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TMI Blog1984 (4) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... ? 2. Whether, on the facts and in the circumstances of the case, 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 ? " The assessee-company held an extraordinary general meeting on February 9, 1973, to consider and pass a special resolution for reducing its share capital. At the meeting of the shareholders held on the said date, the following resolution was passed : " Resolved that subject to sanction by court, the paid up share capital of the company consisting of 4,515 shares of Rs. 100 each be reduced to 2,500 shares of Rs. 100 each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n cash or it may transfer those shares to the shareholders in lieu of cash payment for the amount payable to them arising from the reduction of the share capital. Thus as a result of the reduction of the share capital and as a result of the order of this court sanctioning the reduction of the share capital, the company became liable to pay a sum of Rs. 2,01,500 to the shareholders. To discharge that liability, the assessee-company had distributed its 6,316 shares in Kumbakonam Electric Supply Corporation Limited, 2,314 in the Nagapattinam Electric Supply Company Ltd. and 6,400 in the Indian Steel Rolling Mills Limited to its shareholders. At the time of the distribution of the shares to the shareholders to discharge its liability in sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der capital gains. The assessee took the matter in appeal to the Tribunal contending that as there has been no transfer at all of the shares, there is no question of capital gains and that the Commissioner was not correct in having brought the sum of Rs. 54,181 to tax as capital gains. The assessee has placed reliance before the Tribunal on the decision in CIT v. Madurai Mills Co. Ltd. [1973] 89 ITR 45 (SC) and the decision in CIT v. R. M. Amin [1971] 82 ITR 194 (Guj). The Tribunal in its order proceeded to consider whether there was any transfer of shares by the company to its shareholders and ultimately held that there was no transfer of the shares from the assessee-company to its shareholders and as such there is no liability to pay tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen it refers to the mode by which the ownership of the shares had been transferred from the assessee-company to its shareholders, the nature of the so-called distribution is nothing but a transfer. Admittedly, the shares were held by the assessee-company and the shareholders had no other interest in those shares except as shareholders of the assessee-company. After the so-called distribution made by the company for discharging liability of Rs. 2,01,281 out of the total liability of Rs. 2,01,500, the shareholders came to own the shares distributed. Thus, the ownership of the shares had been transferred by the assessee to the shareholders for consideration and we do not see how the transaction cannot be taken to be a transfer. It cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shareholders are willing to accept certain shares at the book value in lieu of the amount of Rs. 2,10,281 due to them, the transaction will not attract the levy of capital gains tax, for, there has been no actual transfer of the shares at the market value. However, on the facts of this case, we are not in a position to accept this contention advanced by the learned counsel for the assessee that there was transfer of shares from the company to its shareholders at the book value and the shareholders were willing to accept shares of the book value of Rs. 4,47,100 as against the amount of Rs. 2,01,281 due to them. Two factors are present in this case which militate against the said contention put forward by the learned counsel for the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has realised a sum of Rs. 54,161 over and above the book value and this has rightly been treated as capital gains arising out of the transfer of shares. As already stated, the Tribunal having held that the transaction does not amount to a transfer of shares by the company to its shareholders, proceeded to deal with the other questions such as whether there was relinquishment or release by the shareholders and other like questions. However, as we have held that the transaction amounts to a transfer and that the transfer attracts the provision relating to capital gains, it is unnecessary for us to deal with the other questions which have been dealt with by the Tribunal in its order. Yet we would like to touch on one aspect. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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