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Eighth Income-tax Officer Vs. Shishirkumar R. Mehta - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Judge
Reported in(1983)5ITD372(Mad.)
AppellantEighth Income-tax Officer
RespondentShishirkumar R. Mehta
Excerpt:
.....the money received by the shareholders of a company from the amalgamated company in lieu of shares held in amalgamating company involves transfer within the meaning of section 2(47) of the income-tax act, 1961 ('the act') and, consequently, whether liability to capital gains arises therefrom or not. the assessee is an individual and the appeal relates to the assessment year 1976-77 for which the accounting year ended on 3-11-1975. the assessee derives income from property, share income from several firms besides own business and other sources. the ito computed, inter alia, short-term capital gains of rs. 6,408 on sale of 150 shares of bank of baroda. the assessee purchased 150 shares of bank of baroda on 17-1-1972 for rs. 15,042.70. the bank of baroda was amalgamated with mahindra.....
Judgment:
1. In this appeal by the revenue, which is directed against the order of the AAC, the question involved is whether the money received by the shareholders of a company from the amalgamated company in lieu of shares held in amalgamating company involves transfer within the meaning of Section 2(47) of the Income-tax Act, 1961 ('the Act') and, consequently, whether liability to capital gains arises therefrom or not. The assessee is an individual and the appeal relates to the assessment year 1976-77 for which the accounting year ended on 3-11-1975. The assessee derives income from property, share income from several firms besides own business and other sources. The ITO computed, inter alia, short-term capital gains of Rs. 6,408 on sale of 150 shares of Bank of Baroda. The assessee purchased 150 shares of Bank of Baroda on 17-1-1972 for Rs. 15,042.70. The Bank of Baroda was amalgamated with Mahindra Ugine Steel Co. Ltd. on 1-7-1974. The shareholder of Bank of Baroda was given an option either to accept the shares of the transferee-company or cash at the rate of 140 per share. The assessee exercised the option to receive cash and, accordingly, received Rs. 21,450 on 24-10-1975. This difference was assessed as short-term capital gains by the ITO rejecting the claim of the assessee that the amount was received in a scheme of amalgamation which involved no transfer in terms of Section 2(47).

2. On appeal, the AAC held that the transaction did not involve transfer or sale or exchange or relinquishment. It was also not a case of the assessment of capital gains arising on the distribution of money or assets by a company in liquidation in terms of Section 46(2) of the Act. According to him, even the transaction of the assessee did not amount to a compu sory acquisition under any law. Relying on the decisions of the Gujarat High Court in the case of CIT v. R.M. Amin [1971] 82 ITR 194 and the Bombay High Court in the case of CIT v.Rasiklal Maneklal (HUF) [1974] 95 ITR 656 the AAC held that the transaction in the instant case did not fall within any limbs of Section 2(47) or it amounted to transfer under the Transfer of Property Act, 1882. Consequently, he held that the assessee was not liable to capital gains in respect of money received by him from the amalgamated company. Accordingly, he allowed the appeal of the assessee. Hence, the appeal by the revenue to the Tribunal.

3. A notice of hearing has been served on the assessee but none turned up on the date of hearing fixed. Therefore, the appeal is decided as ex parte after hearing the representative of the department.

4. The learned departmental representative has been heard and he has reiterated the grounds taken in this appeal by the revenue. In particular, he contended that the assessee having exercised his option to receive cash in lieu of right to receive the shares of the amalgamated company exemption under Section 47(vii) of the Act was not applicable and, therefore, the assessee was liable to capital gains in view of the decisions of the Gujarat High Court in the case of CIT v.Vania Silk Mills (P.) Ltd. [1977] 107 ITR 300 and CIT v. Minor Bababhai alias Lavkumar Kantilal [1981] 128 ITR 1.

5. We have duly considered the facts and circumstances of the case. In this case, the assessee has exercised the option offered to him to receive cash at the rate of Rs. 140 per share in lieu of 150 shares held by him in Bank of Baroda which got amalgamated with Mahindra Ugine Steel Co. Ltd. Therefore, the instant transaction does not fall within the exemption contained in Section 47(vii) as rightly contended by the revenue in the grounds of appeal. When once the transaction does not fall within the exemption, the logical inference is that the transaction amounted to transfer in terms of Section 2(47). Now we shall turn to the decisions relied upon by the AAC. Prima facie the case of R.M. Amin (supra) was a case of a liquidation of a private company and receipt of excess amount of money over the aggregate face value of shares held by the assessee in that case. The Tribunal held in that case that there was no question of relinquish-ment of any capital asset or extinguishment of any rights and, therefore, the capital gains did not arise. On reference the High Court held that there was no transfer of capital asset within the meaning of Section 45 of the Act read with Section 2(47), when the assessee received excess amount of money on distribution of net assets of the dissolved company. Obviously that case was a case of dissolution and distribution of net assets and, consequently, that case can be distinguished on facts. Similarly, the case of Rasiklal Maneklal (supra) was a case of amalgamation in which shares of the amalgamated company was received by the assessee in lieu of shares held in amalgamating company. In other words the assessee received shares in the new company in lieu of shares in the old company and the High Court held that the transaction did not constitute either exchange or relinquishment of old shares and, therefore, no capital gains arose as a result of transaction. Obviously this decision is not applicable to the case of the assessee who has received cash in lieu of shares of the amalgamated company. In that case Section 47(vii) constituted an exception in favour of the assessee. Thus both the case law relied upon by the AAC are not applicable to the case of the assessee at all. Therefore, the AAC misdirected himself by relying on the aforesaid decisions to hold that there was no transfer in terms of Section 2(47), or in terms of Transfer of Property Act. Consequently, we hold that the order of the AAC is not justified in law and, therefore, we set aside his order and restore the order of the ITO. It is not necessary to go into the decisions cited on behalf of the revenue.


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