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Issues Involved:
1. Determination of capital gains on the sale of shares. 2. Entitlement to development rebate on certain capital items. Issue-wise Detailed Analysis: 1. Determination of Capital Gains on the Sale of Shares: The primary issue was whether the Tribunal was correct in holding that no capital gain arose from the sale of shares by the assessee. The assessee sold 7,500 ordinary shares of Jaipuria Kajora Collieries Ltd. at Rs. 9.50 per share, while the face value was Rs. 10 per share. The ITO computed capital gains based on the break-up value of Rs. 23.85 per share, deeming the sale price unusually low. The Tribunal held that the break-up value did not reflect the market value due to the low return on average maintainable commercial profits. The Tribunal deemed the sale price reasonable and concluded the assessee did not make a capital gain but suffered a loss. The Supreme Court's decision in CWT v. Mahadeo Jalan was cited, which established that the valuation of shares should generally be based on the profit-earning capacity and not solely on the break-up value. The Tribunal's decision to use the average maintainable profit method was deemed appropriate, as the break-up method is reserved for exceptional circumstances, such as when a company is ripe for winding up. The court affirmed the Tribunal's approach, stating that the association between the buyer and seller did not necessitate using the break-up value method. The court emphasized that the yield method is generally applicable, and the break-up method should be a last resort. 2. Entitlement to Development Rebate on Certain Capital Items: The second issue was whether the assessee was entitled to a development rebate on items like coal tubs, cast iron pipes, and winding and guiding ropes. The ITO and AAC denied the rebate, arguing that these items were not eligible for depreciation. The Tribunal, however, held that these items fell within the category of plant and machinery, thus qualifying for the development rebate, subject to compliance with reserve provisions. The Supreme Court's decision in CIT v. Taj Mahal Hotel was pivotal, where it was held that even sanitary and pipeline fittings in a hotel fell within the definition of "plant" under s. 10(5) of the I.T. Act, 1922. The court observed that the definition of "plant" should be construed broadly, including various items used in business operations. The court agreed with the Tribunal, stating that the disputed items qualified as "plant" and thus were eligible for the development rebate. Conclusion: The court answered both questions in favor of the assessee. It upheld the Tribunal's valuation method based on average maintainable profits and confirmed the entitlement to the development rebate for the specified items. There was no order as to costs.
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