TaxTMI 
TaxTMI 
1972 (1) TMI 3
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.... of loans to the assessee from time to time. This, it was claimed, was done for subscribing to shares in three Indian companies called Indian Explosives Ltd., Alkali & Chemical Corporation of India and Atic Industries Private Ltd. (hereinafter called as I.E.L., A.C.C.I. and A.T.I.C. respectively). Subsequently, the assessee transferred the shares in the aforesaid companies at par to I.C.I. in satisfaction of the loans advanced by that company. The Income-tax Officer applied section 52 of the Income-tax Act, 1961 (hereinafter called the " Act "), and assessed the assessee to capital gains. The Appellate Assistant Commissioner took the contrary view and held that, on the facts which had been established, the assessee was not liable to capital gains tax under the aforesaid section. The Tribunal upheld the decision of the Appellate Assistant Commissioner by a detailed and well reasoned order. Broadly, the case of the assessee was that I.C.I. wanted to make investments in India in sterling currency. The assessee was already in existence but the other three companies, which have been mentioned, were incorporated later. I.C.I. devised a scheme by which it could make the investment as de....
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....tments in the three companies substantially. In these circumstances, it was decided by I.C.I. that the investments in the three companies should be held by it directly. For that reason it called upon the assessee in February, 1961, to transfer to it the aforesaid shares in the three companies at the issue price in satisfaction of the sterling loans in accordance with the previous agreements. The approval of the Reserve Bank to these transfers was received in February, 1961, and the transfers were made in March/April, 1961. According to the assessee there was no question of the transfer of shares having been effected with the object of avoidance or reduction of the liability of the assessee to capital gains which alone could attract the applicability of section 52 of the Act. Section 52 is in the following terms : " Consideration for transfer in cases of under-statement.--Where the person who acquires a capital asset from an assessee is directly or indirectly connected with the assessee and the Income-tax Officer has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under section 45, the full value of the ....
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....an to the assessee the latter would hold the shares in I.E.L. and that the loan " may be repaid by a transfer of the shares to I.C.I. at any time ". On 21st December, 1954, the assessee applied to the Reserve Bank of India for formal sanction for borrowing Rs. 160 lakhs from I.C.I. for the purchase of shares in I.E.L, in terms of the agreement dated November 5, 1953. It was stated in the letter that I.C.I. would charge no interest until such time as the shares began to yield dividends. The loans were advanced from 30th September, 1954, to 30th June, 1957, by the I.C.I. to the assessee of the equivalent of Rs. 160 lakhs in sterling. The other correspondence relating to the aforesaid amount was also noticed by the Tribunal. In 1958 there was a rights issue by I.E.L. I.C.I. agreed to give a loan of Rs. 80 lakhs to the assessee to cover the sterling requirement of I.E.L. The assessee was to take up shares of that amount. The terms of the loan were that I.C.I. had the right to acquire at any time the shares held by the assessee in I.E.L. at par in satisfaction of the loan and the rate of interest payable on the loan was to be 1% above the Indian bank rate. This was followed by other cor....
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....53, there was no mention of any capital gains tax being revived. At that time the assessee could not have had any idea of avoiding or reducing any liability to capital gains tax. The learned counsel for the department laid some emphasis on the fact that there was no enforceable arrangement. The question as to whether there was an enforceable arrangement or not is not really material. What we have to find out is whether the object in putting through these transactions of taking over the shares at par or at issue price was one of avoidance or reduction of liability to capital gains tax. That object does not get established by the mere absence of an enforceable arrangement. Having regard to the assessee being the subsidiary of I.C.I., there is nothing surprising about the arrangement not being so formal or not being put through after complying with all the necessary legal formalities. The absence of formal agreement is thus understandable in this context and cannot by itself suggest anything in favour of the department. Businessmen are not always motivated by legalistic considerations. Even taking that the arrangement was only binding morally and not legally, still so long as the asse....
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.... which had been filed on behalf of the assessee and had mentioned that the department had not cross-examined the deponents. Before the Tribunal the counsel for the department stated that he accepted the affidavits as correct in so fat as facts were concerned but he only disputed the inferences therefrom. The Tribunal in this connection observed : " In our opinion, once the facts mentioned therein are taken as correct, the inference that the transaction was not for the purpose of avoiding or reducing liability to capital gains tax has to follow. " Finally, the Tribunal, as stated before, confirmed the decision of the Appellate Assistant Commissioner that the material on record did not justify the conclusion of the Income-tax Officer that the object of the transfer of the shares of all the three companies by the assessee to I.C.I. was the avoidance of liability to capital gains which would attract the applicability of section 52 of the Act. The Commissioner of Income-tax asked for a reference on six questions. The Tribunal again examined the further contentions of the department in its order dated July 28, 1969, by which it declined to make the reference on the ground that no q....
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....n the facts and in the circumstances of the case, and particularly in view of the finding that there was no enforceable agreement making it obligatory upon the assessee to transfer the shares to Imperial Chemical Industries Ltd., London, at par or issue price the conclusion of the Tribunal that the transfer of the shares by the assessee to the latter company at par was not effected with the object of avoidance or reduction of the liability of the assessee to capital gains tax was unreasonable or perverse ? (4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that section 52 of the Income-tax Act, 1961, was not applicable to the facts of the case ? " On the analysis of section 52 of the Act made by us at a previous stage and the clear, cogent and precise findings and conclusions of the Appellate Tribunal, we are wholly unable to comprehend, how any question of law of the nature sought to be referred arose or arises from the order of the Appellate Tribunal. It is unfortunate that in a case of this nature and magnitude, the High Court did not choose to record a speaking order to enable us to appreciate the reasons which prevailed with i....