The Commissioner of Income-tax, Calcutta v. Gillanders Arbuthnot & Co.

HEGDE, J. These are cross-appeals by certificate. They arise from the decision of the Calcutta High Conrt in a Reference under s. 66 ( 1) of the Indian Income-tax Act, 1922 (to be here­ inafter referred to as the Act). At the instance of the assessee as well as the Commissioner, the Income-tax Tribunal 'B' Bench, Calcutta staied a case and submitted as many as five questions to the High Court for obtaining its opinion. Some of the ques­ tions referred to the High Court have not been passed before this Court. Therefore we shall not refer to them. The questions that were pressed before us are : " (1 ) Whether on the facts and in the circumstances of thP. case, the Tribunal was right in holding that the proceedings under section 34 (1 )(a) have been validly initiated ? ( 2) Whether on the facts and in the circumstances of the case, any capital gains within the mean­ ing of Section 12-B could be said to arise by the transaction involving transfer of the invest- ments held by the assessee to the Company. admission of the Company as a partner in the assessee firm and issue of shares of the Com­ pany to the public; and ( 3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in computing the capital gains at Rs. 46,76,784/-'.": The High Court answered the first question in the affirmative :and in favour of the Revenue. So far as the second question is ·concerned, it split the same into two questions viz. whether on the facts and in the circumstances of the case any capital gains within the meaning of s. 12-B could be said to arise by the trans­ .action involving transfer of investments held by the assessee to the Company and whether on the facts and in the circumstances of the case any capital gains within the meaning of s. 12-B could ·be said to arise by the admission of the Company as a. partner in the assessee firm and issue of shares of the Company to the public ? It answered the first part of the question in the affirma­ tive and in favour of the Revenue .and the second part in the nega­ tive and against the Revenue. As regards the 3rd question, the High Court opined that on the facts and in the circumstances of the case, the capital gains should have been computed at Rs. 27,04,772/-. Aggrieved bx this decision the Commissioner of Income-tax has brought Civil Appeal No. 1452 of 1969 and the assessee has brought Civil Appeal No. 1502 of 1969. The only contentions urged in the assessee's appeal were that on the facts and in the cilcumstances of the case proceedings under s. 34 (I) (a) have not been validly initiated and to the facts of .this case s. 12-B is not attracted. In the appeal by the Commissioner, the question for decision is what is the correct amount that has to be brought to tax under s. 12-B as capital gains. The Counsel for the Revenue did not contest the conclu­ sion of the High Court that on the facts and in the circumstances of the case, no capital gains within the meaning of s. 12-B could be said to have arisen by the admission of the Company as a partner of the assessee company and issue of shares of the Com­ pany to the public. Hence all that we have ~o decide in these cases is (1) whether the proceedings initiated under s. 34(1)(a) are valid, (2) Whether s. 12-B is attracted to the facts of the case and (3) If s. 12-B is attracted what is the amount of the capital gains made ? For pronouncing on the questions above-formulated, it is necessary to set out the material facts. '.fhe assessee is a regis­ tered firm which was carrying on business mostly as managing agents of number of companies. Till the end of February 1947. - I C.I.T. v. GILLANDERS ARBUTHNOT (Hegde, J.) 441 A the firm con•isted of four partners namely ( 1) A.C. Gladstone; (2) S. D. Gladstone; (31 T. S. Gladstone and (4) Glendye Limited., each of them having 30%, 39%, 30% and 1 % shares respectively in the profits of the firm. We are concerned with the assessment of the assessee firm for the assessment year 1947- 48 for which the previous year was the financial year ended on B March 31, 1947. •• On February 28, 1947, the assessee firm through its partners entered into an "agreement for sale" of some of the shares and securties held by it in favour of Gillanders Arbuthnot & Co. (to be hereinafter referred to as the "Company") for a sum of Rs. 7 5 lakhs. The shares and securties sold under the docu­ ment are enumerated at the foot- of the document. Clause (2) of that agreement provides : "In consideration of the sum of Rupees Fourteen Lakhs and Ninety thousand the existing partners shall admit the company as a partner in the firm upon and subject to the partnership deed (a draft Whereof h<lS been already approved by the existing partners and the company), the share of the company in the goodwill and in the profits of the Firm being ninety-nine per cent thereof." The only other clause which is relevant for our present pur­ pose is clause (3) which reads : "The said two sums of Rupees Seventyfive lakhs and Rupees Fourteen Iakhs and Ninety thousand payable in accordance with Clauses I and 2 hereof shall be paid and satisfied as follows (a) As to the sum of Rupees Sixtyfour Jakhs and Ninety thousand by an allotment to the existing partners or their nominees of sixtyfour thousand and nine hundred Ordinary Shares of rupees One hundred each credited for all purposes as fully paid up. ( b) As to the sum of Rupees Twentyfive lakhs by an allotment to the existing partners or tlieir nomi­ nees of Twentyfive thousand Redeemable Cumu­ lative Preference Shares of Rupees One hundred each credited for all purposes as fully paid up." One C!ther document that came into existence on the same day viz. Feb. 28, 1947 is th~ deed of partnership. That day the as~essee firm was reconstituted and a new partnership came into existence. The new partnership consisted of five partners viz. (1) The "corr.pany"; (2) A. C. Gladstone; (3) S. D. Gladstone (4) T. S. Gladstone and (5) Glendy Limited. In this new part­ nership the "Company'' had 99 per cent share in its profits. The remaining four partners had only l/4th per cent share each in the profits of the new partnership. Before proceeding further, it is necessary to mention that the "Company" was previously a private Ltd. Company. In 1946 the "Company" applied to the Examiner of Capital Issues for permission to convert itself into a Public Ltd. Company and sell its shares at a premium. Originally the proposal of the "Com­ pany" was to sell its shares of the face value of Rs. 100/- to the public at a premium of Rs. 145 to Rs. 175/- and its preferential share of the face value of Rs. 100/- at a premium of Re. 1 to 5. The Examiner of Capital Issues did not agree to that proposal. Later on after further correspondence, the Examiner of Capital Issues permitted the "Company" to con­ vert itself into a Public Company and offer its ordinary shares of the face value of Rs. 100/- to the pu.blic at a premium not ex­ ceeding Rs. 125/- per share and 25,000/- Redeemable Cumula­ tive Preference Shares of the face value of Rs. 100 each :it a premium not exceeding Rs. 5. ·_ per share. We have earlier noticed that a substantial ncmber of ordinary as well as the preference shares were transferred to the assessee firm at its face value. The original assessment or the assessee firm for the assess­ ment year 1947-48 was made on August 28, 1948 on a total in­ come of Rs. 12,90,829/-. Thereafter the Income-tax Officer ini­ tiated proceedings under s. 34(1 )(a) on May 2, 1949 and com­ pleted· the fresh a"sessment on January 16, .1956 bringing· to· charge capital gains determined at Rs. 1,03,16,786/-. The assessee appealed to the Appellate Assistant Commissioner. It raised various contentions before the· Appellate Assistant Com­ missioner. It is not necessary to refer to those contentions. Suffice it to say for our present purpose that it challenged the validity of the initiation of the proceedings under s. 34 (1 )(a) al'ld farther it contended that there was no capital gain at all. On the other hand it claimed that it incurred certain capital loss. The Appellate Assistant Commissioner rejected the contention of the assessee that the proceedings under s. 34 (1 )(a) were not validly initiated. He came to the conclusion that there were capital gains but he computed the same at Rs. 70,9.124/-. On further appeal by the assessee the Tribunal came to the conclu­ sion that the capital gains made by the assessee were only J3.s. 46,76,7841-. In the Reforence mentioned earlier,· the High -Court ~ame to the Conclusion that the capital gains made by the assessee were RJ>. 27,04,772/-. C.I.T. v. GILLANDERS ARBUTHNOT (Hegde, /.) 443 The first question that arises for decision-is whether s. 34( 1) (a) proceedings were validly initiated by the Income-tax Officer. That provision says : "If the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains 1 chargeable to income-tax have escaped assessment for that year or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed.......... · In the present case all that we have to see is whether the h­ come-tax Officer had reason to believe that the assessee had not disclosed fully and truly all the material facts necessary for its assessment for the assessment year in question. The scope of the expression "failure on the part of the assessee ........ to disclose fully and truly all material facts necessary for his assessment .. " has been examined by this Court in several decisions. The leading case on the subject is Calcutta Discount Co. Lt«: v. Income-tax Officer, Companies District-I, Calcutta and E anr.(1) Therein this Court by majority held that to confer juris­ diction under s. 34 to issue notice in respect of an assessment be­ yond a period of four years, but within a period of eight years, from the end of the relevant year, two conditions have to be satis­ fied. The first is that the Income-tax Officer must have reason to believe that the income, profits or gains chargeable to income- F tax had been under-assessed; the second is that he must have reason to believe that such "under-assessment" had occurred by reason to either ( 1) omission or failure on the part of the ae.sessee to make a return of his income under s. 22 or (2) omis­ sion or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied be- G fore the Income-tax Officer gets jurisdiction to i'sue a notice for the assessment or re-assessment beyond a period of four years but within a period of eight years from the end of the year in question. This Court further ruled therein that the words "omis­ sion or failure to disclose fully and truly all material facts neces­ sary for his assessment for that year" used in s. 34 postulate a H duty on every assessee to disclose fully and tru i '/ all material facts necessary for his assessment. What facts are material and neces­ (ll 41 1.T.R. 191. ll-L498SupC!/73 I 444 SUPREME COURT REPORTS (1973] 2 S.C.R. sary for assessment differs from case to case. In every assessment proceeding, the assessing authority would for the purpose of com· puling and determining proper tax due from an assessee, require to know all the facts which help him in coming to the correct con­ clusion. From the primary facts in his possession whether on disclosure by the assessee or discovered by him on the basis of the facts disclosed or otherwise, the assessing authority has to draw inferences as regards certain other facts; and ultimately from the primary '.acts and further facts inferred from them, the authority has to draw the proper legal inferences and ascertain, on a correct interpretation of the taxing enactment, the proper tax leviable. So far as the primary facts are concerned, it is the assessee's duty to disclose all of them-including particular en­ tries in the account,books, particular portions of documents and documents and othe.r evidence which could have been discovered by the assessing authority from the documents and other evidence disclosed. The duty, however, does not extend beyond the full and truthful disclosure of all primnry facts. Once all the primary facts arc before the assessing authority, it is for l:im to decide what inferences of facts could be reasonably drawn and what legal inferences have ultimately to be drawn. It was not for anybody else-far less the assessee-to tell the assessing authority what inferences whether of facts or of law should be drawn. If there are in fact some reasonable grounds for the Income-tax Officer to beiieve that there had been any non-disclosure as regards the pri­ mary facts which, could have a material bearing on the question of under-assessment that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under s. 34. Whether those grounds were adequate or not for arriving at the conclusion that there was a non-disclosure, of material facts is not open to the court's investigation. In other words, all that is necessary to give jurisdiction is that the Income-tax Officer had when he assumed jurisdiction some prima facie grounds for think­ ing that there had been some non-disclosure of material facts. The rule laid down in Calcutta Discount Co.'s case (supra) was reiterated by this Court in Cominissioner of Income-tax West Bengal and anr. v. Hemchandra Kar and ors.('). The same view was again expressed by this Court in Commissioner of lncome­ tax Gujarat v. Bhanji Lavji(') ~s well as in Commissioner of Tncome-tax Calcutta v. Bur/op Dealers Ltd:('). Bearing in mind the rule laid down in these decisions now let us proceed to examine the facts of this case to find out whether the assessee had failed to disclose fully and truly all material facts for his assessment for the assessment year in question. In this (I) 77 1.T.R. p. L (2) 79 I.T.R. 583. (3) 69 l.T.R. 609. n r: ' . 1: C.I.T. '" Gil.LANDERS ARBUTHNOT (Hegde, J.) 445 case we are dealing with capita gains. Hence the material faots that had to be disclosed were those bearing on capital gains. Though at the time of the original assessment of the assessee, the partnership deed entered into by the five partners was before the Income-tax Officer, the sale deed executed by the partners of the assessee firm in favour of the "Company" on February 28, 1947 had not been placed before him. There was no material before the I ncomc-tax Officer on the basis of which he could have con­ cluded that the assessee firm had sold any shares and securities to the "Company"; nor was there any material before the Income­ tax Officer as to the value of those shares and securities as on January 1, 1939. Further no material was placed before him to show that those shares and securities had been sold to the "Com­ pany" for a sum of Rupees 75 lakhs. In fact the assessee sub­ mitted its return for the assessment year in question in an old form which did not contain Pt. VII which dealt with particulars of income from capital gains. The statement enclosed also did not contain specific particulars about consideration for the. sale of goodwill or for the sail! of shares of 'the "Company". It is not without significance that the assessee did not challenge the vali­ dity of the proceedings under s. 34(1) (a) before the Income-tax Officer. Even before the Appellate Assistant Commissioner, the only point that appears to have been urged was that since the firm was reconstituted and the reconstituted fim1 was granted registra­ tion under s.26-A in the assessment year 1947-48, it should be presumed that the Income-tax Officer while making the original assessment was aware of all the material facts. We agree with the Tribunal and the High Court that there is hardly any doubt that the assessee had failed to disclose fully and truly all material facts for the purpose of ascertaining whether it had made any capital gains or not. This takes us to the question whether the assessee had made any capital gains in the relevant accounting year, -if so, what is the extent of its capital gains. The provision relating to capital gains is found in s. 12-B. We shall now read the relevant por- tion of that provision. · "S. 12-B(l). The .tax shall be payable by an assessee under the head "Capital Gains" in respect of anr pr?fits or gains arising from the sale, exchange, rehnqmshment or transfer of a capital asset effected after t~e 31st day of March, 1956, and such profits and g~ms s~all be deemed to be income of the previous year m which the sale, exchange, relinquishment or transfer tool; plac.e". [The provisos to sub-s. ( 1) arc not relevant for our present purpose]. \ ·' 446 SUPREME COURT REPOl\lS ! 1973] 2 s.c.R. Sub-1. (2) of s. 12-B says: "The amount of a capital gain shall be computed after making the following deductions from the full value of the consideration for which the s1le, exchange, relinquishment or transfer of the capital asset is made namely: (i) expenditure incurred solely ia connection with such sale, exchange, relinquishment or transfer (ii) the actual cost to the assessee of the capital asset, including any expenditure of a capital nature incurred and borne by him in making any additions or alterations thereto, but exclud­ ing any expenditure in respect of which any allowance is admissible under arty provision of sections 8, 9, 10 and 12; Provided that where a person who acquires a capi­ tal asset from the assessee, whether by sale, exchange, relinquishment or transfer is a person with whom the D· assessec is directly or indirectly connected and the Income-tax Officer has reason to believe that the sale, exchange, relinquishment or transfe.r was effected with the object of avoidance or reduction of the liability of the assessee under this section, the full value · of the consideration for which the sale, exchange, relinquish- E: ment or transfer is made shall, 'With the prior approval of the Inspecting Assistant Commissioner of Income- tax be taken to be the fair market value of the capital asset on the date on which the sale, exchange, relin­ quishment or transfer took pkce." (The remaining portion of s. 12-B is not relevant for our pre- I· sent purpose). The Income-tax Officer opined that the market value of the shares and securities sold was much moce than Rs. 75 lakhs. Admit­ tedly their original cost on January 1, 1939 was Rs. 47,95,728/-. Hence according to him, the "Company" secured those shares and securities at below market value. The Income-tax Officer further G observed that the partners of the assessee firm wer.:: the sole part- ners of the "Company" and further held that the sale had been effected at a lower price with the ebject of reducing the liability to capital gains tax. On the basis of the Income-tax Officer's computation, the capital gains on the sale of the investments were R Rs. 75,86,960/-. As regards the goodwill the Income-tax Officer valued the same as on January 1, 1939, at Rs. 87,56,200/- and 99 per cent thereof would work out to be Rs. 86,67,648/-. . fl. C.I.T. v. GILLANDERS ARBUTHNOT (Hegde, J.) 447 The assessee received for goodwill the sum of Rs. 14,90,000/- . The Company took over 99 per cent of the capital deficiency of the partners amounting to Rs. 19,98,849/- and 99 per cent then:­ of came to Rs. 19,78,861/-. The Income-tax Officer estimated the value of 99 per cent of the goodwill at Rs. 1,13,97,474/­ involving capital gain of Rs. 27,29,826/-. Thus according to the Income-tax Officer the total capital gains on account of transfer of shares and securities and goodwill amounted to Rs. 1,3, J 6, 786/-. As seen earlier this amount was substantially reduced by the Appellate Assistant Commi~~ioner and again by the Tribunal as well as by the High. Court. The first question for decision is whether the first proviso to s. 12-B is attracted to the facts of the present case. The sale · . with which we are concerned in this case tOJk place on February· 28, 194 7, Section 12-B was incorporated into the Act with effect from April I, 194 7. That being so at the time the sale transaction took place s. 12-B was not a part of the Act .. Hence there is no basis for saying that the "transfer was effected with the object of avoidance or reduction of the liability of the a~essee" -see Commissioner of Income-tax. West Bengal and a•1r. v. ~eorge Henderson and Co. Ltd.( 1). Hence the question for decision is whether the facts of this case' fall within the scope o! s. 12-8(1) read with sub-s. (2) of that section. We have earlier seen that the Income-tax Officer in computing the total capital gains had taken into consideration the capital gains said to have been earned as a result of the sale of the shares and securities as well as the goodwill. The Appellate Assistant Commissioner in his order did not say anything specific about any capital gains ear:ied as a result of the sale of the goodwill. The Tribunal rejected the case of the Department that there were any capital gains m~de as a re~ult of the sale of goodwill. It also re1ected the claim of the asscssee that there was some capital loss as .'a result of the sale of goodwill. 011 this point the High Court agreed with the conclusions reached by the Tribunal. The conclusion of the High Court on this point :was not challenged before us either by the Revenue or by the assessee. Therefore there. i~ no need to g? into !he same. Hence the only question re~a1mng to be considered Is whether there were any . capital gams made as a result of the tran~fer of the shares and securities by the assessee to the Company. If so what is that amount? The first question that we have to decide in this connection is whether the transaction entered into under the agreement for sale daJed February 28, 1947 is a sale or exchan~e or merely a read­ justment. It was contended on behalf of the Revenue that it (1) 661.T.R. 622. 448 SUPREME COURT REPORTS [1973) 2 S.C.R. was in effect an exchange though in form it was a sale. According A to the assessce, it was a mere readjustment. The Revenue did not contend bt:fore the Appellate Assistant Commissioner or the Tribunal or even the High Court that the said transaction was not a sale. It was for the nrst time before this Court the contention was taken that it was not a sale. The contention of the aosessee that it was merely readjuMment had been rejected by the authori- B ties under the Act as well as by the High Court. Properly understood the effect of the contention of the Revenue as well as of the assessee is that in fi1Jding out the true nature of a transaction, the court must take into consideration the substance of the transaction and not the legal effect of the agree­ ment entered into--a proposition which receives some· suppo•t c from some of the decided cases. In Sir Kikabhai Premchand v. Commi.r.vioner of Income-tax ( Ce11tral), Bombay( 1), this Court observed that "it is well recognised that in revenue cases regard must be had to the substance of the tramaction rather than to its mere form". The observations or' tliis Court in Sir Kikabhai Premchnnd's D case (supra) were i11ade the basis of the decision of the Bombay High Court in Commission~r of Income-tax, Bombay City v. Sir llome Mehta'.r Executors("). In Rogers & Co. v. Commissioner of Income-tax, Bombay City-II('), High Court of Bombay ruled that the transfer d the assets of the firm to the company was substantially and really E mereiy a .readj~stment made by the members to enable them to carry on their ~usiness as a c01npany rather than as a firm and no profits in the commercial sense were made thereby; the tran~fer of the assets of the firm to the company was, therefore. not a sale. The same view was taken by the Calcutta High Cou~ in Commissioner of Income-tax I Central), Calcutta v. Mugneeram F Bangur and Company('). This Court in Commissioner of Income-tax, Gujarat v. B. M. Kharwar("), held that the observations in Sir Kikabhai Prem­ chand'.1· case (supra) to the effect that in revenue cases regard must be had to the su)lstance of the transaction rather than its mere form cannot be read as throwing any doubt on the principle G that the true legal relation arising from a transaction alone deter­ mines the taxability of a receipt arising from the transaction. The observation in question was considered as casual and that the same was not necessary for the purpose of the case. In Khar­ war's case (supra), this Court also disapproved the deci~ions in Sir Homi Mehta's Executors' case (supra), Rogers' & Co's case H 11) 24 t.T.R. 506. 0) 14 l.T.R. 336. (5) 72 I.TR. 603. 12) 28 t.T.R. 928. (4) 47 l.T.R. 565. / C.I.T. v. GILLANDERS ARBUTHNOT (Hegde, /.) 449 (supra) and Mugneeram Bangur & Co's case (supra). Therein this Court ruled that it is now well settled that the taxing authori­ ties are not entitled, in determining whether a receipt is liable to /be taxed, to ignore the legal character of the transaction which is the source of the receipt and to proceed on what they regard as "the substance of the matter". The taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by a device the legal relation, it is open to the taxing authority to un­ ravel the device and to determine the true character of the rela­ tionship. But the legal effect of a transaction cannot be dis­ placed by probing into the "substance of the transaction"'. This prin,iple applies alike to cases in which the legal relation is record­ ed in a formal document and to cases where it h.is to be gathered from evidence-oral and documentary-and conduct of the par­ ties to the transaction. In the instant case, the Tribunal has held that the "agreement for sale"' entered between the ussessee firm and the "company" is a genuine transaction and the same evidences a sale. This is essentially a finding of fact. The High Court has affirmed that finding. In that view, we are unable to accept the contention of the Revenue that the transaction in question was an exchange and not a sale. We are equally unable to accept the contention of the assessee that it was merely a readjustment. Clause (I) of the agreement in specific tenns says that "the existing partner shall sell and the company ~hall purchase the shares and securities for a sum of Rupees seventy five lakhs." Clause ( 3) of that agreement merely provides a mode· of satisfac­ tion of the sale price. The sale price fixed by the parties for the shares at\d the securities sold is 75 lakhs and nothing more. It may be that because of the allotment of the shares of the Com­ pany in satisfaction of the sale price, the assessee firm got certain benefits but that does not convert the sale into an exchange. In Commissioner of Income-tax, Kera/a v. R. R. Ramakrishna Pillai (1), this Court distinguishing an exchange from a sale observ­ ed that where the person carrying on the business transfers the assets to a company in consideration of allotment of shares, it would be a case of exchange and not of sale and the true nature of the transaction will not be altered because for the purpose of stamp duty or other reasons the value of the assets transferred is shown as equivalent to the face value of the shares allotted. On the other hand a person carrying on business may agree with a com~any floated by him that the assets belon~ing to him shall be transferred to the company for a certain money consideration and !hat in satisfaction of the liability to pay the money considcr~tion (I) 66 l.T.R. 725. 450 SUPREME COURT 11.EPORTS [1973] 2 S,C.R. shares of certain face value shall be allotted to the transferor. In such a case there are in truth two transactions, one transaction of sale and the other a contract under which the shares are accepted in satisfaction of the liability to pay the price. The fact that as a result of the transfer of the shares of the "Company" to the assessee firm, th~ latter obtained considerable prufits, will not alter the true nature of the transaction--,-see the decision of this Court in Chittoor Motor Transport Co. (P) Ltd. v. Income­ tax Officer, Chittoor(1). For the reasons above stated, we have no hesitation in coming to the conclusion that the transaction evidenced by the "agree­ ment for sale" between the company and the assessee was a sale. Now let us sci> what is the impact of s. 12-B(2) on that trans­ action ? Under that provision, tile amount of capital gains Ila~ to be computed after making certain deductions from the full value of the consideration for which the sale is made. What exactly is the meaning of the expression "full value of the conside­ ration for which sale is made"? Is it the consideration agreed to be paid or is it the market value of the consideration ? In the case of s~le for a price, there is no question of any market value unlike in the case of an exchange. Therefore in cases of sales to which the first proviso to sub-s. (2) of s. 12-B is not attracted, all ·tifat we have to sec is what is the consideration bargained for. As mentioned earlier to the facts of the present case, the first pro­ viso is not attracted. As seen earlier, the price bargained for the sale of the shares and securities was only rupees seventy five lakhs. The facts of this case squarely fall within the rule laid down by this Court in Commissioner of Income-tax, West Bengal and anr: v. George Henderson & Co. Ltd. (Supra). Therein this Court observed: · "In a case of a sale, the full value of the considera­ tion is the foll sale price actually paid. The legislature had to use the words "full value of the consideration" because it was dealing not merely with sale but with other types of transfer, such as exchange, where the con­ sideration would b'e other than money. If it is there-. fore 'held in the present case that the actual price ~eived by the respondent was at the rate of Rs. 136 pet share-the full value of the consideration must be taken at the rate of Rs. 136 per share. The view that we have expressed as to the interpre;ation of the main part of section 12B(2) is borne out hy the fact that in the first proviso to section 12(B) (2), the expression "full value of the consideration ' is used in contradistinc- 0) 59 IT.R. 238. C.l.T. v. GILLANDERS ARBUTHNOT (Hegde, l) 451 tion with "fair market value of the capital asset" and there is an express power granted to the Income-tax Officer to "take the fair market value of the capital asset transferred" as "the full value of the consideration" in specified circumstances. It is evident that the legis­ lature itself has made a distinction b~twcen the two expressions "full value of the consideration" and "fair market v"lue of the capital asset transferred" and it is provided that if certain conditions are satisfied as men­ tioned in the first proviso to section 12B(2), the market value of the asset transferred, though not equivalent to the full value of the consideration for the transfer, may be deemed to be the full value of the consideration. To give rise to this fiction the two conditions of the first proviso are ( 1) that the transferor was directly or in­ directly connected with the transferee, and (2) that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under section 12B. If the conditions of this proviso are not satisfied the main part of section 12B (2) applies and the fnwme-tax Officer must take into account the full value of the comideration for the transfer." It may be noted that in that case the market value of the shares which were allotted at Rs. 136/- per snare was Rs. 620/­ per share. Applying the principles enunciated in that decision we think that the full value of the sale price r~ceived by the assessee was only rupees seventy five lakhs. That being so, the capital gains made by the company were Rs. 27,4 772/- as held by the High Court. In the result both these appeals fail and they arc dismissed with costs. K.B.N. Appeals dismissed.