Law: Income Tax Act, 1922

Section: 2(47),45,47(ii)

(a) Income-tax-----Capital gains---Amalgamation of companies---Shareholder of amalgamating company allotted shares and debentures in company in which it was amalgamated---No extinguishments of rights in transferor-company and no transfer for purposes of computing capital gains---Even if it were transfer capital gains from it would be exempt from tax under S.47(vii)---Indian Income Tax Act, 1961, Ss.2(47), 45 & 47(ii). The assessee was one of the shareholders of a company, which under a scheme of amalgamation, was amalgamated with a company T. Every shareholder in the transferor-company in respect of every share of Rs.100 held by him was entitled as of right to claim and receive from the transferee-company allotment of the following: (a) 7-3/4 equity shares of the transferee-company of Rs.10 each credited as fully paid-up; and (b) one redeemable debenture of the transferee-company of Rs.100 credited as fully paid-up at the time of merger by Court. As the shareholder of the transferor-¬company, the assessee received 88,644 equity shares of Rs.10 each and 11,438 debentures of Rs.100 each, both of the company T. In the assessment year 1975-76, the assessee claimed that the above allotment of shares in terms of the scheme of amalgamation did not involve any transfer within the meaning of section 45 of the Income Tax Act, 1961 and hence it was not liable to any capital gains tax. The Income-tax officer accepted the contention of the assessee and did not bring to tax any capital gains The Commissioner of Income-tax, acting under section 263, held that the assessee was liable to capital gains tax as the extinguishments of the shareholding rights in the amalgamating company amounted to a "transfer" within the meaning of section 2(47) of the Act. Accepting that part of the assessee's contention that what it received by way of shares in the amalgamated company was exempt under section 47(vii), the commissioner of Income-tax directed the Income-tax Officer to determine the capital gains attributable to allotment of debentures and bring them to tax. The Tribunal held that there was. a transfer by way of extinguishments of rights within the meaning of section 2(47) of…

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