High Court rules in favor of assessee due to lack of evidence on passing benefit of share price reduction.

The High Court ruled in favor of the assessee, determining that there was insufficient evidence to support the conclusion that the benefit of the reduction in share price had been passed on to the representative assessee. As a result, the court answered the relevant questions in the negative, in favor of the assessee, and ordered the revenue to pay the costs of both references to the assessee.

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Issues Involved:
1. Assessment of capital gains based on the cost of shares.
2. Whether the benefit of the reduction in the price of shares was passed on to the assessee.

Summary:

Issue 1: Assessment of Capital Gains Based on the Cost of Shares
The primary question was whether the capital gains for the assessment year 1968-69 should be calculated based on the cost of shares being Rs. 80 or Rs. 50 per share. Initially, the Tribunal held that the capital gains should be assessed at Rs. 80 per share, resulting in a short-term capital gain of Rs. 9,600. The Income Tax Officer (ITO) later recalculated the capital gains based on the supplementary award, which reduced the share price to Rs. 50 per share, leading to a higher capital gain assessment of Rs. 45,600. The Appellate Assistant Commissioner (AAC) upheld the original assessment of Rs. 80 per share for the relevant year, and the Tribunal agreed, leaving the question open for further consideration.

Issue 2: Benefit of Reduction in Share Price
The second issue was whether the benefit of the reduction in the price of shares from Rs. 80 to Rs. 50 per share had been passed on to the assessee. The Tribunal initially left this question open, and the High Court reframed it to ascertain whether the benefit had indeed been passed on. Upon further examination, the Tribunal concluded that the benefit of Rs. 36,000 (at Rs. 30 per share for 1,200 shares) had reached the representative assessee of the minor, Amitbhai, through his guardian, Gunvantbhai. However, the High Court found that there was no material evidence to support this conclusion. The entries in the books of Gunvantbhai Mangaldas (HUF) were not challenged by the department, and there was no evidence to suggest that the money was received by Gunvantbhai in his capacity as the guardian of Amitbhai.

Conclusion:
The High Court concluded that the Tribunal's inference that the amount reached the representative assessee in his capacity as guardian of Amitbhai was not supported by any material evidence. Therefore, question No. 1 in Income-tax Reference No. 2 of 1979 was answered in the negative, in favor of the assessee. Consequently, question No. 2 was not required to be answered. As it was not established that the amount of Rs. 36,000 reached the assessee, question No. 2 in Income-tax Reference No. 104 of 1974 was decided in the negative, in favor of the assessee. Question No. 1 in the same reference became academic and was not addressed. The revenue was ordered to pay the costs of both references to the assessee.

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