These appeals by revenue pertain to assessments for years 1977- 78 and 1978-79. They arise out of separate orders of first appellate authority, but some issues are common. Indeed, order passed in year 1977-78 has been followed in appeal for assessment year 1978-79. 2. We will first of all deal with appeal for assessment year 1977-78. substantial dispute is in regard to inclusion of Rs. 10,62,970 in income. first ground raised by revenue is to object to deletion made by Commissioner (Appeals). facts are in following way: 3. Caltex Petroleum Corpn. (CPC) is company incorporated in United States of America. Caltex (India) Ltd. (CIL) is subsidiary of CPC incorporated in Bahamas Islands. CIL was carrying on through its undertaking in India business of marketing and distributing petroleum products. Caltex Oil Refining (India) Ltd. (CORIL) was Indian company, equity shareholdings of which were fully held by foreign company (CPC). CORIL was carrying on business of refining crude oil and producing petroleum products in India. On 22- 11-1976, tripartite agreement was made by and between Government of India, CPC, CORIL and CIL since Government of India (GOI) desired to acquire 100 per cent equity shareholdings of both CORIL and CIL. 4. Mentioning chronologically events, on 30-12-1976, Ordinance was promulgated, being Ordinance No. 15 of 1976, titling it Caltex (Acquisition) o f shares of Caltex Oil Refining (India) Ltd. and of undertakings in India of Caltex (India) Ltd. Ordinance, 1976. Ordinance was later on substituted by Central Act 17 of 1977 ('the Acquisition Act') incorporating identical provisions, to be effective from 30-12-1976. 5. In agreement dated 22-11-1976, GOI had proposed to take over undertakings, namely, CORIL and CIL, by means of Act of Parliament and appointed day for transfer was not to be later than 30-12-1975. By Ordinance/Act, appointed day was fixed as 30-12-1976 as day on which transfer of shares would take place. 6. As 100 per cent equity shareholdings in CORIL was taken over by GOI with effect from 30-12-1976, there was change in corporate sector. CORIL, therefore, continued to be GOI enterprises from 30-10-1976 onward and it is this company that is assessee before us. It may be noted here that CORIL was amalgamated with Hindustan Petroleum Corpn. Ltd. by order dated 9-5-1978. 7. After 30-12-1976, CORIL has been doing integrated operation covering both refining and marketing activities. accounting year of CIL was calendar year. CIL had made profit of Rs. 10,62,970 in 1976 up to date of take over (29-12-1976). operating results of marketing division carried on by CORIL for two days after 30-12-1976 was included in profit and loss account of CORIL on account of integrated operation after take over. In return for 1977-78, CORIL (assessee) claimed Rs. 10,62,970 to be capital receipt in part 4 of return of income. ITO rejected this. In appeal, Commissioner (Appeals) held that amount as not taxable in hands of assessee. Objecting to same, revenue has raised first ground in this regard. 8. Referring to certain material portions in assessment: (a) method of vesting in GOI of assets and liabilities of CIL was proposed to be by Act that may be passed by Parliament or Presidential Order and GOI could transfer said Indian assets and liabilities in Government company in manner that may be provided for in Act or Presidential Order; (b) from appointed day (30-12-1976), whole of undertaking and business of CIL would stand transferred to and vested in GOI subject to provisions of clauses 8 to 11 therein: vide clause 3; (c) profit and loss accounts of both CORIL and CIL (undertakings to be acquired) with effect from 1-1-1976 shall accrue to Government or Government company, as case may be: vide clause 7. 9. Ordinance was repealed by Acquisition Act which received President's assent on 23-4-1977. Section 1(2) of Acquisition Act declared that it shall be deemed to have come into force from 30-11-1976. Hence, we straightaway refer to few important provisions in Acquisition Act: (a) All shares in capital of CORIL stood transferred to and vested in GOI. Similarly, rights and liabilities of CIL in relation to its undertaking in India stood transferred and vested in GOI: vide sections 3(1) and 5 of Acquisition Act. (b) Section 6(2) of Acquisition Act provided that profits earned by CIL in relation to its undertaking in India shall be payable to Central Government. (c) Section 9(1) of Acquisition Act (or Ordinance) provided that GOI may direct by notification that right, title and interest and liabilities of CIL be vested in Government company as may be specified in notification, if GOI was satisfied that Government company is willing to comply with terms and conditions which it may deem fit to impose---see section 9(1). (d) In case right, title and interest and liabilities of CIL should vest in Government company as contemplated in section 9(1), then all rights and liabilities of GOI in relation to CIL shall be deemed to have been acquired by that Government company---see section 9(2). (e) If vesting should take place in Government company as foreseen in section 9(1), then provisions of sections 5, 6 and 7 shall be construed in such manner that they would apply to Government company, wherever references are Central Government---see section 9(3). 10. On 30-12-1976, GOI issued notification under section 9(1) that being satisfied that CORIL, which had by then become Government company, was willing to comply with terms and conditions to be imposed by GOI, right, title and interest and liabilities of CIL in relation to its undertakings in India shall, instead of continuing to vest in Central Government, vest in CORIL (the assessee) with effect from 30-12-1976. 11. Acquisition Act is in pari materia with Ordinance (No. 15 of 1976). legal effect is that Act was on statute book and was in force with effect from 30-12-1976 and notification dated 30-12-1976 issued under with effect from 30-12-1976 and notification dated 30-12-1976 issued under section 9(1) should be deemed to be notification issued under section 9(1) in view of savings in section 24 of Acquisition Act. 12. CORIL which was entirely held by foreign company CPC was acquired by GOI and assets and liabilities vested in Central Government. With effect from 30-12-1976, this became Government company for purpose of section 9(1) since Government notification of even date directed that right, title and interest and liabilities of CIL shall vest in CORIL (the assessee) instead of continuing to vest in Central Government. It is in this setting, GOI vested assets and liabilities of CIL in CORIL. In annual report of assessee for year ended on 31-12-1976, there is note in Schedule G that assets and liabilities of CIL have been incorporated in accounts of assessee at their book value as on 31-12-1976. There is further note that profit and loss account of assessee for year ending 31-12-1976 includes business results of marketing division which was previously being operated by erstwhile CIL for two days from 30-12-1976. For result of marketing operations of CIL for period prior to 29-12- 1976, no provision had been made by CORIL as its stand was that receipt was capital in nature and not subject to tax. 13. It is fact that profits earned by CIL on account of its marketing operation for period from 1-1-1976 to 29-12-1976 were made over by GOI to CORIL. In letter dated 5-7-1977, addressed to ITO by CORIL, it was pleaded that income of CIL up to 29-12-1976 received by CORIL was gift from Central Government in nature of capital receipt, and hence shown in part 4 of return, and meant only to furnish information. Arguing for department, Shri Raju contended that GOI cannot make gift and that assessee which has received profits made by CIL up to 29-12-1976 are subject to accounting for revenue since entire undertaking of CIL coalesced with Government company, CORIL. It was also his argument that combined effect of sections 6(2) and 9(3) is that profits of CIL made from 1-1-1976 were payable by Government company and, as such, it should be treated as income accrued to it. representative for assessee laid emphasis on notification dated 30-12-1976 to say that assets and liabilities of CIL had vested in Central Government before they were transferred to CORIL and in view of its initial vesting in Government which was not liable to pay income-tax, CORIL is not obliged to pay tax on amount received and argument is based on premise that GOI which is not liable to pay tax could not have transferred that liability to CORIL along with assets of CIL. 14. Commissioner (Appeals) has made short shrift in para 3 of impugned order for 1977-78 and his conclusion does not bear scrutiny. complexion of amount received by assessee from GOI does not depend upon treatment it had been given by assessee in its books of account or how it has been stated in annual report for 1976. theory of gift is to be stated only to reject it. There is hardly any basis to spell out gift. Principally, effect of few provisions in Acquisition Act and notification dated 30-12-1976 are deciders. Both subsidiary company, CORIL and CIL were taken over by GOI with effect from 30-12-1976 and this is clear result of sections 3 and 5. Since Government had acquired 100 per cent equity share holdings of CORIL, this continued to exist, but as Government company, operating its business in field of refinery as before. Section 6(2), no doubt, declares that profits earned by CIL on account of its marketing operation from 1-1-1976 be payable to Central Government. But section 6 is controlled by section 9 as this provision starts with non obstante clause as to what effect would be in case GOI should find Government company willing to act as per terms and conditions which they (Government) may think fit to impose. Government had contemplated two contingencies and accordingly made provisions in Ordinance/Act. One was if in case Government was not able to find Government company for purpose of section 9(1). other was mode of vesting in case it should find Government company willing to take over assets and liabilities of CIL. If Government had not found Government company, right, title and interest and liabilities of CIL which vested in Central Government would have continued to vest and profits earned by CIL in 1976, prior to vesting, would have been straightaway payable to Central Government. It happened that erstwhile CORIL became Government company with effect from 30- 12-1976 subject to implication of section 9(1) and, therefore, Government issued notification vesting title, right and interest and liabilities of CIL in CORIL instead of continuing to vest in Central Government. CORIL became Government company and invited implication of section 9(1). Precisely for this reason GOI transferred all title, right and interest and liabilities of CORIL (Government company) on and from 30-12-1976 though, technically, it appears that there was prior vesting in Central Government earlier to transfer. 15. Section 9(3) reads that provisions of sections 5, 6 and 7 of Acquisition Act, shall, so far as may be, apply in relation to such Government company as they apply to Central Government and for purposes of references therein, 'Central Government' shall be construed as 'Government company'. reading of section 6(2) in context of Government's notification dated 30-12-1976 should, in view of section 9(3), should be in manner that reference to Central Government be deemed to be reference to Government company specified in notification. In other words, words 'Central Government' appearing in section 6(2) must be substituted by 'Government company' and that is real thrust of section 9(3). answer becomes evident that profit earned by CIL from 1-1-1976 shall be payable to Government company, CORIL, assessee in this case. 16. profits made by CIL on account of its marketing operation up to 29- 3-1976 were subject to income-tax and there was obligation on its part. Vesting of CIL vide section 5, included subsisting obligation to pay tax. It was not simple vesting in Central Government, but, on account of section 9(1) read with notification dated 13-12-1976, it was vesting in CORIL (Government company). Therefore, obligation of CIL to pay tax on account of its marketing operation up to 29-3-1976 also passed to CORIL (Government company) along with its right, title and interest and other liabilities. 17. Section 9(2) is also relevant in present context. Whatever liabilities of CIL had in relation to its undertakings in India which included obligation to pay tax for profits (if any), such liability is deemed to have become liability of CORIL (Government company), assessee in this case, because GOI transferred such liability also to CORIL (Government company). For above premises, we hold that assessee is liable for profits earned by CIL in respect of its marketing operations up to 29-3-1976. ITO had rightly included Rs. 10,62,970 in computation and Commissioner (Appeals) was in error in directing its deletion. We uphold inclusion. 18 to 23. [These paras are not reproduced here as they involve minor issues.] 24. In result, appeals are allowed in part. *** FIRST INCOME TAX OFFICER v. CALTEX OIL REFINING (I) LTD.