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1980 Supreme(Cal) 373
High Court Of Calcutta
SABYASACHI MUKHERJI, SUDHINDRA MOHAN GUHA
COMMISSIONER OF INCOME-TAX - Appellant
Versus
A.GHOSH - Respondent
Income-Tax Reference 309 Of 1973
Decided On : 09/22/1980
APARNA BANERJEE, B.L.PAL, N.Bhattacharjee, S.SEN, SANJOY BHATTACHARYA
The character of a transaction cannot be judged solely on the application of any absolute rule, principle or test, but every case is to be judged by its own facts and circumstances.
Headnote:
The assessee, a founder-director of a pharmaceutical company, sold shares in the company to a third party. The ITO treated the surplus arising from the sale as business income, but the AAC held that it was a capital gain. On reference, the Tribunal found that the assessee had nurtured the company from its infancy and had become old and infirm, and that the sale of shares was intended to pass on the controlling interest to a worthy successor who could efficiently run the company. The Tribunal also found that the assessee had never purchased and sold shares earlier, and that the sale in question was not an adventure in the nature of trade. On a reference to the High Court, it was held that the Tribunal had applied the correct legal principles in reaching its decision, and that the surplus arising from the sale of shares was a capital gain.
Fact of the Case:
The assessee, a founder-director of a pharmaceutical company, sold shares in the company to a third party. The ITO treated the surplus arising from the sale as business income, but the AAC held that it was a capital gain. On reference, the Tribunal found that the assessee had nurtured the company from its infancy and had become old and infirm, and that the sale of shares was intended to pass on the controlling interest to a worthy successor who could efficiently run the company. The Tribunal also found that the assessee had never purchased and sold shares earlier, and that the sale in question was not an adventure in the nature of trade.
Finding of the Court:
The Tribunal had applied the correct legal principles in reaching its decision, and that the surplus arising from the sale of shares was a capital gain.
Issues: None
Ratio Decidendi: None
Final Decision: None
( 1 ) THIS reference arises out of four applications dated February 11, 1972, made by the Commissioner of Income-tax, West Bengal-II, Calcutta, under Section 156 (1) of the I. T. Act, 1961, in respect of the assessment years 1961-62 and 1964-65. Mrs. A. Ghosh was the assessee in these two years. But in a set of cases she was assessed in her personal capacity while in others she was the legal heir and representative of her deceased husband, Dr. A. Ghosh.
( 2 ) BOTH Dr. and Mrs. A. Ghosh held shares in a public limited company, viz. , Standard Pharmaceutical Works Ltd. This concern (hereinafter referred to as "the company") is stated to have been started some time in 1934 with whatever personal resources Dr. and Mrs. Ghosh had. Dr. Ghosh was the technical director and Mrs. Ghosh, a director of the company. The company undisputedly was nurtured by Dr. and Mrs. Ghosh. Dr. Ghosh carried on his research work on antibiotics and Mrs. Ghosh, who was also technically qualified, assisted her husband in this regard. The company over the years had made considerable progress in the technical field. The previous year under consideration was the financial year ended on March 31, 1961, so far as the assessment year 1961-62 was concerned. In this period both Dr. and Mrs. Ghosh effected sales of certain shares. According to them, the surplus which arose was assessable only as capital gains and they showed such surplus as income from capital gains.
( 3 ) IN the case of Dr. Ghosh, the ITO accepted that the surplus arising out of the sale of 1,145 equity shares, acquired prior to 1944, and 14,000 deferred shares, acquired prior to 1946, represented capital gains. There were also sales by Dr. Ghosh of 20,000 equity shares which it is stated in the assessment order were acquired in September, 1960, and sold a few days thereafter. The surplus from such sales was assessed as business income.
( 4 ) IN the case of Mrs. Ghosh, the ITO accepted that the surplus arising out of the sale of 6,000 ordinary shares and 19,000 deferred shares which represented holdings for over 20 years would be assessable only as capital gains. There were also sales of 29,600 equity shares. These, the ITO held, were acquired and sold in September, 1960, and the surplus was assessable as income from business. The quantum assessed is not in dispute.
( 5 ) THE assessee, aggrieved with the decision of the ITO, as referred to, appealed to the AAC. In the case of Dr. Ghosh, it was contended that the sum of Rs. 1,50,000 assessed as business income was assessable as capital gains and in the case of Mrs. Ghosh it was contended that the sum of Rs. 2,22,000 assessed as business income should be assessed only as capital gains.
( 6 ) THE AAC found certain further facts. Dr. and Mrs. Ghosh were stated to be the founder-directors of the company. The original paid-up capital of the company (excluding cumulative and redeemable cumulative preference shares) was Rs. 6,22,440 comprised of :
58,744 equity shares of Rs. 10 each Rs . 5,87,440 35,000 deferred shares of Re. 1 each Rs . 35,000 Total Rs . 6,22,440
Out of the above, the shareholdings of each of the assessees was : --
Equity shares Deferred shares Dr. Ghosh 1,245 shares Rs. 12,450 14,357 shares Rs . 14,357 Mrs. Ghosh 6,080 shares Rs. 60,800 19,000 shares Rs . 19,000 Total 7,325 shares Rs. 73,250 33,357 shares Rs . 33,357
( 7 ) THE joint holdings of the two assessees was thus only to the extent of Rs. 1,06,607 out of the paid-up capital, referred to, of Rs. 6,22,440.
( 8 ) THE company needed fresh capital for its penicillin plant and could not secure the same itself and was thus unable by itself to complete the penicillin plant. Both the assessees had become old and Dr. Ghosh, who was 70 years of age, had a breakdown in health so that he became physically unable to attend to the day-to-day affairs of the company and on account of his illness both the assessees wanted to retire, and sold out
