Capital gains on sale of investment shares upheld where higher price did not amount to consideration for surrender of managing agency.

Surplus from the sale of shares sold at the same time as relinquishment of a managing agency was treated as capital gains, not revenue income. The shares had been held as investments and previously regarded as capital assets, and their higher realisation because of the managing agency attached to them did not change their legal character. In the absence of any finding that the sale was colourable or that the price represented consideration for surrender of the managing agency, the Tribunal held that what was realised was the value of the shares themselves. The surplus was therefore capital in nature and the assessee succeeded.

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Issues: Whether the surplus arising from the sale of shares, sold contemporaneously with relinquishment of the managing agency, was capital gains or revenue income.

Analysis: The shares had been held as investment and treated in prior years as capital assets. The fact that they fetched a higher price because of the managing agency attached to them did not alter the legal character of the transaction, since there was no finding that the sale was colourable or that the consideration was for surrender of the managing agency. The Tribunal's finding that what was legally realised was the value of the shares, not payment for relinquishing the agency, supported treatment of the surplus as capital in nature.

Conclusion: The surplus was capital gains and not revenue income, and the answer was in favour of the assessee.

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