In Brief
The respondent company (Annamalaiar Mills) held 100% shares in a subsidiary (Annamalaiar Textiles), which was transferred to a minority shareholder group following a 1985 reorganisation agreement. The subsidiary then paid Rs.42.45 lakhs to the respondent, treating it as compensation. The Income Tax Department assessed this as capital gains; the Tribunal and High Court disagreed. The Supreme Court dismissed the appeal, holding that no capital gains arose because the respondent did not receive payment from the shareholders acquiring the shares. Moreover, since the transaction was already examined under Gift Tax law, the Department cannot levy tax under both statutes on the same transaction.
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