1. This is a reference under Section 66(1) of the Indian Income-tax Act, 1922. The following question of law has been referred to this court:
' Whether, on the facts and in the circumstances of the case, there was any exchange within the meaning of Section 12B when the assessee was allotted shares in Birla Cotton Spinning and Weaving Mills Ltd. as a result of the amalgamation of Rajputana General Dealers Ltd. and Merchandise & Stores Ltd. so as to result in any capital loss in respect of the assessment year 1961-62 under Section 12B of the Indian Income-tax Act, 1922 ?'
2. The assessee held shares in other companies. It held 8,878 shares of the face value of Rs. 10 each in Rajputana General Dealers Ltd. and 28,500 shares of the face value of Rs. 10 each in Merchandise & Stores Ltd. These two companies were amalgamated with Birla Cotton Spinning and Weaving Mills Ltd. under a scheme of amalgamation approved by the High Court of Punjab and the High Court of Rajasthan by orders dated May 20, 1960, and April 22, I960, respectively. As a result of the amalgamation the shareholders in Merchandise & Stores Ltd. got one ordinary share of Rs. 10 each in Birla Cotton Spinning and Weaving Mills Ltd. for every 4.75 ordinary shares of Rs. 10 each fully paid up held by them in Merchandise and Stores Ltd. Similarly, every shareholder in Rajputana General Dealers Ltd. got one ordinary share of Rs. 10 in Birla Cotton Spinning and Weaving Mills Ltd. for every 2'58 ordinary shares of Rs. 10 each in Rajputana General Dealers Ltd. on the date of the order approving the scheme. The assessee claimed that in the said transaction of amalgamation it sustained a capital loss. The shares of Rajputana General Dealers Ltd. and Merchandise and Stores Ltd. were not quoted on any stock-exchange whereas the shares of Birla Cotton Spinning and Weaving Mills Ltd. were quoted on the Calcutta Stock Exchange. The face value of shares of Rajputana General Dealers Ltd. and Merchandise and Stores Ltd. as represented by the break-up value of shares of the two companies on the date of amalgamation was much more than the market value of the equivalent share of Birla Cotton Spinning and Weaving Mills Ltd. As per quotation in the Calcutta Stock Exchange the assessee claimed to have suffered a capital loss of Rs. 1,66,255 under Section 12B. The Income-tax Officer rejected this contention which was upheld on appeal by the Appellate Assistant Commissioner and also by the Appellate Tribunal.
3. Under Section 12B tax is payable under the head ' capital gains ' in respect of any profits or gains arising from the sale, exchange or transfer of a capital asset. Section 45 of the Income-tax Act, 1961, corresponds to Section 12B of the Act of 1922. Clause (vi) of Section 47 of the new Act makes the provision of Section 45 inapplicable to ' any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company'. This clause was inserted by Section 19 of the Finance (No. 2) Act, 1967, with effect from 1st April, 1967. Mr. Bajoria, learned counsel for the assessee, contended that the insertion of this clause was sufficient to indicate that prior to 1st April, 1967, a transaction as in the present case would attract the provision of Section 45 of the 1961 Act which corresponds to Section 12B of the 1922 Act. Mr. Bajoria invited our attention to the memorandum of the Finance Ministry explaining the provision in the Finance (No. 2) Bill, 1967, by which Clause (vi) was proposed to be inserted in Section 47 of the 1961 Act. Paragraph 36 of the memorandum says that under the present law certain tax liabilities are attracted in the case of a company merging with another company under a scheme of amalgamation, and also, in the case of shareholders of the amalgamating company. Learned counsel for the assessee submitted that the memorandum could be considered by the court only for the limited object of ascertaining the purpose for which the Bill was introduced.
4. The question which requires consideration is whether there was a sale, exchange or transfer of a capital asset as a result of the amalgamation. An ' amalgamation ' may be defined as an arrangement whereby the assets of two companies become vested in, or under the control of one company (which may or may not be one of the original two companies), which has as its shareholders all, or substantially all, the shareholders of the two companies. An amalgamation is effected by the shareholders of one or both of the amalgamating companies exchanging their shares (either voluntarily or as the result of a legal operation) for shares in the other or a third company. The arrangement is frequently effected by means of a take-over bid by one of the companies for the shares of the other, or of a take-over bid by a third company for the shares of both (see Weinberg on Takeovers and Amalgamations, 2nd edition, page 3, Article 103). In the case of Royal Insurance Company Ltd. v. Stephen (H. M. Inspector of Taxes),  14 TC 22 the question for consideration was whether the surrender of the old stocks enabled the result of the company's holding of those investments to be definitely ascertained and was equivalent to a realisation. In that case the appellant-company held large investments including a variety of British railway stocks. The company admitted that any profit made on the realisation of investment was part of its profits for income-tax purposes, and the Crown admitted that any loss was an admissible deduction from the company's profits. Under the Railways Act, 1921, the company was required to accept new stocks in the amalgamated company in exchange for the stocks previously held in the companies, which under the Act were either amalgamated or absorbed. In dealing with this point Rowlatt J. observed at page 28 of the report as follows :
' It is not a question of getting moneys as I have said. At the bottom of this principle of waiting for a realisation, I think there is this idea : while an investment is going up or down for income tax purposes the company cannot take any notice of fluctuations, but it has to take notice of them when all that state of affairs comes to an end, when that investment is wound up I will say--' wound up ' is an unfortunate expression perhaps and I will say when an investment ceases to figure in the company's affairs, when it is known exactly what the holding of that investment has meant, plus or minus to the company, and when the company starts so far as that portion of its resources is concerned with a new investment. Then one knows where one is and it is no longer a question of paper, it is a question of fact and that is a realisation. '
5. The same view was taken in Westminster Bank Ltd. v. Osier (H.M. Inspector of Taxes),  17 TC 381 , where the decision of the King's Bench Division was upheld by the Court of Appeal as well as by the House of Lords. In Commissioner of Income-tax v. R.R. Ramkrishna Pillai, : 66ITR725(SC) the Supreme Court, while considering the effect of a transaction by which a person carrying on business transferred the assets of that business to another assessable entity, observed as follows:
' The assets of a business may be sold at a fixed price to a company promoted by a person who carried on the business ; if the price paid for or attributable to an asset exceeds the written down value of the asset, proviso 2 to Section 10(2)(vii) would ex facie be attracted. Where the person carrying on the business transfers the assets to a company in consideration of allotment of shares, it would be a case of exchange and not of sale and the true nature of the transaction will not be altered, because for the purpose of stamp duty or other reasons the value of assets transferred is shown as equivalent to the face value of the shares allotted. A person carrying on business may agree with a company floated by him that the assets belonging to him shall be transferred to the company for a certain money consideration and that in satisfaction of the liability to pay that 'money consideration, shares of a certain face value shall be allotted to the transferor. In that case there are in truth two transactions--one a transaction of sale and the other a contract under which shares are accepted in satisfaction of the liability to pay the price.'
6. This view was affirmed in Commissioner of Income-tax v. B.M. Kharwar, : 72ITR603(SC) .
7. In the present case it will be seen that as soon as the petitioner surrenders its shares, Birla Cotton Spinning and Weaving Mills Ltd. got those shares. The petitioner, therefore, is parting with its shares held by it in Merchandise and Stores Ltd. and Rajputana General Dealers Ltd. The petitioner is obviously parting with its shares in the said two companies in favour of Birla Cotton Spinning and Weaving Mills Ltd. who in return for those shares is allotting certain shares to the petitioner in the proportion mentioned in the scheme of amalgamation. Learned counsel for the assessee contended before us that even assuming that the shares held by the petitioner in Merchandise and Stores Ltd. and Rajputana General Dealers Ltd. were worth nothing if Birla Cotton Spinning and Weaving Mills Ltd. were agreeable to accept those shares and in lieu thereof offers its shares to the petitioner, there was certainly, in the eye of law, a valid exchange. It was further contended that the reasoning of the Tribunal that Birla Cotton Spinning and Weaving Mills Ltd. could not hold its own share is wrong, because the new shares were being created by the shareholders of the Birla Cotton Spinning and Weaving Mills Ltd. and then those were allotted to the petitioner. It was further contended that the view taken by the Tribunal that in case of exchange Birla Cotton Spinning and Weaving Mills Ltd. should be left with the ownership of the shares 'which the assessee claimed to have exchanged is also wrong. There is a good deal of substance in the contention advanced by the learned counsel for the assessee. The assessee certainly parted with the shares held by it in the two amalgamating companies in favour of Birla Cotton Spinning and Weaving Mills Ltd. But under the scheme of amalgamation those two amalgamating companies lost their existence by operation of law, after the amalgamation. And that is why Birla Cotton Spinning and Weaving Mills Ltd. was not left with the ownership of the shares of those amalgamating companies. In Mangalore Electric Supply Co. Ltd. v. Commissioner of Income-tax, : 86ITR472(Cal) a Division Bench of this court held that 'transfer ' in Section 12B means transfer not only by act of parties but also by operation of law. Their Lordships pointed out that prior to amendment of that section in 1956, any transfer of capital assets by reason of the compulsory acquisition thereof under the law for the time being in force was exempted from the operation of Section 12B, and this fact indicated that after the amendment of that section transfer of capital assets by reason of compulsory acquisition came within the purview of Section 12B.
8. Mr. Pal, learned counsel for the department, has contended before us that the transfer here was only of the undertaking and the rights and liabilities of the transferor and the transferee-company. He has contended that in the process of allotment of shares by a company there is no transfer of any property. According to him, in the case of normal allotment of shares, it is a transfer but in a case of amalgamation there is no transfer. He has referred to Section 394 of the Companies Act, 1956, which speaks of ' transfer of the undertaking, property and the liabilities of the transferring company '. He has further contended that in the present case what has happened is that certain shares in the Birla Cotton Spinning and Weaving Mills Ltd. have been allotted to the assessee on the basis of the scheme for amalgamation, and, therefore, there is no exchange. Mr. Pal strongly relies upon the decision in In re V.G.M. Holdings Ltd. 1 All ER 224;  12 Comp Cas 254 In that case the sole question for decision was whether or not the word ' purchase ' in Section 45 of the Companies Act, 1929, covers a case where the money which the company provides is used as a subscription for the company's own shares. Lord Greene M.R., delivering the judgment of the Court of Appeal, observed as follows :
' Quite apart from those considerations relating merely to the language of the Act, it seems to me that the word ' purchase ' cannot, with propriety be applied to the legal transaction under which a person, by the machinery of application and allotment, becomes a shareholder in the company ; he does not purchase anything when he does that. Counsel for the appellant endeavoured heroically to establish the proposition that a share before issue was an existing article of property, that it was an existing bundle of rights which a shareholder could properly be said to be purchasing when he acquired it by subscription in the usual way. I am quite unable to accept that view. A share is a chose-in-action. A chose-in-action implies the existence of some person entitled to the rights, which are rights in action as distinct from rights in possession, and, until the share is issued, no such person exists. Putting it in a nutshell, the difference between the issue of a share to a subscriber and the purchase of a share from an existing shareholder is the difference between the creation and the transfer of a chose in action. The two legal transactions of the creation of a chose in action and the purchase of a chose in action are quite different in conception and in result.'
9. In our opinion, the said case can have no application in the present case before us. That was a case of initial subscription for shares. There was no question of allotting shares in exchange for something. In the present case Clause (v) of the scheme of amalgamation as approved by the High Courts of Punjab and Rajasthan, which was, by consent of parties, treated as annexure to the paper book by our order dated 21st November, 1973, clearly provides that:
' The shares allotted as provided in the foregoing clause will be issued and delivered to the registered shareholders or to their nominees in exchange for ordinary shares of Merchandise and Stores Ltd. and Rajputana General Dealers Ltd. in the proportion above mentioned.'
10. It was, therefore, clearly a case, at least of transfer of shares by the petitioner, if not an exchange. In the decision relied upon by Mr. Pal the word ' purchase ' was used in the context of Section 45 of the Companies Act, 1929, in contradistinction with the words ' application ', ' allotment ' or ' subscription '. Moreover, under our law shares are not choses-in-action. Under Section 2(vi) of the Sale of Goods Act, 1930, shares are'goods' and those are movable properties and not actionable claims. Section 137 of the Transfer of Property Act expressly excludes shares from Chapter VII of the Act which, deals with transfer of actionable claims. Moreover, Section 82 of the Companies Act, 1956, specifically provides that shares or other interests of any member in a company shall be movable property, transferable in the manner provided by the articles of the company. It is to be noticed further that in Section 54 of the Companies Act, prior to its amendment in 1948, only the word 'purchase ' was there. The word 'subscription ' was introduced by amendment in 1948. So, at the time when the case referred to above was decided, the word ' subscription ' was not there in the Companies Act.
11. Counsel for the department next relied upon J. & P. Coats Ltd. v. Commissioners of Inland Revenue,  2 QB 423. . In that case it was held that where by an instrument entered into in pursuance of an agreement a shareholder in one company transferred his shares to another company in exchange for certain shares in the latter company the transaction amounted to a conveyance on sale of the shares within Sections 54 and 55 of the Stamp Act and were chargeable with ad valorem stamp. Lord Esher M.R. quoted with approval the observations of Lindley L.J. in the case of John Foster & Sons Ltd. v. Inland Revenue Commissioners ,  1 QB 516 which are as follows :
' 'The consideration for the transfer of this property is, I agree, not money, but it is stocks and securities,.... which for the purpose are to be regarded as equivalent to money.... by reason of Section 71 of the Act.' '
12. It is, therefore, clear that the decision in that case was with reference to the stamp duty chargeable on the instrument and so the observations made in that case cannot have any application in the present case. Mr. Pal also relied upon a Full Bench decision of the Madras High Court in Secretary, Board of Revenue, Madras v. Madura Mills Co. Ltd.,  7 Comp Cas 71 (Mad) In that case also the question was whether the transaction amounted to an agreement or to a conveyance as defined by Section 2(10) of the Stamp Act. The Madras High Court held that a share in the hands of a shareholder is a property, and when a shareholder exchanges his shares with another it may be possible to regard the transaction as amounting to a transfer whether by way of exchange or conveyance. But when the company is for the first time issuing shares, there is no question of property already possessed by the company being thereby transferred to the allottee. It was further observed that whatever may be the exact nature of the right which the allottee acquires between the date of allotment and the date of the entry of his name in the register it could not be regarded that the issue of shares to him by allotment as amounting to a transfer of property by the com pany to the allottee. For our present purpose, however, it is not necessary for us to enter into this question further because even though the allotment of shares in favour of the assessee in the present case may not amount to an exchange the question of capital loss or capital gains would certainly arise if there has been a transfer of the shares held by the assessee in favour of Birla Cotton Spinning and Weaving Mills Ltd.
13. Learned counsel on behalf of the assessee has lastly contended that the question to be decided in the present case is not whether Birla Cotton Spinning and Weaving Mills Ltd. is also making a reciprocal transfer in which case there would have been an exchange but the question is whether the assessee transferred its shares to Birla Cotton Spinning and Weaving Mills Ltd. It is submitted that if there was a transfer by the assessee then Section 12B would apply and, therefore, if necessary, the question may be reframed by us. In our view, this contention of Mr. Bajoria has a good deal of force. The order passed by the High Courts of Punjab and Rajas-than approving the scheme clearly mentions that Birla Cotton Spinning and Weaving Mills Ltd. will issue to the shareholders of the two amalgamating companies the shares of the Birla Cotton Spinning and Weaving Mills Ltd. in exchange for ordinary shares of the two amalgamating companies in a certain proportion as specified in the order. It further provides that as regards the holders of preference shares in Rajputana General Dealers Ltd., they will be paid by the Birla Cotton Spinning and Weaving Mills Ltd. at the rate of Rs. 50 per share held by them. This certainly amounts to a transfer of the shares held by the assessee in favour of Birla Cotton Spinning and Weaving Mills Ltd. In Commissioner of Income-tax v. Smt. Anusuya Devi, : 68ITR750(SC) the Supreme Court pointed out that the power to reframe a question may be exercised to clarify or to pinpoint the real issue between the taxpayer and the department or for similar other reasons ; it cannot be exercised for reopening an enquiry or questions of fact or law which is closed by the order of the Tribunal. In the present case the principal question for decision is not whether there has been an exchange or not but whether there has been a capital loss or not because of a transfer of the capital assets of the assessee. No fresh investigation into facts is necessary. Mr. Pal appearing on behalf of the department has fairly contended that he cannot have any objection to the reframing of the question provided it is with reference to Section 12B of the Act.
14. We, therefore, reframe the question in the manner following: ' Whether, on the facts and in the circumstances of the case, there was a transfer of the shares held by the assessee in Merchandise and Stores Ltd. and Rajputana General Dealers Ltd. in favour of Birla Cotton Spinning and Weaving Mills Ltd., within the meaning of Section 12B when the assessee was allotted shares in Birla Cotton Spinning and Weaving Mills Ltd. as a result of the amalgamation of Rajputana General Dealers Ltd. and Merchandise and Stores Ltd., so as to result in any capital loss in respect of the assessment year 1961-62 under Section 12B of the Indian Income-tax Act, 1922 '
15. For the reasons mentioned above, our answer to the question is in the affirmative and is in favour of the assessee and against the department. The assessee will be entitled to its costs of this reference from the department.
A.N. Sen, J.
16. I agree.