TMI Blog1983 (10) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 100 held in Syndicate Bank Ltd., would be available to the assessee ? " The facts in detail will be found in the statement of the case and may briefly be summarised as follows : The assessee-trust was a shareholder in the Syndicate Bank Ltd. (" SB Ltd "). After the nationalization of banks in July, 1969, the SB Ltd. was amalgamated with the Industrial Credit Development Syndicate (" ICDS ") as per the scheme approved by this court under s. 394 of the Companies Act, 1956. Consequently, the assessee received equity shares, advance call deposit certificates, debentures and redeemable bonds in the ICDS of the total value of Rs. 235 for every unit of Rs. 100 of the face value of the shares held by the assessee in the SB Ltd. For the assessment year 1974-75, the assessee claimed exemption of the capital gains realised from the said scheme of amalgamation on two grounds : (i) that there was no transfer involved as required under s. 2(47) of the Act ; and (ii) even if there was a transfer, the sum realised therefrom was exempt under s. 47(vii) of the Act. The ITO rejected both the contentions. He determined the capital gains at Rs. 12,750 after allowing certain deductions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions involving the merger of two companies under a scheme of amalgamation approved by a High Court under s. 394 of the Companies Act, 1956. The word " amalgamation " generally has no precise meaning. In Halsbury's Laws of England, Fourth Edition, Vol. 7, at p. 1539, it is stated: " Meaning of 'reconstruction' and 'amalgamation'Neither 'reconstruction' nor 'amalgamation' has a precise legal meaning ...... Amalgamation is a blending of two or more existing undertakings into one undertaking, the shareholders of each blending company becoming substantially the shareholders in the company which is to carry on the blended undertakings. There may be amalgamation either by the transfer of two or more undertakings to a new company, or by the transfer of one or more undertakings to an existing company. Strictly amalgamation does not, it seems, cover the mere acquisition by a company of the share capital of other companies which remain in existence and continue their undertakings, but the context in which the term is used may show that it is intended to include such an acquisition Under s. 2(1A) of the Act, amalgamation " has been defined to mean: " 'amalgamation', in relation to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effected in the previous year shall, save as otherwise provided in sections 53. 54, 54B, 54-D and 54E be chargeable to income-tax under the bead 'Capital gains', ........ Section 48 provides mode of computation of capital gains and it states that the income chargeable to tax as capital gains shall be computed by deducting from the full value of the consideration received or accruing as result of the transfer of the capital asset the amount stated thereunder. If there is no consideration received or accruing to the assessee as a result of the transfer, the method of computation prescribed under s. 48 is wholly inapplicable. This necessarily follows that a transaction in order to attract the charge of tax as capital gains must be for consideration and if there is no consideration, the transfer contemplated will not be exigible to capital gains tax. When a partner retires from the firm and receives some amount in respect of his share in the partnership, there is no transfer of interest and there is no element of sale, exchange, relinquishment or extinguishment of his rights in his asset, inasmuch as he takes away the asset representing his interest in the partnership and no part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eives 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 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. " In the appeal against the judgment of the Gujarat High Court, the Supreme Court in CIT v. R. M. Amin [1977] 106 ITR 368 at 372 observed : " The argument of Mr. Desai, learned counsel for the appellant, is that when the assessee received the sum of Sh. 4,68,489 in lieu of the 192 shares held by him in the Uganda company, he received that amount as a result of transfer. The wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debentures from the ICDS. Mr. Sarangan, counsel for the assessee, strenuously urged that the shares allotted by the ICDS by reason of the arrangement entered into between SB Ltd. and the ICDS cannot be regarded as consideration for the extinguishment of his rights in the assets of the SB Ltd. According to the counsel, under the scheme of amalgamation, the SB Ltd. stood dissolved and thereafter its shares had no value and the receipt of shares from the ICDS did not constitute a consideration since there was no transfer of shares by the assessee to the ICDS. The allotment of shares and debentures by the ICDS was a necessary consequence of the arrangement agreed upon between the two companies under the scheme of amalgamation. The contention of Mr. Sarangan finds support from the decision of the Bombay High Court in CIT v. Rasiklal Maneklal (HUF) [1974] 95 ITR 656. In that case also, under a scheme approved by the High Court, there was a transfer of one company with all the property rights to another company. The scheme also provided for an increase in the share capital in the amalgamated company and those newly created shares were to run pari passu with the existing shares of the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive contentions, had the following facts. The assessee-company in that case was holding I 00 per cent. shares of three subsidiary companies. Under the scheme of arrangement arrived at by and between the assessee-company and its subsidiary company approved by the Calcutta High Court and the Madras High Court, the subsidiary companies were amalgamated with the assessee-company. The rights of the assessee-company in the shares of the subsidiary companies stood extinguished. The assessee-company claimed that that extinguishment in the shares of the subsidiary companies should be considered as a transfer within the meaning of s. 45 read with s. 2(47) of the I.T. Act. It was also contended that the assessee-company suffered a capital loss since the shares of the subsidiary companies were rendered without value. The Revenue, on the other hand, depended upon s. 47(v) of the Act which provides that a transfer of capital asset by its subsidiary company to the holding company is not to be regarded as a transfer. On these contentions, the Calcutta High Court observed (pp. 408-409): It appears to us that the controversy in the present reference is solved by the sections involved ... It seem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, under ss. 46 and 47, specifies certain transactions which do not constitute " transfer ", or although there may be transfers, those are to be ignored for the purpose of " capital gains ". (v) Section 48 provides the mode of computation of capital gains which itself indicates that if there is no consideration received or accruing to the assessee as a result of the transfer, then the " transfer " will not be exigible to capital gains tax, and (vi) The extinguishment of a right in a capital asset must necessarily be compensated by consideration paid by one party to the other which means that there must at least be two parties to a transaction. Let us assume, as Mr. Srinivasan urged, that in the process of amalgamation of companies, there would be transfer of assets of the amalgamating company to the amalgamated company inasmuch as, there would be extinguishment of rights in the shares held by the assessee in the amalgamating company. But, where is the consideration for such extinguishment and who has paid it to the assessee ? In the first place, the assessee was not an eo nomine party to the amalgamation or to any transaction by which its assets were transferred to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence between the issue of a share to a subscriber and the purchase of a share from an existing shareholder is the difference between the creation and the transfer of a chose-in-action. The two legal transactions of the creation of a chose-in-action and the purchase of chose-in-action are quite different in conception and in result. " Considering the facts and circumstances of the case, in the light of the authorities to which we have called attention, it is, in our judgment, not possible to hold that the allotment of shares by the ICDS to the shareholders of SB Ltd. was by way of transfer for consideration for the transfer effected under the amalgamation. In view of the conclusion that we have reached, it may not be necessary to consider the second question referred by the Tribunal, but since the question has been debated before us, we may briefly deal with the contentions. The second question turns on the scope of s. 47(vii). It reads: Section 47 : Nothing contained in section 45 shall apply to the following transfers : . ...... (vii) any transfer by a shareholder, in a scheme of amalgamation, of a capital asset being a share or shares held by him in the amalgamating c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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