1986 (8) TMI 27 - HC - Income Tax

Summary

Issues Involved:
1. Determination of whether the excess amount received from the sale of shares constitutes a revenue receipt or a capital receipt.
2. Examination of whether the controlling interest in Jessop & Co. Ltd. was a separate asset from the shares themselves.
3. Assessment of whether the excess amount can be taxed as capital gains or revenue receipt.

Detailed Analysis:

1. Determination of Whether the Excess Amount Received from the Sale of Shares Constitutes a Revenue Receipt or a Capital Receipt:
The assessee contended that the transaction was not a normal sale of shares and that the excess amount received was a capital receipt. The Income-tax Officer, however, held that the assessee was a regular dealer in shares and that the amount received under the arbitrator's award was a trading profit, thus a revenue receipt. The Appellate Assistant Commissioner upheld this view, stating that the amount received was part of the market price of the shares. The Tribunal, however, found that the shares were sold in a block along with the controlling interest, thus constituting a composite payment for both the shares and the controlling interest. The Tribunal held that the excess amount was not taxable as a revenue receipt.

2. Examination of Whether the Controlling Interest in Jessop & Co. Ltd. Was a Separate Asset from the Shares Themselves:
The Tribunal concluded that the controlling interest was inseparable from the block of shares sold. The Tribunal noted that the parties had acted in concert since 1963, intending to sell their shares in a block at a higher price. The Tribunal held that the arbitrator's award indicated a composite payment for both the shares and the controlling interest. The Tribunal further held that the controlling interest, like goodwill, was not a capital asset that could be transferred independently of the shares.

3. Assessment of Whether the Excess Amount Can Be Taxed as Capital Gains or Revenue Receipt:
The Tribunal held that the excess amount realized from the sale of shares could not be taxed as capital gains because the controlling interest was not a capital asset. The Tribunal also noted that the Revenue had not set up a case for taxing the excess as capital gains. The Tribunal concluded that the excess amount was not taxable as a revenue receipt.

Conclusion:
The High Court concluded that the controlling interest attached to the block of shares could not be considered separately from the shares themselves. The Court held that the amount paid by the Government of India was for the block of shares, which carried the controlling interest. Therefore, the excess amount was part of the price of the shares themselves and was taxable as a revenue receipt. The Court distinguished the case from other decisions where separate rights like managing agency were involved. The question was answered in the negative and in favor of the Revenue, stating that the excess amount received was a revenue receipt in the hands of the assessee.