Judgement

RAMASWAMI, J. :- This appeal is brought, by special leave, on behalf of the Commissioner of Income-tax, Hyderabad from the judgment of the Andhra Pradesh High Court dated October 30, 1964 in a case Referred No. 6 of 1963.

2. The respondent (hereinafter referred to as the assessee-company ) is a private limited company owning a cinema house called "Sree Rama Talkies", at Bobbili. It was being taxed on the profits made by exhibition of films therein. At a meeting of its Board of Directors held on September 9, 1955, it was resolved that the Managing Director, the Raja of Bobbili may be authorised to negotiate with the Zamindar of Chikkavaram or his nominee for the sale of the entire concern with all its equipment and machinery, fittings etc., for a consideration of Rs. 1,20,000. An agreement was concluded to effect a sale and this was confirmed by the assessee-company at an extraordinary general body meeting held on October 4, 1955. Pursuant thereto a deed called the "exchange deed" was brought into existence on February 21, 1956 and the consideration was received by the assessee-company in the shape of transfer of 5 per cent tax free cumulative preference shares in Sri Rama