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2020 (8) TMI 178 - HC - Income TaxCapital gain - Transfer of shares u/s 2(47) - assessee gets shares of Amalgamated Company in lieu of shares of amalgamating company - whether in the scheme of amalgamation, shares of amalgamated company received in lieu of amalgamating company which were held as stock-in-trade, would result in income chargeable to tax under the head “Profits and gain of business or profession”? - HELD THAT:- Here under the scheme of amalgamation, the amalgamating company is getting extinguished in the sense that the surviving entity now is only the amalgamated company. However, we cannot ignore the fact that the shares that were with the assessee have undergone the amalgamation process whereby they are replaced with new shares which would be valued entirely on different fundamentals. Subsequent to the amalgamation it is not the same stock in the inventory of the assessee. Under the Companies Act, the shareholders who dissent to the scheme of the amalgamation [“dissenting shareholders”] are given the option of receiving cash or equivalent kind as the price for the shares on the basis of exchange ratio. The dissenting shareholders receive the value of their shareholding while the approving shareholders receive the same value in the form of shares of the amalgamated company. The process of amalgamation in its legal effect from the taxation viewpoint would apply equally, irrespective of the status of the shareholder. The taxable event is not just a matter of entries made in the account books of the assessee but is essentially one of substance and of the real nature of what transpired in the transaction. The income generated from the transaction has to be charged to Income tax as per provisions of law.The fundamental principle to be followed is that the basic substance for the transaction has to be separated from the form and the taxing statue has to be applied accordingly. In light of the above discussion, the findings of the Tribunal are plainly erroneous. Thus, question of law formulated before us is answered in favour of the Revenue and against the assessee. Having answered the question of law in the above terms, we are of the view that the matter needs to be remanded back to ITAT since the factual dispute between the parties has not been decided. Accordingly, we restore the matter back to the file of ITAT for fresh adjudication.
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