1. In these appeals filed by the legal heirs of late Shri T.S.Srinivasa Iyer, a piquant point arose for consideration as to whether the computation of capital gains on the sale of shares had been correctly made and whether the directions given by the Tribunal on the same point for the same years had been correctly appreciated and given effect to.
2. The assessee possessed shares in Gemini Pictures Circuit (P.) Ltd. He sold 1,250 shares to his grandchildren for a total sum of Rs. 2,56,250. Gemini Pictures Circuit (P.) Ltd. was a private limited company whose authorised capital was Rs. 25 lakhs, divided into 25,000 shares of Rs. 100 each. By 30-12-1953, 16,535 shares of the face value of Rs. 100 each were issued, subscribed and fully paid up. On 31-12-1953, 4,311 shares of the face value of Rs. 100 each were issued to five shareholders, including the assessee, of which only Rs, 10 per share was called and paid, i.e., by 31-12-1963, the subscribed capital of the company was Rs. 16,96,910 made up of 16,535 shares of Rs. 100 each fully paid up and 4,311 shares of the face value of Rs. 100 each, but only Rs. 10 paid. This company had also reserves to the extent of Rs. 16 lakhs. The aggregate of the subscribed capital and the reserves as on 30-12-1953 was Rs. 32,96,610. On 15-2-1954, the board of directors of the company passed a resolution calling for further payment of Rs. 90 per share in respect of 4,311 shares issued on 30-12-1953. This amount was fully paid.
3. Thus, the 1,250 shares sold by the assessee to his granchildren consisted of 195 shares which were fully paid up out of the initial issue of 16,535 shares and the balance of 1,055 shares came out of the partly paid shares issued on 30-12-1953. In the return filed for the assessment years 1965-66, Shri Srinivasa Iyer, the assessee herein, disclosed a capital gain of Rs. 13,750 on the sale of these shares. He adopted the value of these shares as on 1-1-1954 at Rs. 2,42,250, i.e., Rs. 194 per share. In arriving at this value, the shares had been commuted into shares of Rs. 10 each fully paid up dividing the aggregate of the subscribed capital and reserves by the number of shares so arrived at. The ITO did not accept the valuation of these shares at Rs. 194 per share as on 1-1-1954. On the ground that the partly paid up shares also had been valued as fully paid up shares, he revalued the shares as under : It will be seen from the above working that the subsequent calls paid on this partly paid up shares of Rs. 94,950 was added by the ITO to arrive at the total cost of the shares. That is now the bone of contention before us which we will presently show how it had been treated.
4. Aggrieved by this calculation of shares as on 1-1-1954, the assessee preferred appeal to the AAC who confirmed the computation of the capital gains as made by the ITO.5. In the further appeal filed before the Tribunal against the order of the AAC, the Tribunal, after considering the legal position, directed the ITO to revalue the shares as on 1-1-1954 according to the following method : The proper method is to divide Rs. 32,96,610 (that being the aggregate of the paid up capital as on 30-12-1963 and the reserve) by the total number of shares, namely, 20,846. That will be the value of each share as on 1-1-1954. The capital gains arising to the assessees by reason of the sale of the shares by them during the relevant previous years has got to be computed by taking the value of the shares as on 1-1-1954 determined in the manner indicated above.
While giving effect to the order of the Tribunal, the ITO made the following calculations : Capital gains computed as in the case of T.S. Srinivasa Iyer for 1965-66 : The value of Rs. 1 58.14 per share was arrived at by the method indicated by the Tribunal.
It will be seen from the above that the subsequent payment of Rs. 94,230, being the call money on partly paid shares, had not been added by the ITO in arriving at the capital gains while it was so done in the original assessment order.
6. The assessee brought this to the notice of the ITO as a mistake apparent from record and requested him to rectify his order. On the rejection of the assessee's request by the ITO, an appeal had been filed before the AAC. The AAC rejected the assessee's contention by observing as under: From the above narration (of the order of the Tribunal), it is clear that the Tribunal had taken into consideration that certain shares were partly paid as on 1-1-1954 and they have also observed that it is immaterial for the determination of the value of the shares as on 1-1-1954. Hence, the fair market value of the share as determined by the Tribunal is only Rs. 158.14 per share.
The AAC then considered the question whether the amount of Rs. 90 per share paid subsequently could be taken as cost of improvement of the asset under Section 55(b)(i) of the Income-tax Act, 1961 ('the Act').
He rejected this contention saying that the subsequent payment on shares could not be considered as cost of acquisition of shares as on 1-1-1954. It is against this order of the AAC that the present appeal is directed.
7. Shri Srinivasamoorthy, the learned counsel for the assessee, argued that the subsequent payment having been added by the ITO in the original assessment as cost of the shares in arriving at the capital gains, it was not open to the department to ignore it while giving effect to the order of the Tribunal. The dispute before the Tribunal was as to the method in which the value of the partly paid shares is to be arrived at as on 1-1-1954. The method approved of by the Tribunal was to take the aggregate of the paid up capital and reserves, divided by the number of shares issued, whether they are partly paid or fully paid. The question whether the subsequent call money paid on the shares was to be added or not, was not an issue in dispute either before the AAC or before the Tribunal. The matter had proceeded as if the addition of Rs. 94,230, was proper. When this point was not a matter of dispute before the Tribunal, the ITO was precluded from meddling with that in the guise of giving effect to the order of the Tribunal. In this context, the learned counsel for the assessee relied upon a decision of the Calcutta High Court in the case of Katihar Jute Mills (P.) Ltd. v.CIT  120 ITR 861.
8. The learned departmental representative, on the other hand, contended, relying upon the decisions of the Calcutta High Court in the case of Sutlej Cotton Mills Ltd. v. CIT  119 ITR 666 and in the cases of CIT v. Steel Group Ltd.  131 ITR 234, that the paid up capital meant capital paid as on 1-1-1954 and in arriving at the value of the shares as on 1-1-1954, the capital paid on that date alone should be taken. Subsequent payments, even if they are in pursuance of a resolution, should not be considered at all because the subsequent payments could not be regarded as capital paid as on 1-1-1954. That was also the direction of the Tribunal. The ITO, therefore, correctly took the value of the shares and in this context there is no necessity to include Rs. 94,230 again when the ITO considered the partly paid shares and worked it out at Rs. 158.14 per share. The amount paid by way of call money must also be deemed to have been included in the value of Rs. 158.14 and its inclusion for the second time was double advantage and uncalled for.
9. Having considered the points urged both for and against, we are unable to agree with the view expressed on behalf of the department. We are not here to consider whether what should be the proper value of the shares as on 1-1-1954. The point in issue is whether it is open to the ITO to withdraw a benefit given to the assessee while giving effect to an appellate order. If the ITO is not precluded from withdrawing a concession given earlier while giving effect to an appellate order, the order passed by the ITO can be said to be correct. But, the decided authorities appear to be taking a contrary view. In the Katihar Jute Mills (P.) Ltd.'s case (supra), referred to by the learned counsel for the assessee, the Calcutta High Court has pointed out that in the case of an appeal from an assessment made after being set aside with the direction by the AAC, the AAC was precluded from entertaining a new plea even if it is based on the latest decision of the Supreme Court in the subsequent appeal. The facts there we are : The assessee was a limited company, owning a jute mill. For the assessment year 1955-56, a sum of Rs. 5 lakhs odd had been brought to tax as representing the price of loom hours. In the appeal before the AAC, the assessee had not questioned the finding about the loom hours but questioned only the treatment of certain loss in speculative transactions. After dealing with the latter point, the AAC set aside the assessment with the following observations : ...in the result the assessment is set aside with a direction to the ITO to go through the contract papers again and do the assessment afresh.... (p. 862) Before the ITO could take up the matter again, the Supreme Court, in the meantime, delivered a judgment holding that proceeds from sale of loom hours were of capital nature, not assessable as income. The assessee, thereafter, filed a revised return claiming that the sum of Rs. 5 lakhs odd representing the sale proceeds of loom hours was not taxable. The ITO rejected the assessee's claim and passed a fresh assessment order. On further appeal, the AAC held that the sum of Rs- 5 lakhs odd was not taxable. On further appeal, the Tribunal set aside the order of the AAC holding that there was no dispute about the sum of Rs. 5 lakhs odd before the ITO or the AAC and it was not open to the assessee to take advantage of the fact that the assessment had been set aside for a limited purpose and to claim a different relief which was nowhere in the picture previously and that there was no method by which the assessee could raise the issue in the reassessment proceedings. On a reference, the Calcutta High Court held that the entire assessment was not set aside by the AAC and the order of the AAC had set aside only that part of the order of the ITO which was appealed against and that also with specific directions to the ITO to reconsider the matter on that part only. As there was no dispute with regard to the assessability of the sale proceeds of the loom hours at any stage of the proceedings, the AAC did not consider that question at all. The High Court further pointed out that the order of the AAC, if read as a whole, in its proper context, would clearly show that it was neither the intent nor the purpose nor the import of the order that the whole assessment should be set aside and everything should be kept at large so as to allow the ITO to make a fresh assessment on all the aspects of the case and give a free hand to the assessee to make all claims and raise all arguments in that assessment. Then the High Court observed that in the case of an appeal from an assessment made after being set aside with the directions by the AAC, the AAC was precluded from entertaining a new plea, based on the latest decision of the Supreme Court, in the subsequent appeal. This decision is, therefore, an authority for the proposition that while giving effect to the orders of the appellate authorities, the ITO is precluded from disturbing the original assessment, i.e., to disturb the findings given in the original assessment which were not in dispute. They assumed finality and to disturb them, if they are found to be incorrect, the proceedings to be taken are under different sections but not in the guise of giving effect to the orders of the appellate authorities. Since the ITO had jurisdiction only to look into the points that had been before the appellate authorities and not any other point, the question of Rs. 94,230 not being appealed against, it does appear to us that it is not open to the ITO to deny the assessee the benefit of the addition of Rs. 94,230. The rulings relied on by the departmental representative are not to the point. They relate to the question, as to how the market value as on 1-1-1954 should be ascertained. But they do not turn on the point whether the ITO is empowered to withdraw benefit given in the original assessment order as in this case. It is very pertinent to point out in this connection that the Tribunal did not set aside the assessment directing the ITO to make a fresh assessment. The Tribunal directed the ITO to recompute the value of the shares as on 1-1-1954 by laying down a particular principle and method. That principle or method did not envisage disallowance of any sum. The assessee's case is much stronger here, than the case before the Calcutta High Court. It is, therefore, beyond the jurisdiction of the ITO to proceed to disallow the sum of Rs. 94,230 and go against the original assessment. To concede to the argument advanced on behalf of the department would virtually mean investing the ITO with the power either to reopen the entire assessment in a broad sense or review his own order taking advantage of the opportunity to retouch the assessment to give effect to the order of the appellate authority or rectify a mistake which might appear in the original assessment taking advantage of the appellate decision and giving effect to it.
10. To us, it appears to be totally incorrect and against the law and we direct that the ITO should add the sum of Rs. 94,230 also as was done in the original assessment, whatever may be the consequences, because it is not open to him to disturb the assessment proceedings in any manner other than the manner giving effect to the appellate order.