A.S.VENKATACHALAMOORTHY, J. - (1.)THE respondent -assessee is a company, which is a cent per cent subsidiary company, called M/s Annamalaiar Textiles (P) Ltd. The shares of the assessee holding company were held practically by two groups of shareholders, the majority shareholders called 'A' group and minority shareholders called 'B' group. Since all were not well and there were some differences of opinion, they thought it desirable to divide the companies among themselves. The result was, a memorandum of agreement was entered into on the 1st of June, 1985, and the parties to the said agreement were two companies and the shareholders of both groups 'A' and 'B', In the said memorandum, it was agreed the assessee -company shall transfer all the shares in the subsidiary company to the minority shareholder group 'B', who will in turn transfer all the shares held by them in the assessee -company to the majority shareholder group 'A'. It was further agreed that a sum of Rs. 42.45 lakhs should be transferred from the subsidiary company to the assessee -company. Pursuant to the agreement, the assessee had transferred 24,256 shares.
(2.)THE ITO took the view that the receipt of Rs. 42.45 lakhs was consideration for transfer and after deducting the face value of shares as cost of acquisition to bring the tax, the difference of Rs. 18,19,400 as capital gains. Of course, before the said officer, assessee -company put forth a plea that this was composite transaction and the payment of Rs. 42.45 lakhs was only to set off the advantage in profitability of the subsidiary company and was not a consideration for the transfer of shares. The assessee thereafter filed an appeal and put forth a plea that the transaction was only a corporate division and did not amount to a transfer. The CIT(A), however, did not accept the contention and proceeded to hold that there was a preordained sequences of transactions arranged in an artificial manner to avoid capital gains. In that view of the matter, the appellate authority dismissed the appeal.
The assessee thereafter took up the matter before the Tribunal, Madras, by filing ITA No. 4400 of 1989. Before the Tribunal, the assessee reiterated its submission that the essence of the transaction was an arrangement for separating the management of the holding company and the subsidiary company between two groups of shareholders and that all the shareholders had the same rights in total share -holdings before and after the transaction and only the assets had been rearranged so that one group will have control over another company and the payment of Rs. 42.45 lakhs was made only to equalise the profitability of the company on expert advise. On behalf of the Revenue, it was submitted that the transfer of the shares of the subsidiary company by the assessee holding company to the 'B' group of shareholders was without consideration on the face of it and if at all any consideration was to be imputed, it can only be the amount received by the assessee, which was Rs. 42.45 lakh. On that basis it was contended that the assessment of capital gains by the AO is perfectly right. The Tribunal took the view that the entire object of dividing two companies among the shareholders could not have been achieved without any one of the links of the composite transaction and that this is a very peculiar case of genuine hardship, which should be considered by the CBDT Under Section 119(2)(b) for such relief as may be considered proper, The Tribunal set aside the assessment and restored the matter to the ITO so that the assessee may approach the CBDT and the ITO can finalise the matter in accordance with the directions that may be given by CBDT.

(3.)THE present tax case has been filed by the CIT, Madurai, questioning the correctness of the order of the Tribunal.