JUDGMENT
G.T. Nanavati, J.
1. As the point involved in these three references is identical, they are heard together and disposed of by this common judgment.
2. These three references have been made by the Tribunal under section 256(1) of the Income-tax Act, 1961, at the instance of the assessee. The question referred to this court is identical in all the three references and it reads as under :
“Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in holding that the full value of the consideration received or accruing as a result of the transfer of the capital asset in question was at the rate of Rs. 50 per share ?”
3. The facts relevant for the present purpose may now be briefly stated. Manubhai Bhikhabhai, Jayantilal Bhikhabhai and Chinubhai Bhikhabhai, are three brothers who were assessees in these three references were engaged in the business of managing limited companies either as the managing director or managing agents and also held the office of directors. Manubhai Bhikhabhai was a director of Testeels Limited and his brother, Jayantilal Bhikhabhai, was one of the two managing directors. The said company was incurring huge losses year after year. In 1969, a stage was reached when it was considered disastrous to hold on to the control and management of the company as the company had not only incurred huge losses but had incurred substantial liabilities by way of debts and other outstandings. Therefore, the three brothers entered into an agreement with Shantilal K. Somaiya on April 10, 1969. Under that agreement, Shantilal agreed to purchase as many of fully paid equity shares of Testeels Limited of the face value of Rs. 100 each as could be procured at a price of Rs. 50 per share by the said three brothers from outsiders and then to sell the same to Shantilal at the price of Re. 1 per share. Under that agreement, the three brothers sold to the purchaser, Shantilal, about 7,000 shares at the rate of Re. 1 per share. On the sale of these shares, the three brothers became free from all the liabilities as guarantors to the banks, financial institutions and others in respect of the debts of the company. During the assessment for the assessment year 1970-71, each assessee claimed set off of one-third share of loss of Rs. 1,65,563, being the loss suffered as a result of purchase and sale of shares of the company to Shantilal. The loss was claimed as a trading loss or, in the alternative, it was also claimed under the heading “Short-term capital gains”. They had also claimed that they should be assessed as an association of persons. However, in these references, we are not concerned with the other questions and the only question which we have to consider is whether the assesses can be said to have received consideration of Rs. 50 per share even though they had sold the said shares at the rate of Re. 1 per share.
4. It is a fact that about 7,000 shares were purchased by the three brothers at the rate of Rs. 50 per share from outsiders, i.e., not from their family members. It is also not in dispute that, as per the agreement, the said shares after having been purchased at the rate of Rs. 50 per share were sold to Shantilal Somaiya at the rate of Re. 1 per share. But, if we look at the agreement, it becomes clear the Re. 1 did not really reflect the correct value of the shares. The agreement was a composite agreement. It was not only for purchase and sale of shares, but also for release of the assessees from their onerous obligation as guarantors. They had agreed to sell the shares at the rate of Re. 1 per share in order to get rid of their liabilities. The document read as a whole clearly shows that the consideration, i.e., sale price of the shares included release and discharge of the three brothers from their liabilities and obligations. Clauses 6 to 11 clearly show that the only reason why they had agreed to sell the shares at the rate of Re. 1 per share was to get rid of the liabilities. Thus, the difference of Rs. 49 per share which was claimed as loss was also a part of the consideration for release of their liabilities. The assessees, therefore, can be said to have received by way of consideration, the full amount of Rs. 50 per share and, in reality, they had not suffered any loss in selling the shares at the rate of Re. 1 per share.
5. In our opinion, the Tribunal was right in taking such a view. We, therefore, answer the question in the affirmative, that is, against the assessees and in favour of the Revenue. References are disposed of accordingly with no order as to costs in each of them.