AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
1962 (7) TMI 40
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....hand Thapar&Bros. Ltd., Calcutta, made an offer on August 31, 1946, to the assessee and Mr. Hunt to purchase the entire 2,500 shares for a consolidated price of rupees 50 lakhs. A further sum of ₹ 27,34,325 was also offered by Karamchand Thapar&Bros. Ltd. to buy over with effect from April 1, 1946, the managing agency rights vested in the assessee and Mr. Hunt. A copy of the letter dated August 31, 1946, written by Karamchand Thapar&Bros. Ltd. to the assessee and Mr. Hunt is annexure "B" and forms part of the case. By letter dated September 26, 1946, the assessee and Mr. Hunt accepted the said offer of Karamchand Thapar&Bros. Ltd. A copy of the letter dated September 26, 1946, written by the assessee and Mr. Hunt to Karamchand Thapar&Bros. Ltd. is annexure "C" and forms part of the case. On the 7th January, 1947, Greaves Cotton&Co. submitted its resignation of the office of the managing agents of the company and it also recommended that Karamchand Thapar&Bros. Ltd. be appointed in its place. A copy of the letter dated 7th January, 1947, written by Greaves Cotton&Co. to the managed company is annexure "D" and forms part of the case. A meeting of t....
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....es his share came to ₹ 19,46,857." A copy of the Income-tax Officer's order is annexure "I" and forms part of the case. 4. The assessee preferred an appeal to the Appellate Assistant Commissioner and the Appellate Assistant Commissioner worked out the capital gains at ₹ 25,88,117 thereby enhancing the capital gains by ₹ 4,34,210. This computation was made as follows: Rs. Consideration for relinquishment of management 27,34,325 Less value at 1-1-1939 Nil Capital gain 27,34,325 Consideration of 2,500 shares 50,00,000 Less Rs. Adjustments in favour of the purchaser 4,09,375 Expenses 26,000 4,35,375 45,64,625 Less Value at 1st January, 1939 Net assets as claimed 41,82,801 Less Reduced by A.A.C. 1,71,968 40,10,833 Goodwill 7,00,000 47,10,833 Loss determined by A.A.C. 1,46,208 Therefore gain on management rights 27,34,325 Less Loss on shares 1,46,208 Net capital gain 25,88,117 It was contended before the Appellate Assistant Commissioner that the sale by the assessee was only of 2,500 shares of the company for the price of ₹ 50 lakhs and that there was no sale of the managing agency rights. The assessee reli....
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....xact opposite, viz., that it is a clear case of sale or transfer. This is very clear from the following observations of their Lordships in the case of Provident Investment Co. Ltd. [1957] 32 I.T.R. 190; [1957] S.C.R. 1141. There is no doubt that under the original contract the assessee company was to have received a sum of ₹ 1 crore for transferring or selling the managing agency of the two companies to the Dalmia Co. If that transaction had gone through there could not have been the slightest doubt that the assessee company would have been liable to tax. But the difficulty arises because there was a modification brought about on the 7th of October, 1946, and the real question that arises for our determination is, what was the effect of that modification? The nature and effect of the modification is clear. The Dalmia Co. did not want the assessee company to transfer their managing agency to Dalmia Co. Instead of that the Dalmia Co. wanted the assessee company to resign as managing agents. In the present case, there is conclusive evidence to support the finding that the managing agency rights were sold or transferred for a sum of ₹ 27,34,325. The facts of this case are ....
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....ner is to the advantage of the assessee. This contention of the assessee is, therefore, rejected." A copy of the Tribunal's order is annexure "K" and forms part of the case. The statement showing the value of Greaves Cotton & Co. Ltd. shares and managing agency rights payments is made annexure "L" at the request of the department and forms part of the case. 6. On these facts the questions of law which arise out of the Tribunal's order are: "(1) Whether on the facts and circumstances of the case the sum of ₹ 27,34,325 received by the assessee and another from Karamchand Thapar & Bros. Ltd. is liable to be taxed as on capital gains in accordance with the provisions of Act 12 of 1947? (2) Whether on the facts and circumstances of the case there was any sale, exchange or transfer of the managing agency rights by the assessee to Karamchand Thapar&Bros. Ltd.? (3) Whether on the facts and circumstances of the case the figure of ₹ 27,34,325 has been correctly and properly arrived at?" 7. Parties accept the statement of the case. R. J. Kolah with Mr. Dwarkadas, for the assessee G. N. Joshi with R. J. Joshi, for the Commissioner ....
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.... April, 1946, to the date of payment. In paragraph 5 of the said letter, Thapars offered to pay ₹ 10 lakhs by way of earnest money on acceptance of the offer. Thapars further stipulated that on or before the completion of the sale, Mr. Greaves and Mr. Hunt should deliver Thapars letters of resignation of several other directors of the company and should also secure appointment of three or more nominees of Thapars. Mr. Greaves on behalf of himself and also in his capacity as the duly constituted attorney of Mr. Hunt, wrote a letter of date September 29, 1946, accepting the aforesaid offer made by Thapars for the purchase of the shares and the managing agency. A direction was given by Mr. Greaves in this letter to Thapars to credit to his account in Lloyds Bank Ltd., Bombay, the amount of earnest money. Annexure "L" to the statement of the case shows that a sum of ₹ 65 lakhs out of the aforesaid amount of ₹ 77,34,325 was paid under the contract, and the order of the Appellate Assistant Commissioner discloses that before him it was not in dispute that the entire purchase money was actually paid in January, 1947, including the stipulated interest to the date....
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....the company and Messrs. Karamchand Thapar & Brothers Limited regulating their appointment and setting out the remuneration to be paid to them and the other terms and conditions under which they were appointed as managing agents of the company, a draft of which with the initials of the chairman appended thereto for the purposes of identification was laid upon the table be, and was, approved and that an engrossment of that agreement be executed by the company and the common seal of the company affixed thereto in the presence of Mr. T. Kemp and Mr. A. Forrington, directors of the company. It may be stated that the meeting of the board of directors commenced at 5-15 p.m. and by 5-30 p.m. all the aforesaid resolutions had been passed by it. At 5-30 p.m. an extraordinary general meeting of the members of the Greaves Cotton & Co. Ltd. commence. Resolutions were passed appointing M/s. Karam Chand Thapar & Bros. Ltd. as managing agents on the terms approved by the directors. A resolution was also passed sanctioning the necessary amendments to the articles of association. The assessee, i.e., Mr. J.B. Greaves, in the return of his income for the assessment year 1947-48 disclosed and claimed ....
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....a contended that the Appellate Assistant Commissioner was in error in holding that the assessee had made any capital gain as a result of the transfer of managing agency. According to the assessee, the transaction between Greaves Cotton & Company and Thapars was not of either sale or transfer. The Tribunal rejected this contention, and held that the transfer of shares and managing agency was sale of capital assets to which the provisions of capital gains were attracted. The other contention raised by the assessee before the Tribunal was that the quantum of capital gains was not correctly made. From the order of the Tribunal, it appears that in this behalf the only contention raised by the assessee was that the income-tax authorities were not justified in holding that the value of the managing agency as on January 1, 1939, was nil. Accepting the aforesaid contention of the assessee, the Tribunal observed: "We may agree with the assessee that the department's working is wrong, inasmuch as it has not taken the value of the agency rights as on January 1, 1939, into account. If the agency had a value as at the end of 1945, it had also some value as on January 1, 1939. The basis....
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....t introduced section 12B in the Indian Income-tax Act. The amendment was brought on the statute book on the 31st March, 1947, and it taxed capital gains arising after 31st March, 1946. It may be stated that these provisions remained in force till 31st March, 1948. The provisions have now been revived from 1st April, 1957, in a slightly modified form. Sub-section (1) of section 12B provides that tax shall be payable by an assessee under the head "Capital gains" in respect of any profits or gains arising from the sale, exchange, or transfer of a capital asset effected after the 31st day of March, 1946, and before the 1st day of April, 1948; and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange or transfer took place. Sub-section (2) relates to the computation of capital gains, and provides that the capital gains shall be computed after making certain deductions from the full value of the consideration for which the sale, exchange or transfer of the capital asset is made, namely, (1) expenditure incurred solely in connection with such sale, exchange or transfer, and (2) actual cost to the assessee of the capital asset, inclu....
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....t to a sale or transfer, then the provisions of section 12B are not attracted. We are unable to accept the contention of Mr. Kolah that that is a correct ratio deducible from these two decisions on which strong reliance is placed. The facts of that case in brief were that the assessee company was the managing agent of two mills in which the bulk of shares were held by the Gwalior Durbar but were controlled by the assessee. Dalmia Investment Company Ltd. wanted to acquire the shares as well as the managing agency of the two managed companies. The Dalmia Company by its letter dated 14th September, 1946, offered to purchase the shares including the managing agency at a certain price. The offer was accepted by the assessee company on 26th September, 1946. On 7th October, 1946, the Dalmia Company wrote a letter to the assessee company that instead of transferring the managing agency to it, the assessee company might resign its office of managing agents. The assessee company then tendered its resignation as managing agents. The question that fell for consideration was whether any capital gain arose to the assessee company out of this transaction. The contention of the department was that....
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....he managing agency. According to the revenue, the letter only altered the mode of performance of the contract. Repelling that contention, the learned Chief Justice observed: "We are inclined to agree with Sir Nusserwanji that if the letter of the 7th of October, 1947, constituted a mere alteration in the mode of performance and the contract of sale or transfer originally arrived at remained unaffected, then the assessee could be liable to tax because the consideration was received by him out of a transaction of sale...........But, in our opinion, the letter of the 7th October, 1946, does not merely alter the mode of performance, but it substitutes an entirely different contract for the original contract entered into and the transaction that would have been effected by reason of the original contract is an entirely different transaction from the one which was ultimately effected by reason of the modified contract arrived at on the 7th October, 1946." Their Lordships of the Supreme Court also have observed at page 197 of the report (Commissioner of Income-tax v. Provident Investment Co. Ltd. [1957] 32 I.T.R. 190 (S.C.) that "on a true interpretation, the letter of O....
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....e parties. The court is not confined merely to looking to the form of the transaction. It is open to the court to ignore the form and ascertain the real nature of the transaction. But while it is open to the court to ignore the form, it is not open to the court to overlook or to ignore the true legal position that arises out of a document or documents in which the parties have chosen to embody the transaction or transactions. The court may even look at the surrounding circumstances in construing a document, but the court in looking at the surrounding circumstances must be anxious all the time to determine what is the true nature of the transaction." It is clear that what is vital and what is determinative is the nature of the transaction as embodying in the documents in which the parties have chosen to embody, the terms of the transaction, and not the mode by which it is performed. In the instant case, the documents in which the parties have embodied the transaction between them is only the offer of purchase made by Thapars by their letter of 31st August, 1946, and its acceptance by Mr. J.B. Greaves on 22nd September, 1946, and, on the construction of these two documents, the....
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....s & Bros. Limited. Consequently, our answer to the first question is in the affirmative. This brings us to the third question. It is common ground that the question has not been correctly framed. It is the contention of Mr. Kolah that the only contention raised by the assessee before the Tribunal was that the figure of capital gain on the sale of managing agency computed by the Appellate Assistant Commissioner at ₹ 27,34,325 was not the correct figure. According to the assessee, the Appellate Assistant Commissioner was in error in holding that the value of the managing agency as on January 1, 1939, was nil, and therefore question No. 3 should be framed as follows: "Whether on the facts and circumstances of the case the figure of ₹ 27,34,325 has been correctly and properly arrived at as capital gain on the sale of managing agency?" On the other hand, Mr. Joshi stated that the amount of ₹ 27,34,325 in the third question is merely an inadvertence. The Appellate Assistant Commissioner had computed the capital gain at ₹ 25,88,117 and for reasons stated by the Tribunal, the Tribunal has affirmed that finding. The question, therefore, should be reframe....
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....r of 31st August, 1946, and the letter of acceptance of 26th September, 1946, that the parties had treated the sale of shares and the sale of the managing agency as two distinct transactions. The shares were agreed to be purchased for a consideration of rupees 50 lakhs as specifically stated in these documents, and the managing agency was agreed to be purchased at the consideration of ₹ 27,34,325. The Appellate Assistant Commissioner also, in deciding the question of capital gain, has treated these two transactions as distinct and separate transactions. It is indeed true that the powers of the Tribunal under sub-section (4) of section 33 are wide. The Tribunal, after giving both the parties to the appeal, an opportunity of being heard, can pass such orders thereon as it thinks fit. The expression "thereon" occurring in sub-section (4) of section 33 has been construed in various decisions as meaning "on the subject-matter of appeal before the Tribunal". Now the subject-matter in appeal before the Tribunal would naturally be the grounds raised by the appellant before it. Rule 12 of the rules framed relating to the Appellate Tribunal provides that " the ....
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..... But, in so far as he only wants to maintain the decree of the lower court which is against the appellant and in his favour, he will be entitled to support it on fresh grounds also if he can do so, and the appellate court also will have jurisdiction to permit him to do so, provided, of course, that the fresh grounds which he wants to urge do not require a further investigation into facts which are not already on record and are not based on facts which were neither alleged nor admitted nor proved and which the other side was never called upon to meet in the lower court." It thus follows that the subject-matter of appeal would get confined to the limits of the grounds specifically raised in the memorandum of appeal, the new grounds raised by the appellant with the previous permission of the Tribunal and the grounds urged by the respondent in support of the decree passed in his favour, even though the decision of the court, against which the appeal is filed, is against him. It is thus clear that the Tribunal will have no jurisdiction to found its decision on grounds which have not been raised before it by any of the parties at all. In other words, in our opinion, it would not b....