Judgment

SABYASACHI MUKHARJI, JJ.

( 1 ) THESE appeals are by certificates granted by the High Court of Madras under Article 133 (1) of the Constitution.

( 2 ) AN identical question of law. had been referred in respect of four separate tax cases to the High Court under S. 66 (1) of the Income-tax Act, 1922 (hereinafter referred to as 1922 Act) at the instance of the assessee. The High Court disposed of these appeals by one common judgment.

( 3 ) THE High Court had to answer the following question :

"whether on the facts and in the circumstances of the case, the conclusion of the Tribunal, that for the purpose of the computation of capital gain on the sale of the shares in East India Corporation Ltd. , Madura Insurance Company Ltd. and Pudukottah Company Private Ltd. the first proviso to sub-sec. (2) of Sec. 12b of the Income-tax Act, 1922 was applicable, is correct in law?"

( 4 ) THE High Court answered the question in the negative and in favour of the assessee.

( 5 ) ACCORDING to the High Court in the instant case, the shares held by the assessee company were sold to two persons who were directly or indirectly connected with them at prices considerably less than their break-up value.

( 6 ) AS mentioned hereinbefore, the four cases were dealt by the High Court together. It may be appropriate to refer to Tax Case No. 83/66 first. The assessee in that case was Rukmani Co. Private Ltd. It was a private limited company incorporated in the former Pudukottai State and at the time the High Court dealt with the matter was a company under the Companies Act, 1956. The paid up capital of the assessee-company consisted of 50 shares of the face value of Rs. 1,000. 00 each, fully paid up and the shareholders during the material time were Padmanabha Private Ltd. holding 25 shares and Pudukottah Corporation Private Ltd. holding the remaining 25 shares. On 14/03/1957, the assessee sold 800 shares held by it in East India Corporation Ltd. and 1,000 shares held by it in Madura Insurance Company Ltd. to Pachnayaki Private Ltd. , Coimbatore, for a sum of Rs. 60,000. 00 and Rs. 75,000. 00 respectively. The cost price of the 800 East India Corporation Ltd. shares was Rs. 81,201. 00 and that of 1,000 Madura Insurance Company Ltd. was Rs. 1,00,000. 00. On the same day the assessee had sold its 499 shares in Pudukottah Company Private Ltd. to Padmanabha Company Private Ltd. for the cost price of Rs. 4,990. 00. The shares in East India Corporation Ltd. , Madura Insurance Company Ltd. and Pudukottah Company Private Ltd. were not quoted in stock-market. It was ascertained from the order of the Tribunal that the break-up value on the date of sale of the 800 shares in East India Corporation Ltd. was Rs. 1,72,800. 00 and the 1000 shares in the Madura Insurance Company Ltd. was Rs. 1,54,000. 00. Deducting the cost price of Rs. 81,201 and Rs. 1,00,000/- respectively from the above said break-up value, a sum of Rs. 91. 599. 00 and Rs. 54,000. 00 respectively had been determined as the capital gain under the first proviso to Sec. 12b (2) of the 1922 Act in respect of the sale of shares in East India Corporation Ltd. and Madura Insurance Company Ltd. The Tribunal gave a finding that there was no capital gain in respect of the sale of the shares in Pudukottah Company Private Ltd.

( 7 ) DISCUSSING the facts of Tax Case No. 79/66 in case of Sivakami Company Private Ltd. , the Tribunal held that the assessee was liable to pay capital gains tax under the first proviso to Sec. 12b (2) of the 1922 Act and it also held that the assessee had sold 499 shares in Pudukottah Company Private Ltd. to Padmanabha Private Ltd. for Rs. 4,990. 00 in respect of which the Tribunal held that there was no capital gain.

( 8 ) IN Tax Case No. 98/66, the assessee was Pudukottah Company Private Ltd. which was a private limited company with a paid up capital of 3,000 shares of the face value of Rs. 100. 00 each with Rs. 10. 00 per share paid up and the shareholders were certain abovementioned com