred to as the " respondent ") purchased 1, 500 shares of Bally Jute Company Limited. During the accounting year ending on March 31, 1947, the respondent was the managing agent of Bally Jute Company Limited. On April 1, 1946, the respondent transferred these shares to one Giridhari Lal Mehta at the rate of Rs. 136 per share. The market value of these shares on that date was Rs. 620 per share. Giridhari Lal Mehta has been described as the beneficial owner of the respondent as he had purchased all but five shares of the respondent. On the same date, i.e., April 1, 1946, Giridhari Lal Mehta sold the shares to Jardine Skinner & Co. at the rate of Rs. 100 per share. Giridhari Lal Mehta retained the share scrips with blank transfer forms until May, 1946, when the shares were registered in the name of Jardine Skinner & Co. In November, 1946, Jardine Henderson & Co. Ltd. was incorporated and these 1, 500 shares were transferred in March, 1947, by Jardine Skinner& Co. to Jardine Henderson & Co. Ltd., at Rs.0 per share. In assessing the respondent tox for the assessment year8 thex Officer held that the respondent had sold the shares at the book value of Rs. 136 per share to Jardine Skinner & Co. on April 1, 1946, whereas the market value of the shares on that date was Rs. 620 per share and the difference of Rs. 484 per share on 1, 500 shares was capital gain arising from the sale of the shares under section 12B of thex Act. Thex Officer made the order under the first proviso to section 12B(2) with the previous approval of the Inspecting Assistant Commissioner as required by that proviso apparently on the footing that all the conditions of the aforesaid proviso had been satisfied. By his order dated April 25, 1950, the Appellate Assistant Commissioner affirmed the order of thex Officer but varied the quantum of capital gain at Rs. 6, 93, 000. The Appellate Assistant Commissioner held that the market value of the shares on January 1, 1939, was Rs. 153 per share and that figure should be taken as the actual cost in view of the third proviso to section 12B(2). The Appellate Assistant Commissioner also considered that the respondent and the transferee were directly connected and the sale was effected with the object of avoidance of tax and the conditions of the first proviso to section 12B(2) were satisfied and the market value of the shares on the date of transfer should be taken as the full value of the consideration for the sale. The respondent appealed to thex Appellate Tribunal which dismissed the appeal by its order dated August 23, 1951. The Appellate Tribunal held that the sale was not effected with the object of avoidance or reduction of liability of the assessee under section 12B and, therefore, the first proviso to section 12B(2) did not apply to the case. The Appellate Tribunal, however, felt that the order of the Appellate Assistant Commissioner should be affirmed. The ground upon which the Appellate Tribunal proceeded is ther of controversy in this appeal and we shall discuss it in detail later on. The order of dismissal of the appeal dated August 23, 1951, was passed by the Appellate Tribunal consisting of Shri S. M. Gupta and Shri B. M. Chatrath. On the application of the respondent the Appellate Tribunal consisting of Shri A. B. Aggarwal and Shri B. M. Chatrath drew up a statement of the case dated July 20, 1952, and referred the following question of law for the determination of the High Court under section 66(1) of thex Act" Whether, on the facts and in the circumstances of the case, the sum of Rs. 6, 93, 000 has been rightly held to be capital gains of the assessee assessable under section 12B of thex Act ?"2. The reference was heard by a Bench constituted by Sinha and Datta JJ. who did not agree as to how the question of law should be answered. By his judgment dated November 30, 1962, Sinha J. answered the question in the affirmative, but Datta J. answered the question in the negative. In view of this difference of opinion the matter was referred to R.S. Bachawat J. who, by his judgment dated March 21, 1963, answered the question in the negative and agreed with the opinion of S. K. Datta J. In view of the opinion of the majority of the judges the Division Bench passed an order on July 15, 1963, answering the question in the negative and in favour of the respondent

Court's reasoning:
We are unable to accept this contention as correct. It is manifest that the consideration for the transfer of capital asset is what the transferor receives in lieu of the asset he parts with, namely, money or moneys worth and, therefore, the very asset transferred orh cannot be the consideration for the transfer. It follows that the expression "full consideration" in the main part of section 12B(2) cannot be construed as having a reference to the market value of the asset transferred but the expression only means the full value of the thing received by the transferor in exchange for the capital asset transferred by him. The consideration for the transfer is the thing received by the transferor in exchange for the asset transferred and it is not right to say that the asset transferred and parted with is itself the consideration for the transferThe view that we have expressed as to the interpretation of the main part of section 12B(2) is borne out by the fact that in the first proviso to section 12B(2) the expression " full value of the consideration " is used in contradistinction with " fair market value of the capital asset " and there is an express power granted to thex Officer to " take the air market value of the capital asset transferred " as " the full value of the consideration " in specified circumstances. It is evident that the legislature itself has made a distinction between the two expressions " full value of the consideration " and " fair market value of the capital asset transferred " and it is provided that if certain conditions are satisfied as mentioned in the first proviso to section 12B(2), the market value of the asset transferred, though not equivalent to the full value of the consideration for the transfer, may be deemed to be the full value of the consideration.It is true that the court is bound to proceed normally on the findings of fact which are mentioned in the statement of the case. But if the statement of the case does not correctly summarise or interpret the finding recorded in the order of the Appellate Tribunal which has been made part of the case, the court is entitled to look at the order itself in order to satisfy itself what was actually the finding of the Appellate TribunalAfter having heard counsel for both the parties and having scrutinized the order of the Appellate Tribunal dated August 23, 1961, and the statement of the case dated July 29, 1952, we have reached the conclusion that the question of law referred to the High Court cannot be answered as the language used by the Appellate Tribunal in recording its finding as to the actual contract price paid to the respondent by Giridharilal Mehta for the sale of 1, 500 shares is obscure and its import cannot be determined. In these circumstances we consider that the best course is for the Appellate Tribunal to rehear the appeal and record a clear finding after hearing the parties and after giving an opportunity to the respondent to explain the unusual nature of the transaction and the conduct of the parties concerned therein. After recording a clear finding as to what was the actual price received by the respondent for the sale of shares to Giridharilal Mehta the Appellate Tribunal will finally dispose of the appeal. On behalf of the respondent Mr. Asoke Sen said that his client will give a proper explanation of the transactions and of the conduct of the parties involved before the Appellate Tribunal at the time of the further hearing of the appeal. If the assessee gives explanation of the transaction the Tribunal will be entitled to call upon it to produce documentary or other evidence in support of the explanation. The Tribunal will also be entitled to call for elucidation of the explanation or the evidence. The appellants will be entitled to give evidence in rebuttal