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TMI Blog1973 (7) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Shorrock company. As a result of this splitting up and the issue of bonus shares, on December 31, 1959, the assessee owned 90 shares in the Shorrock company of the face value of Rs. 100 each. There is another company by name the New Shorrock Spinning & Manufacturing Co. Ltd. (hereinafter referred to as "the New Shorrock company"). In or about the middle of the year 1960, a scheme of amalgamation of Shorrock company and New Shorrock company was propounded and petitions were filed under the provisions of section 391 and section 394 of the Companies Act, 1956, in the Gujarat High Court both by the Shorrock company as the transferor company and the New Shorrock company as the transferee company. Pursuant to these petitions on September 23, 1960, the Gujarat High Court directed meetings of the shareholders of both the companies to be convened. Accordingly, meetings were held on October 27, 1960, and the shareholders of both the companies approved of the scheme of amalgamation. The matter was later on heard by the Gujarat High Court and by its order dated November 25, 1960, in the petition filed by the New Shorrock company under section 391 the court sanctioned the scheme of amal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner of Income-tax, Bombay City II, issued a notice under section 33B of the Act to the assessee, inter alia, informing him that upon sanctioning of the scheme of amalgamation of the two companies he received 45 shares of New Shorrock company in exchange of his original holding of 90 shares in Shorrock company in December, 1960 ; that this exchange of shares resulted in a considerable amount of profit to him, which was not considered by the Income-tax Officer in the regular assessment ; that the order of the Income-tax Officer is erroneous and prejudicial to the interests of the revenue and that in exercise of the powers conferred by section 33B(1) he proposed to direct the Income-tax Officer to revise the assessment and include in the total income the profits arising to the assessee in the transaction. By this notice an opportunity was given to the assessee to show cause why such an order should not be passed. By the attorney's letter, dated January 23, 1964, the assessee objected to the proposed action on the part of the Commissioner of Income-tax. After hearing the assessee on January 29, 1964, the Commissioner of Income-tax passed an order directing the Income-tax Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity for another ; that under the scheme of amalgamation the assessee obtained in lieu of 90 shares held in Shorrock company, 45 shares of New Shorrock company in exchange ; that the exchange effected in the present case is exactly equivalent of what would have happened or taken place had instructions been given for sale of 90 shares of Shorrock company by the assessee and for investment of the sale proceeds in the shares of New Shorrock company. In short his submission is that when as a result of the provisions of the scheme of amalgamation the assessee is allotted 45 shares of New Shorrock company in consideration of his holding of 90 shares of Shorrock company there is an exchange as understood in law. Alternatively, he submitted that, as there is relinquishment of the interest by the assessee in the 90 shares of Shorrock company and as a result of such relinquishment capital gain has accrued to the assessee the provisions of section 12B are attracted. Sub-section (1) of section 12B provides as under : "12B. Capital gains.--(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, relinquishme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a transsaction of exchange are borne in mind, the question arises whether in the present case a transaction of exchange has taken place, when the assessee was allotted 45 shares of New Shorrock company under the scheme of amalgamation sanctioned by the Gujarat High Court in lieu of his holding of 90 shares in Shorrock company. At the outset it should not be overlooked that after the shares were allotted by the Shorrock company to its shareholders such shares ceased to be the property of the company, but they became the property of the shareholders in their own right. By the scheme of amalgamation sanctioned by the Gujarat High Court the undertaking and all properties, rights and powers and all liabilities and duties of Shorrock company are with effect from January 1, 1960, without any further act or deed transferred to New Shorrock company and they became so vested in New Shorrock company. There is nothing in the scheme of amalgamation to indicate that the 90 shares of Shorrock company which were held by the assessee are at all transferred to New Shorrock company though undoubtedly the scheme, inter alia, provides that New Shorrock company shall without any further application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld large investments including a variety of British railway stocks. The company admitted that any profit made on the realisation of an investment was part of its profits for income-tax purposes, and the Crown admitted that any loss was an admissible deduction from the company's profits. Under the Railways Act, 1921, the company was required to accept new stocks in the amalgamated companies in exchange for the stocks previously held in the companies which under the Act were either amalgamated or absorbed. The new stocks received had a definite market value on the date of exchange and this value was less than the original cost to the company of the stocks surrendered. The company claimed that the difference should be allowed as a deduction in computing its profits assessable under Case I of Schedule D. The Crown contended that the company had not realised any loss and that its claim was in effect a claim to write down the book value of investments still held. The Special Commissioners, on appeal, upheld the Crown's contentions. When the matter came before the court, the court took the view that the surrender of the old stocks enabled the result of the company's holding of those inves ..... X X X X Extracts X X X X X X X X Extracts X X X X
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