AJIT K. SENGUPTA, J.

( 1 ) THESE are two references for the assessment year 1970-71--one under Section 256 (1) and the other under Section 256 (2) of the Income-tax Act, 1961. Both the references arise out of the same order and the questions are interlinked. For the sake of convenience, both the references are heard together and disposed of by one judgment.

( 2 ) THE assessee is a private limited company. On Sri Hari Charan and the members of his family are the shareholders of the assessee company. The assessee company sold 1,500 equity shares of Eastern India Cotton Manufacturing Company (P.) Limited to three persons who are the close relatives of the directors and the shareholders of the assessee company. The said shares were sold during the previous year relevant to the assessment year 1970-71 at Rs. 120 per share.

( 3 ) THE Income-tax Officer was of the view that the fair market value of the said shares was Rs. 167 per share and because the assessee had sold the said shares at a rate much lower than the fair market value, the provisions of Section 52 (2) of the Income-tax Act, 1961, were applicable. The Income-tax Officer accordingly determined the fair market value at Rs. 1

Click Here to Read the rest of this document