Judgment

SUBBA RAO, J.: The facts leading up to this appeal may briefly be narrated. Gujarat Cotton Mills Co. Ltd., hereinafter called the Company, is a limited company having its registered office at Ahmedabad. In the year 1938 the Company appointed Messrs, Pira Maj Girdhar Lal and Co. hereinafter called the Agency Firm, as its Managing Agency. On February 28, 1938, a formal agreement was entered into between the Company and the Agency Firm. The said Agency Firm was formed under an instrument of partnership, dated February 26, 1938, with II partners - 3 of them are compendiously described as the "Bombay Group" and the remaining 8 of them as the "Kanpur Group". With certain variations in the constitution of the Agency Firm, the said firm functioned as the Managing Agents of the Company till September, 1946. In September 1946 the shareholding of the partners of the Agency Firm in the Company was as follows:

Kanpur Group 32,500 shares.

Bombay Group 26,362 shares.

Because of certain differences between the partners, they decided among themselves to sell their shares and to surrender their Managing Agency. On September 7, 1946, the said 11 partners entered into an agreement with the firm of Messrs, Chattu Ram and sons of Bihar, hereinafter called the Purchaser Firm. Under that agreement it was provided that 65,012 shares held by the 11 partners of the Aency Firm, directly or through their nominees, should be sold to the Purchaser Firm at Rs. 65 per share and that the Agency Firm should before November 15, 1946, resign its office of Managing Agency of the Company. It was a condition of the agreement that it should have operation only after the Purchaser Firm or its nominees were appointed as the Managing Agents of the Company. On October 30, 1946, the Company held its General Body Meeting and accepted the resignation of the Agency Firm and by another resolution appointed the Purchaser Firm as the Managing Agents in its stead. In terms of the agreement, the Purchaser Firm paid for the entire shareholding of the partners of the Agency Firm at Rs.65 per share. The appellant is a Hindu undivided family. Its Karta was one Dwarkanath and the present karta is his son Ramji Prasad. The said family was one of the 11 partners of the Agency Firm belonging to the Kanpur Group. Out of the total shareholding the appellant held 11,230 shares. It received the price for the said shares at the rate of Rs. 65 per share. It was assessed to income-tax for the year 1948-49 and the Income-tax Officer by his order dated June 5, 1952, assessed the excess amount of Rs.2,98,909 realized by the assessee under the head "income from business", i.e, the difference in the amount for which it purchased the shares and that for which it sold them. On appeal, the Appellate Assistant Commissioner of Income-tax confirmed the same. On further appeal, the Income-tax Appellate Tribunal, Delhi Bench, held that the said receipt had to be taxed as "capital gains" under S. 12B of the Income-tax Act, 1922, and directed the Income-tax Officer to modify the assessement in accordance with its order. The assessee made an appliction under S. 35 of the Income-tax Act to the Tribunal for further directions and the Tribunal, by its order, dated March 26, 1954, amended its previous order, dated August 3, 1953, by substituting the word "processed" in place of the word "assessed" in its previous order. The assessee raised various contentions before the Income-tax Officer, inter alia, that the said incme was not liable to be taxed under S. 12B of the Income-tax Act under the head "capital gains" and that in any case in order to determine the amount of capital gains the market value of the shares only should be taken into consideration, as the price of Rs. 65 per share included also the consideration for the relinquishment of the managing agency rights. The Income-tax Officer rejected the said contentions of the assessee. He re-determined the assessable income under the heading "capital gain