- (1.) This appeal by the assessee arises out of Income-tax Reference No. 279 of 1973 made at the instance of the assessee which was disposed of by the Calcutta High Court by the impugned judgment dated August 25, 1978. Out of the two questions referred to it for its opinion, the High Court declined to answer question No. 1 as it did not arise from the judgment of the Income-tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') and question No. 2 was answered against the assessee and in favour of the Revenue. The said question was in these terms :- "Whether the Tribunal was right in holding that on the facts and circumstances of the case the exchange of one security for another could be described as realisation of the security resulting in profit -
(2.) The matter related to the assessment year 1963-64 for the relevant previous year ended on July 31, 1962. The assessee is a company dealing in shares. It was holding 14500 shares of Asiatic Oxygen and Acetylene Company Limited (hereinafter referred to as 'the first Company'), of the face value of Rs. 10/- each as its stock-in-trade. The said shares were valued by the assessee at Rs. 1,45,000/- (the cost price) at the end of the assessment year 1962-63 and were included in the closing stock. In the assessment year under reference a new company, Asiatic Oxygen Ltd. (hereinafter referred to as the second Company) had made an offer to obtain shares of the first Company in exchange for the allotment of its own shares at the rate of 38 equity shares in the second company for 10 equity shares in the first company. The assessee accepted the said offer and received 55,100 shares of the second company in exchange of the aforesaid holding of 14,500 shares in the first company. The face value of the shares of the second Company was Rupees 10/- per share. The assessee, however, valued the shares of the second Company also at Rs. 1,45,000/- being the cost price of the shares of the first Company. The Income-tax Officer did not accept the contention of the assessee that it had not earned any profit in the transaction. He found that the market quotation of the shares of the second Company, as on 11th August, 1962, i.e., only 11 days after the close of the relevant previous year, was Rs. 10.12 per share. He valued the shares of the second company at Rs. 10/- per share and held that Rs. 5,51,000/- was the value of the shares of the second Company. He, therefore, held that the assessee had earned a profit of Rs. 4,06,000/- in the said transaction and brought that amount to tax as the assessee's income from share dealings. The appeal filed by the assessee was dismissed by the Appellate Assistant Commissioner and on further appeal the Tribunal rejected the contention of the assesse and that the transaction did not result in any profit. The Tribunal rejected the application of the assessee for referring to the High Court for its opinion the questions raised by the assessee but the High Court by order dated February 18, 1974 directed the Tribunal to state a case and refer the two questions raised by the assesse and consequently the two questions were referred by the Tribunal out of which question No. 2 has been answered against the assessee by the High Court by the impugned judgment.
(3.) Shri H.K. Puri, the learned counsel for the assessee, has urged that the High Court was in error in answering the said question against the assessee. According to Shri Puri, since the assessee has been found to be a dealer in shares and the shares of the first Company held by assesee were part of its stock-in-trade, in fact that those shares were exchanged with the shares of the second Company would not, by itself, mean that the assessee had earned a profit in that transaction. According to Shri Puri, the assessee could be said to have earned profit in the transaction only when it would have sold the shares of the second Company at a price higher than that entered in its books. Shri Puri has also submitted that the process of obtaining the shares of the second Company in exchange for the shares of the first company does not constitute a sale and has placed reliance on the decision of this Court in, Comr. of Income-tax, Andhra Pradesh v. Motors and General Stores (P) Ltd., (1967) 66 ITR 692 : (AIR 1968 SC 200), Shri Puri has also placed reliance on the decision of the House of Lords in, British South Africa Co. v. Varty (Inspector of Taxes), 1966 AC 381, and has submitted that the decision of the House of Lords in, Westminster Bank, Ltd. v. Osler (Inspector of Taxes) (1933) 1 ITR 65, referred to in the impugned judgment of the High Court, has been distinguished by the House of Lords in the subsequent decision in the case of, British South Africa Co. v. Varty (Inspector of Taxes), (supra).;