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Commissioner of Income-tax Vs. G. Narasimhan (Decd) (by Lrs) - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Case NumberTax Case No. 116 of 1975 (Reference No. 99 of 1975)
Judge
Reported in[1979]49CompCas375(Mad); [1979]118ITR60(Mad)
ActsIncome-Tax Act, 1961 - Sections 2(22), 45 and 48; Companies Act, 1956 - Sections 2(47), 194 and 205
AppellantCommissioner of Income-tax
RespondentG. Narasimhan (Decd) (by Lrs)
Appellant AdvocateNalini Chidambaram, Adv.
Respondent AdvocateV.K. Thiruvenkatachari, Adv. ;T.K. Raghavan, ;T.K. Seshadri and ;Janaki Krishnan, Advs.
Excerpt:
(i) company - shares - sections 2 (22), 45 and 48 of income-tax act, 1961 and sections 2 (47), 194 and 205 of companies act, 1956 - whether appellate tribunal right in directing that sum of rs. 64577 being deemed dividends assessed in hands of various shareholders in past assessment years should be deducted from surplus while determining accumulated profits in hands of company - deduction can be made only in case company can determine at time of payment extent of accumulated profits - dividend come out of accumulated profits - not established that there have been deductions made from accumulated profits in past - when dividend issued or loans made same has to be deducted from accumulated profits - deemed dividend cannot be paid out of capital - question referred answered in.....govindan nair, c.j. 1. two questions have been referred to this court by the income-tax appellate tribunal, madras bench, for the opinion of this court. the questions read as follows :'1. whether, on the facts and in the circumstances of the case, the appellate tribunal was right in directing that a sum of rs. 64,577 being the deemed dividends assessed in the hands of the various shareholders in the past assessment years, should be deducted from the surplus while determining the ' accumulated profits ' in the hands of the company ?2. whether, on the facts and in the circumstances of the case, the appellate tribunal was right in holding that no capital gain was assessable in the hands of the assessee as there was no extinguishment of any right of the assessee and consequently there was no.....
Judgment:

Govindan Nair, C.J.

1. Two questions have been referred to this court by the Income-tax Appellate Tribunal, Madras Bench, for the opinion of this court. The questions read as follows :

'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in directing that a sum of Rs. 64,577 being the deemed dividends assessed in the hands of the various shareholders in the past assessment years, should be deducted from the surplus while determining the ' accumulated profits ' in the hands of the company ?

2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that no capital gain was assessable in the hands of the assessee as there was no extinguishment of any right of the assessee and consequently there was no transfer within the meaning of Section 2(47) of the Income-tax Act, 1961, by the assessee of any capital assets for the assessment year 1963-64 '

2. The year of assessment is 1963-64, the corresponding accounting period ending on 31st March, 1963. The questions referred to us arise from the following facts:

The assessee is a shareholder in a company called M/s. Kasthuri Estates P. Ltd., Madras. During the accounting period, the assessee held 70 shares in the company. The face value of a share was Rs. 1,000 and the capital of the company consisted of 2,400 shares amounting to Rs. 24 lakhs. During the accounting period, the company resolved to reduce its capital. The necessary procedure was gone through, the court order was obtained and the reduction was given effect to on May 25, 1962. The result of the reduction was to reduce the value of the share from Rs. 1,000 to Rs. 210. Consequent on this reduction, there was distribution of assets and money to the shareholders. The two questions referred to us arise from these facts and we have to consider for the purpose of question No. 1 whether the dividends assessed in the hands of the various shareholders in the past assessment years should be deducted from the accumulated profits to find out the value of the dividends sought to be distributed by virtue of Section 2(22)(d) of the Income-tax Act, 1961 (hereinafter called ' the Act '). and whether by virtue of the above proceeding in reduction of the capital, there had been any resulting capital gains which can be assessed in the hands of the shareholders. There are other shareholders in the company who are also assessees and their cases have also been heard along with this tax case. It is agreed that the decision in this case would govern those cases as well. We shall, therefore, consider the questions in this case and apply the decision herein to the other tax cases as well. The relevant sections of the Act which are to be noticed are those which define ' transfer ' and the term ' dividend' and those providing for capital gains, particularly Sections 45 and 48 and also 46. We have also to advert to Section 194 of the Act. It becomes necessary in view of the discussions at the Bar and the arguments advanced to refer to Section 205 of the Companies Act, 1956, as well.

3. For the purpose of answering the first question, what is important is the definition in Section 2(22)(d) and, in passing, we shall also refer to Section 2(22)(e). We shall extract these sections :

'(22) 'Dividend' includes .......

(d) any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933, whether such accumulated profits have been capitalised or not ;

(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder, being a person who has a substantial interest in the company, or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits ;......'

4. It is clear on a reading of Section 2(22)(d) that, on distribution, there will be an issue of dividend only to the extent to which the company possesses accumulated profits. We are not referring to the condition that such accumulated profits must have arisen after the end of the previous year ending next before the 1st day of April, 1933, for it has been agreed that that condition has been satisfied in this case. The purpose of this section appears to be to bring within the net of taxation payments made by distribution of assets or moneys of the company which can be taken to have come from the accumulated profits. We have added on the wording of the section by stating ' which can be taken to have come from the accumulated profits of the company ' because the fiction introduced by the section is limited to the extent of the accumulated profits. If there was no accumulated profit in the company, the fiction could not be attracted and if the accumulated profit in the company is less than the value of the assets or moneys distributed, the fiction will be applied only to the extent of the available accumulated profit. We have to pause here to consider what is meant by ' accumulated profits ', This is very important, for, without a concept of accumulated profits, the questions that have been raised cannot be answered. The profits of the year of accounting which will be taxed in the assessment yeaY, ' till the date of distribution' is also included in the term ' accumulated profits' as defined in Section 2(22) by virtue of the Explanation thereto. Apart from the profits of the year on the date of distribution, accumulated profits can take in accumulated profits of the years previous to the previous year as long as the profits accrued before the 1st day of April, 1933, are not taken into account. Accumulated profit, therefore, is the amount which has been accumulated from the profits arising from the past performance of the company year by year. It is of course undistributed profit which is implied by the term ' accumulated '. From the entries in a balance-sheet, it may not be possible at a glance to find out what exactly is the accumulated profit of the company at any given time. Even assuming that the general reserves of the company may reflect accumulated profits, whether the entirety of the general reserves would be accumulated profits cannot be discerned by merely looking at the balance-sheet of the company. In the absence of specific reserves for taxation or other liabilities of the company in relation to its performance in the past years, those liabilities may have to be met from the general reserves. To take the figures from the balance-sheet, therefore, with regard to the accumulated profits would not in all cases be a correct procedure, for the quantum of the general reserves need not represent the accumulated profits. If the liabilities that accrued from year to year had been taken into account year by year and the accumulated profits had been depleted year by year by writing down the accumulated profits and only the balance carried over, the total of the accumulated profits in any given year will be less than in cases where there has been no deduction made for accrued liabilities.

5. The relevant facts are the following : Four sums, namely, Rs. 48,250, Rs. 14,667, Rs. 1,400 and Rs. 200, were advanced to four shareholders of the company in the previous years. The Tribunal arrived at the figure of Rs. 3,01,331 as the sum referable to the accumulated profits of the company. The advances mentioned earlier were dividends within the meaning of Section 2(22)(e) of the Act. The revenue would contend that the legal fiction created by Section 2(22)(e) would not permit an argument that the advances came out of the accumulated profits. The only question, therefore, is whe-ther the sum of Rs. 64,517, which is the total of the four sums mentioned earlier, can be deducted from the sum of Rs. 3,01,331 for ascertaining the real accumulated profits of the company.

5. On behalf of the assessee, it was contended that in order to understand the implications of the deeming provision in Section 2(22)(e), it is necessary to find out as to what the legislature meant by making this provision. It was also urged that we must consider the effect of Section 194 of the Act and Section 205 of the Companies Act, 1956, as well in understanding the import of Section 2(22)(e) of the Act. Section 194 is in these terms :

' The principal officer of an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends (including dividends on preference shares) within India, shall, before making any payment in cash or before issuing any cheque or warrant in respect of any dividend or before making any distribution or payment to a shareholder, of any dividend within the meaning of Sub-Clause (a) or Sub-Clause (b) or Sub-Clause (c) or Sub-Clause (d) or Sub-Clause (e) of Clause (22) of Section 2, deduct from the amount of such dividend, income-tax and super-tax at the rates in force :

Provided that where in the case of any shareholder, not being a company, the Income-tax Officer gives a certificate in writing in the prescribed manner that to the best of his belief the total income or the total world income of the shareholder will be less than the minimum liable to income-tax, the person responsible for paying any dividend to the shareholder shall, so long as the certificate is in force, pay the dividend without any deduction.'

6. Section 205 of the Companies Act is as follows:

'(0 No dividend shall be declared or paid by a company for any financial year except out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of Sub-section (2) or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in accordance with those provisions and remaining undistributed or out of both or out of moneys provided by the Central Government or a State Government for the payment of dividend in pursuance of a guarantee given by that Government:

Provided that--

(a) if the company has not provided for depreciation for any previous financial year or years which falls or fall after the commencement of the Companies (Amendment) Act, 1960, it shall, before declaring or paying dividend for any financial year, provide for such depreciation out of the profits of that financial year or out of the profits of any other previous financial year or years ;

(b) if the company has incurred any loss in any previous financial year or years, which falls or fall after the commencement of the Companies (Amendment) Act, 1960, then, the amount of the loss or an amount which is equal to the amount provided for depreciation for that year or those years, whichever is less, shall be set off against the profits of the company for the year for which dividend is proposed to be declared or paid or against the profits of the company for any previous financial year or years, arrived at in both cases after providing for depreciation in accordance with the provisions of Sub-section (2) or against both ;

(c) the Central Government may, if it thinks necessary so to do in the public interest, aliow any company to declare or pay dividend for any financial year out of the profits of the company for that year or any previous financial year or years without providing for depreciation ;

Provided further that it shall not be necessary for a company to provide for depreciation as aforesaid where dividend for any financial year is declared or paid out of the profits of any previous financial year or years which falls or fall before the commencement of the Companies (Amendment) Act, 1960.

(2) For the purpose of Sub-section (1), depreciation shall be provided either--

(a) to the extent specified in Section 350 ; or

(b) in respect of each item of depreciable asset, for such an amount as is arrived at by dividing ninety-five per cent, of the original cost thereof to the company by the specified period in respect of such asset ; or

(c) on any other basis approved by the Central Government which has the effect of writing off by way of depreciation ninety-five per cent. of the original cost to the company of each such depreciable asset on the expiry of the specified period ; or

(d) as regards any other depreciable asset for which no rate of depreciation has been laid down by the Indian Income-tax Act, 1922, or the rules made thereunder, on such basis as may be approved by the Central Government by any general order published in the Official Gazette or by any special order in any particular case :

Provided that where depreciation is provided for in the manner laid down in Clause (b) or Clause (c), then, in the event of the depreciable asset being sold, discarded, demolished or destroyed the written down value thereof at the end of the financial year in which the asset is sold, discarded, demolished or destroyed, shall be written off in accordance with the proviso to Section 350. (2A) Notwithstanding anything contained in Sub-section (1), on and from the commencement of the Companies (Amendment) Act, 1974, nodividend shall be declared or paid by a company for any financial year out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of Sub-section (2), except after the transfer to the reserves of the company of such percentage of its profits for that year, not exceeding ten per cent, as may be prescribed :

Provided that nothing in this sub-section shall be deemed to prohibit the voluntary transfer by a company of a higher percentage of its profits to the reserves in accordance with such rules as may be made by the Central Government in this behalf. (3) No dividend shall be payable except in cash :

Provided that nothing in this sub-section shall be deemed to prohibit the capitalisation of profits or reserves of a company for the purpose of issuing fully paid-up bonus shares or paying up any amount for the time being unpaid on any shares held by the members of the company. (4) Nothing in this section shall be deemed to affect in any manner the operation of Section 208.

(5) For the purposes of this section--

(a) ' Specified period ' in respect of any depreciable asset shall mean the number of years at the end of which at least ninety-five per cent, of the original cost of that asset to the company will have been provided for by way of depreciation if depreciation were to be calculated in accordance with the provisions of Section 350 ;

(b) any dividend payable in cash may be paid by cheque or warrant sent through the post directed to the registered address of the shareholder entitled to the payment of the dividend or in the case of joint shareholders, to the registered address of that one of the joint shareholders which is first named on the register of members, or to such person and to such address as the shareholder or the joint shareholders may in writing direct.'

7. Section 194 casts an obligation on the part of the company, inter alia, to deduct the tax payable by the shareholder when amounts are lent or paid which would fall under Section 2(22)(e), the deemed dividend being limited to the extent of the accumulated profits. Deduction can be made only if the company can determine at the time of payment the extent of the accumulated profits. With reference to Section 205 of the Companies Act, it was stressed that a company cannot pay dividend out of its capital assets. The will of the legislature having been embodied in Section 194 of the Act and Section 205 of the Companies Act, it was stated that the cumulative effect of these statutory provisions was to make any deemed dividend under Section 2(22)(e) also flow out of the accumulated profits of the company. At any rate, that is the only legal way of paying dividend as envisaged by Section 2(22)(e) and it must be taken that they have been so paid by the assessee unless for other purposes it is established that there has been a contravention of the law. As a result of this position under the law, Mr. V. K. Thiruvenkata-chari, counsel for the assessee, contended that the effect of Section 2(22)(e) when read with Section 194 of the Act and Section 205 of the Companies Act is to make the deemed dividend under Section 2(22)(e) as well flow out of the accumulated profits ; and this being so, these payments cannot be ignored for the purpose of reckoning the value of the accumulated profits. The argument is attractive, and we are not able to discern any flaw in this reasoning. No doubt, a fiction should not be extended beyond its limits though it must be given its full effect. Section 2(22)(e) does not in terms provide that what has been deemed as dividend should be deemed to have come from accumulated profits. But in Section 2(22)(e) there is an indication that the deemed dividend is not unconnected with the accumulated profits. In fact, there is a clear provision that the deeming provision will attach only to that part of the amount paid which is represented by the accumulated profits of the company. When this provision is read with the language of the section which provides for deduction of tax on such dividend and also read with the statutory restriction of payment of dividend out of the capital assets, it is reasonable to come to the conclusion that a dividend would and should come out of the accumulated profits. The sum of Rs. 64,517 must, therefore, be taken as having come out of the profits of the previous year and since it has not been contended or established that there have been deductions made from accumulated profits in the past when dividend was issued or loans made the same has to be deducted from the accumulated profits of Rs. 3,01,331. Even deemed dividend under the I.T. Act, we conceive, cannot be paid out of the capital and once the law is such that certain payments must be deemed to be payments of dividend, for all purposes it has to be treated as dividend and the restriction that the payment of dividend should not be from capital will attach to such payment as well. The view which we are inclined to take is supported by the decision of the Bombay High Court in C1T v. P.K. Badiani : [1970]76ITR369(Bom) . This decision has been relied on by the Tribunal and, we think, rightly. There is an elaborate discussion of the question in its various aspects in that decision. We, therefore, agree with the view taken by the Tribunal and answer the first question referred to us in the affirmative, i.e., in favour of the assessee and against the revenue.

8. If answering the first question was difficult, answering the second question is more difficult. That is because of the extended definition of the word ' transfer ' in Section 2(47) of the Act and the concept of capital gains. These provisions are not very difficult to interpret ; but when these provisions are to be read with the consequences flowing from a reduction of capital and when we are asked to decide whether by any reduction of capital, there is a relinquishment or exchange coming within the earlier part of the definition or whether there has been an extinguishment of any of the rights in the capital assets, it becomes a difficult proceSections What had been contended on behalf of the revenue on which arguments were; repeated before us is that the real value of the assets distributed exceeded very much in value the sum of Rs. 790 which is the amount by which the value of a share was reduced. It was, therefore, contended that the shareholder had received amounts in excess of what he gave up and, therefore, the shareholder had gained amounts which can be treated as capital gains as defined in the Act. It was also contended that giving up of the value of the share to the extent of Rs. 790 would amount to an extinguishment and as a quid pro quo for the extinguishment, the shareholder having obtained amounts, the whole value of the assets distributed minus Rs. 790 can be taken to be the value of the capital gains. We shall consider these aspects. Before doing so, we shall extract Sections 2{47) as well as 45 and 48.

9. Section 2(47) is as follows :

' ' Transfer ', in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law.'

10. Section 45 is as follows :

Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in Sections 53, 54, 54B, 54C and 54D, be chargeable to income-tax under the head ' Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place '

Section 48 runs thus :

'The income chargeable under the head 'Capital gains' shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :--

(i) expenditure incurred wholly and exclusively in connection with such transfer;

(ii) the cost of acquisition of the capital asset and the cost of any improvement thereto.'

11. The important words in Section 2(47) are ' sale, exchange or relinquishment of the asset'. These words are in the earlier part of the definition. Admittedly, there has been no sale in this case. The only question is whether it is possible to say that there has been an exchange of something by the shareholder in return for something given by the company.

'Exchange' is defined in Section 118 of the Transfer of Property Act in these terms :

' When two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things being money only, the transaction is called an ' exchange '.'

12. It would perhaps be not proper and it would even be dangerous to apply the definition as contained in Section 118 of the Transfer of Property Act for understanding the meaning of the word ' exchange ' in Section 2(47) of the Act. So, it will be safer for us to proceed on general principles for understanding the import of the word ' exchange ' in the definition.' Exchange' naturally means something changing hands from one to another in consideration of another thing changing hands from the other to that person. How can we conceive of an exchange between a company and a shareholder when there is reduction of capital The company does not receive anything. In fact, the company is precluded from receiving anything from the shareholder. It cannot buy its own shares and it cannot receive any amount from the shareholder as a quid pro quo for the reduction of the capital. There is a particular procedure prescribed by the Companies Act for reduction of capital. If that procedure is gone through, there can be reduction of capital. In reduction of capital, there need not necessarily be a reduction in the number of shares held by the company. In the case before us too, there has been no such reduction in the number of shares. What had happened was only to reduce the face value from Rs. 1,000 to Rs. 210. Consequent upon the reduction of the capital, the company deemed it fit to distribute some assets and some money to the shareholder. This naturally happens in all such cases of reduction for it may be found that it is not necessary to keep all the assets of the company and that it can be distributed to the shareholders. There may be other objects also in such reduction of capital. Perhaps it is to minimise the possibility of such distribution of amounts that the deeming provision in Section 2(22)(d) of the Act had been introduced by the statute by insisting that on such assets being distributed, tax shall be paid deeming such assets as dividends issued by the company. Whatever that be, the purpose of such distribution is to benefit the shareholders of the company by making them receive the assets of the company. What portion of the amounts should be distributed is a matter as indicated by the company taking into account the statutory provision. We are not concerned with the sagacity of such transaction of distribution in proceedings for assessment of tax, if any, and in considering the question whether there have been any capital gains. The tax that can be imposed on any assessee will be imposed only on a strict interpretation of the provisions relating to the imposition of tax. We will, therefore, have to be satisfied that there has been either an exchange or relinquishment. In the circumstances we have indicated above, it is difficult to conceive of an exchange. We cannot come to the conclusion that the company has received some property as a result of the reduction in the capital of the company. It can be said of course that the liability of the company to pay the shareholders in the event of the liquidation of the company has been reduced by the redaction of the capital. But that liability will arise only if the company was liquidated or wound up, and if the company is alive and functioning, there will be no question of any return of the amount represented by the shares held by the shareholders of the company. A shareholder can transfer a share. He can also surrender the share to the company and when surrendering the share, there may be relinquish merit of the share. There can also be cancellation of the shares. Apart from that, we think, there can be no transactions vis-a-vis the company and the shareholders as regards the shares held by a shareholder. The shares as such are held by the shareholders and the only provision in the Companies Act which would have any repercussions between the company and the shareholder would be in the circumstances of surrender and cancellation of shares. There has been no surrender or cancellation of shares in the company. We are not, therefore, able to posit that there has been any exchange on reduction of the shares or any part of the value of the shares. We must also advert to Section 45 which we have already extracted. Section 45 specifically states that capital gains are profits or gains arising from the transfer of a capital asset. How can we, in these circumstances, conceive of a transfer of a capital asset since the assessee before us is a shareholder We have to posit that there has been no transfer of capital assets by the assessee. What is it that the assessee has transferred in this case We do not think that he has transferred any capital asset. The shareholder has not transferred anything to the company. Therefore, Section 45 is not attracted. A reference to Section 48 also indicates that the value of the capital gains has to be determined by deducting from the full consideration, the cost of acquisition and the expenditure incurred wholly or exclusively in connection with such transfer. It is impossible to visualise such cost of acquisition and cost of transfer in the case of reduction of capital. Before closing this aspect of the case, it, will be useful to refer to para. 346 in the fourth edition of Halsbury's Laws of England, volume 7, dealing with Cessation of Membership. It is stated therein that there could be such cessation by a valid surrender or forfeiture of the shares. It appears to us that it is only on such surrender or forfeiture that any question of relinquishment can possibly arise.

13. The only other aspect of the argument that has to be considered is whether there has been any extinguishment of any of the capital assets held by the shareholder as a result of the reduction of capital in the company. It was contended that there has been such extinguishment of the rights of the shareholder. We are not able to conceive how there has been such extinguishment. All the rights of the shareholder as a shareholder in the company still remain. He continues to hold the same number of shares. Whether, on liquidation, he would get the amount which he would have received had a liquidation taken place at the time of the reduction of capital cannot touch the question as to whether by the reduction of capital there has been any extinguishment. It is conceivable that he would receive less in the event of the winding up of the company after reduction of capital in view of the fact that there has been distribution of assets. But on the possibility of the company not prospering and not augmenting its assets, it is not possible to come to any conclusion that there has been any extinguishment of the rights of the shareholder. The shareholder's right to receive the assets of the company, as we said earlier, can arise only in the event of winding up of the company and on liquidation taking effect. That event not having taken place, we cannot postulate any extinguishment. Apart from this, the very argument advanced indicates that there has been no extinguishment. The argument which we noticed earlier was that the shareholders had received more than the equivalent of the reduction in the value of the shares. Whether there is any such exchange between the company and the shareholder of the company has been already dealt with and we have come to the conclusion that there has been no such exchange. We are now referring to the argument on behalf of the revenue only to emphasise that even according to their case, there has been no extinguishment of the rights of the shareholder. We have, therefore, to reject this part of the argument as well.

14. Apart from this, we must also notice that the argument of counsel on behalf of the assessee that the wording of Section 2(47) clearly indicates that the words ' by operation of law ' occurring at the end of the definition of ' transfer ' therein, qualifies not only the words immediately preceding those words, namely, ' compulsory acquisition thereof ' but also the words 'extinguishment of any rights therein ' occurring before the words 'compulsory acquisition thereof'. The argument is attractive. Such an argument was not advanced before the Kerala High Court when one of us, who was a party to the judgment referred, had to decide the question of extinguishment under Section 2(47) of the Act. The matter was not discussed or decided, but the discussion proceeded on the basis that there has been an extinguishment. The question whether extinguishment can arise only when it is effectuated by operation of law was not dealt with in the case. The decision is reported in A. Abdul Rahim Travancore Confectionery Works v. CIT : [1977]110ITR595(Ker) [FB]. We are referring to this aspect only to clarify that the decision is no authority for the position that there could be an extinguishment for the purpose of Section 2(22) without such extinguish- ment being the result of the operation of law. In view of our conclusion that there has been no extinguishment, we do not wish to deal with the question whether the extinguishment must be by operation of law. We leave the question open for consideration in future when it pointedly arises.

15. In the light of the above, we have to answer the second question also in favour of the assessee and against the department. We do so and we direct the revenue to pay the costs of the assessee including counsel's fee of Rs. 500.

16. A copy of this judgment under the signature of the Registrar and the seal of this court will be sent to the Income-tax Appellate Tribunal, Madras Bench.


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