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TMI Blog1982 (2) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the shares were capital assets and capital gain arising from sales to a subsidiary company was specifically exempt under section 47(iv), because the scheme of the Act is to postpone the levy of capital gains by taxing the subsidiary company on its sale on the entire profits by treating both the holding and subsidiary company as one entity for the purpose of capital gains tax by virtue of definition of cost of acquisition under section 49(1)(iii)(e). The AAC discounted the ITO's theory of "adventure in the nature of trade", but all the same confirmed the inclusion on the ground that the sale was in the course of the assessee's business. In other words, the shares, according to him, were held by the assessee as part of stock-in-trade. When the dispute came up before this Tribunal in IT Appeal No. 616 (Mad.) of 1978-79, this Tribunal, by its order dated 30-12-1978 restored the appeal to the AAC to consider the assessee's objections, which, according to it, were not dealt with in his order. The Commissioner (Appeals) who heard the appeal in pursuance of the Tribunal's order accepted the assessee's case in his detailed order. His conclusion is now disputed in the present appeal. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 Parsons Whittemore 75 21 Others 128 37 ---------- -------- Total 350 100 ---------- -------- As is evident from the above figures the holding by the foreign company amounted to 21 per cent and there was considerable interest in this block so that control of Seshasayee Paper Boards Ltd. could be achieved. Seshasayee Brothers also in order to retain control over Seshasayee Paper Boards wanted to purchase the holdings of Parsons and Whittemore. Seshasayee Brothers, Seshasayee Paper Boards Ltd. all come under the Seshasayee Group of concerns and Mr. S. Viswanathan is the director in Seshasayee Brothers and the Managing Director in Seshasayee Paper Boards. It is under these circumstances that the assessee-company by name of Seshasayee Enterprises (P.) Ltd.. was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deficit of Rs. 8 lakhs which was deposited in the United Commercial Bank. In the relevant assessment year, the sales were treated as sale of investments and the surplus was treated as capital gains. In September 1969 the parties who had lent moneys to the assessee requested for the return of the loan. Since the assessee was already collecting further deposits to pay for the purchase of shares it was not possible to return the loans. The assessee-company managed to retain only 50 per cent of the original loan as long-term loans. The balance of 50 per cent was returned to them by way of sale of shares in Seshasayee Paper Boards Ltd. at the original purchase price of Rs. 7.56 per share. In the next year the assessee-company sold a small quantity of 1,000 shares. This was also treated as sale of investment both in accounts and for income-tax purposes. In the previous year relevant to the assessment year 1973-74, which is now under consideration, the assessee sold 4,02,751 shares. The Reserve Bank of India had meanwhile introduced more restrictions on the deposits received by the Non-banking Financial Companies Directions of 1966. According to these regulations, the deposit recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealer in shares and not with an investor. But this is not an absolute rule. There are ample materials in the assessee's case to show that the very incorporation of the assessee-company and borrowings were for the purposes of retaining the control of the business in the company in the name of Seshasayee Paper Boards Ltd. and not to resell the shares so acquired at profit. Even the sale of shares to the subsidiary in the year under consideration was a sale only in the technical or legal sense, because the shares continued to be with the company through its subsidiary. In fact, this "sale" was one way of retaining the shares. We are mentioning this to show that the attempt was to hold on to those shares and not to part with them for profit. The borrowing was also capable of being repaid from its internal resources generated from the income from these very shares as pointed out in paragraph 13 of the order of the Commissioner (Appeals). Again the borrowings (other than Bank) were, by and large, from depositors who were also shareholders and were either members of Seshasayee family or their associates or distributors who were interested in retaining the shares. The deposits provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these by themselves, could not give rise to a new inference. "Sales" to a subsidiary company is the only new fact and not such as to throw completely new light on the transaction or otherwise justify a volte face on the part of the ITO. The assessee had never any business in any year in the past. It has been having only income from dividend and interest on deposits. The agreement for initial purchases of shares, the minutes of the Board of Directors of the assessee-company relating to these transactions from time to time, the correspondence with the Reserve Bank, the details of borrowings, whether from bank or sharesholder-depositors, the published accounts from year to year, the inference of authorities themselves in the past, etc., all lead us to only one conclusion and that is, that the assessee is an investor in respect of these shares. It may also be added that the Reserve Bank of India has classified the assessee as an investment company and not as a trading company. If in spite of all these evidences, the assessee is really a dealer, no material has been placed before us to justify such a position though the revenue had sufficient opportunities to prove its case. The matter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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