JUDGMENT

Kirpal, J.-The only question which arises for consideration in this appeal, under certificate having been granted by the High Court, is whether on a reduction of share capital with the company paying a part of the capital by reducing face value of its share, results in extinguishment of right in the shares held by the share-holder so that the amount paid on reduction of share capital would be exigible to capital gain tax.

2. The appellant had purchased 90 non-cumulative preference shares, each of the face value of Rs. 1,000/- at a price of Rs. 420/- per share, of a company called Sarabhai Limited. In 1965, a sum of Rs. 500/- per preference share was paid off to the assessee upon a reduction of a share capital of the company under Section 100(1)(c) of the Companies Act. This was done by reducing the face value of each share from Rs.1,000/- to Rs. 500/- and by paying off Rs. 500/- in cash. As a result thereof the appellant became a holder in respect of 90 non-cumulative preference shares of the value of Rs. 500/- per share, in place of being the holder of shares of the face value of Rs. 1000/- per share.

3. In the present case, we are concerned with the further reduction of the