SEN, J. - (1.) THE facts found and/or admitted in this reference are shortly as follows : The assessee, one Swadeshi Mining & Manufacturing Co. Ltd., sold in the accounting year ended 31st December, 1957, a lot of 7,500 ordinary shares of Jaipuria Kajora Collieries Ltd. to one Swadeshi Cotton Mills Ltd. at the rate of Rs. 9.50 per share, the face value thereof being Rs. 10 per share. In the asst. yr. 1958- 59, the ITO proceeded to compute capital gains arising out of the said transaction under the first prov. to s. 12B(2) of the IT Act, 1922, with the approval of the IAC. The ITO was of the view that the said shares had been sold at an unusually low price to a great advantage to the vendee and, therefore, he proceeded to ascertain the break-up value of the said shares which worked out to Rs. 23.85 per share. The surplus was sought to be taxed as capital gains.
(2.) IN the relevant assessment year the assessee had also claimed development rebate in respect of certain capital items like coal tubs, cast iron pipes, winding and guiding ropes, etc. Under the relevant rules, the assessee was entitled to allowance of the entire cost of replacement of such items as and when old stock was worn out. The ITO refused to allow the development rebate on these items on the ground that depreciation was not allowable in respect of the same. Being aggrieved by the order of assessment, the assessee went up on appeal before the AAC, who held that neither the break-up value nor the maintainable profits method can be adopted as the sole guide for determining the price of the said shares. Taking the mean of the break-up value of the said shares computed on the basis of the balance-sheet of the company as on the 31st December, 1956, and the market price of the shares, he determined the value of the said shares at Rs. 15 per share. On the question of development rebate, the AAC agreed with the ITO and held that the assessee was not entitled to such rebate on the items concerned as depreciation was not allowable thereon.
(3.) FROM the order of the AAC, a further appeal was preferred by the assessee before the Tribunal. It was contended in the appeal that the break-up value could never indicate the correct market price of shares of a running company as a buyer would be always influenced by the prospect o f return to his capital outlay, i.e., expected dividend from year to year. The company in question had declared only 2.5per cent dividend on its equity shares in the calendar years 1952 and 1956 and during the intervening years no dividend whatsoever was declared. Only after the sale of the shares in question the company had declared dividend of 5per cent out of profits of the calendar year 1957. This would, however, not be known to the buyers.;