Ajit K.Sengupta, J. - (1.) At the instance of the Revenue, the following question has been referred by the Tribunal for the opinion of this court under Section 256(2) of the Income-tax Act, 1961, for the assessment year 1981-82 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in quashing the order passed under Section 263 of the Income-tax Act, 1961 ?"
(2.) The facts as found by the Tribunal are as under : The assessee-company was holding 5,000 shares of Duncan Brothers (Pakistan) Ltd. The said company was ultimately renamed as "Duncan Brothers (Bangladesh) Ltd." as a result of separation of Bangladesh from Pakistan. After the Indo-Pakistan conflict, the said company in East Pakistan came under the control of the Custodian of Enemy Property. The Custodian made a payment of Rs. 2,05,732 to the assessee-company as compensation for 5,000 shares held by it in Duncan Brothers (Bangladesh) Ltd. The cost of acquisition of the said shares by the assessee was Rs. 1,00,000. The Income-tax Officer, therefore, proceeded to determine the capital gains chargeable to tax in the hands of the assessee-company by deducting the cost of acquisition of Rs. 1,00,000 from the said compensation of Rs. 2,05,732. The capital gains of Rs. 1,05,732 was accordingly computed and charged to income-tax in the hands of the assessee-company in the assessment year 1981-82, vide order dated September 22, 1984, passed by the Income-tax Officer under Section 143(3)/144B of the Income-tax Act, 1961.
(3.) Subsequently, the Commissioner of Income-tax initiated proceedings under Section 263 of the said Act on the ground that the Income-tax Officer while computing capital gains arising in respect of the aforesaid 5,000 shares of Duncan Brothers (Bangladesh) Ltd., had incorrectly taken the fair market value of the said shares as on January 1, 1964, at Rs. 1,00,000. According to the Commissioner of Income-tax, the fair market value of the said shares as on January 1, 1964, was "nil" and, therefore, the entire compensation of Rs. 2,05,732 should have been assessed to income-tax as "capital gains" in the assessment year 1981-82. The Commissioner of Income-tax rejected several contentions advanced on behalf of the assessee-company and by his order dated March 27, 1987, directed the Income-tax Officer to recompute the capital gains in respect of the 5,000 shares and treat the entire compensation of Rs. 2,05,732 as chargeable to capital gains, since the fair market value of the said shares as on January 1, 1964, according to the Commissioner of Income-tax, was "nil" and the Income-tax Officer had committed an error in allowing deduction of Rs. 1,00,000 by way of fair market value of the said shares as on January 1, 1964.;