TaxTMI 
TaxTMI 
1962 (7) TMI 40
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....he case. M/s. Karamchand 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 Rs. 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 the board of di....
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....8,176 Balance 21,16,149 and as the assessee was holding 2,300 shares out of the total 2,500 shares his share came to Rs. 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 Rs. 25,88,117 thereby enhancing the capital gains by Rs. 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. ....
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.... of managing agency rights, as the property (i.e., the managing agency rights) was already extinguished with the managing agents' resignation and nothing was then left for sale or transfer. In the present case there is both a transfer and sale and this is very clearly indicated by the letters of offer and acceptance referred to above. In my opinion, the ruling quoted by Shri Sharp far from helping him proves the exact 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 Rs. 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 ....
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.... than what it was on January 1, 1939." The Tribunal further observed: "We think that the capital gains should have been worked at a much higher figure than computed by the income-tax authorities. In these circumstances, we are satisfied that the capital gains have not been valued at an excessive figure. In our opinion, the working of the Appellate Assistant Commissioner 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 Rs. 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 man....
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....hem for a price of Rs. 50 lakhs. By the same letter, Thapars also offered to pay a price of Rs. 27,34,325 for getting the right to the management of Greaves Cotton & Co. Ltd., from 1st April, 1946, which then was held by Mr. Greaves and Mr. Hunt. Thapars also offered to pay interest at 2? per cent. per annum on the said amount of Rs. 27,34,325 from 1st April, 1946, to the date of payment. In paragraph 5 of the said letter, Thapars offered to pay Rs. 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 o....
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....of the members be held immediately after the termination of the meeting of the board of directors. The extraordinary general meeting then met. The terms of agreement of managing agency with the consequential amendments to the articles of association were approved and passed by it, and then it was resolved that the agreement between 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....
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.... 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." Deducting the said amount of Rs. 1,46,208 from the amount of capital gain of Rs. 27,34,325, the Appellate Assistant Commissioner determined the net total capital gain at Rs. 25,88,117. The assessee's share therein was determined at Rs. 23,81,067. The assessee took a further appeal to the Tribunal, and before the Tribunal, the assessee inter alia 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 C....
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....her on the facts and circumstances of the case the sum of Rs. 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? "(The figure 12 appears to be a mistake for 22). (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 Rs. 27,34,325 has been correctly and properly arrived at?" It is not in dispute that the answer to the first question would turn on our answer to the second. To appreciate the contentions, it would be convenient to refer to the relevant provisions of the Income-tax Act. Capital gains were charged for the first time to tax by the Income-tax and Excess Profits Tax (Amendment) Act, 1947. That Amending Act 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 ....
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....has happened is that the assessee and Mr. Hunt tendered their resignation as the managing agents of the managed company, and the managed company had later appointed Thapars as its managing agents. That being the case, it cannot be said that either sale or transfer has taken place in respect of the managing agency. Mr. Kolah concedes that there had been a sale in respect of the shares of the company. But, according to him, that transaction did not result in any capital gain. Relying on the decision of this court in Provident Investment Co. Ltd. v. Commissioner of Income-tax [1953] 24 I.T.R. 33 and the decision of the Supreme Court, affirming the said decision of this court, in Commissioner of Income-tax v. Provident Investment Co. Ltd. [1957] 32 I.T.R. 190; [1957] S.C.R. 114, Mr. Kolah urges that what is vital and decisive is the manner in which the transaction is carried out. If the mode of performance does not amount 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 th....
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....the assessee company in the Provident Investment Co.'s case in lieu of modification of the consideration was also referable thereto. In the instant case, the consideration both of Rs. 50 lakhs as well as of Rs. 27 lakhs received by the assessee are referable only to one agreement between the parties and that is the agreement of sale. The resignation also is not referable to any other agreement between the parties, but to the agreement of sale which took place by virtue of the offer made by Thapars and acceptance of that offer by the assessee on behalf of himself and on behalf of Mr. Hunt. There cannot be any doubt that the letter written by the Dalmia Company on 7th October, 1946, was vital to the decision of that case (Provident Investment Co. [1953] 24 I.T.R. 33). It was argued in that case on behalf of the revenue that the said letter did not alter the nature of the transaction, which was the sale of the 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, ....
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....ncy was to be sold or transferred by the assessee company to Thapars. That objective has been achieved by the resignation of the assessee company from the managing agency and the appointment of Thapars as managing agents as part of the one and the same transaction. After examining the various authorities, the principle governing such cases has been stated by the learned Chief Justice in the following terms: "Now, as we shall presently point out, the authorities make it clear that it is not competent to the court to look to the substance of the matter independently of the real transaction arrived at between the parties. If a transaction creates certain legal rights and obligations, then the court must give effect to those legal rights and obligations and must not, overlooking these rights and obligations, try and fathom what was in substance the nature of the transaction entered into by the 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 ....
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....hort, within two days Mr. Greaves and Mr. Hunt ceased to be managing agents, and Thapars became managing agents of the managed company simultaneously. This exactly is the result which the agreement between the assessee and Thapars contemplated. The resignation by the assessee of the managing agency and the appointment of Thapars as managing agents, therefore, in our opinion, is nothing but the mode of performance of the agreement to sell the managing agency arrived at between the assessee and Thapars. That being the position, in our opinion, the income-tax authorities were justified in holding that the provisions of section 12B of the Act were attracted to the facts of the case. Our answer therefore to the second question is that, on the facts and circumstances of the case, there was either sale or transfer of the managing agency rights by the assessee to Messrs. Karamchand Thapars & 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 th....
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....appeal, therefore, on this aspect of the case was restricted to this issue, and the Tribunal therefore acted beyond its jurisdiction in interfering with the finding of the Appellate Assistant Commissioner relating to capital loss on the sale transaction of shares. Mr. Joshi, on the other hand, contends that the transaction of sale of shares as well as the sale of managing agency was one transaction; in computing the value of these assets as on January 1, 1939, the assessee himself had taken it as a composite transaction. It was, therefore, open to the Tribunal to go into the question of computing the quantum of capital gain on the entire transaction and that was the subject-matter of the appeal before the Tribunal. We find it difficult to accept Mr. Joshi's contention. It is clear from the two letters, namely, the letter of offer 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 pu....
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....31 I.T.R. 844, where it is observed that 'the position of the Appellate Tribunal is the same as a court of appeal under the Civil Procedure Code and its powers are 'identical' with the powers enjoyed by an appellate court under the 'Code'. Now, a respondent in an appeal is undoubtedly entitled to support the decree which is in his favour on any grounds which are available to him, even though the decision of the lower court in his favour may not have been based on those grounds. A respondent, unless he has filed an appeal himself or filed cross-objections in the appeal filed by his opponent, will not be entitled to challenge that part of the lower court's decree which is against him, and the appellate court will have no power or jurisdiction to permit him to do so. 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 n....
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....he managing agency was a capital gain. Deducting the capital loss on the transaction of sale of shares, the total figure of the capital gain was arrived at, and from the total gain, the capital gain falling to the share of the assessee was computed at Rs. 23,81,067. In this context, it would not be reasonable to assume that by raising this ground the appellant was challenging the finding which was already in his favour, but it would be reasonable to hold that he was challenging the finding which was only against him, and that finding was that the value of the managing agency as on January 1, 1939, was nil. In dealing with this ground, the Tribunal itself observed that the said contention of the assessee related to the capital gains computed by the department. In paragraph 8 of its order, the Tribunal observes: "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." It is thus clear that this was the only contention of the assessee, and this was the only ground of attack as regards the computation of the capital gains made by the Appellate Assistant Commissione....