Law:

Section:

Section 45 of the income-tax act, 1961-Capital gains-Charge ability-Assessee-company, doing business in electric motors, diesel engines, etc., held 4,165 shares of E, a subsidiary of foreign company-E issued right shares in 1961-As a result assessee became entitled to 2,082 right shares-Assessee retained only 772 right shares and sold its rights in 1,310 shares for Rs. 61,449 in assessment year 1963-64-Assessee also sold 2,500 shares to three closely connected and interested persons at a profit of Rs. 38,175 in assessment year 1964-65-Whether tribunal right in holding that said receipts of Rs. 61,449 and Rs. 38,175 were to be considered for computing capital gains-Held, on facts, yes Facts The assessee-company H was dealing in electric motors, diesel oil engines, etc. All its shares were held by D and his wife S, who were its only two directors. It was managed by a firm DC, which is also managing another company E. Company E was established in 1949 in order to take over the proprietary business of D. With effect from 6-3-1960, company E was converted into a public company with a capital of Rs. 40,00,000. It entered into a collaboration agreement with a Swiss company and its capital was increased to Rs. 1,20,00,000, out of which the Swiss company held just over 50 per cent so that the company E became its subsidiary. The assessee-company purchased 1,015 shares of company E in 1956 for Rs. 1,01,500 and acquired sometime in 1961 3,150 shares from four other shareholders holding different numbers. Thus, the total number of shares held by it in company E was 4,165 with total investment of Rs. 4,34,751. As a part of the scheme of the Swiss company's collaboration with company E with equity participation, the latter company issued in December 1961 a fresh capital of Rs. 20,00,000 by allotting one right share for every two shares held. The assessee was thus entitled to 2,082 right shares. While retaining only 772 right shares, it sold its rights in respect of 1,310 right shares for Rs. 61,449 in the previous year ended 31-5-1962, relevant for the assessment year 1963-64 and credited the sale proceeds in its profit and loss account for the said accounting year. The ITO…

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