1984 (4) TMI 50 - HC - Income Tax

Summary

Issues:
1. Whether the assessee was liable to capital gains tax on the sum of Rs. 54,181 for the assessment year 1974-75?
2. Whether the Appellate Tribunal's view that there was no transfer in the transaction by which the assessee transferred its investments in discharge of its liability to the shareholders at a profit consequent on the reduction of share capital is sustainable in law?

Analysis:

Issue 1:
The High Court analyzed the transaction where the assessee distributed shares to shareholders to discharge a liability arising from the reduction of share capital. The Court held that this distribution amounted to a transfer, contrary to the Tribunal's view. The Court emphasized that any transfer of ownership for consideration constitutes a transfer by way of a sale, leading to capital gains tax liability. The Court rejected the argument that the shares were transferred at book value, stating that the market value was considered before the transfer. Consequently, the Court upheld the Revenue's contention that capital gains tax of Rs. 54,181 was applicable.

Issue 2:
Regarding the Tribunal's consideration of other aspects like relinquishment or release by shareholders, the Court deemed it unnecessary to address those issues. The Court distinguished previous cases related to asset distribution during winding up from the current scenario of reducing share capital. The Court highlighted that in the present case, the company transferred property to shareholders to discharge a liability, indicating a transfer attracting capital gains tax provisions. Consequently, the Court ruled in favor of the Revenue, directing the assessee to bear the costs.

In conclusion, the High Court held that the distribution of shares by the assessee to shareholders to settle a liability resulting from share capital reduction constituted a transfer subject to capital gains tax. The Court rejected the Tribunal's view, emphasizing the consideration of market value in the transfer. The Court provided a detailed analysis, distinguishing previous cases and ruling in favor of the Revenue.