Decided on December 19,1994



J.G. Pendse, Accountant Member - (1.) THESE appeals filed by the Revenue are against the orders of the CIT(A) dated 18-1 -1989 in the case of Shri R. Krishnaswamy and Minor K. Rajesh, F/G Sri R. Krishnaswamy. THESE appeals are being disposed of by a common order, as a similar point is involved for decision.
(2.) The only ground of appeal is that the CIT(A) erred in holding that Shri R. Krishnaswamy and Minor K. Rajesh were entitled to relief of Rs. 2,86,224 and Rs. 1,16,308 taxed as capital gains. The facts are as under: The assessees were holding the shares in Rajalakshmi Mills Ltd., Lakshmi Mills Co. Ltd. and Premier Mills Ltd. and Premier Breweries Ltd. from 1969. On 9-11-1983, both the assessees claimed to have converted the investments held by them into stock-in-trade in the names of M/s. Krishnaswamy Associates and M/s. Rajesh Associates. An affidavit to this effect was filed before the Assessing Officer. On 15-12-1983, the shares were sold to a Private Limited Company known as M/s. R. Krishnaswamy Investments (P.) Ltd. The Assessing Officer held that the transactions converting the investment into stock-in-trade was a colourable transaction and was effected with the sole intention of avoiding capital gains. Hence, based on the decision of the Supreme Court in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148, he concluded that there was no conversion from investment to stock-in-trade. In this connection the Assessing Officer also observed that M/s. R. Krishnaswamy Investments (P.) Ltd. (the company to whom the shares were sold by the assessees) had only three shareholders, namely, the assessees and Smt. K. Srivalli, wife of Sri R. Krishnaswamy. In the circumstances, he brought the capital gains to tax as long-term capital gains.
(3.) THE CIT(A) held that the transaction was not sham. He also held that R. Krishnaswamy Investments (P.) Ltd. was incorporated on 14-12-1983 with the object of dealing in shares and the company was carrying out regular business in shares. THEreafter the CIT(A) held that in view of the affidavits regarding conversion, there was conversion of the shares from capital assets to stock-in-trade, and he allowed the assessee's appeals holding that there was no capital gains involved in view of the conversion of the capital assets namely, shares, into stock in trade. THE present appeals are against the said decision of the CIT(A).;

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