G. Swarajan, J.
1. The matter arises under the IT Act, 1961 (for short, the Act). The appellant is an assessee to income-tax on the files of the respondent. The appellant was holding 255 equity shares of face value of Rs. 100 in a company by name SISCO Ltd. Another company M/s Essar Shipping Ltd. (Essar) of Essar Group made an open offer vide its letter dt. 24th June, 1991, for acquisition of the shares of M/s SISCO Ltd. As per the offer for the transfer of each share, the Essar Shipping Ltd. would give a consideration in cash Rs. 65 and 50 equity shares of Essar Shipping Ltd, of the face value of Rs. 10 each as fully paid. Pursuant to the said offer, the appellant sold his 255 shares to Essar. The assessee got 12,750 shares of Essar and Rs. 16,575 as consideration for the transfer of 255 shares of SISCO.
2. The appellant filed his return of income under the Act for the asst. yr. 1992-93, wherein he had returned capital gains on account of the sale of 255 equity shares of SISCO Ltd. at Rs. 66,810. The appellant for the purpose of computation of the capital gains had adopted full value of the consideration of a share of Essar at the rate of Rs. 10 which is the face value totalling Rs. 1,27,500, The assessing authority did not accept the said computation of the full value as according to him, the market value of a share of Essar came to Rs. 72. The assessing authority determined the capital gains at Rs. 3,38,524. In appeal before the first appellate authority, the computation made by the appellant was accepted. However, in appeal by the Department, the Tribunal determined the value of each share of Essar at Rs. 38.50 and directed the assessing authority to compute the capital gains on that basis.
3. Shri P. Balachandran, the learned counsel appearing for the appellant, submits that the assessing authority and the Tribunal had erred in departing from the value of the share of Essar agreed to by the parties and in adopting a different figure as the value of a share of Essar. The counsel also relied on the decision of the Supreme Court in CIT v. George Henderson & Co. Ltd. : [1967]66ITR622(SC) and the decision in CIT v. Gillanders Arbuthnot & Co. : [1973]87ITR407(SC) in support of his contention. We also heard Shri P.K.R. Menon, learned senior standing counsel appearing for the respondent. The senior counsel took us to the relevant portions of the Tribunal's order (paras 8 and 10) and submitted that the Tribunal had in fact followed the decision of the Supreme Court mentioned above and also another decision of the Andhra Pradesh High Court in Motors & General Stores (P) Ltd. v. CIT (1967) 66 ITR 701 as affirmed by the Supreme Court in CIT v. Motors & General Stores (P) Ltd. : [1967]66ITR692(SC) .
4. In view of the nature of the controversy involved in this appeal, It is necessary to refer to the terms of the offer with reference to which the appellant had sold his shares. The terms of the offer made by Essar for acquiring the shares of SISCO are contained in the order of the Tribunal. The relevant portion of the same are extracted hereinbelow :
'1. Background of the offer.
Essar Shipping Ltd. (Essar) is one of the Essar group of companies. The other major companies in the Group are Essar Gujarat Ltd. and Essar Investments Ltd. The group is committed to high growth, high technology core sectors and has diversified over the years into various activities including marine and specialised civil construction offshore engineering oil and gas exploration shipping and sponge iron and steel.
Essar owns and operates a modern fleet of specialised tankers, offshore suppl. vessels, computerised diving support vessels multi-purpose support vessels and bulk carriers. Most of the vessels are employed on long-term charter to the energy sector in India.
Essar has an excellent financial standing and a consistent dividend record dividends for the last three years/period are as follows :
Year ended 31-12-1987 :20%Period ended 30-6-1989 (18 months)30%Year ended 30-6-1990 :22%2. The Offer
Essar together with Essar Investments Ltd. (another company belonging to the Essar Group, details of which are given in Sen. 1) has acquired 1,33,235 equity share of South India Shipping Corporation Ltd. (SISCO) of value of Rs. 100 each, as detailed below, at a price of Rs. 1,500 per equity share (hereinafter referred to as the acquisition price).
Name of companyNo. of sharesPer centEssar Shipping Ltd.1,19,98520.00Essar Investments Ltd.13,2502.211,33,23522.21In addition to the above, Essar Investments Ltd. also owns 15 equity shares of SISCO of face value of Rs. 100 each which was acquired prior to the above acquisition. Essar together with Essar Investments Ltd. acquired more than 10 per cent of the total voting capital of SISCO on 28th Feb., 1991. Subsequent to this date Essar Investments Ltd. further acquired 12,897 equity shares of SISCO making its total holding to date aggregate 26,162 equity shares of SISCO.
Further to the announcements made in the newspapers on and after Saturday, 23rd March, 1991, Essar is making an open offer to the equity shareholders of SISCO whose names appeared in SISCO's register of members as on 25th April, 1991, for acquisition of an aggregate minimum of 1,20,000 equity shares of Rs. 100 each representing 20 per cent of the present voting capital of SISCO.
3. Consideration
For every one equity share of SISCO (face value Rs. 100 each) offered to be purchased in terms of this offer, Essar will give as consideration [in the manner mentioned in clause (6) below] :
(i) 50 (fifty) equity shares of Essar (face value Rs. 10 each) issued and credited as fully paid up, and (ii) Rs. 65 (Rupees sixty-five only) in cash.
This total consideration is hereinafter referred to as 'the offer price'
As on 28th Feb., 1991, the closing market price of Essar's equity shares were Rs. 38.50 per share at Madras Stock Exchange and Rs. 37.50 at Bombay Stock Exchange. Based on these prices, the offer price is more than the highest market price of the equity shares of SISCO during the six months immediately preceding to this date.
The closing market price of Essar shares was Rs. 38.50 per share at Madras Stock Exchange as on 6th March, 1991, which was the date on which Essar's Board of Directors decided on the consideration to be offered to the shareholders of SISCO.'
5. The contention of the counsel for the assessee is that the consideration for the sale of the shares of SISCO has been specifically stated in Clause 3 of the offer under the capital 'consideration', and that as per the said clause, consideration for every one equity share of SISCO is 50 equity shares of Essar (face value of Rs. 10 each) plus Rs. 65 in cash The further contention is that the market price referred to thereunder is only to show the creditworthiness of Essar Company Ltd. It is in this context, the counsel has relied on the decision of the Supreme Court in which it was observed that the full value of the consideration mentioned in Section 48 has to be understood as the price which was agreed to by the parties.
6. There is no dispute that the appellant had transferred his shares in SISCO to Essar on the basis of the offer made by Essar. In the absence of any suggestion of bad faith or fraud, the true principle is that the taxing statute has to be applied in accordance with the legal rights of the parties to the transaction. When the transaction is embodied in a document, the liability to tax depends upon the meaning and context of the language used in accordance with the ordinary rules of construction [CIT v. Motors & General Stores (P) Ltd. (supra)]. In the case of a sale for a price there is no question of any market value unlike in the case of an exchange. The consideration for transfer of the shares in the instant case is not only cash, but also shares. In a case where the value of a share is not specified in terms of cash, necessarily the same has to be fixed in terms of the market value [Motors & General Stores (P) Ltd. v. CIT (supra)].
7. We find that Essar in the offer has clearly stated that as on 28th Feb., 1991, the closing market price of Essar equity shares was Rs. 38.50 at Madras Stock Exchange and Rs. 37.50 at Bombay Stock Exchange and Essar has clearly stated that.
'Based on these prices, the offer price is more than the highest market price of the equity shares of SISCO during the six months immediately preceding to this date.'
The offer further states that:
'The closing market price of Essar shares was Rs. 38.50 per share at Madras Stock Exchange as on 6th March, 1991, which was the date on which Essar's Board of Directors decided on the consideration to be offered to the shareholders of SISCO.'
8. According to us, these two provisions in Clause 3 of the offer clinches the issue and makes the position clear that the price offered by Essar for one equity share of SISCO is 50 Essar shares having a market price of Rs. 38.50 plus Rs. 65. Reading the offer as a whole we are unable to agree with the counsel for the assessee that the agreed price of one equity share of SISCO is 50 equity Essar shares of the face value of Rs. 10 plus Rs. 65 only. The reference to the face value of Rs. 10 is only to qualify and identify the shares which is sought to be transferred. It is clear that the agreed price was Rs. 38.50 per share plus Rs. 65. In this case the assessing authority has fixed the market value of one Essar share at Rs. 72. There is no material on record to show as to how the assessing authority had arrived at the market price, at Rs. 72 per Essar share. The first appellate authority also did not go into the said question as according to him, the concept of market value is alien to the transaction in question. However, we find that the Tribunal had considered the matter properly and had adopted Rs. 38.50 plus Rs. 65 as the value of one Essar share and had directed the assessing authority to adopt the said figure for the purpose of computation of the capital gains arising out of the sale of the shares of SISCO, The Tribunal had clearly entered a finding that this is the price of one Essar share agreed to between the parties. We have also independently considered the matter and have come to the same finding. Thus, even accepting the contention of the appellant that it is the price which is agreed to by the parties which should be taken as the full value of the consideration received, the said test is satisfied in the present case. In these circumstances, we think it unnecessary to deal with the decisions relied on by the parties any more. The Tribunal had directed the assessing authority only to adopt Rs. 38.50 per share which is the price per share agreed to by the parties. We are in full agreement with the order of the Tribunal, There is no merit in this appeal.
The appeal is accordingly dismissed.