TaxTMI 
TaxTMI 
1956 (9) TMI 61
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....cature at Bombay. Parties agree that all the relevant facts are correctly stated and that there is no omission of any material fact. The Department accepts the question as framed but the assessees desire that all the eleven questions as set out in their applications be referred. We see no reason to do so. A copy of the said questions is annexure "A" and forms part of the case. 2. The two assessees, Baijnath and Radhakrishna held respectively 6,689 and 7,995 shares of Gujarat Cotton Mills Co. Ltd. These shares were sold and the Income-tax Officer brought to tax certain amounts as capital gains under section 12B of the Indian Income-tax Act (hereafter referred to as the Act). The dispute relates to the determination of the quantum of the said capital gains in each case. 3. Early in 1938, the managing agency of the Gujarat Cotton Mills Co. Ltd. (hereafter referred to as the company) was held by the firm of Shantilal Bhagwandas&Co., by an agreement dated 18th January, 1938, the said firm agreed to assign their right of managing agency and their rights and titles under certain other agreements to Sheth Peeramal Chaturbhuj and also to transfer 4,736 shares of the company for ....
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....was told that the proportion of the individual holdings of 11 persons corresponded more or less to their profit-sharing proportion. Clause 3 of the said agreement made on 7th September, 1946, is as follows: "The vendors shall sell the said shares mentioned in the list 'A' hereto and the purchasers shall purchase the said shares at or for the price of ₹ 65 per each such share." Clause 1 provided that the vendors (i.e., the 11 partners of the firm) shall before 15th November, 1946, resign their office as managing agents of the company under the managing agency agreement dated 28th February, 1938, conditional upon the company appointing the said purchasers or their nominees as managing agents of the company for a period of 30 years from the date of such appointment and "upon the same terms as to remuneration and otherwise as are contained in the said managing agency agreement and also conditional upon the purchasers completing the purchase", referred to in clause 3 reproduced above. Other material clauses are 2, 4, 6 and 11. Clause 11 provided that if the purchasers or their nominees were not appointed the managing agents of the company on the agre....
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....king the difference between the sale price of the shares at the rate of ₹ 65 per share and their actual cost. The figure of the capital gain in case of each of the two assessees thus computed is also not in dispute if the sale price of the shares is to be taken at the rate of ₹ 65 per share. 5. It was not the contention of the assessee that under the provisions of section 12B(2) itself the assessee was entitled to a deduction "from the full value of consideration for which sale of the capital asset is made." The contention was this : the market value of the shares sold was ₹ 45 on 3rd September, 1946, and ₹ 46-8-0 on 10th September, 1946, and hence the excess of the price of ₹ 65 per share over its market value of ₹ 46 or so prevailing on 7th September, 1946, when the agreement for sale of the said shares was executed, should be attributed to the relinquishment of the managing agency rights which were to be surrendered in accordance with the terms and conditions of the said agreement. The Tribunal found as a fact that the market value of the said share was ₹ 46 or so. The Tribunal, however, rejected this contention for the reason....
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....ares appointed the managing agents of the company. The Tribunal also points out in its order that this was not an ordinary agreement of purchase and sale of shares of the company entered into in the ordinary course of business, and the only reason why it has rejected the assessee's contention was that the parties did not apportion the price of ₹ 65 to the shares and to the managing agency. Under section 12B(2) for the purpose of computing capital gain the full value of the consideration for which the sale, exchange or transfer of the capital asset is made has to be taken into account, and the short question that we have to consider is : What is the full value of the shares which were sold by the assessee and in respect of which he made a capital gain? It is erroneous to suggest that the full value is necessarily the value which the parties place upon a capital asset. The full value must be the true value, not any artificial value, which parties for any purpose may assign to a particular capital asset. Here we have evidence that these shares were marketable and they had a market price which was ₹ 46 per share. The agreement also makes it clear that it was a composite....