SUHAS CHANDRA SEN,J. - (1.) THE Tribunal has referred the following three questions of law to this court under Section 256(1) of the Income -tax Act, 1961 : '1. Whether, on the facts and in the circumstances of the case, the sum of Rs. 60,432 should be assessed as business income of the assessee?
(2.) WHETHER , on the facts and in the circumstances of the case, the sum of Rs. 60,432 was dividend income of the assessee under Section 2(22)(d) of the Income -tax Act, 1961 ? If the answer to question No. 2 is in the affirmative, then whether, on the facts and in the circumstances of the case, the assessee was entitled to relief under Section 80M of the Income -tax Act, 1961, in respect of the sum of Rs. 6,04,320 ?' 2. The assessment year involved is 1974 -75 for which the relevant accounting period is the year ended March 31, 1974. The facts of this case, as found by the Tribunal, are as follows : The assessee -company had purchased 20,144 shares of the Punjab National Bank Ltd., on January 2, 1974, at Rs. 37 per share. The cost price of the shares amounted to Rs. 7,45,320. In the meanwhile, however, the Punjab National Bank Ltd. was nationalised by the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. Thereafter, the bank decided to undertake other types of activities like financing and setting up of joint ventures. In this connection, an assurance was given to the members that, in case the company proposed to carry on any other business other than banking, an option would be given to these members who did not wish to continue as such to receive cash on their entire shareholdings in the company on surrendering such shares to the company. The assessee being one of the shareholders of the said bank to the extent of 20,144 shares purchased by it on January 2, 1974, exercised the option to sell to the Punjab National Bank Ltd., its shares at Rs. 40 per share. Since the shares in question were purchased by the assessee -company for Rs. 7,45,328, there was a profit in this transaction. The Punjab National Bank Ltd. purchased the shares from the assessee -company as well as from other shareholders pursuant to the scheme of reduction of capital of the company from Rs. 2,00,00,000 to Rs. 80,12,685 in terms of the resolution passed in the annual general meeting of the shareholders held on September 25, 1973. The confirmation of the Delhi High Court was also received in this behalf. The face value of one share was Rs. 10. The purchase consideration of the shareholders who had exercised the option to sell their shares to the Punjab National Bank Ltd. at Rs. 40 per share was paid from the general reserves of the Punjab National Bank Ltd. The assessee claimed the excess realisation over the face value of shares of Rs. 10 each in the nature of dividend as per the definition of dividend under Section 2(22) of the Act. It was, therefore, claimed that, out of the total realisation of Rs. 8,05,760, a sum of Rs. 6,04,320 being the realisation over the face value of the shareswas in the nature of distribution by the company of its accumulated profits on reduction of the capital and thus constituted dividend within the meaning of Section 2(22)(d). It was also claimed that dividend income of Rs. 6,04,320 entitled the assessee -company to relief under Section 80M. The Income -tax Officer, however, did not allow the claim. 3. The assessee thereafter filed an appeal to the Appellate Assistant Commissioner, who held that the assessee was entitled to relief under Section 80M because even the deemed dividends were dividends within the meaning of Section 2(22) of the Act. The Appellate Assistant Commissioner, while deciding the appeal of the assessee, placed reliance on the circular issued by the Commissioner of Income -tax, Delhi, vide, CIT/Tech/M -14(57)/62 -73/23854, dated January 19, 1975. Against this order of the Appellate Assistant Commissioner, the Revenue filed an appeal to the Tribunal.
(3.) THE Tribunal, after examining the position in law, came to the conclusion that the Appellate Assistant Commissioner was justified in holding that the deemed dividends under Section 2(22)(d) were also dividends for the purposes of allowing relief under Section 80M of the Act. The Tribunal, therefore, dismissed the departmental appeal.;