J.B. Greaves Vs. Commissioner of Income-tax, Bombay City I - Court Judgment

Tambe, J.

1. This is a reference under section 66(1) of the Indian Income-tax Act. The assessee before us is one Mr. J. B. Greaves. He held 2,300 shares out of 2,500 shares of the entire paid up capital of Greaves Cotton & Co. Ltd., a private limited company. The remaining 200 shares were at the material time held by one Mr. N. G. Hunt. The managing agency of Greaves Cotton Company Limited was held by Greaves Cotton & Co. a partnership firm consisting of Mr. J. B. Greaves and Mr. N. G. Hunt. The terms of the managing agency agreement were reduced to writing under a deed dated 10th April, 1929, which is annexure 'A' to the statement of the case. Clause 10 of the said agreement provided that 'It shall be lawful for the said firm to assign this agreement and the rights of the said firm hereunder to any person, firm or company having authority by its constitution to become bound by the obligations undertaken by the said firm hereunder and upon such assignment being made and notified to the said company, the said company shall be bound to recognise the person or firm or company aforesaid as the agents of the said company in like manner as if the name of such person, firm or company had appeared in these presents, in lieu of the names of the partners in the said firm and as if such person, firm or company had entered into this agreement with the said company and the said company shall forthwith upon demand by the said appointing such person, firm or company the agents of the said company for such term as the firm may elect and with the like powers and authorities, remuneration and emoluments and subject to the like terms and conditions as are herein contained.'

2. On 31st August, 1946, M/s. Karamchand Thapar & Bros. Ltd. (hereinafter referred to as Thapars) wrote a letter to the said Mr. Greaves and Mr. Hunt making an offer to purchase the said 2,500 shares held by them for a price of Rs. 50 lakhs. By the same letter, Thapars also offered to pay a price of Rs. 27,34,325 for getting the right to the management of Greaves Cotton & Co. Ltd., from 1st April, 1946, which then was held by Mr. Greaves and Mr. Hunt. Thapars also offered to pay interest at 2 1/2 per cent. per annum on the said amount of Rs. 27,34,325 from 1st April, 1946, to the date of payment. In paragraph 5 of the said letter. Thapars offered to pay Rs. 10 lakhs by way of earnest money on acceptance of the offer. Thapars further stipulated that on or before the completion of the sale, Mr. Greaves and Mr. Hunt should deliver Thapars letters of resignation of several other directors of the company and should also secure appointment of three or more nominees of Thapars. Mr. Greaves on behalf of himself and also in his capacity as the duly constituted attorney of Mr. Hunt, wrote a letter of date September 29, 1946, accepting the aforesaid offer made by Thapars for the purchase of the shares and the managing agency. A direction was given by Mr. Greaves in this letter to Thapars to credit to his account in Lloyds Bank Ltd. Bombay, the amount of earnest money. Annexure 'L' to the statement of the case shows that a sum of Rs. 65 lakhs out of the aforesaid amount of Rs. 77,34,325 was paid under the contract, and the order of the Appellate Assistant Commissioner discloses that before him it was not in dispute that the entire purchase money was actually paid in January, 1947, including the stipulated interest to the date of payment.

3. On 7th January, 1947, the managing agents, i.e. Greaves Cotton & Co., wrote a letter to Greaves Cotton & Company Ltd., submitting their resignation from the office of managing agents of the company, and further recommending that Messrs. Karamchand Thapar & Bros. Ltd. be appointed as managing agents in their place. On 8th January, 1947, a meeting of the board of directors of the Greaves Cotton & Co. Ltd. was held. Two directors, viz., Mr. Hunt and Mr. McIntosh, tendered their resignation from the office of directors an in their place Karamchand Thapar and Verma were appointed as directors, and the members waived their right to have a prior offer of the shares which were proposed to be sold to M/s. Karamchand Thapar & Bros. Ltd. The letter of resignation of the managing agents was laid on the table, and the chairman, i.e., Mr. J. B. Greaves himself, proposed a resolution that the resignation of Greaves Cotton & Co. from the office of managing agents be accepted and that M/s. Karamchand Thapar & Bros. Ltd. be appointed managing agents of the company in their place for a period of 20 years from the date of their appointment on similar terms to those on which Greaves Cotton & Co. was appointed by the agreement of 10th April, 1929, and that an extraordinary general meeting of the company be convened for that purpose. This proposed resolution was accepted by the board of directors, and it was further, resolved that the directors recommend to the members that Messrs. Karamchand Thapar & Brothers Limited be appointed the managing agents of the company for a period of twenty years from the date of appointment at the remuneration and upon the terms and conditions set out in the draft of an agreement to be made between Messrs. Karamchand Thapar & Brothers Limited and the company to be presented to the members in extraordinary general meeting. The next resolution is to the effect that the members waive the statutory notice for calling the extraordinary general meeting, and further resolved that the extraordinary general meeting of the members be held immediately after the termination of the meeting of the board of directors. The extraordinary general meeting then met. The terms of agreement of managing agency with the consequential amendments to the articles of association were approved and passed by it, and then it was resolved that the agreement between the company and Messrs. Karamchand Thapar & Brothers Limited regulating their appointment and setting out the remuneration to be paid to them and the other terms and conditions under which they were appointed as managing agents of the company, a draft of which with the initials of the chairman appended thereto for the purposes of identification was laid upon the table be, and was, approved and that an engrossment of that agreement be executed by the company and the common seal of the company affixed thereto in the presence of Mr. T. Kemp and Mr. A. Forrington, directors of the company. It may be stated that the meeting of the board of directors commenced at 5-15 p.m. and by 5-30 p.m. all the aforesaid resolutions had been passed by it. At 5-30 p.m. an extraordinary general meeting of the members of the Greaves Cotton & Co. Ltd. commence. Resolutions were passed appointing M/s. Karam Chand Thapar & Bros Ltd. as managing agents on the terms approved by the directors. A resolution was also passed sanctioning the necessary amendments to the articles of association.

4. The assessee, i.e., Mr. J. B. Greaves, in the return of his income for the assessment year 1947-48 disclosed and claimed under section D (Capital Gains) a capital loss of Rs. 13,38,646 as per statement enclosed by him with his return. The calculation was based on the cost of the capital assets sold, taking the fair market value of the assets as on 31st January, 1939, at Rs. 87,55,000. The Income-tax Officer, however, computed capital gains to the assessee at Rs. 19,47,857. The computation made by him was as under :

Rs. Rs.'Sale Price 77,34,325Less : Value of assets as at 1-1-1939 41,82,801Dividends in reduction and thegeneral reserve noted above 4,09,375Accountants' and Architects' fees 26,000Goodwill 10,00,00055,18,176---------- ---------Balance 21,16,149'

5. Out of the total capital gains of Rs. 21,16,149 the Income-tax Officer computed the capital gains to the assessee on 2,300 shares at Rs. 19,46,857. The assessee preferred an appeal to the Appellate Assistant Commissioner, challenging the order of the Income-tax Officer. It also appears that before the Appellate Assistant Commissioner, the Income-tax Officer claimed that the amount of capital gains computed by him be enhanced by Rs. 5,44,832, Rs. 2,44,832 by reducing the value of the assets and Rs. 3,00,000 by reducing the amount of goodwill. The Appellate Assistant Commissioner in appeal did not accept the contentions of the assessee, but, on the other hand, partially accepted the contention of the Income-tax Officer, and enhanced the amount of capital gains by Rs. 4,34,210. The computation made by the Appellate Assistant Commissioner is as follows :

Rs. Rs.'Consideration forrelinquishment of management. 7,34,325Less : Value at 1-1-1939 Nil----------Capital gain 27,34,325----------Consideration of 2,500 shares 50,00,000Les : Adjustments in favour of 4,09,375the purchaser Expenses 26,000 4,35,375----------- ----------45,64,625Less : Value at 1st January, 1939 ...Net assets as claimed 41,82,801Less : Reduced by A.A.C 1,71,968---------40,10,833Goodwill 7,00,000 47,10,833---------Loss determined by A.A.C. 1,46,208.'

6. Deducting the said amount of Rs. 1,46,208 from the amount of capital gain of Rs. 27,34,325, the Appellate Assistant Commissioner determined the net total capital gain at Rs. 25,88,117. The assessee's share therein was determined at Rs. 23,81,067. The assessee took a further appeal to the Tribunal, and before the Tribunal, the assessee inter alia contended that the Appellate Assistant Commissioner was in error in holding that the assessee had made any capital gain as a result of the transfer of managing agency. According to the assessee, the transaction between Greaves Cotton & Company and Thapars was not of either sale or transfer. The Tribunal rejected this contention, and held that the transfer of shares and managing agency was sale of capital assets to which the provisions of capital gains were attracted. The other contention raised by the assessee before the Tribunal was that the quantum of capital gains was not correctly made. From the order of the Tribunal, it appears that in this behalf the only contention raised by the assessee was that the income-tax authorities were not justified in holding that the value of the managing agency as on January 1, 1939, was nil. Accepting the aforesaid contention of the assessee, the Tribunal observed :

'We may agree with the assessee that the department's working is wrong inasmuch as it has not taken the value of the agency rights as on January 1, 1939, into account. If the agency had a value as at the end of 1945, it had also some value as on January 1, 1939. The basis of valuation on both the date of sale and on January 1, 1939, should be the same. By taking the agency remuneration and future trends as the basis for valuing the agency rights, it would be found that the agency rights would ordinarily fetch much better price at the time of the sale than on January 1, 1939. There appears to be an appreciation of about 50 percent as compared to the value on January 1, 1939.'

7. The Tribunal, however, in its order has observed that the finding of the Appellate Assistant Commissioner that there was capital loss on the transaction of sale of shares was not correct, and for the reasons stated by it in its order, the Tribunal held :

'Having regard to the various aspects of the case, we think that the value of the shares of Greaves Cotton & Co. Ltd. as on January 1, 1939, could not be more than 60% of what it was at the time of the sale.'

8. The Tribunal observed that taking the capital gains earned by the assessee on the transaction of sale of shares and the transaction of sale of managing agency, the amount would be larger than that determined by the Appellant Assistant Commissioner, and for that reason, it dismissed the appeal. On an application made by the assessee under section 66(1) of the Income-tax Act, the Tribunal has drawn up a statement of the case and has referred the following three questions of law, which in its opinion, arise out of its order :

'(1) Whether on the facts and circumstances of the case the sum of Rs. 27,34,325 received by the assessee and another from Karamchand Thapar & Bros Ltd. is liable to be taxed as on capital gains in accordance with the provisions of Act 12 of 1947 ?' (The figure 12 appears to be a mistake for 22).

(2) Whether on the facts and circumstances of the case there was any sale, exchange or transfer of the managing agency rights by the assessee to Karamchand Thapar & Bros. Ltd

(3) Whether on the facts and circumstances of the case the figure of Rs. 27,34,325 has been correctly and properly arrived a ?'

9. It is not in dispute that the answer to the first question would turn on our answer to the second. To appreciate the contentions, it would be convenient to refer to the relevant provisions of the Income-tax Act. Capital gains were charged for the first time to tax by the Income-tax and Excess Profits Tax (Amendment) Act, 1947. That Amending Act introduced section 12B in the Indian Income-tax Act. The amendment was brought on the statute book on the 31st March, 1947, and it taxed capital gains arising after 31st March 1946. It may be stated that these provisions remained in force till 31st March, 1948. The provisions have now been revived from 1st April, 1957, in a slightly modified form. Sub-section (1) of section 12B provides that tax shall be payable by an assessee under the head 'Capital gains' in respect of any profits or gains arising from sale, exchange, or transfer of a capital asset effected after the 31st day of March, 1946, and before the 1st day of April, 1948; and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange or transfer took place. Sub-section (2) relates to the computation of capital gains, and provides that the capital gains shall be computed after making certain deductions from the full value of the consideration for which the sale, exchange or transfer of the capital asset is made, namely, (1) expenditure incurred solely in connection with such sale, exchange or transfer, and (2) 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. The third proviso to sub-section (2) of section 12B enables the assessee to substitute the value of the assets as on January 1, 1939, in place of actual cost. It is not in dispute that the assessee in the instant case had chosen the value of his assets as on January 1, 1939, as actual cost. It is also not in dispute that the shares as well as the managing agency are capital assets. It is also not in dispute that the transaction between the parties whatever it may be is not a transaction of exchange. Now, to attract tax to the transaction, it has to be established that the gain arising to the assessee arose out of a transaction either of sale or transfer. It had been the contention, and it is also the contention of the assessee before us that the transaction between the parties in respect of managing agency is not one either of sale or transfer. Mr. Kolah contended that it is true that Thapars by their letter dated 31st August, 1946, offered to purchase the shares for Rs. 50 lakhs and the managing agency for the price of Rs. 27 lakhs, and it is also true that the assessee on behalf of himself and Mr. Hunt had accepted the offer; but the effect of the acceptance of the said offer is only that there had been an agreement of sale between the parties. This agreement between the parties was not carried out. On the other hand, what has happened is that the assessee and Mr. Hunt tendered their resignation as the managing agents of the managed company, and the managed company had later appointed Thapars as its managing agents. That being the case, it cannot be said that either sale or transfer has taken place in respect of the managing agency. Mr. Kolah concedes that there had been a sale in respect of the shares of the company. But, according to him, that transaction did not result in any capital gain. Relying on the decision of this court in Provident Investment Co. Ltd. v. Commissioner of Income-tax, and the decision of the Supreme Court, affirming the said decision of this court, in Commissioner of Income-tax v. Provident Investment Co. Ltd. Mr. Kolah urges that what is vital and decisive is the manner in which the transaction is carried out. If the mode of performance does not amount to a sale or transfer, then the provisions of section 12B are not attracted. We are unable to accept the contention of Mr. Kolah that is a correct ratio deducible from these two decisions on which strong reliance is placed. The facts of that case in brief were that the assessee company was the managing agent of two mills in which the bulk of shares were held by the Gwalior Durbar but were controlled by the assessee. Dalmia Investment Company Ltd. wanted to acquire the shares as well as the managing agency of the two managed companies. The Dalmia Company by its letter dated 14th September, 1946, offered to purchase the shares including the managing agency at a certain price. The offer was accepted by the assessee company on 26th September, 1946. On 7th October, 1946, the Dalmia Company wrote a letter to the assessee company that instead of transferring the managing agency to it, the assessee company might resign its office of managing agents. The assessee company then tendered its resignation as managing agents. The question that fell for consideration was whether any capital gain arose to the assessee company out of this transaction. The contention of the department was that the transaction amounted to a sale or transfer. The contention of the assessee company was that it was a transaction amounting to relinquishment of the managing agency and not to any transfer or sale. Mr. Kolah contends that the facts of the present case are identical with that case. The aforesaid letter dated 7th October, 1946, written by the Dalmia Company is not of any importance and is not vital to the decision of the issue. The position, in our opinion, is the other way. There is a material difference between the facts of the present case and the facts of the case on which reliance is placed. The original agreement between the parties both in the instant case as well as in the case on which reliance is placed was essentially of sale. The original agreement in that case, however, was modified and materially modified by the letter of the Dalmia Company of 7th October, 1946, and that brought about entirely a new agreement between the parties, and it is on this count that it had been held that the transaction between the parties was not one of either sale or transfer. That however is not the case here. The original contract between the parties was one of sale. That contract had at no time been modified or altered. The resignation tendered in the instant case cannot be referable to any alteration of the contract between the parties as it was referable in the Provident Investment Co. case The consideration received by the assessee company in the Provident Investment Co.'s in lieu of modification of the consideration was also referable thereto. In the instant case, the consideration both of Rs. 50 lakhs as well as of Rs. 27 lakhs received by the assessee are referable only to one agreement between the parties and that is the agreement of sale. The resignation also is not referable to any other agreement between the parties but to the agreement of sale which took place by virtue of the offer made by Thapars and acceptance of that offer by the assessee on behalf of himself and on behalf of Mr. Hunt. There cannot be any doubt that the letter written by the Dalmia Company on 7th October 1946, was vital to the decision of that case (Provident Investment Co.). It was argued in that case on behalf of the revenue that the said letter did not alter the nature of the transaction which was the sale of the managing agency. According to the revenue that the said letter did not alter the nature of the transactions which was the sale of the managing agency. According to the revenue, the letter only altered the mode of performance of the contract. Repelling that contention the learned Chief Justice observed :

'We are inclined to agree with Sir Nusserwanji that is the letter of the 7th October, 1947, constituted a mere alternation in the mode of performance and the contract of sale or transfer originally arrived at remained unaffected, then the assessee could be liable to tax because the consideration was received by him out of a transaction of sale.... But in our opinion the letter of the 7th October, 1946, does not merely alter the mode of performance but it substitutes an entirely different contract for the original contract entered into and the transaction that would have been effected by reason of the original contract is an entirely different transaction from the one which was ultimately effected by reason of the modified contract arrived at on the 7th October, 1946.'

10. Their Lordships of the Supreme Court also have observed at page 197 of the report Commissioner of Income-tax v. Provident Investment Co. Ltd. that 'on a true interpretation, the letter of October 7, 1946, substituted a new contract a contract of relinquishment rather than a contract of sale, so far as the managing agency was concerned.' In the case before us, there is no material or an iota of evidence that the original agreement of sale had undergone any change or was modified or was altered. The only circumstances on which reliance is placed was that there was no sale deed executed by the assessee in favour of Thapars, but, on the other hand, the assessee company had resigned itself the managing agency. In the absence of any evidence or any material that the resignation was the consequence of any agreement between the assessee and Thapars altering the terms of the original contract, in our opinion, that circumstance would make no difference, but it would only amount to the mode of performance of the contract of sale. In what form, by what mode of contract is performed is not to be determined in accordance with the general provisions of law, but as observed by the learned Chief Justice in the Provident Investment Co.'s case, 'in construing section 12B we must not give to the expression 'sale or transfer' its technical meaning, nor must we attribute to 'sale or transfer as used by the legislature in section 12B a transaction clothed with all its legal formalities.' What is to be seen is what actually was the contract between the parties. As already stated, the agreement between the parties was that the managing agency was to be sold or transferred by the assessee company to Thapars. That objective has been achieved by the resignation of the assessee company from the managing agency and the appointment of Thapars as managing agents as part of the one and the same transaction. After examining the various authorities, the principle governing such cases has been stated by the learned Chief Justice in the following terms :

'Now, as we shall presently point out, the authorities make it clear that it is not competent to the court to look to the substance of the matter independently of the real transaction arrived at between the parties. If a transaction creates certain legal rights and obligations, then the court must give effect to those legal rights and obligations and must not, overlooking these rights and obligations, try and fathom what was in substance the nature of the transaction entered into by the parties. The court is not confined merely to looking to the form of the transaction. It is open to the court to ignore the form and ascertain the real nature of the transaction. But while it is open to the court to ignore the form, it is not open to the court to overlook or to ignore the true legal position that arises out of a document or documents in which the parties have chosen to embody the transaction or transaction. The court may even look at the surrounding circumstances in construing a document, but the court in looking at the surrounding circumstances must be anxious all the time to determine what is the true nature of the transaction.'

11. It is clear that what is vital and what is determinative is the nature of the transaction as embodying in the documents in which the parties have chosen to embody, the terms of the transaction, and not the mode by which it is performed. In the instant case, the documents in which the parties have embodied the transaction between them is only the offer of purchase made by Thapars by their letter of 31st August, 1946, and its acceptance by Mr. J. B. Greaves on 22nd September, 1946, and, on the construction of these two documents, there cannot be any doubt that the transaction between the parties was one of sale or transfer of the share as well as the managing agency. Further, the steps taken by the assessee also leave no doubt that this agreement between the parties has been performed by Mr. J. B. Greaves and Mr. Hunt by tendering their resignation simultaneously with the appointment of Thapars as managing agents. As we have already stated, the consideration had been received by the assessee; at any rate Rs. 65 lakhs out of Rs. 77 lakhs have been received by the assessee by 3rd January, 1947. It is thereafter that on 7th January, 1947, the resignation has been tendered by the Greaves Cotton & Co. of their managing agency. It has to be kept in view that all the shares of the managed company were held by Mr. Greaves and Mr. Hunt. The managing agency firm consisted of only these two persons as partners. In the letter of resignation written by them, the name of Thapars has been recommended for being appointed as managing agents. A meeting of the board was held on 8th October, 1947, at 5-15 p.m. at which various resolutions, to which we have referred above, were passed in 15 minutes. The acceptance of the resignation of the managing agents and the appointment of Thapars as managing agents formed part of the same resolutions. An extraordinary general meeting of the members of the Greaves Cotton & Co. Ltd. was held at 5-30 p.m. on the same day and the resolutions of the board of directors were approved. In short, within two days Mr. Greaves and Mr. Hunt ceased to be managing agents, and Thapars became managing agents of the managed company simultaneously. This exactly is the result which the agreement between the assessee and Thapars contemplated. The resignation by the assessee of the managing agency and the appointment of Thapars as managing agents, therefore, in our opinion, is nothing but the mode of performance of the agreement to sell the managing agency arrived at between the assessee and Thapars. That being the position, in our opinion, the income-tax authorities were justified in holding that the provisions of section 12B of the Act were attracted to the facts of the case. Our answer therefore to the second question is that, on the facts and circumstances of the case, there was either sale or transfer of the managing agency rights by the assessee to Messrs. Karamchand Thapars & Bros. Limited. Consequently, our answer to the first question is in the affirmative.

12. This brings us to the third question. It is common ground that the question has not been correctly framed. It is the contention of Mr. Kolah that the only contention raised by the assessee before the Tribunal was that the figure of capital gain on the sale of managing agency computed by the Appellate Assistant Commissioner at Rs. 27,34,325 was not the correct figure. According to the assessee, the Appellate Assistant Commissioner was in error in holding that the value of the managing agency as on January 1, 1939, was nil, and therefore question No. 3 should be framed as follows :

'Whether on the facts and circumstances of the case the figure of Rs. 27,34,325 has been correctly and properly arrived at as capital gain on the sale of managing agency ?'

13. On the other hand, Mr. Joshi stated that the amount of Rs. 27,34,325 in the third question is merely an inadvertence. The Appellate Assistant Commissioner had computed the capital gain at Rs. 25,88,117 and for reasons stated by the Tribunal, the Tribunal has affirmed that finding. The question therefore, should be reframed by substituting the figure of Rs. 25,88,117 for Rs. 27,34,325. In our opinion, Mr. Joshi is right. The Tribunal affirmed the capital gains determined by the Appellate Assistant Commissioner at Rs. 25,88,117 though for different reasons. Accepting the contention of Mr. Joshi, we reframe the third question as under :

'Whether, on the facts and circumstances of the case the capital gains have been correctly and properly computed at Rs. 25,88,11 ?'

14. Now, on the question as reframed it is the argument of Mr. Kolah that the Appellate Assistant Commissioner has found that the transaction of sale of shares had resulted in a capital loss determined at Rs. 1,46,208. He had further held that the value of the managing agency as on January 1, 1939, was nil, and therefore has computed the capital gain on the sale of managing agency of the figure of the sale price, namely, Rs. 27,34,325. Deducting the capital loss on the transaction of sale of shares, the figure of Rs. 25,88,117 had been arrived at. Against the order of the Appellate Assistant Commissioner only the assessee had appealed. The assessee was not aggrieved by the finding of the Appellate Assistant Commissioner so far as his finding relating to capital loss on the sale transaction of the shares was concerned. The only contention on this aspect of the case raised by the assessee was that the Appellate Assistant Commissioner was in error in holding that the value of managing agency as on January 1, 1939, was nil. The subject-matter of the appeal, therefore, on this aspect of the case was restricted to this issue, and the Tribunal therefore acted beyond its jurisdiction in interfering with the finding of the Appellate Assistant Commissioner relating to capital loss on the sale transaction of shares. Mr. Joshi, on the other hand, contends that the transaction of sale of shares. Mr. Joshi, on the other hand contends that the transaction of sale of shares as well as the sale of managing agency was one transaction; in computing the value of these assets as on January 1, 1939, the assessee himself had taken it as a composite transaction. It was, therefore, open to the Tribunal to go into the question of computing the quantum of capital gain on the entire transaction and that was the subject-matter of the appeal before the Tribunal. We find it difficult to accept Mr. Joshi's contention. It is clear from the two letters, namely, the letter of offer of 31st August, 1946, and the letter of acceptance of 26th September, 1946, that the parties had treated the sale of shares and the sale of the managing agency as two distinct transactions. The shares were agreed to be purchased for a consideration of rupees 50 lakhs as specifically stated in these documents, and the managing agency was agreed to be purchased at the consideration of Rs. 27,34,35. The Appellate Assistant Commissioner also, in deciding the question of capital gain, has treated these two transactions as distinct and separate transactions. It is indeed true that the powers of the Tribunal under sub-section (4) of section 33 are wide. The Tribunal after giving both the parties to the appeal an opportunity of being heard, can pass such orders thereon as it thinks fit. The expression 'thereon' occurring in sub-section (4) of section 33 has been construed in various decisions as meaning 'on the subject-matter of appeal before the Tribunal'. Now the subject-matter in appeal before the Tribunal would naturally be the grounds raised by the appellant before it. Rule 12 of the rules framed relating to the Appellate Tribunal provides that 'the appellant shall not, except by leave of the Tribunal, urge or be heard in support of any ground not set forth in the memorandum of appeal; but the Tribunal, in deciding the appeal, shall not be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal, in deciding the appeal, shall not be confined to the grounds sets forth in the memorandum of appeal or taken by leave of the Tribunal under this Rule....' Rule 27 further provides that 'the respondent, though he may nor have appealed, may support the order of the Appellate Assistant Commissioner on any of the grounds decided against him.' These are the relevant provisions relating to the question that falls for consideration. Having regard to these provisions, it can be stated that the subject-matter of the appeal would be grounds specifically raised in the memorandum of appeal, grounds which the Tribunal allows the appellant to raise, and the contentions raised by the respondent in support of the order made by the Appellate Assistant Commissioner challenging the adverse findings against him. The scope and ambit of these rules has been considered by us in Income-tax Reference No. 50 of 1959 Commissioner of Income-tax v. M/s. Hazarimal Nagji & Co. decided on 6th October, 1961. Therein we observed :

'Now, reading the provisions of section 33(4) and the relevant rules to which our attention has been drawn by Mr. Joshi, it seems to us that the powers of the Appellate Tribunal are similar to the powers of the appellate court under the Civil Procedure Code. That also is the view which this court has taken in New India Life Assurance Co. Ltd. v. Commissioner of Income-tax, where it is observed that 'the position of the Appellate Tribunal is the same as a court of appeal under the Civil Procedure Code and its powers are 'identical' with the powers enjoyed by an appellate court under the 'Code'. Now, a respondent in an appeal is undoubtedly entitled to support the decree which is in his favour on any grounds which are available to him, even though the decision of the lower court in his favour may not have been based on those grounds. A respondent, unless he has filed an appeal himself or filed cross-objection in the appeal filed by his opponent, will not be entitled to challenge that part of appeal filed by his opponent, will not be entitled to challenge that part of the lower court's decree which is against him, and the appellate court will have no power or jurisdiction to permit him to do so. But, in so far as he only wants to maintain the decree of the lower court which is against the appellant and in his favour, he will be entitled to support it on fresh grounds also if he can do so, and the appellate court also will have jurisdiction to permit him to do so, provided, of course, that the fresh grounds which he wants to urge do not require a further investigation into facts which are not already on record and are not based on facts which were neither alleged nor admitted no proved and which the other side was never called upon to meet in the lower court.'

15. It thus follows that the subject-matter of appeal would get confined to the limits of the grounds specifically raised in the memorandum of appeal, the new grounds raised by the appellant with the previous permission of the Tribunal and the grounds urged by the respondent in support of the decree passed in his favour, even though the decision of the court, against which the appeal is filed, is against him. It is thus clear that the Tribunal will have no jurisdiction to found its decision on grounds which have not been raised before it by any of the parties at all. In other words, in our opinion, it would not be open to the Tribunal to make out a new case for opinion, it would not be open to the Tribunal to make out a new case for either the appellant or the respondent. In the light of these principles, it will have to be seen whether the Tribunal was justified in interfering with the finding of the Appellate Assistant Commissioner that the transaction of sale of shares as on January 1, 1939, could not be more than 60% of what it was at the time of sale. The grounds of appeal are not included in the statement of the case. Counsel for the parties, however, have placed the grounds of appeal filed by the assessee before the Tribunal on record. The memo of appeal raises only four grounds, and the relevant ground is ground No. 4. It is in the following terms :

'(4) Without prejudice to the foregoing grounds of appeal the Appellate Assistant Commissioner erred is computing your petitioner's capital gains at Rs. 23,81,067.'

16. It is the contention of Mr. Joshi that by the ground raised by the appellant, the appellant was challenging the computation of capital gain as a whole, and was not restricting his attack only to the finding of the Appellate Assistant Commissioner that the value of the managing agency as on January 1, 1939, was nil. We are unable to so construe this grounds. The figure of Rs. 23,81,067 is the figure of capital gain computed by the Appellate Assistant Commissioner on the findings reached by him. As already stated, the finding of the Appellate Assistant Commissioner was that the transaction of sale of shares had resulted in capital loss and the entire sale price of the managing agency was a capital gain. Deducting the capital loss on the transaction of sale of shares, the total figure of the capital gain in arrived at, and form the total gain, the capital gain falling to the share of the assessee was computed at Rs. 23,81,067. In this context, it would not be reasonable to assume that by raising this ground the appellant was challenging the finding which was already in his favour, but it would be reasonable to hold that he was challenging the finding which was only against him, and that finding was that the value of the managing agency as on January 1, 1939, was nil. In dealing with this ground, the Tribunal itself observed that the said contention of the assessee related to the capital gains computed by the department. In paragraph 8 of its order, the Tribunal observes :

'We may agree with the assessee that the department's working is wrong, inasmuch as it has not taken the value of the agency rights as on January 1, 1939, into account.'

17. It is thus clear that his was the only contention of the assessee, and this was the only ground of attack as regards the computation of the capital gains made by the Appellate Assistant Commissioner. It is indeed true that the Tribunal has gone into the question of determining the capital gains on the transaction of sale of shares. But nowhere from the order it appears that the departmental representative had raised any contention before the Tribunal or tried to support the order of the Appellate Assistant Commissioner on the ground that the transaction of sale of shares had resulted in capital gain. From the order of the Appellate Assistant Commissioner also, it does not appear that at any time it was the case of the Income-tax Officer that the transaction of sale of shares had resulted in capital gains. These being the circumstances of the case, in our opinion, the Tribunal was neither competent nor justified in interfering with the finding of the Appellant Assistant Commissioner as regards the transaction of sale and holding that the transaction of sale of shares had resulted in capital gains. The assessee's contention that the managing agency had value as on January 1, 1939, had been accepted by the Tribunal, and in view of this finding of the Tribunal, and in the light of the observations herein made, the amount of capital gains will have to be computed afresh.

18. For the reasons stated above, our answer to the third question as framed is in the negative. The assessee shall pay half the costs of the department.

19. Questions answered accordingly.