Income-tax---

----Revision---Transfer of shares---Validity of transaction not challenged-- C.I.T. was not justified in setting aside assessment on the ground that transaction was not genuine---Indian Income Tax Act, 1961, S. 263.

The assessee, a resident individual, transferred in June, 1983, certain shares and debentures belonging to her shown in the books of account. As per the books of account maintained by the assessee the total value of these shares was shown at Rs.15,19,503. The assessee transferred these shares to a company newly formed by the name of A. The book value of the shares was the value shown by the assessee which she received on transfer of the shares belonging to her to the company A. According to the Assessing Officer, the ascertained market value of these shares on transfer ought to have been Rs.23,62,014 and after deducting the price of book value being Rs.15,19,603, Rs.8,42,414 was calculated as the income that the assessee ought to have received by the sale of these shares. The Commissioner of Income-tax, however, took an entirely different view of the matter. Holding that notwithstanding the difference in the sale value of the shares as determined by the Assessing Officer, since the assessee had adopted the transfer of shares as a subterfuge in order to deprive the Revenue of the dividend income, and based on the ratio in the case of McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 (SC), the Commissioner of Income-tax passed an order under section 263 of the income Tax Act, 1.961, setting aside the assessment order passed by the Assessing Officer directing him to pass a fresh assessment order based on the observations made by him. The Tribunal set aside the order of the Commissioner of Income-tax. On a reference:

Held, that since the transfer was valid and proper and execution had taken place between the transferor and the transferee, it was improper on the part of the Commissioner of Income-tax to hold that the assessment was erroneous in this case. The :reliance placed-by the Commissioner Income-tax on the judgment of, the Supreme Court in the case of McDowell & Co. Ltd. was wholly incorrect since the ratio in that case could not be applied to the facts of the present base.

McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 and (1985) 59 STC 277 (SC) ref.

JUDGMENT

The following question has been referred for our opinion:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in setting aside the order of the Commissioner of Income-tax passed under section 263 of the Income Tax Act, 1961?"

The facts giving rise to the aforesaid reference, briefly stated, are that the assessee, a resident individual, transferred in June, 1983, certain shares and debentures belonging to her and shown in the books of account. As per the books of account maintained by the assessee, the total value of these shares was shown at Rs.15,19,503. A company newly formed by the name of Akshoy Trading Co. (Pvt.) Ltd., in the meantime, received, by the transfer, these shares from the assessee. The above referred book value of the shares was the value shown by the assessee which she received on transfer of the shares belonging to her to the above named company, Akshoy Trading Co. (Pvt.) Ltd.

The Assessing Officer, however, did not agree with the aforesaid contention of the assessee with regard to the value of the shares that she claimed to have received by the sale of these shares. According to the Assessing Officer, the ascertained market value of these shares on transfer ought to have been Rs.23,62,014 and after deducting the price of book value being Rs.15,19,603, Rs.8,42,414 was calculated as the income that the assessee ought to have received by the sale of these shares. The assessee feeling aggrieved preferred an appeal before the Commissioner of Income tax. The Commissioner of Income-tax, however, took an entirely different view of the matter. Notwithstanding the difference in the sale value of the shares as determined by the Assessing Officer, since the assessee had adopted the transfer of shares as a subterfuge in order to deprive the Revenue of he dividend income, and based on the ratio in the case of McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 (SC), the Commissioner of Income-tax passed an order under section 263 of the Income-tax Act setting aside the entire assessment order passed by the Assessing Officer and directing him to pass a fresh assessment order based on the observations made by him. While exercising his revisional power under section 263 of the Income-tax Act, the Commissioner of Income-tax made observations with regard to the nature of the transfer of the shares by the assessee to Akshoy Trading (Pvt.) Co. Ltd., and held that this was a device used by the assessee to deprive the Revenue of the income-tax by way of yearly income every year and for the next ten years or thereabout.

On appeal the Tribunal set aside the order of the Commissioner b~ holding that the transfer of the shares by the assessee to Akshoy Trading Co. (Pvt.) Ltd. was by way of a part of tax planning and that since the transfer was genuine act and it was not challenged in any manner, the assessee cannot be at fault and that the assets which came into the hands of the transferee company were rightly transferred in the name of that company and on transfer, the transferee-company became the owner of such assets. The validity of the transfer was also not in question, was another observation of the Tribunal.

We have heard the Advocates for the parties. We are of the opinion that the view taken by the Commissioner by exercising his power under section 263 of the Act was incorrect. Since in this case the transfer of shares by the assessee to Akshoy Trading Co. (Pvt.) Ltd., was a genuine and legitimate act, it could not be said that this was the device adopted by the assessee to deprive the Revenue of the annual tax. The Tribunal has taken a correct view of the matter by holding that since the transfer was valid and proper execution had taken place between the transferor and the transferee, it was improper on the part of the Commissioner of Income-tax to hold that the assessment was erroneous in this case. We are also of the view that the reliance placed by the Commissioner of Income-tax on the judgment of the Supreme Court in the case of McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 was wholly incorrect since the ratio in that case could not be applied to the facts of the present case.

For the aforesaid reasons, therefore, we answer the question in the affirmative and against the Revenue.

M.B.A./3294/FCReference answered