JUDGMENT

Sen, J.-In this case the question of law is :

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was liable to pay tax in respect of capital gains on receipt of the amount equal to the face value of the preference shares of M/s. Universal Corporation Pvt. Ltd. on the company redeeming its preference shares?

2. The High Court answered the question in the affirmative and against the assessee. The High Court granted a certificate of fitness for appeal under Section 261 of the Income Tax Act in view of the fact that they had taken a view contrary to the view adopted by the Madras High Court on this question.

3. The facts of the case, as stated in the judgment of the High Court, are as under :-

"The assessee is an individual and the assessment year under reference is assessment year 1969-70, the year of account being the calender year 1968. The assessee held 297 redeemable preference shares of M/s. Universal Corporation Private Limited a company incorporated under the Companies Act (hereinafter referred to as the "Company"). The face value of such of these preference shares was Rs. 1,000/- and, therefore, the total face value of these shares came to Rs. 2,97,000/-. The assessee had purchased these shares for Rs. 2,68,550. The Company decided to redeem the preference shares and the assessee received Rs. 2,97,000/- face value of the shares held by her in the year of account relevant to the assessment year under reference. Thus the value of the shares received by the assessee exceeded the value which he had paid for these shares by Rs. 30,450/-. The Income Tax Officer, assessing the assessee sought to tax this amount of difference as capital gains under Section 45 of the Act. The assessee resisted the action proposed by the Income Tax Officer by contending that redemption of her preference shares by the Company would not amount to transfer within the meaning of Section 2(47) of the Act and consequently the difference between the value received by her from the Company on redemption of shares and the price which she had paid for the shares was not exigible to tax. In other words, according to the assessee even if there was any profit or gain, as a result of redemption on shares by the Company, such profit or gain could not be said to have arisen from the transfer of a capital asset. The Income Tax Officer, however, rejected the contentions raised on behalf of the assessee and brought capital gains arising out of the redemption of the shares to tax."

4. The Appellate Assistant Commissioner as well as the Tribunal upheld the view taken by the Income Tax Officer.

5. It has been contended by Mr. G. Ganesh appearing on behalf of the appellant that there is no question of applicability of Section 45 of the Income Tax Act in this case because no transfer of the preference shares had taken place because of the redemption of the shares. The capital received by the Company had been returned to the shareholder. The money was not paid by the Company to the shareholder because of any sale, exchange or relinquishment of the capital asset or extinguishment of any right therein. Our attention was invited to the definition of transfer and it was contended that redemption of shares did not come within the mischief of Section 2(47).

6. Sections 2(47) and 45(1) are as follows :

"2(47). transfer , in relation to a capital asset, includes,

(i) the sale, exchange or relinquishment of asset; or

(ii) the extinguishment of any rights therein; or

(iii) the compulsory acquisition thereof under any law; or

(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment; or

(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a