Law:

Section:

Section 55 of the Income-tax Act, 1961 - Capital gains - Cost of acquisition - Assessment year 1978-79 - Assessee, a non-resident company, had substantial shareholdings in three Indian companies - As a result of amalgamation of three companies with new company on 1-7-1974, assessee was allotted certain shares in new company in lieu of shares held by it in three companies - Since assessee was a non-resident company, it was required to disinvest certain shares allotted to it of newly formed company to residents of India - Whether assessee was entitled to exercise option to substitute fair market value as on 1-1-1964 in respect of shares held by it in amalgamated companies on 1-7-1974, in computing capital gain or loss - Held, yes FACTS The assessee, a non-resident company was associated with three Indian companies - 'A', 'B' and 'C' and had substantial shareholding in the said companies. Subsequently, the said companies were amalgamated with a new company 'D' with effect from 1-7-1974. Consequently, the assessee was allotted some shares in 'D' in lieu of shares held by it in the said amalgamated companies. Since the assessee was a non-resident company, it was required to disinvest certain shares to the residents under the Foreign Exchange Regulation Act, 1973, which it did in the accounting year corresponding to the assessment year 1978-79 and the assessee filed its return showing long-term capital gain. Subsequently, it filed its revised return showing long-term capital loss in respect of the said shares. The assessee claimed before the Assessing Officer that the shares of 'D' sold by it were shares, which became its property under the scheme of amalgamation; that in view of section 47(vii) read with sections 49(2) and 55(2), it was entitled to substitute the fair market value as on 1-1-1964, in computing capital gain of such shares as cost of acquisition under section 55(2); and that the shares should be valued at the fair market value on the basis of yield method and not on the basis of cost of the shares. The Assessing Officer while rejecting the assessee's said claims on the ground that the said sold shares were acquired by it in 1974, computed the long-…

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