Sri.ar.alagappa Chettiar v. The Income Tax Officer, Ward I(1), Karaikudi

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 19/04/2004 Coram The Honourable Mr.Justice A.S.VENKATACHALAMOORTHYandThe Honourable Mr.Justice P.K.MISRA T.C.No.402 of 2001 Sri.AR.Alagappa Chettiar ... Appellant -Vs- The Income Tax Officer,Ward I(1),Karaikudi ... Respondent This appeal has been filed under Section 260A of the Income Tax Act,1961, against the order of the Income Tax Appellate Tribunal "A" Bench, dated9.9.2001 in ITA No.2203/Mds/95. !For Appellant : Mr.C.V.Rajan ^For Respondent : Mr.T.RavikumarJunior Standing Counsel :J U D G M E N T A.S.VENKATACHALAMOORTHY, J.This appeal is directed against the order of the Income-TaxAppellate Tribunal, upholding the orders of the authorities below and itpertains to the assessment year 1991-1992. The dispute relates to thecomputation of long term capital gains arising out of the transfer of 4 198shares held by the appellant in M/s Consolidated Coffee Limited (hereinafterreferred to as 'CCL') to M/s Tata Tea Limited ( hereinafter referred to as'TTL'). 2. The appellant was holding 4198 shares in CCL. The TTLdesired to acquire the majority shares in CCL and this prompted TTL to make anopen offer to the shareholders of the CCL. The offer was to the effect thatfor transfer of every two shares of CCL to TTL, the latter would give aconsideration in cash of Rs.100/- and one equity share of face value ofRs.10/- out of the fresh issue of TTL. This offer was made by TTL on20.10.1989 and the same was accepted by the appellant. Following this, TTL formalised the contract by sending the transfer deed for the transfer ofshares in CCL, on 31.10.1990. The appellant received the consideration asstipulated in the offer i.e, Rs.100 /- in cash and a fresh issue of one equityshare in TTL of the face value of Rs.10/- for every two shares in CCL. Theappellant while submitting his return for 1991-1992, apparently worked out thecapital gains pertaining to 4198 shares of CCL by taking the saleconsideration of Rs.55/- per share, which figure he arrived at by calculatingas follows, Rs.100/- + Rs.10/- 2 The Assessing Officer, however took note of the fact that by a letter dated8.10.1990, the TTL informed the appellant that the market price of each shareof TTL has gone up to Rs.450/- and proceeded to find out the value of theshares of TTL as on 31.10.1990 as per the daily official listing of BombayStock Exchange. The Assessing Officer found, the Stock Exchange mentioned Rs.400.25 as value of one share of TTL and adopting that, computed the fullvalue of the consideration received by the appellant at Rs.10,50,025/- (2099TTL shares at Rs.400.25 + Rs.2,09,900 (2099 x 100)). 3. The appellant filed an appeal before the Commissioner of Income Tax contending that the Assessing Officer ought to have taken only theface value of the equity share of TTL at Rs.10/- and not the market value atRs.400.25. However, this contention was not accepted by the appellateauthority, which prompted the appellant to file an Income Tax Appeal beforethe Income Tax Appellate Tribunal, Madras. By an order dated 4.9.2001, theTribunal dismissed the appeal upholding the orders of the authorities below.Being aggrieved by the orders referred above, the appellant has filed thisappeal before this Court. 4. The question is, for the purpose of computing the consideration received for transfer of shares in CCL, whether the market valueof the shares of TTL allotted to the assessee should be adopted or the valueof the said allotted shares shown as paid up in the books of accounts of TTL ? 5. This Court is inclined to consider the entire matter in 4. The question is, for the purpose of computing the consideration received for transfer of shares in CCL, whether the market valueof the shares of TTL allotted to the assessee should be adopted or the valueof the said allotted shares shown as paid up in the books of accounts of TTL ? 5. This Court is inclined to consider the entire matter in the way indicated hereunder. Just like the appellant/assessee, number ofother shareholders in CCL transferred their shares in CCL and in exchange, gotshares in TTL and also Rs.100/- for each share in TTL. One such person wasSmt.AL.VE.Muthayee Achi. The Tribunal considered her case in ITA No.2452 of1995 and fixed the value of one TTL Share at Rs.147/-. In fact that order ofthe Tribunal has been extensively quoted in the present order passed by theTribunal. After so quoting, the Tribunal has observed as follows,"... Because the shares of Tata Tea Ltd., were marketable and had a marketvalue of Rs.147 on 31.12.1990, the Assessing Officer took the saleconsideration at Rs.247, that is Rs.147 being market value plus Rs.100 astotal sale consideration. This is what has been applied by the Tribunal inthe case referred to earlier. ..." After so pointing out, the Tribunal proceeded to observe as follows, "... There being no other material difference in the facts of the case beforeus, the issue having been examined on all fours by the Tribunal supra, following the earlier order of the Tribunal, we uphold the orders of theauthorities below and dismiss the appeal of the assessee." If the Tribunal is following the earlier order passed in Tmt.AL.VE. MuthayeeAchi's case referred by us supra, then the Tribunal should have fixed thevalue of TTL at Rs.147/-. In that event, the Tribunal cannot dismiss theappeal filed by the assessee. The reading of the order of the Tribunal as awhole would only show that the Tribunal came to the conclusion that one shareof TTL has to be fixed at Rs.147/-. 6. That apart, even on the ground of equity, fairness and reasonableness, the revenue, having accepted the value of one share at Rs.147/- with reference to another assessee identically placed, cannot be permittedto fix a higher value for a share in TTL at the relevant time.A.S.VENKATACHALAMOORTHY, J. & P.K.MISRA, J. 7. In this view of the matter, we allow the appeal in part and hold that the revenue shall proceed to calculate on the basis of the valueof one share of TTL at Rs.147/- and claim on that basis, the tax due from theassessee. vr To 1. The Registrar, Income Tax Appellate Tribunal 'A' Bench, Madras. 2. The Income Tax Officer, Ward I(1), Karaikudi �