Income-tax---

----Reference---Capital gains---Transfer---Amalgamation of companies Assessee receiving shares and bonds of amalgamated company in lieu of his shareholding in amalgamating company--- Department accepting that there is no transfer of capital asset within the meaning of S.2(47)---Whether gains resulting from transfer liable to tax---Reference not answered---Indian Income Tax Act, 1961, Ss.2(47), 45 & 256.

Where on an amalgamation of companies, the assessee received bonds and shares of the amalgamated company in lieu of her shareholding in the amalgamating company, on a reference of the question whether the gains resulting from the transfer were liable to tax as capital gains:

Held, that the Department, in similar cases belonging to the same group or the same set of assessees, had accepted that there was no transfer of a capital asset within the meaning of section 2(47) of the Income Tax Act, 1961. The reference, therefore, did not need to be answered.

CIT v. Gautam Sarabhai Trust (1988) 173 ITR 216 (Guj.); CIT v. Master Raghuveer Trust (1985) 151 ITR 368 (Kar.); CIT v. Rasiklal Maneklal (HUF) (1974) 95 ITR 656 (Bom.) and CIT v. Rasiklal Maneklal (HUF) (1989) 177 ITR 198 (SC) ref.

M.J. Thakore instructed by M.R. Bhatt, Mrs. M.M. Bhatt and Maulik R. Bhatt of R.P. Bhatt & Co. for the Commissioner.

D.A. Mehta and R.K. Patel for K.C. Patel for the Assessee.

JUDGMENT

M. B. SHAH, J. ---The assessee was a holder of shares in the amalgamating company. By a scheme of amalgamation, the assets, inter alia, of the amalgamating company as also its liabilities were transferred to the amalgamated company, namely, Alkapuri Investments (Private) Limited ("A.I.P.L.", for short). Under the scheme, A.I.P.L. was obliged to issue and allot to the shareholders of the amalgamating company one equity share of the face value of Rs.100 and two fractional certificates each representing entitlement of 1/10th of one equity share and one 11 per cent. redeemable bound of the face value of Rs.100 in respect of one equity share of the amalgamating company.

The Income-tax Officer levied capital gain tax by holding that, as the assessee received shares, it was a transfer and that the amount received by the assessee was subject to tax as capital gains. That part of the order passed by the Income-tax Officer was confirmed by the Commissioner of Income-tax (Appeals). The assessee preferred an appeal to the Tribunal. The Tribunal, following the decision of this Court in the case of CIT v. Gautam Sarabhai Trust (1988) 173 ITR 216, held that the assessee was not entitled to get benefit under section 47(vii) of the Income Tax Act, 1961, because besides the share or shares in the amalgamated company, the shareholder of the amalgamating company is allotted something more such as bonds or debentures in consideration of the transfer of his share or shares in the amalgamating company.

In the case of Gautam Sarabhai Trust (1988) 173 ITR 216, while deciding the reference, this Court has explicitly made it clear that the reference was decided on the assumption that the allotment of shares under the scheme of the amalgamation amounts to transfer of capital asset within the meaning of section 2(47) of the Income-tax Act. It was also made clear that in case the question which was referred to the Court is answered in the negative and against the assessee, the Tribunal will have to decide the question whether the transaction amounted to transfer of a capital asset within the meaning of section 2(47) so as to attract exigibility of tax under section 45. Considering the aforesaid specific observations, the Tribunal came to the conclusion that there was no transfer in this case and, hence, there was not taxable capital gains.

Hence, at the instance of the Revenue, in Income-tax Reference No. 130 of 1990, the following question is referred for our, opinion under section 256(1) of the Income-tax Act:

"Whether the Appellate Tribunal is right in law and on facts in holding that there was no transfer in the present case and, therefore, there was no taxable gains?"

In Income-tax References Nos. 132 of 1990 to 146 of 1990, 149 of 1990, 151 of 1990, 154 of 1990 to 159 of 1990, 162 of 1990 to 177 of 1990, 179 of 1990 to 182 of 1990, 184 of 1990, 187 of 1990, 188 of 1990, 191 of 1990, 194 of 1990, 127 of 1991, 128 of 1994, 129 of 1991, 132 of 1991, 135 of 1991, 136 of 1991, 143 of 1991, 144 of 1991, 157 of 1991, 158 of 1991, 160 of 1991, 162 of 1991, 163 of 1991, 165 of 1991, 168 of 1991 to 172 of 1991, 174 of 1991, 178 of 1991, 181 of 1991, 189 of 1991, 191 of 1991, 200 of 1991, 3 of 1992, 49 of 1992, 57 of 1992, 63 of 1992, 100 of 1992, 101 of 1992, 106 of 1992, 107 of 1992, 108 of 1992, 113 of 1992, 114 of 1992, 116 of 1992 to 124 of 1992, 127 of 1992, 128 of 1992, 138 of 1992, 139 of 1992, 141 of 1992 to 145 of 1992, 150 of 1992, 152 of 1992 to 157 of 1992, 159 of 1992, 165 of 1992, 168 of 1992 to 171 of 1992, 175 of 1992, 199 of 1992, 201 of 1992, 203 of 1992, 204 of 1992, 205 of 1992, 323 of 1992, 333 of 1992, 334 of 1992, 335 of 1992, 337 of 1992 to 344 of 1992, 351 of 1992 to 357 of 1992, 413 of 1992, 417 of 1992, 419 of 1992, 421 of 1992 423 of 1992, 429 of 1992., 430 of 1992 to 433 of 1992 and 435 of 1992, on similar facts, a similar question is referred for our opinion.

At the time of hearing of the matters, it was pointed out that in the case of Rajshree K. Sarabhai, Trust No. 2, and other such trust cases of the Sarabhai group, where because of amalgamation, the shareholders of the amalgamated company are allotted shares of amalgamating company, though the capital gain tax was charged in the assessment order passed by the income-tax Officer, in appeal, that order was set aside by the Commissioner of Income-tax (Appeals). It was held that there was no transfer within the meaning of section 2(47) of the Income-tax Act. For arriving at the said conclusion, the Commissioner of Income-tax relied upon the decision of the Karnataka High Court in the case of CIT v. Master Raghuveer Trust (1985) 151 ITR 368, wherein the Karnataka High Court held that as a result of amalgamation of a company if the shares are allotted to the shareholders of the amalgamated company, it did not result in a transfer of a capital asset of the assessee for consideration within the meaning of section 2(47) of the Act so as to be chargeable to income-tax under the head "capital gains".

The Commissioner of Income-tax also relied upon the decision of the Supreme Court in the case of CIT v. Rasikal Maneklal (HUF) (1989) 177 ITR 198, wherein the Supreme Court has approved the view taken by the Bomaby High Court in CIT v. Rasikalal Maneklal (HUF) (1974) 95 ITR 656 that the receipt of the assessees of the 45 shares of the New Shorrock Company upon amalgamation by reason of the shareholding of the 90 shares of the Shorrock Company cannot be described as "exchange" because exchange involved a transfer of property by one person to another and reciprocally the transfer of property by the other to the first. The Court held that when the allottee was allotted shares of the New Shorrock Company, he was entitled to such allotment because of his holding of 90 shares of the Shorrock Company which was merely a qualifying condition entitling the assessee to the allotment of the 45 shares of the New Shorrock Company. Similarly, the Court held that it was not relinquishment and observed as under (page 202):

"A relinquishment takes place when the owner withdraws himself from the property and abandons his rights thereto. It presumes that the property continues to exist after the relinquishment. Upon amalgamation, the shares of the Shorrock Company, as has been mentioned earlier, lost all value as that company stood dissolved. There is no relinquishment."

The Commissioner of Income-tax also took into consideration the fact that the special leave petition filed by the Department against the judgment of the Karnataka High Court in the case of CIT v. Master Raghuveer Trust (1985) 151 ITR 368 was dismissed by the Supreme Court (see (1991) 187 ITR (St.) 45 by observing that the point was converged by the decision of the Supreme Court in the case of Rasiklal Maneklal (HUF) (1989) 177 ITR 198.

Before the hearing of these matters, these facts were pointed out to the Commissioner of Income-tax by learned counsel for the assessee. It was also point out that the same view was taken by the Department in a number of such other matters. Thereafter, the Commissioner of Income-tax wrote a letter to R.P. Bhatt & Company indicating that it was true that the Department has chosen not to prefer appeal against the decision of the Commissioner of Income-tax (Appeals) taking a view that in such type of cases it would not amount to transfer. That correspondence is produced on record.

In view of the aforesaid facts, the question involved in these references as to whether, on amalgamation of a company when the assessee receives shares and bonds of the amalgamated company in lieu of her shareholding in the amalgamating company, it is a transfer as contemplated under section 2(47) of the Act, is not required to be determined mainly because it appears from the abovereferred letter of the Commissioner of Income-tax that the Department in similar cases belonging to the same group (or the same set of assessees) has accepted that where the assessees have received shares and bonds because of amalgamation, there is no transfer of capital assets within the meaning of section 2(47) of the Income Tax Act, 1961. .

Hence, for the purposes of the present references, it can be stated that the Department has accepted (so far as these assessees are concerned) the position that in such type of cases there is no transfer of capital asset within the meaning of section 2(47) of the Income-tax Act.

In the result, because of the peculiar facts, the question in all the references is left unanswered. The references stand disposed of accordingly with no order as to costs

M.B.A./1282/FCReference answered.