Law: Income Tax Act, 1922

Section: 12B(2),17,2(6A),14(4)

Income-tax Act, 1922 -- Sections 12B, 17(1) -- Capital gains -- Assessee holding original shares of companies for a number of years by way of investment and on these shares earned substantial bonus shares -- Shares disposed of by sale to the existing shareholders under a resolution and with the permission of the Controller of Capital Issues -- Profits arising out of sale of shares -- Whether capital gains -- Held yes -- Capital gains -- Income-tax Officer cannot arrogate to himself power to design a company's affairs in such manner that incidents of taxes may be as high as possible -- Income-tax Officer cannot convert capital gains into revenue gains or direct assessee -- Company to distribute shares in specie to shareholders so that distribution might fall within definition of dividends in hands of share-holders within meaning of S. 2(6-A) -- ORDER The order was passed by M.T. SIDDIQUI, President. We shall now take up the most important issue for the year 1968-69 with respect to the capital gains arising in the following circumstances. The appellant held a number of original shares of the C.S.M. by way of investment and on these shares it had obtained substantial bonus shares which were being disposed of, as and when the liquidity of these investments was desired over a number of years. For the year 1965-66 on the disposal of 6,93,172 shares, a capital gain of Rs. 69,31,720 was earned and was taxed accordingly. For the year 1966-67 on the disposal of 1,71,182 shares similarly a capital gain of Rs. 17,18,280 was returned and taxed by the Income Tax Officer under Section 17 of the Income Tax Act. For the year 1967-68 there was no sales of these shares with the result that the appellant carried forward total stocks of 1,82,325 original shares and 6,19,375 bonus shares to the assessment year 1968-68. On 22nd of October, 1967 the company by a resolution decided to dispose of the bonus shares so held by it and the various arrangements described in this resolution indicate that 6,25,000 fully paid shares of C.S.M. and D.L. were in the first instance to be offered at par for subscription for cash to the members whose names appear on the register of members on the 19th…

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