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TMI Blog2001 (2) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. ?" The High Court answered the first question in the negative and in favour of the assessees, namely, that there was no transfer. In view of this answer, it held that the second question did not arise. It answered the third question in the negative and in favour of the assessees. Even so, it held that the taxing authorities could consider taxing the assessees on the basis of the transaction whereunder the share of Rs. 100 was sold for Rs. 107.50. The assessees were shareholders of Ambassador Steamship Pvt. Ltd. The High Court of Kerala sanctioned a scheme of arrangement under sections 391(2) and 394 of the Companies Act, 1956, whereby Ambassador Steamship Pvt. Ltd. ("the amalgamating company") was amalgamated with Collis Line Pvt. Ltd. ("the amalgamated comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer subjected to tax. The Income-tax Officer rejected the contention of the assessees that sections 49(2) and 47(vii) were not attracted as the assessees had not become the owners of the shares of the amalgamated company in consideration of the transfer of their shares in the amalgamating company. The order of the Income-tax Officer was confirmed by the Commissioner of Income-tax (Appeals). The matter went up before the Tribunal and the Tribunal upheld the appellate order. From out of the order of the Tribunal, the questions aforestated were referred to the High Court and answered as set out above. For the purposes of appreciating the controversy in this appeal, it is necessary to set out the relevant provisions of the Act as they obtained at the relevant time. Section 2(47) defines "transfer", in relation to a capital asset, to include the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law. Section 45 states that any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head "Capital gains" and shall be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the case before the court the assessee could not be said to have transferred any property to anyone. When he was allotted shares of the amalgamated company, he was entitled to such allotment because of his holding 90 shares of the amalgamating company. The holding of the 90 shares in the amalgamating company was merely a qualifying condition entitling the assessee to the allotment of the 45 shares in the amalgamated company. The dissolution of the amalgamating company deprived the holding of the 90 shares of that company of all value. Learned counsel for the assessees submitted that no capital gains tax could be levied upon the assessees in respect of the sale by them of their shares in the amalgamated company because there was no provision in the Act with regard to the manner of determination of the cost of these shares. This was for the reason that section 49(2) prescribed the mode of determining the cost where the shares in an amalgamated company had become the property of the assessee in consideration of a transfer, as referred to in section 47(vii) ; that is to say, a transfer by a shareholder in a scheme of amalgamation of shares held by him in the amalgamating company if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. The destruction of the right on account of the destruction of the asset could not be equated with the extinguishment of the right on account of its transfer. Section 45 of the Act was, therefore, not attracted. The fact that while paying for the total loss or damage to the property the insurance company took over such property or whatever was left of it did not change the nature of the insurance claim, which was an indemnity or compensation for the loss. The payment of the insurance claim was not in consideration of the property taken over by the insurance company, for one was not consideration for the other. This court then, having so very rightly held that section 45 was not attracted, went on to consider the definition of "transfer" and it said : "It is true that the definition of 'transfer' in section 2(47) of the Act is an 'inclusive' definition and therefore, extends to events and transactions which may not otherwise be 'transfer' according to its ordinary, popular and natural sense. It is this aspect of the definition which has weighed with the High Court and, therefore, the High Court has argued that, if the words 'extinguishment of any rights therein' are substituted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. In each of those cases there was an extinguishment of the right of the seller or exchanger in the capital asset. To restrict the extinguishment of rights to extinguishment on account of transfer was, in learned counsel's submission, to render the expression "extinguishment of any rights therein' otiose and to nullify the effect of their use in the definition. We have given careful thought to the definition of "transfer" in section 2(47) and to the decision of this court in Vania Silk Mills Pvt. Ltd.'s case [1991] 191 ITR 647. In our view., the definition clearly contemplates the extinguishment of rights in a capital asset distinct and independent of such extinguishment consequent upon the transfer thereof. We do not approve, respectfully, of the limitation of the expression "extinguishment of any rights therein" to such extinguishment on account of transfers or to the view that the expression 'extinguishment of any rights therein" cannot be extended to mean the extinguishment of rights independent of or otherwise than on account of transfer. To so read the expression is to render it ineffective and its use meaningless. As we read it, therefore, the expression does include the e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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