1997 (1) TMI 2 - SC - Income Tax

Assessee a dealer in shares got in exchange of a particular share another companies share which was held by him at the cost of original share - difference between the market value and the cost was treated by revenue as capital gains - held that as a result of their having taken the shares in the second company in exchange for the shares of the first company the assessee had made realisation of the value of the shares of the first company - so it has to be treated as a profit of the assessee

Summary

Issues:
Assessment of profit from exchange of securities for tax purposes.

Analysis:
The appeal before the Supreme Court arose from an Income-tax Reference made by the assessee, which was disposed of by the Calcutta High Court. The High Court declined to answer one question and answered the other against the assessee. The case involved the exchange of shares between two companies and the assessment of profit for the assessee. The assessee held shares in one company, exchanged them for shares in another company, and claimed no profit was made. However, the Income-tax Officer valued the shares of the second company at a higher rate, concluding a profit was earned. The Tribunal and High Court upheld this decision, leading to the appeal before the Supreme Court.

The main issue was whether the exchange of securities by the assessee constituted a realization of profit. The High Court agreed with the Tribunal that the exchange of shares should be treated as a realization of the security. This decision was based on established legal principles governing such transactions. Various legal precedents were cited, including cases where similar exchanges were deemed as profit realization. The court emphasized that the value difference between the exchanged shares should be treated as profit earned by the assessee.

The Supreme Court, after considering the arguments and legal principles, upheld the decision of the High Court. It was concluded that the assessee indeed realized a profit from the exchange of securities, as per the valuation of the shares involved. The court dismissed the appeal, stating that the profit assessed by the Income-tax Officer was valid and should be treated as income of the assessee. Additionally, an application by the assessee to raise additional grounds was also dismissed by the court.

In summary, the judgment focused on the assessment of profit from the exchange of securities by the assessee for tax purposes. The court affirmed that the exchange constituted a realization of profit based on legal principles and precedents, leading to the dismissal of the appeal and upholding the profit assessment made by the tax authorities.