MRS. GRACE COLLIS VS COMMISSIONER OF INCOME-TAX
1999 P T D 1188
[226 ITR 55]
[Kerala High Court (India)]
V. V. Kamat and P.A. Muhammad, JJ
Mrs. GRACE COLLIS and others
Versus
COMMISSIONER OF INCOME-TAX
Income-tax References Nos. 269 to 277 of 1985, decided on 03/06/1996.
(a) Income-tax---
----Capital gains---Transfer---Amalgamation of companies---Meaning of "transfer" ---Scheme of amalgamation sanctioned by Court---Order of Court allotting shares in amalgamated company in a particular proportion for shares in amalgamating company---Transaction did not amount to transfer---Indian Income Tax Act, 1961, Ss.2(47), 45, 47 & 49.
(b) Income-tax--
----Capital gains---Computation of capital gains---Shares received on amalgamation of companies under order of Court---Transfer of shares after seven years---Amalgamation was not relevant in computing cost of share-- Shares to be taken at their face value---Indian Income Tax Act, 1961.
(c) Words and phrases---
......Transfer"---Connotation.
In an amalgamation of companies if the amalgamated company is an Indian company, any transfer attributable to a scheme of amalgamation of the capital asset by the amalgamating company to the amalgamated company would not be considered as transfer as per section 47(vi) of the Income Tax Act, 1961. It is provided by section 47(vii) that if the transfer of shares in the amalgamating company by a shareholder in a scheme of amalgamation is made and that, too, if it is in consideration of the allotment to him of any share or shares in the amalgamated company and the amalgamated company is an Indian company, it would also not be considered as transfer. This is the direct and straight meaning of the provisions of section 47 of the Income Tax Act, 1961. A plain reading of section 49(2) would show that the concerned capital asset being the share or shares in an amalgamated company which is an Indian company, would have to be necessarily the one emerging from the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, and it is only then that the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the share or shares, in the amalgamating company. A further requirement is clear from the reading of the statute that assuming that the capital asset under consideration amounts to a transfer, a further requirement that this transfer must have its origin as it being in consideration flowing from the shareholder and not otherwise. Whatever the mode by which the transfer is brought about the existence of assets during the process of transfer is a pre-condition. The extinguishment of a right or rights should, in any case, be on account of its or their transfer in order to attract the provisions of section 45. The expressions and words like "sale", "exchange", etc., used in the definition clause of section 2(47) imply the existence of the asset and of the transferee, and the expression "extinguishment of any rights" would take colour from those associated words and expressions and will have to be restricted to the sense analogous to them. The expressions "extinguishment of any rights" would have to be understood as relatable as being on account of the transfer and cannot be extended to mean any extinguishment of right independent of or otherwise than on account of transfer. Where shares are allotted as a consequence of the order of the company, Court in a petition under section 394 of the Companies Act, 1956, resulting in amalgamation there is no "transfer" within the meaning of section 2(47). When the concerned provisions are plain that what is required is a transfer by way of consideration in relation to the transaction of shares by the shareholder for the purpose of attracting the statutory provisions and, if such a situation flows from the order of the Court, in any situation in regard thereto, the shareholder could not be understood to have any connection whatsoever in regard thereto.
In a process of amalgamation in a proceeding before the company Court, company A amalgamated with company C and in pursuance thereof as ordered by the Court, the shareholders were ordered to be given 14 shares in C in lieu of one share in A. The assessees in pursuance thereof, were allotted 14 shares in the amalgamated company for every share of the face value of Rs.100 each in pursuance of the order of amalgamation. To be precise arithmetically, these assessees acquired 45,318 shares each of the face value of Rs.100 in the amalgamated company, C. All this took place in 1969. These shares were transferred in favour of one, B.K.C., and his group long thereafter, on February 29, 1976, for a total consideration of Rs.48,72,523 and this was at the rate of Rs.107.50 per share. The Income-tax Officer held that in the amalgamating company each shareholder purchased a share of the face value of Rs.100 and in lieu thereof became purchaser of 14 shares of equal denomination of Rs.100 in the amalgamated company. As a result, the Income-tax Officer divided the figure 100 by 14 and reached a conclusion that the original cost of each share would have to be understood as Rs.7.50 in the context and proceeded with the consequential assessment. The Tribunal held that there was a transfer of shares as a result of the .amalgamation and that section 49(2) applied to the sale of shares by the assessee. On a reference:
Held, that the allotment of shares on amalgamation did not have any semblance of a character of a transfer in any manner. Company A ceased its existence and its shares became worthless. The matter could be considered from another angle. The share of Rs.100 of A which had become known as having merged as a result of proclamation had been, on calculation, reduced to Rs.7.50 resulting in a situation that the assessees would not be considered independently with regard to the transaction in question of 1976 and would be chargeable to tax with reference to Rs.100 in regard to each of the shares covered by the transactions and that, too, when the situation had emerged as a direct result of the order of the Court. The equivalence of one share to 14 shares was a result of the process of amalgamation by the order of the Court. This was out of consideration of the amalgamation granted by the Court. The shareholder could not be understood to be a party in regard thereto in any manner. Therefore, taking the situation in any way, it could not be understood to be an amount which could be consideration of the transfer of the share by the shareholder. The situation of 1976 had no kind of relationship with the situation of 1969 resulting in the process of amalgamation. It was a transaction by itself where under a share of Rs.100 each was sold as share of Rs.107.50. The authorities could consider the question of taxation on the above basis.
CIT v. Amin (R.M.) (1971) 82 ITR 194 (Guj.); CIT v. Amin (R.M.) (1977) 106 ITR 368 (SC); CIT v. Bankey Lal Vaidya (1971) 79 ITR 594 (SC); CIT v. Madurai Mills Co. Ltd. (1973) 89 ITR 45 (SC); CIT v. Rasiklal Maneklal (HUF) (1974) 95 ITR 656 (Bom.); CIT v. Rasiklal Maneklal (HUF) (1989) 177 ITR 198 (SC); CIT v. Vania Silk Mills (P.) Ltd. (1977) 107 ITR 300 (Guj.); CWT v. Kripashankar Dayashanker Worah (1971) 81 ITR 763 (SC); Dhun Dadabhoy Kapadia (Miss) v. CIT (1967) 63 ITR 651 (SC); James Anderson v. CIT (1960) 39 ITR 123 (SC); K.S. Venkataraman & Co. (P.) Ltd. v. State of Madras (1966) 60 ITR 112; (1966) 17 STC 418 (SC); Leo Machodo (C.) v. CIT (1988) 172 ITR 744 (Mad.); Mangalore Electric Supply Co. Ltd. v. CIT (1972) 86 ITR 472 (Cal.); -Mangalore Electric Supply Co. Ltd. v. CIT (1978) 113 ITR 655 (SC); Sri Gopal Jalan & Co. v. Calcutta Stock Exchange Association Ltd. (1963) 33 Comp Cas 862; AIR 1964 SC 250; United India Life Assurance Co. Ltd. v. CIT (1963) 49 ITR 965; 33 Comp. Cas. 849 (Mad.) and Vania Silk Mills (Pvt.) Ltd. v. CIT (1991) 191 ITR 647 (SC).
C. Kochunni Nair and M.C. Madhavan for the Assessees.
P.K.R. Menon for the Commissioner.
JUDGMENT
V.V. KAMAT, J.- -These are different references. The assessees of equal number who are close relations inter se are concerned for the assessment year 1976-77. The previous year ended on March 31, 1976. The returns for all these years have been filed on May 6, 1977. Although in the application for reference as far as eight questions are sought to be referred by them in their application for reference before the Tribunal and although the Tribunal by the order, dated September 29, 1984, referred only seven out of them, learned counsel appearing, for the assessees restricted submissions only to three questions, candidly stating that with regard to other four questions it may be taken that no submissions are made in regard thereto and these references should be considered and decided as confined only to three questions. Therefore, for the purpose of consideration, the questions to be considered and answered would be as follows:
"(1) Whether, oil the facts and in the circumstances of the case, the Tribunal was right in holding that on the amalgamation of Ambassador Steamships (Pvt.) Ltd. with Collis Line (Pvt.) Ltd., there was a transfer by the assessees of their shares in Ambassador Steamships (Pvt.) Ltd.?
(2) In case the answer to question No. l above is in the affirmative, whether the Tribunal was right in holding that the transfer was made in consideration of the allotment to the assessees of shares in Collis Line (Pvt.) Ltd.?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that section 49(2) of the Income Tax Act, 1961, applied to the sale of the shares of the assessees in Collis Line Pvt. Ltd. which were obtained by the assessees on the amalgamation of Ambassador Steamships (Pvt.) Ltd. with Collis Line (Pvt.) Ltd?"
Since all these questions are common and identical in all these references, common judgment would be the requirement to avoid duplication. This is the one. The Income-tax Appellate Tribunal also has followed the same course.
As stated above, the assessee submitted returns as belonging to the same family stating that they own all the shares in the company known as Collis Line (Pvt.) Ltd. This company came to be incorporated in November, 1968. In pursuance of the order, dated April 2, 1969, in Company Application No. 19 of 1969 under section 394 appearing in Chapter V of the Companies Act, common powers to compromise or make arrangement otherwise known in common parlance as "amalgamation proceedings", were recorded. The original company petition and the order of this Court are at Annexures "E" and "F" of the compilation. 'As far as the assessees are concerned, it would be found from clause (5) of the schedule referring to compromise or arrangement that as the residue of the consideration for the said transfer, as the assessees were the shareholders of Ambassador Steamships (Pvt.) Ltd. (hereinafter referred to as "the amalgamating company"), Collis Line (Pvt.) Ltd. (hereinafter called "the amalgamated company") was ordered to issue to the members of the transferee company 14 equity shares of Rs.100 each in the transferee company credited as fully paid p in respect of such share held by him or her in the transferor company including the 300 equity shares of Rs.100 each subscribed for by those members of the transferor company who are signatories to the memorandum and articles of association of the transferee company. It would be more appropriate to reproduce the said clause which is as follows:
"As the residue of the consideration for the said transfer, the transferee company shall issue to the members of the transferor company 14 equity shares of Rs.100 each in the transferee company credited as fully paid-up in respect of such share held by him or her in the transferor company including the 300 equity shares of Rs.100 each subscribed for by those members of the transferor company who are signatories to the memorandum and articles of association of the transferee company."
For convenience for subsequent reference in regard thereto it would be obvious that these terms "the transferee company" and the "transferor company" would have to be understood as the "amalgamated company" and the "amalgamating company", respectively. There is no dispute that in accordance with the order passed by this Court in the proceedings of amalgamation, as stated above, the assessees were issued shares of Rs.100 each in accordance with the compromise or arrangement as the residue of the consideration for the said transfer in the process of amalgamation.
Therefore, it is obvious that the assets and liabilities of the amalgamating company were taken over by the amalgamated company in accordance with- the change in the proportional equivalence in accordance with clause (5) as stated above. The assessees, in pursuance thereof, were allotted 14 shares in the amalgamated company for every share of the face value of Rs.100 each in pursuance of the order of amalgamation. To be precise arithmetically, these assessees acquired 45,318 shares each of the face value of Rs.100 in the amalgamated company--Collis Line (Pvt.) Ltd. There is no dispute that all this took place in 1969 in pursuance of the order of this Court referred to above, on and from August 1, 1969. Incidentally, Collis Line (Pvt.) Ltd. came into existence on November 11, 1968. It would be seen that these shares came to be transferred in favour of one Sri B.K. Chatterji and his group long thereafter, on February 29, 1976, for a total consideration of Rs.48,72,523 and this was at the rate of Rs.107.50 per share.
In regard to the assessment of these assessees, it would be seen from the assessment order, and it is necessary to emphasise, that the questions requiring consideration are referable to the second submission considered by the Income-tax-Officer in regard thereto. It was submitted before the Income tax Officer, as can be found from the order, that various provisions of the Income-tax Act would require consideration differently, one in a situation where a shareholder in the amalgamating company has transferred his shares in that company in consideration of allotment to him of shares in the amalgamated company. It is contended that in such a situation because there was a transfer of shares at the time of amalgamation, the consequence of the provisions would be different. It was contended that in the event in the proceedings of amalgamation it is revealed that there is no transfer, the provisions will have no application at the time of their sales subsequently in the amalgamated company. Before the authority reliance was placed strongly on the decision of the Bombay High Court in CIT v. Rasiklal Maneklal (HUF) (1974) 95 ITR 656. Reliance was also placed on the careful and cautious discussion of the question in the standard treatise in the commentary of Income-tax Law and Practice by Kanga and Palkhivala, Seventh edition, at pages 553 and 554. We will have an occasion to consider the aspect in great details. Suffice it to state at this stage that the Income-tax Officer brushed aside this aspect by stating that to prove that the transaction of the nature referred to in section 47(vii) is not a. transfer for the purpose of capital gains taxation, no other authority is needed. The Income-tax Officer, it must be stated, observed that the provisions of section 47(vii) in no uncertain terms enacts that a transaction of the nature referred to is not a transfer. It is further observed that where the shares in an amalgamated Indian company became the property of the assessee as a result of the transaction of the nature referred to in section 47(vii), the cost of acquisition of the assets shall be deemed to be the cost of acquisition to him, of the shares in the amalgamating company. A reasonable construction is sought to be put on section 49(2) to hold as a consequence that section 49(2) has application to the facts of the case.
The resultant process adopted by the Income-tax Officer would show from the order that in the amalgamating company each shareholder purchased a share of the face value of Rs.100 and in lieu thereof became purchaser of 14 shares of equal denomination of Rs.100 in the amalgamated company. As a result the Income-tax Officer divided the figure 100 by 14 to reach a conclusion that the original cost of each share would have to be understood as Rs.7.50 in the context and proceeded with the consequential assessment.
The appeals of the assessees before the office of the Commissioner of Income=tax (Appeals), Kerala, Ernakulam, came to be dismissed by separate orders, dated March 20, 1980. Before the first appellate authority the same contention that section , 49(2) would not apply since that section would apply only where there was a transfer within the meaning of section 47(vii) of the Act. Reliance was placed on the commentary referred to above which was also placed for consideration of the Income-tax Officer. In addition thereto it was urged before the first appellate authority that the first and primary rule of interpretation, the understanding of the language of the section has to suit the legislation in question to be understood. This was specified by referring to the decision of the Supreme Court in K.S. Venkataraman & Co. (P.) Ltd. v. State of Madras (1966) 60 ITR 112 to emphasise that the primary rule of interpretation that words should be taken as used in the context of their technical meaning and, of not, in their ordinary meaning.
The decision of the Bombay High Court in CIT v. Rasiklal Maneklal (HUF) (1974) 95 ITR 656 was also relied upon before the first appellate authority. It is observed in the context of the above submissions, as would be found in the discussion at page 57 of the print, firstly that the exemption under section 47(vii) was patent upon the very face of the statute and, therefore, it would be unnecessary to consider the ratio of the Bombay High Court judgment (see (1974) 95 ITR 656). It is further observed that the factual position would be essentially dissimilar because in the case of sale of shares subsequent to their allotment upon merger or amalgamation and the consequent computation of the cost of the shares thereafter, would make all the difference.
The first appellate authority proceeded further to consider the section 49(2) as well as section 47(vii) after quoting the relevant portions from the statutory provisions. It is held that the statutory provisions display the well-defined intent and design of the Legislature to hold the transaction under section 47(vii) as a transfer and to exempt it from the charge of capital gains and, moreover, while computing the cost with reference to any future sale of the shares as allotted in the context of amalgamation further to compute the cost of such share as equal to such shares in the amalgamating company. In the process emphasis is shown on the words "transfer" referred to in clause (vii) of section 47 contained in section 49(2) should necessarily mean and imply a transaction which the Legislature has chosen to describe as a transfer quite regardless of--and by varying and modifying if need be--the general concept of "transfer" in common parlance or in connected or parallel legislations. It is observed as a process of logic thereafter, that the provisions of section 47(vii) and section 49(2) would deprive the assessees as such a construction sought to be placed in the submissions cannot be entertained except by repugnance to all accepted rules of interpretation of statutes.
It was further submitted before the authority that in the absence of any cost incurred for the shares, it would have to be stated that such a process overlooks the fact that the assesses had shares in the amalgamating company and in their situation the shares in the new company---the amalgamated company---would be as a result of the consideration of the amalgamation taken into consideration by the company Court. In the context, the contention was rejected.
The assessee took up the matter before the Income-tax Appellate Tribunal. It was emphasised by the assessees before the Tribunal that the issue price of the shares of Collis Line (Pvt.) Ltd. should have been taken as the cost price in arriving at the capital gains. It was urged before the Tribunal that the provisions of section 49(2) and section 47(vii) would be inapplicable. It was further urged that the decision of the Bombay High Court in CIT v. Rasiklal Maneklal (HUF) (1974) 95 ITR 656 has not been properly appreciated. It was specifically urged that as far as the assessees are concerned, there has been no transfer as such and it cannot be said from the material on record that there was any transfer "by a shareholder" of any capital asset. Needless to state that it was also urged before the Tribunal that the cost of acquisition of the shares sold--sold by the assessee to Mr. Chatterji would have to be understood as "nil" in the context of the situation. On the facts and circumstances in the situation, the process resulting into the order of the Court in the company petition as far back as in 1969 would not be germane in the process of accountability to the capital gains liable to tax in the proceedings.
The rival contentions, it must be stated, neatly introduced in the impugned order of the Tribunal. At the outset it has to be emphasised and it is so recorded by the Tribunal that the Revenue accepted the position that no tax on capital gains is leviable with regard to the allotment of shares in the amalgamated company at the time of amalgamation on August 1, 1969. This being the accepted position, the Tribunal has further recorded that the authorities sought to tax only the capital gains arising out of the subsequent transfer of shares by the assessees on February 29, 1976, in favour of Mr. B.K. Chatterji and others.
After recording the above situation on the basis of acceptance, the Tribunal has proceeded to consider the statutory provisions. After reproducing section 49(2), the Tribunal has observed that if section 49(2) is attracted, the cost of the shares will be the cost of acquiring the shares in the amalgamated company.
The submissions for and on behalf of the assessees which are even otherwise crystal clear, as recorded by the Tribunal, should be summarised. It was contended before the Tribunal that it has to be shown and found consequently that the shares of the amalgamated company should have become the property of the assessees in consideration of the transfer as referred to in section 47(vii) and it is then and only then that section 49(2) would become applicable. Referring to section 47(vii) it was submitted that where in working out the scheme of amalgamation there is a transfer by a shareholder of the shares held by him in the amalgamating company in consideration of the allotment to him of the shares in the amalgamated company, the position would be different. It was submitted that in the present factual situation, there has been no transfer by the assessees of their shares in the amalgamating company---Ambassador Steamships (Pvt.) Ltd, and the amalgamated company--Collis Line (Pvt.) Ltd. It is further clarified that it cannot be said 'that the shares of the amalgamated company were acquired by the concerned assessees in consideration of a transfer. Obviously referring to the order on compromise or arrangement by the Court, it was further submitted that there was no transfer of the shares of the Ambassador Steamships (Pvt.-) Ltd. to Collis Line (Pvt.) Ltd. and it was certainly not by the shareholders. In the context reliance was placed on the decision of the Supreme Court in CIT v. Bankey Lal Vaidya (1971) 79 ITR 594 and also another decision in CIT v. Madurai Mills Co. Ltd. (1973) 89*ITR 45 (SC), the first dealing with two similar situations with reference to the dissolution of a firm and the company going in liquidation declaring the law in regard thereto clarifying the situation in section 47 of the Act pointedly to the conclusion that they are not transfers. Placing reliance on the above decisions, it was further submitted as a consequence that the transactions listed in section 47 would have to be understood as only by way of abundant caution and not because they would have been transfers but for the section. It was submitted that the factual matrix reveals that there had been no transfers of the shares of Ambassador Steamships (Pvt.) Ltd. by the shareholders thereof. Reliance was placed on the factual record pointing out the resolutions passed separately by the shareholders of the two companies agreeing to the scheme of amalgamation and complete absence of any documentary material inter parties between the two sets of shareholders of the two companies. It was emphasised that the process was only by an order of the Court approving the scheme of amalgamation and thereby directing the allotment of 14 shares in the amalgamated company to each share of the amalgamating company. On behalf of the assessees reliance was placed on the decision of the Madras High Court in United India Life Assurance Co. Ltd. v. CIT (1963) 49 ITR 965, with regard to the consequence in regard to a compromise or arrangement of amalgamation of companies. For and in support of a submission that it involves an agreement in regard to transfer of assets of one company in favour of the other and it is the Court that sanctions the scheme and thereby the Court does not make a transfer. All this was submitted to show that the amalgamation cannot be understood as action of the parties but by the order of the Court.
Precisely, it was submitted that the provisions of section 49(2) of the Act do not refer to a transfer during amalgamation, but it refers to a transfer by the shareholders. In the context, it is emphasised that the proceedings of the company petition would show that the Court issued no orders in any manner to the shareholders of Ambassador Steamships (Pvt.) Ltd. in any manner. Again relying on the decision of the Bombay High Court, pari materia, it was submitted that even factually there was no provision in the scheme of amalgamation in the case before the Bombay High Court which could be understood as a direction to the assessee shareholder to transfer the share to the new company or anyone else. Apart from strongly relying on the decision of the Bombay High Court reliance was also placed on the decision of the Gujarat High Court in CIT v. R.M. Amin (1971) 82 ITR 194 where there was a question relating to the consequence of the course of liquidation in regard to the distribution of the assets of the liquidated company. It was also emphasised that the observations of the Gujarat High Court are confirmed by the Supreme Court in CIT v. R.M. Amin (1977) 106 ITR 368. Incidentally, although the Tribunal was justifiably unaware of the position, the decision of the Bombay High Court in CIT v. Rasiklal Maneklal (HUF) (1974) 95 ITR 656 has been also confirmed by the Supreme Court in CIT v. Rasiklal Maneklal (HUF) (1989) 177 ITR 198 obviously because this was long after the Tribunal decided the appeals in 1984.
Be that as it may, even otherwise it was submitted that the peculiar situation that there is no material on record to show that the shares in the Ambassador Steamships (Pvt.) Ltd.--the amalgamating company--were allotted in exchange for the shares in Collis Line (Pvt.) Ltd.-the amalgamated company-by way of an exchange, but it was by an order of the Court precisely by way of a transfer in the process of amalgamation.
It was alternatively submitted on the assumption that the transaction is understood as transfer, still it cannot be said that the shares became the property of the assessees in consideration of the transfer which is an essential requirement of section 49(2) of the Act. It was in this connection pointed attention was invited to the text of the orders of this Court in the company petitions to show that it was an amalgamation of the two companies by way of a compromise or arrangement agreed at a separate meeting of the shareholders of the two companies. Precise emphasis was given to show that the amalgamated company took over all the assets of the amalgamating company or the purpose of discharging debts, liabilities and the obligations of the amalgamated company. After referring to the earlier clauses, attention was arrested with regard to the provisions of paragraph 5 reproduced hereinbefore and it was stressed that there was no provision by which the shareholders of the amalgamating company were required to transfer the shares in the amalgamating company to the amalgamated company. Factually, it was submitted as a consequence that if section 49(2) of the Act is taken into consideration, the conclusion will be that the provisions do not apply. As a consequence, it was submitted that in such a situation the cost of the shares of the assessees in the amalgamated company would have to be deemed to be the market value of such share on the day on which they were issued to them. In the background of the accepted position taken up by the Revenue specified hereinbefore, what was submitted on behalf of the Revenue before the Tribunal needs also to be summarised. It was submitted that a taxing provision should receive a reasonable consideration if the intention of the Legislature is clear and beyond doubt. It was submitted that sometimes the expectation is that the provision is expected to be more artistically drafted. This cannot be a ground since the intention is clear and beyond doubt. It was submitted that any construction bringing on the surface any kind of tautology or, superfluity, it must as far as possible be understood by the Court to prefer a construction giving some meaning and effect to the words of the Legislature to reduce the futility. Reliance was placed on three decisions in CIT v. R.M. Amin (1971) 82 ITR 194 (Guj); CIT v. R.M. Amin (1977) 106 ITR 368 (SC) and CWT v. Kripashankar Dayashankar Worah (1971) 81 ITR 763 (SC) in support of the above submissions. It was for the submission that the manifest intention of a legislation in question should be of paramount consideration in understanding and interpreting the legislative provisions---the words and phrases in the context.
Carrying the submission further it was submitted that the intention in enacting section 49(2) would be, where the shares in the amalgamated company are subsequently transferred and the capital gains on the same have to be computed, the cost of such shares should be taken as the cost of acquiring shares in the amalgamating company. The Revenue contended that the requirements of section 47(vii) and section 49(2) would have to be understood as satisfied in the present case. It was submitted that before the shares in the amalgamated company were issued to the assessees, there was an extinguishment of the rights of the assessees in the shares of the amalgamating company. It was submitted that when an existing right is extinguished and a new right is created, such extinguishment could not be considered and understood otherwise than as a transfer. Amalgamation is only an arrangement whereby the assets of the two companies become vested in and under the control of one of them. Substantially all the shareholders of the two companies in the process of amalgamation would have to be understood as exchanging their shares for the shares in the other or the amalgamated company. It was submitted that by the order of the Court there was an extinguishment of the rights of the assessees in regard to the shares of Ambassador Steamships (Pvt.) Ltd. Reliance was placed for the submission that when the existing right in the capital asset is extinguished and a new one is created, it could not be understood as anything other than a transfer and this reliance was on the decision of the Supreme Court in Mangalore Electric Supply Co. Ltd. v. CIT (1978) 113 ITR 655 as well as another decision of the Gujarat High Court in CIT v. Vania Silk Mills (P.) Ltd. (1977) 107 ITR 300. It needs to be mentioned that thereafter the said decision of the Gujarat High Court was also taken up before the Supreme Court in Vania Silk Mills (Pvt.) Ltd. v. CIT (1991) 191 ITR 647 and it was decided therein that the situation of extinguishment of rights would have to be understood and confined to the extinguishment of right on account of a transfer and cannot be extended to mean any extinguishment of right independent or otherwise than on account of transfer. In other words, the decision came to be reversed on the process of the above reason. It was further submitted that in the present case the Court granted sanction to the compromise or agreement. Referring to the proceedings of a company petition and placing consequent reliance on the standard treatise ---Kanga and Palkivala, Law and Practice of Income Tax, Seventh edition---it was submitted that the assessee who had obtained the shares in the course of amalgamation of the companies will have to be understood as distinguished from an assessee who had purchased or acquired shares in the amalgamated company otherwise than as a result of amalgamation.
These submissions are considered by the Tribunal from paragraph 8 to paragraph 12 of the impugned order of the Tribunal and that too with reference to the questions which we are expected to answer.
At the outset, it would be appropriate to consider the necessary statutory provisions. Section 2(47) tells us what is "transfer" in relation to a capital asset. Section 45 of the Act calls us what would be chargeable to income-tax under the head "Capital gains". Section 46 speaks of the process of distribution with regard to the shareholders in the event of the liquidation of the company. What is more relevant in the context of the factual matrix would be the provisions of section 47 specifying at the outset that nothing contained in section 45 making capital gains charged shall apply to exceptions stated therein. Illustratively, before reproducing the relevant provisions of the sections for the purposes of these references it would be worthwhile to examine the situations which are not considered as transfers. They are relating to the distribution of capital assets on the partition of a Hindu undivided family, on the. dissolution of a partnership firm or other association of persons; a transfer under a gift or will or an irrevocable trust; a transfer of capital asset by a company to its subsidiary company; transfer of capital asset by a subsidiary company to a holding company. A bare perusal of the above provisions would show that the intention which directly flows from these provisions which are referred to in section 47(i) to (v) are of such a nature which would be understood as situations analogous to the situations of transfer and are specifically taken away from the rigour of the operation of section 45. It is thereafter, what would be required to be examined carefully in the context of the background would be sections 47(vi) and 47(vii). They are reproduced as hereunder:
"47. Nothing contained in section 45 shall apply to the following transfers:----
(vi) 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;
(vii) any transfer by a shareholder, in a scheme of amalgamation, of a capital asset beinga share or shares held by him in the amalgamating company, if---
(a) the transfer is made in consideration of the allotment to him of any share or shares in the amalgamated company, and
(b) the amalgamated company is an Indian company; "
Both the provisions relate to a situation arising out of a scheme of amalgamation. It would be seen that if the amalgamated company is an Indian company, any transfer attributable to a scheme of amalgamation of the capital asset by the amalgamating company to the amalgamated company would not be considered as transfer as per section 47(vi). It is provided by section 47(vii) that if the transfer by a shareholder in a scheme of amalgamation is made and that too if it is in consideration of the allotment to him of any share or shares in the amalgamated company and the amalgamated company is an Indian company, it would also not be considered as transfer. This is the direct and straight meaning of the provisions of section 47. Considering the situation, it admits of no doubt or hesitation in regard to the consequences thereof even on the assumption that what has taken in the situation before us is assumed to be a situation of transfer, a further step is the requirement of the statutory provision under consideration that such a transfer is attributable to a shareholder and further is required to be arising out of consideration received by him of any share or shares of the amalgamated company. We have no hesitation in seeing the situation from the direct language of the section apart from the situation of an independent position as to whether in law it amounts to any transfer with reference to the factual matrix.
Section 48 relates to the mode of computation and deductions ,-elating to the income chargeable under the head "Capital gains". The statutory provisions also require reproduction and are to the following effect:
"The income chargeable under the head 'Capital gains' shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:---
(i) expenditure incurred wholly and exclusively in connection with such transfer;
(ii) the cost of acquisition of the capital asset and the cost of any improvement thereto:"
It is plain from the above provisions that the process of computation in regard thereto, expenditure incurred wholly or exclusively in connection with such transfer as well as the cost of acquisition of any capital asset and the cost of any improvement thereto would have to be deducted. As far as the process of computation and the deductions, if any, it must be stated that there is no controversy or dispute as such in these proceedings and the controversy relates to the situation as to whether, in working out the cost for the purpose of computation, it is legally permissible to calculate the cost of the basis that the transfer is by the shareholder in consideration of the allotment of the share in the amalgamated company. If the statutory requirements of section 47 govern the situation, the answer would be that the cost could be calculated as contended by the Revenue. If the situation shows that the shareholders do not come anywhere near about the situation in the process of amalgamation and get 14 shares in lieu of one share as a legal consequence of the order of the Court passed in consideration of the amalgamation, then the Revenue would not be able to calculate the cost on the basis of the contentions raised in regard thereto.
Section 49(2) of the Act is also very relevant in the context. It is appropriately reproduced hereafter and it is as follows:
"Where the capital asset being a share or shares in an amalgamated company which is an Indian company became the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the share or shares in the amalgamating company."
Even the plain reading of the said statutory provision would show that the concerned capital asset being the share or shares in an amalgamated company which is an Indian company, would have to be necessarily the one emerging from the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, and it is only then the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the share or shares in the amalgamating company. In other words, there is no difficulty in seeing and understanding the said statutory provision on the basis of the plain language to be found therein. The capital asset of the Indian amalgamated company has to be with origin as a result of the consideration of a transfer. In other words, the plain language shows that assuming that the provision could be understood as a transfer on the basis of the language of section 47, what is required statutorily is that such a transfer must be relatable as flowing from the consideration of the allotment by the amalgamated company. Understanding section 47(vii) and section 49(2) on the basis of the plain language thereof, a further requirement is clear from the reading of the statute that assuming that the capital asset under consideration amounts to a transfer, a further requirement that this transfer must have its origin as it being in consideration flowing from the shareholder and not otherwise.
In considering the factual matrix, it has to be emphasised that the amalgamation was of 1969 and after a lapse of nearly seven years, the assessees had sold the shares in question in 1976. With regard to the figures and the fact that the shares are sold for Rs.107.50, there is no dispute. With regard to this undisputed factual position, the question is as to whether the situation could be firstly considered as transfer and, if that be so-secondly, a situation of transfer which could be understood as excepted by the provisions of section 47.
In our judgment apart from the plain and natural meaning of the statutory provisions referred to and discussed hereinbefore, the declaration of law of the apex Court in regard thereto in the context of the relevant situation and factual matrix is not otherwise. For the sake of facility or convenience the decision of the Bombay High Court in CIT v. Rasiklal Maneklal (HUF) (1974) 95 ITR 656 is confirmed by the Supreme Court in CIT v. Rasiklal Maneklal (HUF) (1989) 177 ITR 198. In this the factual matrix deals with the amalgamation proceedings with the only exception that the question of capital gains was required to be considered without knowing any loss of passage of time as is the situation of the assessees before us. In the said case, the assessee is a Hindu undivided family deriving income from interest on securities, dividends, property and dealing in shares. One share of Shorrock Spinning and Manufacturing Company was purchased in 1941. It was of Rs.1,000 for Rs.3,307. This was subsequently split up in 10 shares of Rs.100 each. Consequently, 80 shares of the face value of Rs.100 each were issued to the assessee from time to time as bonus shares. Simultaneously, there was another company in the name of New Shorrock Spinning and Manufacturing Company. In 1960 there was a scheme of amalgamation of the two companies. Petitions were filed and the Court---the Gujarat High Court--wherein the petitions were filed had directed meetings of the shareholders of both the companies to be convened. The meetings were held resulting into the scheme of amalgamation whereunder the liabilities of the amalgamated company were transferred. The scheme further provided with regard to the increase in the share capital. In the context of this situation, in the process of fixing up the amount of capital gains, the Bombay High Court took the view, as the relevant comparative statutory provision at the time was section 12-B of the Indian Income-tax Act, 1922, that the scheme of amalgamation did not contain any directions in the matter of transfer and with the completion of the scheme of amalgamation, the old company stood dissolved and consequently the shares of the old company had no value. The receipt of shares in the new company in lieu of the shares of the old company cannot be understood either as exchange or relinquishment of the old shares. The conclusion reached by the High Court in the context was that no capital gains would arise to the assessee as a result of the transaction. In the process of reasoning, referring to the provisions of the Transfer of Property Act relating to exchange, it is observed that the transaction pre-supposes the existence of different properties owned by different persons. It is also observed in the context that in a transaction what is required to be seen is whether the interest continues to exist. The Supreme Court (see (1989) 177 ITR 198), dealing with the situation, considered similarly that - no capital gains would arise from the situation. There is no question of an exchange; especially in the paragraph at the bottom of page 201 of the report ((1989) 177 ITR 198) it is precisely observed that there is no question of exchange being involved in the transaction because it involves the transfer of property by one person to another and reciprocally the transfer of property by the other to the first person. It is observed that there must be a mutual transfer of ownership of one thing for the ownership of other. The assessee could not be said to have transferred any property to any one when he was allotted the shares of the New Shorrock Company, as a result of a qualifying condition entitling the assessee to the allotment of shares of the New Shorrock Company. Even on the question of relinquishment it is observed at page 202 that it takes place when the owner withdraws himself from the property and abandons his right thereto; and in a situation upon amalgamation, it will have to be said, the shares lost all value as the company stood dissolved and, therefore, there is no relinquishment. In our judgment, this decision of the Supreme Court confirming the decision of the Bombay High Court, as referred to above, would go a long way in understanding the situation that by an order of the Court the shares of the Ambassador Steamships (Pvt.) Ltd. would have to be understood to have become worthless and of no value whatsoever.
Some of the essential situations to attract the position of transfer were required to be considered by the Supreme Court in Vania Silk Mills (P.) Ltd. v. CIT (1991) 191 ITR 647 to ascertain in the context of the position of extinguishments of rights. In this connection, considering the provisions of section 45, it is observed that the Court has to consider the very basic position that the capital gains could be attracted by a process of transfer not merely by extinguishments of rights howsoever, brought about. It is observed that whatever the mode by which the transfer was brought about, the existence of assets during the process of transfer was a pre-condition. Unless the asset existed in fact, there could not be a transfer of it. The extinguishments of a right or rights should in any case be on account of its or their transfer in order to attract the provisions of section 45. If it was not, and was on account of destruction or loss of the asset, it was not a transfer and did not attract the provisions of section 45 which related to transfer and not mere extinguishments of right. It is further observed that there could be no transfer in the case of damage or destruction or loss of property. While reversing the decision of the Gujarat High Court in CIT v. Vania Silk Mills (P.) Ltd. (1977) 107 ITR 300, the Supreme Court invited its attention to the requirement of consideration of the transfer as statutorily required. The expressions and words like "sale", "exchange", etc., used in the definition clause of section 2(47) imply the existence of the asset and of the transferee, and the expression "extinguishment of any rights" would take colour from those associated words and expressions and will have to be restricted to the sense analogous to them. It is further observed that the expression "extinguishment of any rights" would have to be understood as relatable as being on account of the transfer and cannot be extended to mean any extinguishment of right independent of or otherwise than on account of transfer. In other words, the apex Court has emphasised the essential element of transfer as flowing from the consideration, disassociated from the situation of destruction or loss of the asset, certainly as not being on account of transfer. It is specifically declared that by no stretch of imagination, if by reason of destruction of the asset the rights are lost, the situation can be equated with the extinguishment of right on account of its transfer.
Apart from the plain language of the concerned statutory provisions referred to above and discussed in detail by us, the discussion reverts down to the basic features of legal requirements. There has to be the concern of the shareholder in the process that is known as "transfer". If it is a situation that is made available to him as a consequence of the order of the company Court in a petition under section 394 of the Companies Act resulting in. amalgamation of Ambassador Steamships (P.) Ltd. and, as specifically appearing in the order itself, it is as a result of the consideration for and arising out of the process of amalgamation of the two companies. It is not possible to term the situation as arising out of transfer in any sense of the situation. Learned counsel for the assessees placed submissions for our consideration on the basis of certain observations of the Tribunal that it cannot be ignored that both section 47(vii) and section 49(2) statutory described itself as a transfer. In this context, it would be, at once, clear that a bare perusal of the above provisions would show that at the outset the illustrative situation itself enacted that provisions of section 45 shall not apply to the transfers that are sought to be carved out to be out of the clutches of the rigour of section 45. No doubt they are styled as transfers. Similarly, in section 49(2) of the Act, the word "transfer" also occurs with reference to the capital asset becoming the property of the assessee in consideration of a transfer referred to in section 47(vii) in the process of computation of costs, as deeming to be the cost of acquisition to the assessee of the share or shares in the amalgamating company. Learned counsel submitted in the context that even if the transaction is described as a transfer (see section 47(vii) and section 49(2)), unless in law it amounts to transfer, it cannot be treated as such.
Firstly, referring to the declaration of law by the apex Court in the context of proceedings of amalgamation and consequences thereof, it is abundantly clear that what is given as a consideration in the matter of amalgamation would not plainly amount to what is understood by "transfer". If, on the plain reading of the provision with reference to the factual matrix, which relates to the amalgamation proceedings, it is not possible to consider the situation as situation of transfer, learned counsel submitted that ultimately the said legislative provision seeking to use the expression "transfer" will have to be understood in its own context. As we have already observed in the process of amalgamation in a proceeding before the company Court, Ambassador Steamships (P.) Ltd., amalgamates with Collis Line P. Ltd. resulting in its merging with Collis Line (Pvt.) Ltd. and in pursuance thereof as ordered by the Court itself, the shareholders are ordered to be given 14 shares of Collis Line (Pvt.) Ltd. in lieu of one share in Ambassador Steamships (Pvt.) Ltd. The situation cannot have any semblance of a character of a transfer in any manner. It is also to be kept with sufficient emphasis that Ambassador Steamships (Pvt.) Ltd. ceased its existence and as observed by the Bombay High Court in Rasiklal's case (1974) 95 ITR 656, the shares became worthless as mere papers as a consequence of the order of the Court. In our judgment, the plain language admits of no confusion in regard thereto even though the statute uses the word "transfer" in connection as seen above. It is not that there was no occasion to deal with the difficulty of this nature. The Supreme Court in Sri Gopal Jalan & Co. v. Calcutta Stock Exchange Association Ltd., (1963) 33 Comp Cas 862 (SC); AIR 1964 SC 250, had to deal with such a situation with regard to the provisions of section 75(5) of the Companies Act, 1956, and in this connection in paragraph 11 thereof (at page 253) had occasion to understand the term "allotment" occurring in section 75(l) as including the issue of shares forfeited for other reasons also. It is observed that such situation has its own origin and if the context or other provisions of the Act are taken into consideration, the basic situation need not alter the plain situation in any manner. The Courts are duty-bound to take into consideration the intent in the context. Section 2(47) speaks about situations of transfer referring to the analogous expressions. Section 45 tells us that profits or gains arising out of the transfer of a capital asset become chargeable to income-tax under the head "Capital gains" and in the context comes the statutory provision of section 47, as stated above, which carves out exceptions to the situations contemplated as transfers. In our judgment, the situation under consideration if it is not and cannot amount to "transfer" in any way of the situation, really the niceties need not detain us. However, even in the situation the use of the expression "transfer" occurring as stated above need not detain us as the intention of the Legislature is more than clear that transactions only amounting to transfer could be considered as capital gains with reference to the profits and gains relating thereto. The statutory provision is further clear that even if such situation amounts to transfer, section 47 takes them out of the rigour of section 45 in the process of taxation treating them as capital gains. At any rate, the legal situation that the transaction has to be a transfer in law so as to fall victim to the rigour of these provisions as the law laid down by the Supreme Court in CIT v. Madurai Mills Co. Ltd. (1973) 89 ITR 45 is crystal clear that the provisions of the then section 12-B were not intended to apply to such situations in the matter of distribution of assets on liquidation of a company as constituting sale, transfer or exchange or other requirements of the statute and in this connection it is observed that it is well-settled that considerations stemming from legislative history must not be allowed to override the plain words of a statute. So much so that at page 51 of the report, referring to Craies on Statute Law, it is observed that the uses of such words and phrases are inserted only to allay fears, to guard against the particular case which may make a particular person apprehensive, although the enactment was never intended to apply to such a situation or to other similar cases. Considering the situation, it is not necessary when the concerned provisions are plain that what is required is a transfer by way of consideration in relation to the transaction of shares by the shareholder for the purpose of attracting the statutory provisions and, if such a situation Mows from the order of the Court, in any situation in regard thereto, the shareholder could not be understood to have any connection whatsoever in regard thereto. What takes place as is succinctly clear from reading of clause (5) of the order of the Court reproduced hereinbefore is that the allotment in proportion is as a result of the consideration of the amalgamation proceedings to which the two companies were parties. In our judgment, the amalgamation proceedings would not have any relevance whatsoever, especially in a situation that it is snapped by a passage of time, well nigh seven years. In this context on the accepted position of the Revenue reproduced hereinbefore, had the assessees never transferred the shares, it is plain, they could never have been taxed. In other words, in understanding the situation it is more than difficult to assume a situation that whenever there is a transfer of such situation, the assessees will have Damocles' sword hanging on their heads almost till eternity to be liable to taxation. The matter can also be considered yet from another angle. The share of Rs.100 of Ambassador Steamships (Pvt.) Ltd., which has become known as having merged as a result of proclamation has been, on calculation, reduced to Rs.7.50 resulting in a situation that the assessees would not be considered independently with regard to the transaction in question of 1976 and would be chargeable to tax with reference to Rs.100 in regard to each of the shares covered by the transactions and that too when the situation has emerged as a direct result of the order of the Court. These factual peculiarities also go a long way.
Learned senior standing counsel for the Revenue candidly admitting the situation that in 1969 there was no question of the assessee being taxed in any manner, not forgetting that the event occurred only in 1976, seven years thereafter, emphasised that it cannot be forgotten or lost sight of in the context that the situation of 1976 is a situation of sale and the tax liability would crop up immediately. Learned senior counsel strenuously submitted that what is legally required is to know the cost of acquisition which is a statutory requirement of section 40-A. Taking us through section 40-A learned counsel emphasised the statutory requirement of computation of income under the head "profits and gains". Learned counsel took us through section 40-A(5)(a)(i) requiring consideration of a situation where the assessee incurs any expenditure which results directly or indirectly in the payment of salary or such other expenditure specified therein. The effort of learned counsel, and rightly so, was to show the legal requirement requiring the income-tax authority to fix ultimately the cost of the share in question.
Learned counsel also relied on the provisions of section 48 of the Act relating to the process of computation which is to be determined by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely, (i) expenditure incurred wholly and exclusively in connection with such transfer, and (ii) the cost of acquisition of the capital asset and the cost of any improvement thereto. Learned counsel submitted that the original share of Rs.100 of Ambassador Steamships (Pvt.) Ltd. became 14 shares of Rs.100 each of an amount of Rs.1,400. Learned counsel submitted that in the process there was net profit which could be considered as capital gain of Rs.1,300. Learned counsel submitted that the entire proceedings would be crystal. clear that there was no cost at all, and therefore, this amount of Rs.1,300 with reference to each share would straight way become the subject-matter of tax as capital gains according to law. This strenuous submission, although very attractive at first blush, having been based on the rigour of logic, becomes vulnerable the moment the difficulty which is basic is seen floating on the surface of the record. The facts are clear. We have already said and reiterated more than once hereinbefore that the shareholders are not concerned. They have not acted and nothing is flown from them much less as a consideration in the matter of transfer of shares. We have also concluded and said that the proceedings of amalgamation were terminated and by .clause (5) thereof this equivalence is the order of the Court as a consideration in the process of amalgamation. In view of this situation, in our judgment, the situation of 1976 gets completely snapped from what took place in 1969. It is not possible to accept the submission of learned counsel.
Learned senior counsel also placed for our consideration certain observations of the Gujarat High Court in CIT v. R.M. Amin (1971) 82 ITR 194, in regard to a situation of liquidation of the company in the matter of distribution of assets to the shareholders receiving more than the value of the shares in question. Learned counsel was meticulous to tell us that the said decision is affirmed by the Supreme Court in CIT v. R.M. Amin (1977) 106 ITR 368. In Amin's case (1971) 82 ITR 194 (Guj), the question was of liquidation of a company and the shareholders getting more than the value of the original shares making themselves liable to tax as capital gains earned by them as profit in the process. Although this was a case relating to the process of liquidation, it was held that there was no transfer of capital assets within the meaning of section 45 read with section 2(47) when the assessee received the amount on final distribution of the net assets of the Uganda company. It is observed that the transfer that is contemplated by section 45 read with section 2(47) is a transfer as a result of which consideration is received by the assessee or accrued to the assessee. In the process of reasoning it is further observed than substituting the words "extinguishment of any rights in the capital asset" for the words "transfer of the capital assets", the transaction, in order to attract the charge of tax as capital gains, must, therefore, be such that the consideration is received by the assessee as a result of the extinguishment of the rights in the capital assets. Going through the judgment we find that our view is not different. Basically apart from the application of the situation as to whether it is a sale, it is an exchange, it is a relinquishment of the asset or the extinguishment of any right therein, or any enhanced compensation or compulsory acquisition of right under any law, what is required is a situation of transfer in regard to which there is no dent of any kind to the legal situation emanating from the bare reading of the statutory provisions. At page 203 of the said decision ((1971) 82 ITR 194), it is succinctly, observed in the following manner:
"The transfer that is contemplated by section 45 read with section 2(47) is, therefore, a transfer as a result of which consideration is received by the assessee-or accrues to the assessee. Substituting the words 'extinguishment of any rights in the capital asset' for the words 'transfer of the capital asset', the transaction, in order to attract the charge of tax as capital gains, must, therefore, be such that consideration is received by the assessee or accrued to the assessee as a result of the extinguishment of the rights in the capital asset. There must be an element of consideration for the extinguishment of the rights in the capital asset. Then only would it be a transfer eligible to capital gains tax. Now, as we have already pointed out above, when a shareholder receives moneys representing his share on distribution of the net assets of the company in liquidation, he receives such moneys in satisfaction of the right which belongs to him by virtue of his holding the share and not by way of consideration for the extinguishment of his right or rights in the share.. The share merely represents the right to receive moneys on distribution of the net assets of the company in liquidation and that right is satisfied and, by satisfaction, extinguished when such moneys are received by the shareholder. Such moneys received by the shareholder do not represent any consideration received by him as a result of the extinguishment of his rights in the share. It is not the extinguishment of his rights in the share for which consideration is received by him, it is rather because moneys representing his share in the distribution are received by him that his rights in the share are extinguished. "
Thus, the approach is not in any way different with regard to the basic requirement in the matter of an amount which could be understood legally as capital gains.
Learned counsel referred to certain other authorities and relies specifically on stray sentences and paragraphs in regards thereto. For the purpose of completion of the judgment, they are:
1. Miss Dhun Dadabhoy Kapadia v. CIT (1967) 63 ITR 651 (SC).
Reliance is placed on paragraph 1 at page 655 to the effect that in a commercial sense:
"that by way of the right which was subsequently transferred would have to be understood in a commercial sense."
2. James Anderson v. CIT (1960) 39 ITR 123 (SC).
This decision relates to the situation of administration of estate and sale of assets for the purpose of distribution in regard to the question of excess of sale price. In fact the decision would not govern the question under consideration as it relates to the excess of sale price. In fact at page 130 it is observed that as long as there is distribution of the capital assets in specie
and no sale, there is no transfer for the purposes of the section, and it occurs only as soon as there is a sale of the capital assets and profits or gains arise there from. It is difficult to see how the decision would go in support of the Revenue.
3. Mangalore Electric Supply Co. Ltd. v. CIT (1978) 113 ITR 655 (SC).
The decision relates to the situation where an existing title in a capital asset is extinguished and a new one is created, being under section 12-B(1) of the Indian Income-tax Act, 1922, amounting to a transfer of capital asset. We have already held that the situation is not of a transfer as discussed above. We have also held, therefore, that there is no extinguishment. In fact it is also observed in the decision that the words "sale", "exchange", "relinquishment" and "transfer" must be given their plain and actual meanings and there is no justification for restricting the wide comprehension of the word "transfer" to voluntary transfers by the application of the ejusdem generis rule. The decision related to a situation of compulsory acquisition of an undertaking by the Government of Madras. Reading the decision it will have to be stated that the facts are different and do not relate to the situation of amalgamation.
4. Mangalore Electric Supply Co. Ltd. v. CIT (1972) 86 ITR 472 (Cal.).
This decision was taken up to the Supreme Court and is reported in (1978) 113 ITR 655.
5.C. Leo Machodo v. CIT (19881 172 ITR 744 (Mad).
The facts are entirely strange to the situation under consideration, dealing with an accident and sinking of a boat in the high seas and the assessee receiving compensation from the insurance company which is held to be not a "transfer:" as contemplated by section 45 read with section 48 of the Income-tax Act. Since we have held that this amounts to "transfer", the observations that the definition of "transfer" being an inclusive definition, which is rejected by the Madras High Court, would not be of any use.
We hold that the equivalence of one share to 14 shares is a result of the process of amalgamation by the order of the Court. This is out of consideration of the amalgamation granted by the Court. The shareholder cannot be understood to be a party in regard thereto is any manner. Therefore, taking the situation in any way, it cannot be understood to be an amount which could be consideration of the transfer of the share by the shareholder. We also hold that as a direct consequence of the amalgamation order, Ambassador Steamships (Pvt.) Ltd., became known as their shares became worthless papers and, therefore, could not be with reference to the calculation of the capital gains tax. We further hold that the situation of 1976 is a situation having no kind of relationship with the situation of 1969 resulting in the process of amalgamation. It is a transaction by itself where under a share of Rs.100 each was sold as share of Rs.107.50. The authorities can consider the question of taxation on the above basis.
For all the above reasons, the questions that are required to be answered and reproduced at the outset on the basis of the submissions at the Bar are answered as follows:
Question No. l is answered in the negative, against the Revenue and in favour of the assessee, that it was not a transfer.
In view of the answer to question No. 1, being in the negative, question No.2 would not arise for answer.
Question No.3, is answered in the negative, against the Revenue and in favour of the assessee.
A copy of this judgment under the seal of the Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.
M.B.A./1887/FCOrder accordingly,