1967 (4) TMI 18 - SC - Income Tax

Supreme Court clarifies 'full value of consideration' in share transfer under Income-tax Act

Commissioner Of Income-Tax, West Bengal, And Another Versus George Henderson And Co. Ltd.

Commissioner Of Income-Tax, West Bengal, And Another Versus George Henderson And Co. Ltd. - [1967] 66 ITR 622 (SC) Issues Involved:1. Applicability of the first proviso to section 12B(2) of the Income-tax Act.2. Determination of the 'full value of the consideration' for the sale of shares.3. Validity of the findings of the Income-tax Appellate Tribunal and the High Court.Issue-wise Detailed Analysis:1. Applicability of the First Proviso to Section 12B(2):The core issue was whether the transfer of shares fell within the ambit of the first proviso to section 12B(2) of the Income-tax Act. The proviso applies if the transferor is directly or indirectly connected with the transferee and if the transfer was effected with the object of avoiding or reducing the liability under section 12B.The Income-tax Officer and the Appellate Assistant Commissioner initially held that the conditions of the first proviso were satisfied, asserting that the respondent and the transferee were directly connected and the sale was intended to avoid tax. However, the Appellate Tribunal rejected this view, stating that the sale was not effected with the object of tax avoidance or reduction. The Supreme Court concurred with the Tribunal, noting that the transfer occurred before the enactment of section 12B and hence could not have been made with the object of avoiding liability under this section.2. Determination of the 'Full Value of the Consideration':The appellants contended that the 'full value of the consideration' should be interpreted as the market value of the shares, which was Rs. 620 per share, rather than the book value of Rs. 136 per share at which the shares were transferred. The Supreme Court rejected this contention, clarifying that the 'full value of the consideration' refers to the actual price received by the transferor and not the market value. The Court emphasized that the consideration is what the transferor receives in exchange for the asset, and the term 'full value' means the whole price without any deductions.The Court noted that the legislature made a clear distinction between 'full value of the consideration' and 'fair market value' in the first proviso to section 12B(2). Therefore, in the absence of the conditions specified in the proviso, the main part of section 12B(2) applies, and the actual price received by the respondent must be considered.3. Validity of the Findings of the Income-tax Appellate Tribunal and the High Court:The Supreme Court scrutinized the findings of the Appellate Tribunal and the High Court. The Tribunal had affirmed the order of the Appellate Assistant Commissioner but rejected the applicability of the first proviso. The Tribunal's order contained ambiguous language regarding the actual price received for the shares, leading to uncertainty about its findings.The Supreme Court observed that the Tribunal's statement of the case did not accurately reflect its order, leading to confusion. The Court concluded that the Tribunal's language was obscure and its import could not be determined. Consequently, the Supreme Court remanded the case to the Appellate Tribunal for a rehearing. The Tribunal was directed to record a clear finding on the actual price received by the respondent for the shares after giving both parties an opportunity to present evidence and explanations.Conclusion:The Supreme Court set aside the judgment of the Calcutta High Court dated July 15, 1963, and remanded the case to the Appellate Tribunal for rehearing. The parties were instructed to bear their own costs up to that stage. The Tribunal was tasked with recording a clear finding on the actual price received for the shares and disposing of the appeal accordingly.