1. The facts found and/or admitted in these proceedings are shortly as follows : Cheviot Mills Co. and Orient Jute Mills Co. Ltd. belonging to the Andrew Yule group of companies had been carrying on business in jute. It was decided to amalgamate the two companies and a scheme was drawn up accordingly which, inter alia, provided that the undertaking of Orient Jute Mills Co Ltd. including all its assets and liabilities, wouldvest in Cheviot Mills Co. Ltd. and that the latter would allot fully paid up ordinary shares against similar shares in Orient Jute Mills Co. Ltd. in stipulated rates. The scheme was approved and sanctioned by this court under Section 391 read with s, 394 of the Companies Act, 1956. In terms of the order of this court, the amalgamation of the said companies became effective from 31st July, 1960.
2. In the assessment year 1961-62, the relevant accounting year being the year ended on the 30th November, 1960, the accounts of the assessee included the amalgamated accounts for 4 months after the 31st July, 1960. It was contended by the assessee that, as it had succeeded to the business of Orient Jute Mills Co. Ltd., it was entitled to take the cost of the acquired assets as that on the 1st January, 1954, under Section 12B(3) and on such basis the assessee claimed a capital loss of Rs. 2,15,983. The ITO was of the view that on merger or amalgamation the corporate entity of a company would not disintegrate but would continue to exist as part and parcel of the company with which it was merged. He held that the Orient Jute Mills Co. Ltd. continued to exist after amalgamation with Cheviot Mills Co. Ltd. and that there was no question of computation of the value of the assets under Section 12B.
3. The assessee preferred an appeal from the order of the ITO. The AAC proceeded on the basis that succession to a business entailed that the same would be carried on thereafter. After amalgamation in the instant case he found that the assessee-company was not carrying on the same business as that of Orient Jute Mills Co. Ltd. The business of Orient Jute Mills Co. Ltd., he held, was discontinued as the company itself lost its separate entity on amalgamation. He noted further that the factory building of Orient Jute Mills Co. Ltd., stripped of all plants and machinery, had been rented out. Some of such plants and machinery were in the assessee's business and the rest had been sold. On these facts, he concluded that the business of Orient Jute Mills Co. Ltd. had neither been carried on by the assessee nor had the assessee succeeded to the same. The assessee was, therefore, not entitled to substitute the market value of the assets as on the 1st January, 1954, and there was no material loss.
4. The assessee preferred a further appeal to the Income-tax Appellate Tribunal. It was contended in the appeal on behalf of the assessee that there had been a succession to the business of Orient Jute Mills Co. Ltd. and, therefore, Section 12B(3) was applicable. It was contended on behalf of the revenue that there was no continuity of the business and, therefore, the case could not be one of succession. The Tribunal, inter alia, found that Cheviot Mills Co. Ltd. had taken over the business of Orient Jute Mills Co. Ltd. through amalgamation and that the said business as a whole stood transferred. The business of both the companies being similar there wasmerger of the said businesses but the business of Orient Jute Mills Co. Ltd. was not discontinued. Some of the assets of the Orient Jute Mills Co. Ltd. were being used by the assessee and some had been sold. After the transfer. Orient Jute Mills Co. Ltd. came to be dissolved. From the aforesaid, the Tribunal, after considering the section and several decisions cited before it, held that the ownership changed hands but the identity of the business was substantially preserved and there was continuity.
5. At the instance of the Commissioner, West Bengal I, this court under Section 66(2) of the Indian I.T. Act, 1922, has directed the Tribunal to draw up a statement of case and refer the following question as a question of law arising from the order of the Tribunal :
' Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the capital assets became the property of the assessee by succession within the meaning of Section 12B(3) of the Indian Income-tax Act, 1922, and that accordingly the assessee was entitled to substitute the fair market value as on the first January, one thousand nine hundred and fifty-four, of the assets sold '
6. Mr. B. L. Pal, learned counsel for the revenue, contended at the hearing that pursuant to the amalgamation of the two companies the Orient Jute Mills Co. Ltd. came to be dissolved which, he submitted, meant that the business of Orient Jute Mills Co. Ltd. had ceased and had come to an end. All that was transferred to Cheviot Mills Co. Ltd. were the assets of the business of Orient Jute Mills Co. but not the business. He further submitted that it was not a term of the amalgamation that Cheviot Mills Co. Ltd. would carry on the business of Orient Jute Mills Co. Ltd.
7. Dr. Debi Pal, learned counsel for the assessee, has contended on the other hand that the matter was concluded by the judgment of the Supreme Court in CIT v. K.H. Chambers : 55ITR674(SC) which applied on the specific facts found by the Tribunal in the instant case and which have not been challenged by the revenue.
8. He also cited Briton Ferry Steel Co. v. Barry (Inspector of Taxes)  9 ITR (Supp) 122. The facts in this case were that the business of the company consisted of manufacturing steel bars and selling them to outside customers and subsidiaries. The subsidiary companies used to convert the bars into black plate and tin plate and sell the same. Subsequently, the subsidiary companies were wound up and the parent company acquired their undertakings and assets. The parent company was thereafter assessed to income-tax on the footing that it had succeeded to the trade carried on by each of the subsidiary companies. The contention of the assessee was that it had set up a new trade. The matter finally went up to the Court of Appeal. The relevant observations of Greene M.R. (at pages 127-128 of the report) arc as follows :
'It is obvious that where somebody, be it an individual or a company, who is already carrying on a business, acquires a business from somebody else and continues to carry it on, difficult questions must arise, because, in the ordinary course of business, if the business acquired is carried on, it becomes, to a greater or lesser extent, merged in fact in the old business of the company. It may alter its character ; and the reality of the matter is that, as from the date of such an acquisition, there is one business and one business only, namely, the business of the person who is carrying it on. I disregard cases where the business acquired is of a totally different character from that previously carried on. '
9. In CIT v. K.H. Chambers : 55ITR674(SC) , the Supreme Court considered the question of succession to a business within the meaning of Section 25(4) of the Indian I.T. Act, 1922. In the judgment, it was observed as follows (p. 682):
' The question, therefore, is whether a finding that a person succeeded another in his. business within the meaning of Section 25(4) of the Act is a finding of fact. The expression ' succession ' as stated by Simon in his book on Income-tax, has acquired a somewhat artificial meaning. The cases we have considered supra and similar others have laid down some tests, though not exhaustive, to ascertain whether there is succession in a given case or not. The tests of change of ownership, integrity, identity and continuity of a business have to be satisfied before it can be said that a person ' succeeded ' to the business of another. Unless the facts found by Tribunal satisfy the said tests, the finding cannot be conclusive/'
10. The amalgamation in the present case has been effected under Section 394 of the Companies Act, 1956, the relevant provisions whereof are as follows :
' Section 394. Provisions for facilitating reconstruction and amalgamation of companies.--(1) Where an application is made to the court under Section 391 for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the court-
(a) that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies ; and
(b) that under the scheme the whole or any part of the undertaking, property or liabilities of any company concerned in the scheme (in this section referred to as a ' transferor company ') is to be transferred to another company (in this section referred to as ' the transferee company ');
the court may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for all or any of the following matters :
(i) the transfer to the transferee company of the whole or any part of the undertaking, property or liabilities of any transferor company ;......
(iv) the dissolution, without winding-up, of any transferor company;...... '
11. Section 12B of the Indian I.T. Act, 1922, provides, inter alia, as follows:
' (1) The tax shall be payable by an assessee under the head ' Capital gains ' in respect of any profits or gains arising from the sale, exchange, relinquishment or transfer of a capital asset effected after the 31st day of March, 1956, and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange, relinquishment or transfer took place:......
(2) The amount of a capital gain shall be computed after making the following deductions from the full value of the consideration for which the sale, exchange, relinquishment or transfer of the capital asset is made, namely :--......
Provided further that where the capital asset became the property of the assessee, or of the previous owner where the cost of the capital asset to the previous owner is to be taken in accordance with Sub-section (3), before the 1st day of January, 1954, he may, on proof of the fair market value thereof on the said date to the satisfaction of the Income-tax Officer, substitute for the actual cost such fair market value which shall be deemed to be the actual cost to him of the asset, and which shall be reduced by the amount of depreciation, if any, allowed to the assessee after the said date and increased or diminished, as the case may be, by any adjustment made under clause (vii) of Sub-section (2) of Section 10 :...... (3) Where any capital asset became the property of the assessee by succession, inheritance or devolution or on any distribution of capital assets on the total or partial partition of a Hindu undivided family or on the dissolution of a firm or other association of persons or on the liquidation of a company or under a deed of gift, or transfer on irrevocable trust, its actual cost allowable to him for the purposes of this section shall be its actual cost to the previous owner thereof, and the provisions of Sub-section (2) shall apply accordingly; and where the actual cost to the previous owner cannot be ascertained, the fair market value at the date on which the capital asset became the property of the previous owner shall be deemed to be the actual cost thereof:......'
12. In our view, the matter appears to be concluded by the language of Section 12B, which relates to the transfer of a capital asset and not of an entire business by succession, inheritance or devolution. It is not in dispute that the capital assets of Orient Jute Mills Co. Ltd. stood transferred to CheviotMills Co. Ltd. The question is whether such transfer took place by way of succession or devolution. Whether the entire business of Orient Jute Mills Co. Ltd. was transferred to Cheviot Mills Co. Ltd. or not is of little relevance. The transfer took place pursuant to an order of this court under the said Section 394 of the Companies Act, 1956, and appears to us to be a clear case of devolution by operation of law. In any event, there is a specific finding in the instant case that the entire business of Orient Jute Mills Co. Ltd. has been succeeded to and continued by the Cheviot Mills Co. Ltd. This finding is not challenged.
13. By reason of the aforesaid, the question is answered in the affirmative and in favour of the assessee. There will be no order as to costs.
C.K. Banerji, J.
14. I agree.