Commissioner
of Income Tax, Bombay Vs. Rasiklal Maneklal & Ors
[1989] INSC 103 (29
March 1989)
Pathak,
R.S. (Cj) Pathak, R.S. (Cj) Misra Rangnath
CITATION:
1989 AIR 1333 1989 SCR (2) 179 1989 SCC (2) 454 JT 1989 (2) 16 1989 SCALE
(1)719
ACT:
Indian
Income Tax Act, 1922--Sub-s. (1) of s. 12B--Amal- gamation of two companies
resulting in dissolution of one of them and allotment of shares of the
surviving company to the shareholders of the dissolved company--Whether amounts
to 'exchange' or 'relinquishment' within the meaning of the sub-section.
Words
and Phrases--Meanings of 'exchange' and 'relin- quishment'.
HEAD NOTE:
Sub-s.
(1) of s. 12B of the Indian Income Tax Act, 1922 provides that tax shall be
payable by an assessee under the head "Capital gains" in respect of
any profits or gains arising from the sale, exchange, relinquishment or
transfer of a capital asset.
The
respondent-assessee who owned 90 shares in the Shorrock Co. which stood
dissolved under a scheme of amalga- mation with another company known as New Shorrock
Co., which was sanctioned by the High Court, was aborted 45 shares of the New Shorrock
Co. in terms of the provisions of the said scheme. During the assessment
proceedings for the assessment year 1961-62, the Income Tax Officer omitted to
consider the applicability of s. 12B 10 the case of the assessee. Later on, the
Commissioner issued a notice under s. 33B to the assessee stating that the
receipt of 45 shares of the New Shorrock Co. "in exchange" of his
original holding of 90 shares in the Shorrock Co. had resulted in an assessable
profit, and passed an order directing the Income Tax Officer to revise the
assessment and to include an amount of Rs.49,350 representing the capital gain
resulting from the transaction. On appeal by the assessee the Appellate Tribu- nal
held that the transaction represented neither an ex- change nor a
relinquishment and, therefore, s. 12B of the Act was not attracted. However, at
the instance of the Revenue the Tribunal referred the question to the High Court
which answered it in favour of the assessee.
Dismissing
the appeals, 180
HELD:
The sole question is whether the receipt of the 45 shares of the New Shorrock
Co. upon amalgamation by reason of the share holding of 90 shares of the Shorrock
Co. can be described as an "exchange" or a "relinquishment"
within the meaning of s. 12B. It seems plain to us that no exchange is involved
in the transaction. An exchange involves the transfer of property by one person
to another and reciprocally the transfer of property by that other to the first
person.
There
must be a mutual transfer of ownership of one thing for the ownership of
another. In the present case, the assessee cannot be said to have transferred
any property to any one. When he was allotted the shares of the New Shorrock
Co. he was entitled to such allotment because of his holding the 90 shares of Shorrock
Co. The holding of the 90 shares in the Shorrock Co. was merely a qualifying
condition enti- tling the assessee to the allotment of the 45 shares of the New
Shorrock Co. The dissolution of the Shorrock Co. de- prived the holding of the
90 shares of that company of all value. [183B-E] On the question whether there
was any relinquishment, the decision must again be against the Revenue. A relin-
quishment takes place when the owner withdraws himself from the property and
abandons his rights thereto. It presumes that the property continues to exist
after the relinquish- ment. Upon amalgamation, the shares of the Shorrock Co.
lost all value as that company stood dissolved. [183E-F]
CIVIL
APPELLATE JURISDICTION: Civil Appeal Nos. 1905-06 (NT) of 1974 and 3414 of
1984.
From
the Judgment and Order dated 24.7.73 and 7.9.81 of the Bombay High Court in
I.T.R. No. 19 of 1967, 66 of 1964 and 27 of 1972 respectively.
B. Datta,
Additional Solicitor General, M.B. Rao and Ms. A. Subhashini for the Appellant.
Soli
J. Sorabji, Harish Salve, Mrs. A.K. Verma and Jeel Peres for the Respondents.
The
Judgment of the Court was delivered by PATHAK, CJ. The assessee is a Hindu
Undivided Family deriving income from interest on securities, dividends,
property and dealing in shares. In 1941 the assessee pur- chased a share of the
Shorrock Spinning and Manufacturing Co. Ltd., hereinafter referred to as 181
"the Shorrock Co.", of the face value of Rs. 1,000 for Rs.3,307.
Later this share was split into 10 shares of Rs. 100 each, and from time to
time a total of 80 shares of the face value of Rs. 100 each was issued to the assessee
by way of bonus shares. In consequence, on 31 December, 1959 the assessee owned 90 shares in the
Shorrock Co. of the face value of Rs. 100 each.
There
is another company called the New Shorrock Spinning and Manufacturing Co. Ltd.
to which reference may be made as "the New Shorrock Co.". It was
decided to amalgamate the Shorrock Co. with the New Shorrock Co., and upon peti-
tions filed under s. 39 1 and s. 394 of the Companies Act, 1956 the Gujarat
High Court made an order dated 23 September, 1960 directing meetings of the
share holders of both the companies. The meetings were held on 27 October, 1960 and the scheme of amalgamation was
approved. On 25
November, 1960 the
High Court sanctioned the scheme of amalgamation and declared that the scheme
would be binding on members of both the Companies.
Under
the scheme of amalgamation, the undertaking and all the property rights and
powers as well as all liabili- ties and duties of the Shorrock Co. were to
stand trans- ferred and vest with effect from 1 January, 1960 in the New Shorrock Co. The scheme of amalgamation provided
further for an increase in the share capital of the New Shorrock Co. and it
permitted the creation of 14,625 new ordinary shares of the face value of Rs.
125 each of the transferee company.
The
newly created shares were to rank pari passu with the existing shares of the
transferee company in all respects.
Under
the scheme the New Shorrock Co., as the transferee company, was directed to
allot to members of the Shorrock Co., the transferor company, one share in the
transferee company for every two shares of the transferor company held by them.
The order of the Court directed that the Shorrock Co. should file a certified
copy of the order with the Registrar of Companies within 14 days for
registration, and on such certified copy being delivered the transferor compa- ny
would stand dissolved and the Registrar of Companies was to place all documents
relating to the transferor company on the file relating to the transferee
company and the folios relating to the two companies were to be consolidated accordingly.
During
the assessment proceedings for the assessment year 1961-62, the previous year
being the financial year ended 31 March, 1961, the Income Tax Officer, although
apprised of the fact of the scheme of amalgamation and of the acquisition by
the assessee of 45 shares of the 182 New Shorrock Co. omitted to consider the
applicability of s. 12B of the Indian Income Tax Act, 1922. On 21 January, 1964
the Commissioner of Income-tax issued a notice under s. 33B of the Act to the assessee
stating that the receipt of 45 shares of the New Shorrock Co. "in
exchange" of his original holding of 90 shares in the Shorrock Co. in
December 1960 had resulted in an assessable profit, and this aspect had been
overlooked by the Income Tax Officer when making the regular assessment, and,
therefore, he proposed a revision of the assessment. After heating the assessee,
the Commis- sioner of Income Tax passed an order dated 29 January, 1964
directing the Income Tax Officer to revise the assessment and to include an
amount of Rs.49,350 representing the capital gain resulting from the
transaction of the acquisi- tion of 45 shares of New Shorrock Co. in place of
the 90 shares held in Shorrock Co. On appeal by the assessee before the Income
Tax Appellate Tribunal, the Appellate Tribunal held that the transaction
represented neither an exchange nor a relinquishment and, therefore, s. 12B of
the Act was not attracted.
At the
instance of the Revenue the Appel- late Tribunal referred the following
questions to the High Court for its opinion:
"1.
Whether on the facts and in the circumstances of the case, the sum of Rs.49,350
could be assessed in the hands of the assessee as capital gains as having ac- crued
to the assessee by exchange or relin- quishment as provided for under section
12B of the Act?
2. If
the answer to the above question is in the affirmative, whether the said sum of
Rs.49,350 was assessable in the year 1961-62?" Before the High Court the
Revenue did not contend that the transaction constituted a sale or a transfer,
and the parties confined themselves to the point whether the trans- action
represented an exchange or a relinquishment for the purposes of s. 12B. The
High Court took the view that no exchange can be said to have taken place on
the allotment of the 45 shares of the New Shorrock Co. under the scheme of
amalgamation. Nor, in the opinion of the High Court, did it constitute a
relinquishment. In the result, the High Court answered both questions in favour
of the assessee and against the Revenue.
The
relevant portion of s. 12B of the Act provides:
183 S.
12B(1) Capital gains. 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, relinquish- ment or transfer of a capital asset effected after
the 31st day of March, 1956, and such profits and gains shall be deemed to be
income of the previous year in which the sale, ex- change, relinquishment or
transfer took place.
The
sole question is whether the receipt of the 45 shares of the New Shorrock Co.
upon amalgamation by reason of the share holding of 90 shares of the Shorrock
Co. can be described as an "exchange" or a "relinquishment"
within the meaning of s. 12B of the Act. It seems plain to us that no exchange
is involved in the transaction. An exchange in- volves the transfer of property
by one person to another and reciprocally the transfer of property by that
other to the first person. There must be a mutual transfer of ownership of one
thing for the ownership of another. In the present case, the assessee cannot be
said to have transferred any property to any one. When he was allotted the
shares of the New Shorrock Co. he was entitled to such allotment because of his
holding the 90 shares of Shorrock Co. The holding of the 90 shares in the Shorrock
Co. was merely a qualifying condition entitling the assessee to the allotment
of the 45 shares of the New Shorrock Co. The dissolution of the Shor- rock Co. deprived the holding of the 90 shares of that
company of all value.
On the
question whether there was any relinquishment, the decision must again be
against the Revenue. A relin- quishment takes place when the owner withdraws
himself from the property and abandons his rights thereto. It presumes that the
property continues to exist after the relinquish- ment. Upon amalgamation, the
shares of the Shorrock Co., as has been mentioned earlier, lost all value as
that company stood dissolved. There is no relinquishment.
The
connected cases raise similar questions, and are dealt with accordingly.
In the
result, we agree with the view taken by the High Court, and dismiss these
appeals with costs.
H.L.C.
Appeals dismissed.
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