Pramod Kumar, Accountant Member - The only grievance raised in this revenue’s appeal is as follows :

"deleting the addition of Rs. 1,86,95,362 made on account of Capital Gain arising out of the transfer of 1,05,000 shares of M/s. Morarjee Mills to M/s. Piramal Finance & Investments Pvt. Ltd., without considering the circumstances which indicate that the entire share capital of the assessee company is not held by M/s. Piramal Finance & Investment Pvt. Ltd."

2. The short issue that we are really required to decide, in order to adjudicate on the abovementioned ground of appeal is whether in order to avail exemption under section 47(v) of the Income-tax Act, 1961, entire share capital of a subsidiary company is required to be held only in the name of the holding company, or whether beneficial ownership of the entire share capital would suffice. Learned representatives agree on this proposition.

3. The controversy arises in this background. During the relevant previous year, the assessee company transferred 1,05,000 shares of Morarjee Mills to M/s. Piramal Finance & Investments Pvt. Ltd. (PFIPL, in short). The assessee’s contention was that since PFIPL is 100% subsidiary of the assessee company, and in terms of the provisions of section 47(v), the said transaction is not covered by section 45 provisions. The Assessing Officer, however, rejected the claim of the assessee on the ground that two shares, out of fifty shares issued and subscribed, are held by the assessee company jointly with Shri A.G. Piramal. The Assessing Officer observed that the requirement of the Income-tax Act is that whole of the share capital of the subsidiary is held by the holding company and that in the present case, two shares are held by the holding company jointly with Shri A.G. Piramal. The Assessing Officer did not accept the assessee’s contention that these two shares were jointly held by the holding company with a director of the company, so as to satisfy the requirements of the Companies Act which requires that the number of shareholders in the case of a private company, should be at least two. He held that Shri A.G. Piramal was also an owner of these two shares, and, therefore, provisions of section 47(v) do not apply.

4. Aggrieved, assessee carried the matter in appeal before the CIT(A). The CIT(A) reversed the action of the Assessing Officer and concluded as follows :

"On a consideration of the submissions made I find that the only dispute in the way of treating the appellant as a wholly on subsidiary of M/s. PFI hinged around whether two out of 6, 11% cumulative preference shares held in the joint names of PFI and one of the directors Shri A.G. Piramal ousted the appellant’s claim. As has been stated earlier, these shares were held in joint names with the sole intention of complying with the requirements of the Companies Act which provides that a company may hold any shares in its subsidiary in the name of names of any nominee or its nominees and to ensure that the number of members is not reduced to below 2 in the case of a private company. Further, Shri A.G. Piramal being the nominee could act jointly with the company and individually and he had no rights of his own in respect of the shares and was also entitled to bring proceedings on the basis of one of the registered holders. Further, it is noted that the holder of the six, 11% cumulative preference shares, cannot exercise any voting rights in respect of the said shares, since voting rights vested only with the equity shares holders, which in this case was held entirely by PFI."

Revenue is aggrieved and in appeal before us.

5. We have heard the rival contentions, perused the material on record and duly considered the factual matrix of the case and the applicable legal position.

6. Hon’ble Supreme Court, in the case of K.P. Varghese v. ITO [1981] 131 ITR 597¹, has held that the task of interpretation is not a mechanical task and, quoted with approval, justice Hand’s observation that "it is one