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Issues:
- Assessment of difference between market value and cost of acquisition of shares as revenue profit - Tax liability on distribution of dividends in specie - Deduction in computation of business income - Exclusion of sum from assessment - Withdrawal of corporation tax rebate for levying super-tax Analysis: Assessment of Difference Between Market Value and Cost of Acquisition of Shares: The case involved the distribution of shares held as stock-in-trade by the assessee as dividends, leading to a dispute on the taxability of the difference between market value and acquisition cost. The Income Tax Officer (ITO) considered this difference as taxable profit due to the assessee being a dealer in shares. However, the Tribunal disagreed, stating that no profit arises when dividends are distributed in specie. The High Court concurred, emphasizing that distribution of dividend in specie does not constitute a trading activity, and the value of the distributed asset in the hands of shareholders is irrelevant for assessing the company's profit or loss. Consequently, the court ruled in favor of the assessee, negating tax liability on the difference. Tax Liability on Distribution of Dividends in Specie: The dispute also centered on the tax liability arising from distributing dividends in specie. The Tribunal's view that there was no profit in such distributions was upheld by the High Court. The court clarified that dividend distribution in specie does not involve profit or loss, emphasizing that the assessment should focus on the company's perspective rather than the value of the asset in shareholders' hands. Consequently, the court ruled against tax liability on dividends distributed in specie, favoring the assessee. Deduction in Computation of Business Income: Regarding the deduction in computing business income, one of the questions raised by the assessee was not pressed for opinion. Therefore, the court did not provide an answer to this question, indicating that it was not addressed in the judgment. Exclusion of Sum from Assessment: In another assessment year, the issue of excluding a specific sum from assessment was raised. The court's decision on this matter was intertwined with its previous rulings on dividend distribution and tax liability. Based on the established principles regarding dividend distribution in specie and the absence of profit or loss in such transactions, the court answered in favor of the assessee, supporting the exclusion of the sum from assessment. Withdrawal of Corporation Tax Rebate for Levying Super-Tax: The final issue pertained to the withdrawal of corporation tax rebate for levying super-tax, considering the amount of dividend distributed in cash and shares. The court rejected the Tribunal's approach of calculating the rebate based on the market value of shares distributed as dividend, emphasizing that dividend distribution in specie does not involve profit or loss. By aligning with its earlier findings, the court upheld the assessee's contention against the Revenue, ruling that the corporation tax rebate should not be determined based on the market value of shares distributed as dividend.
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