Decided on July 01,1993



K.R. Dixit, Judicial Member - (1.) THIS is an interesting case, where although the shares of a company were sold, it is the contention of the assessees that it was not the shares which were sold but a certain per-centage of interest in a company was sold. It arises out of the levy of tax on capital gains from the transfer of the shares. How this contention arises, we shall presently see.
(2.) The assessees were the holders of all the shares of one Messrs. Paranjpe Engg. and Foundry Co. Ltd. (hereinafter referred to as "the company"). On October 30, 1976, the company issued bonus shares in the ratio of one bonus share for one original share. On November 28, 1977, the assessees (collectively called vendors), agreed to sell all their shares to one Thirani group (collectively called purchasers). The material parts of that agreement are reproduced below : "And whereas the vendors are desirous of selling their aggregate holding of the said 6,000 equity shares of Rs. 100 each fully paid-up, each of them holding the number of equity shares set opposite their respective names in Schedule I hereto. And whereas the purchasers have at the request of the company agreed to purchase the said 6,000 equity shares on the terms and conditions hereinafter mentioned. Now, this agreement witnesseth and it is hereby agreed by and between the parties hereto as follows : 1. Each of the vendors shall sell and the purchasers shall purchase the number of equity shares in the company set opposite his or her name in Schedule I hereto being 6,000 equity shares in the aggregate at the price of Rs. 392 (rupees three hundred and ninety-two only) per share free from all charges or incumbrances or liens and with all rights attaching thereto, 2. The said 6,000 equity shares agreed to be sold are fully paid-up and represent 100 per cent. of the equity share capital of the company and carry that percentage of the votes cast at general meetings of the company." There are clauses in this agreement stating the factual position regarding the assets and liabilities of the company. Thereafter, there are clauses whereby the vendors undertook to indemnify the company and the purchasers against depletion or dimunition in value of the assets resulting from and claims against the company enumerated therein. Clauses 9 and 14 of the agreement are as follows : " 9. The vendors and the purchasers shall procure that the director or directors of the purchasers' choice or the director or directors representing them on the board of directors of the company give effect to and comply with (including by exercise of their voting rights) the provision of this agreement. 14. The vendors shall not carry on any business in the name which is similar to or resembles the name of the company or which is confusing and shall not trade in a manner as would give an impression to the outsiders that such business has or had any concern or connection with the business of the company."
(3.) SCHEDULE I to the above-referred extract.;

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