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TMI Blog1993 (11) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... n law in holding that the shares held by the assessee in Chrestian Mica Co. Ltd. were not its stock-in-trade for dealing in shares? (3) If the answer to question (2) be in the negative, then, whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of rupees thirty-two lakhs twenty-five thousand and five hundred and fifty was not assessable in the hands of the assessee? " The assessee is a partnership-firm. The accounting year relevant to the assessment year 1956-57 was the year ending on December 31, 1955. The Income-tax Officer made an assessment on a total income Of Rs.36,41,544 which included a sum of Rs. 32,25,550 representing the surplus which the assessee received during the previous year from the liquidator of Chrestian Mica Co. Ltd. which went into voluntary liquidation in the year 1955. The assessee preferred an appeal to the Appellate Assistant Commissioner objecting to the inclusion of the said surplus amount. The appeal was dismissed. But on further appeal, the Income-tax Appellate Tribunal agreed with its contention. The assessee was a regular dealer in shares. In the year 1945, it purchased all the equity shares of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an decisions and observed that as a general rule, what is distributed in a liquidation is capital whatever may have been its source. It also observed that there was no sale or transfer of the shares held by the assessee-"the liquidator sells the assets of the company and not the shares of the shareholders", it observed. Reference was also made to the provisions of section 211 of the Indian Companies Act, 1913, and section 511 of the Companies Act, 1956. For all the said reasons, the questions referred were answered in favour of the assessee. Dipak Kumar Sen J., delivered a separate concurring opinion. The learned judge did not place much reliance upon the English decisions. He pointed out that in none of the English decisions relied upon before them, did the assessee hold the shares as stock-in-trade. The main ground upon which he held in favour of the assessee runs thus (at page 465) : "where limited liability company is liquidated and the liquidator distributes the surplus assets, there is no transaction in the trading sense between the liquidator and the shareholders. Irrespective of the decision of the share holders, the liquidator has to carry out his duties and obligations as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... footing that they represented its stock-in-trade. Even in the assessment proceedings for the assessment year 1956-57 (concerned herein), it took the very same stand though at the stage of Tribunal and High Court, it sought to wriggle out of the said admission unsuccessfully. The High Court has held rightly that it cannot do so and that it is bound by its admission and its course of conduct over the past several years. The High Court, it may be recalled, has also rejected its further submission that the said shares ceased to be its stock-in-trade on the conversion of the company from a public limited company to a private limited company. If so, it follows that if the assessee receives any surplus amount in lieu of the said shares, it must be held to be a revenue receipt in his hands. It cannot be denied that the amount received by the assessee from the liquidator in this case was in lien of its shareholding. In effect and in truth, the amount received by it represented the recompense for its shares, even though it is true there was no transfer of shares from the assessee to the liquidator or to any one else. It was a case of return for the money paid by the assessee for acquiring t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Such an argument ignores the basic reality recognised by section 511 of the Companies Act. The same comment holds good about the argument that the amount received is an accretion to the shares. It is true that a liquidator does not sell the shares. It is equally true that there is no transfer of shares by the shareholder to the liquidator or to any other person. That is not really necessary. So long as money is received in lieu of shares, there is a receipt and where an assessee is a dealer in shares, any surplus amount received by him constitutes his income. As stated above, where a company goes into liquidation and the liquidator distributes the assets of the company among the shareholders, what each shareholder gets is in lieu of his shareholding. That is the worth, the value and the price of his shareholding. A shareholder participates in the distribution of the assets of a company on its liquidation by virtue of and because of his shareholding. We, therefore, find it difficult to agree with the High Court that a shareholder participates in the distribution of assets on the liquidation of the company de hors his shareholding. Once this is so, it follows that the money receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith capital assets ; for example, a company whose business is that of buying and selling real property or stocks and shares. In the case of such a company, no doubt the capital share of the surplus assets in a liquidation would be no less a trading receipt than the proceeds of sale of any other of the assets it had acquired for the purposes of its business." Learned counsel says that the said statement of law runs counter to the decision of this court in Madan Gopal Radhey Lal [1969] 73 ITR 652. He also invited our attention to Hari Prasad Jayantilal and Co. v. V. S. Gupta, ITO [1966] 59 ITR 794 (SC), to contend that the principle of this decision also runs counter to the decision in Madan Gopal Radhey Lal [1969] 73 ITR 652 (SC). It is unnecessary for us to go into the said aspect as in our opinion the principle of Madan Gopal Radhey Lal [1969] 73 ITR 652 (SC) has no application to the facts herein. The High Court has placed strong reliance upon the decision of the Court of Appeal in Commrs. of Inland Revenue v. George Burrell [1924] 9 TC 27. In that case, the respondents-assessees were partners in a firm which held shares in a number of single-ship companies. On the sale or loss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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