GAUTAM SARABHAI TRUST NO. 31 v. INCOME TAX OFFICER
[Citation -1986-LL-1119-2]

Citation 1986-LL-1119-2
Appellant Name GAUTAM SARABHAI TRUST NO. 31
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 19/11/1986
Assessment Year 1982-83
Judgment View Judgment
Keyword Tags transfer of capital asset • short-term capital asset • wholly owned subsidiary • long-term capital asset • scheme of amalgamation • amalgamating company • cost of acquisition • allotment of share • preference shares • transfer of share • indian company • equity share • capital gain • evade tax
Bot Summary: Locomotive Co. Ltd., Ahmedabad Manufacturing Calico Printing Co. Ltd. and Mahindra and Mahindra Co. Ltd. The ITO had brought to tax long- term capital gains in respect of the shares and debentures which the assessee received from the first company as well as the shares of the second company and short-term capital gains in respect of the shares of the third company. We may add the AAC has also referred to the provisions of s. 47(vii) in accepting the contention of the assessee that s. 47(vii) excludes from the operation of s. 45 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 company, if the transfer is made in consideration of the allotment to him of any share or shares in the amalgamated company and the amalgamated company is an Indian company. Nothing contained in s. 45 shall apply to the following transfers : to 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 company if the transfer is made in consideration of the allotment to him of any share or shares in the amalgamated company, and the amalgamated company is an Indian company ; Sec. Further, if s. 47(vii) contemplated allotment of only the share or shares of the amalgamated company in consideration of its transferring the share or shares of the amalgamating company, the legislature would have used the word only at some appropriate place in that section. The case of the Revenue, on the other hand, is that what is contemplated under that section is the allotment of only the share or shares of amalgamated company in consideration of transfer of share or shares of amalgamating company. On the plain reading of s. 47(vii), we are of the view that a shareholder of amalgamating company would be entitled to claim exemption from the provisions of s. 45 if the following conditions are fulfilled by him : he transfers his share or shares in the amalgamating company, in consideration of such transfer, he has been allotted share or shares of the amalgamated company, and the amalgamated company is an Indian company. We are fortified in the view we are taking by the order of the Tribunal in the case of H.K. Bhavnani, the relevant portion of which is reproduced above, more particularly the latter portion of that order, which reads as under : Furthermore, we may add the AAC has also referred to the provisions of s. 47(vii) in accepting the contention of the assessee that s. 47(vii) excludes from the operation of s. 45 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 company, if the transfer is made in consideration of the allotment to him of any share or shares in the amalgamated company, and the amalgamated company is an Indian company.


U.T. SHAH, J.M. Order In this appeal, assessee is challenging capital gains of 1,05,427 charged in its hands. 2. assessee is trust and is assessed in status of AOP. assessment year is 1982-83 and relevant previous year ended on 31st March, 1982. 3. assessee owned 1512 ordinary shares of Shahibaug Entrepreneurs (P) Ltd. (SEPL) of face value of Rs. 100 each. Alkapuri Investments (P) Ltd. (Alkapuri) was wholly owned subsidiary of SEPL. Under scheme of amalgamation, SEPL amalgamated with Alkapuri by order of Hon ble Gujarat High Court under company Petition No. 11 of 1980. As per scheme of amalgamation approved by Hon ble High Court, assessee received following in respect of each equity share of SEPL : (i) one equity share of face value of Rs. 100 each and two fractional certificates, each certificate representing fractional entitlement of one-tenth of one equity share of Rs. 100 of Alkapuri credited as fully paid up ; (ii) one 11 per cent Redeemable Bond of face value of Rs. 100 of Alkapuri credited as fully paid-up. In other words, assessee received 1815 equity shares and 1512, 11 per cent Redeemable Bonds of Alkapuri of Rs. 100 each. 4 . On aforesaid facts, during course of assessment proceedings, assessee claimed exemption from tax of capital gains on two counts. viz., (a) there was no transfer of capital asset involved within meaning of s. 2(47) of IT Act, 1961 ( Act ), and (b) even if there was transfer, capital gains was not exigible to tax by virtue of s. 47(vii) of Act. Reliance was also placed on decision in cases of CIT vs. Rasiklal Maneklal HUF (1974) 95 ITR 656 (Bom) and CIT vs. Master Raghuveer Trust (1984) 40 CTR (Kar) 163 : (1985) 151 ITR 368 (Kar). ITO, however, negatived assessee s claim in following manner : "4. case law CIT vs. Rasiklal Maneklal is not relevant in case as it relates to position of law before introduction of s. 47(vii). entire argument regarding occurrence of transfer or otherwise along lines suggested by you in paragraph 1 of your reply is not acceptable in view of changed situation of law, after insertion of several provisions regarding amalgamation by Finance (No. 2) Act, 1967, one of which is for s. 47(vii). 5.The said provisions assume among other things that there definitely is transfer on occasion of amalgamation, but that, for purpose of capital gains, these transactions, which results from amalgamation under certain circumstances should not be considered transfer. assumption behind scheme is that unless those specified circumstances enumerated in law are found in case of transaction for to be looked upon as non-transfer, issue of shares on other assets to shareholder in lieu of shares in amalgamating company would be transfer for purposes of capital gains under IT Act. One of circumstances which is specified in s. 47(vii) is applicable to assessee. Therefore, apparently transaction under consideration can be looked upon as non-transfer but for one complication, namely, that assessee is getting shares as well as bonds in amalgamated company whereas s. 47(vii) craves out for non-application of provisions of capital gains only these transactions where only shares are issued against shares. In short it is held here that since introduction of s. 47(vii) cannot be redundant, in position of law as obtained after introduction of s. 47(vii) by Finance Act, 1967, there is transfer by shareholder when he receives shares in amalgamated company in lieu of shares in amalgamating company though deemed to non-transfer under s. 47(vii). Since in this particular case shareholder received not only shares but bonds as well, we have case of transfer to which provisions of capital gains are attracted and benefit of s. 47(vii), which visualised no such composite transaction, cannot be extended. This view is further strengthened by case law cited by assessee against proposed imposition of capital gains tax. In case of CIT vs. Master Raghuveer Trust, their Lordships of Karnataka High Court which holding that in facts of case under their consideration, there was no transfer at all, declined very specifically to express any opinion on applicability or otherwise of s. 47(vii) when consideration for transfer of shares is paid partly by shares and partly by cash bonds or debentures implying thereby that there is in that case transfer to which benefit of s. 47(vii) may or may not be extended as position of law is still uncertain. Moreover Department has gone in further appeal against this order of Karnataka High Court. Now reason why this uncertain position of law does not favour assessee is that deemed non-transfer under s. 47(vii) applied only in case where to quote status transfer is made in consideration of allotment to him of any share or shares in amalgamated company . This refers only to event of allotment of shares only in amalgamated company. By no logic or law can redeemable bonds be held equal or synonymous with shares. In fact shares and redeemable bonds are on quite different footing vis-a-vis their rights and interest in company which can be given back to shareholder either in full or in instalments . In any case there is no basis for equating issue of bonds with allotments of share in amalgamated company on plea that shares can be substituted by redeemable bonds in text of statute. Thus benefit of provision of s. 47(vii) can, under no circumstances, be extended to event where transfer is made in consideration of allotment of bonds as well as shares. whole transfer forfeits protection because of composite nature of transaction. When there is no reference to redeemable bonds in statute, it cannot be construed from context especially when shares and bonds are so different from each other that no inclusive definition of share or shares can cover redeemable bonds also. cost of acquisition for purpose of capital gains would be, under Expln. of s. 49 deemed to be cost of acquisition to him of share or shares in amalgamating company ." 5. In view of aforesaid reasonings, ITO worked out capital gains of Rs. 1,05,427 in following manner : "Total receipt . Rs. (a) Value of shares in amalgamated company 1,81,500 (b) Value of bonds in amalgamated company 1,51, 20 . 3,32,700 Less . cost of acquisition in form of value of 1,51,310 shares in amalgamating company as per B/s. . 1,81,390 Less Deduction under s. 80T 5,000 . 1,76,390 . 70,556 Accordingly total income is computed as follows : . Income from capital gains as worked out above 1,05,834 Income from other sources nil 1,05, Aggregated income 834 Less Expenses 407 Total income 1,05,427 6. In appeal before CIT (A), apart from oral submissions, assessee filed written submissions, which read as under : "I. There is no transfer of any capital asset on amalgamation of company. Transfer is defined in s. 2(47) of IT Act as being sale, exchange, relinquishment or extinguishment of rights therein. It is not sale, exchange or relinquishment. See CIT vs. Rasiklal Maneklal (HUF) (1974) 95 ITR 656 (Bom) decided by Bombay High Court on 24th July, 1973. It is not extinguishment of right therein see 119 ITR 393 (sic) at page 410. It is true that Calcutta High Court in Central India Industries Ltd. vs. CIT (1975) 99 ITR 211 (Cal) in case of Central India Industries Ltd. has held that amalgamation gives rise to capital gain or loss. This case was decided on 10th April, 1974 hence it was not available to Bombay High Court. In this case, Hon ble High Court has emphasised that one of terms of amalgamation was that shares will be issued and delivered to shareholders in exchange for ordinary shares of Merchandise & Stores Ltd. See page 218 ; otherwise High Court has accepted that where amalgamated company issued shares, there is no transfer by that company to allottee see page 219. But for fact that as term of amalgamation there was exchange of shares, judgment of High Court would have been entirely different. In our case, there is no such term. direct judgment is that of Karnataka High Court reported in CIT vs. Master Raghuveer Trust (supra) where High Court has considered both Bombay and Calcutta High Courts judgments and upheld view that there is no transfer by shareholder of amalgamating company. II. There is no consideration for so-called transfer. See CIT vs. Madurai Mills Co. Ltd. 1973 CTR (SC) 223 : (1973) 89 ITR 45 (SC), CIT vs. R. M. Amin 1977 CTR (SC) 27 : (1977) 106 ITR 368(SC) at page 372 (SC). III. Even otherwise transaction is exempt by virtue of s. 47(vii) of IT Act. Even assuming that there is transfer (it is respectfully submitted that it is not) in scheme of amalgamation, there is no transfer of capital asset by shareholder of amalgamated company as held by Calcutta High Court in Krishna Industrial Corpn. (P) Ltd. vs. CIT (1979) 119 ITR 656 (All). On amalgamation, shares of amalgamated company become assets of t h e holders of amalgamating company and shares held by shareholders of amalgamating company become valueless. Accordingly, there is no question of transfer of such valueless rights ; no extinguishment of rights therein. Even assuming there is such transfer, such transfer can be made in consideration of allotment of any share or shares in amalgamated company. Share or shares does not necessarily mean only equity or preference shares of company. Such share in amalgamated company can be represented by equity or preference shares and debentures or bonds. It is for two companies to decide how respective shareholders will be given rights in another company. It may be that amalgamated company may give only their shares to erstwhile shareholders of amalgamated company or it may for various reasons, give shares and debentures and bonds. In either case, shareholders of amalgamating company have share represented by shares plus bonds issued by amalgamated company. ITO has denied exemption under s. 47(vii) on ground that transfer is made in consideration of allotment of bonds as well as shares taxable event. If shares are allotted, there is no transfer, it is difficult to understand how it becomes taxable when what is allotted is not only shares but also bonds. IV. In any event, to extent transfer is for shares, transaction should be exempt under s. 47 (Karnataka High Court has rejected this argument)." 7 . In his order under appeal, CIT (A) held that there was transfer when shareholder of amalgamating company were allotted shares of amalgamated company in lieu of their shareholding in amalgamating company, in following manner : "8. I have carefully considered facts of case and law relating to amalgamation of company as discussed by various High Courts. Coming t o first question as to whether there is transfer when shareholder of amalgamating company receives shares of amalgamated company in lieu of shares held by him in amalgamating company whether there is transfer o r not, there is no doubt that Bombay High Court in two decisions mentioned above and Calcutta High Court (sic) 119 ITR 393 have held that there is no transfer. But where shareholder receives shares and bonds in question which has not been answered by any of High Courts. They have not answered as to whether without benefit of s. 47(vii) of IT Act, such transaction would amount to transfer or not. Bombay High Court has not referred to s. 47(vii) at all whereas Karnataka High Court in case of CIT vs. Master Raghuveer Trust (supra) did not express opinion on applicability of s. 47(vii) but when consideration for transfer of shares is paid partly by shares and partly by bonds or debentures. If reasoning advanced by learned counsel to be accepted, s. 47(vii) will become redundant or otiose. If there was no transfer without benefit of s. 47(vii), I am at loss to understand why such provision was inserted for benefit of shareholders of amalgamating company. interpretation which renders any section or sub-section redundant should be avoided as far as possible. Moreover, there is decision of Calcutta High Court itself in Central India Industries vs. CIT in which it has been decided that there is transfer which takes place inter se when shareholders of amalgamating company were allotted shares in amalgamated company, in lieu of shareholding in amalgamating company. learned counsel for assessee argued that case was decided on particular facts of case. He stressed that in scheme of amalgamation word exchange was used and hence Calcutta High Court held that there was transfer in this case. He argued that this is not case here. However, I find that though word exchange was used in scheme of amalgamation i n decision of Calcutta High Court, Central India Industries Ltd. vs. CIT (1975) 99 ITR 211 (Cal), High Court held that it was clearly case, at least of transfer of shares by petitioner if not exchange. Thus, Calcutta High Court was not led away by mere wording exchange used in scheme of amalgamation. In categorical terms, Calcutta High Court has held that transfer does take place even if there is no exchange. It would, therefore, appear that law is not settled as has been canvassed by learned counsel. Moreover, by insertion of s. 47(vii) by Finance Act (No. 2), 1967, legislature clearly meant that but for s. 47(vii), there would be transfer. In this view of matter, I hold that there was transfer when shareholder of amalgamating company were allotted shares of amalgamated company in lieu of their shareholding in amalgamating company." 8 . As regards applicability of provisions of s. 47(vii) CIT (A) upheld view of ITO as under : "11. ITO has taken view that on receipt of share or shares only s. 47(vii) will apply. If assessee receives bonds, debentures, etc., along with shares, provisions of s. 47(vii) would not apply. I see quite some merit in this argument of ITO. It is composite transaction in which assessee has received not only shares of amalgamated company but bonds also. If there was intention of legislature to include bonds within meaning there was intention of legislature to include bonds within meaning of share or shares, these would have set it out in clear terms. Thus, I am in agreement with ITO s logic that when assessee receives share or shares along with bonds, debenture, etc., this being composite transaction, s. 47(vii) would not apply. In taxing statute one has to look merely at what is clearly said. There is no room for intendment. There is no equity about tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied (Per Rowlatt, J), Cape Brandy Syndicate vs. IR (1921) 1 KB 64, 71, 12 TC 358 approved in CIT vs. Ajax Products Ltd. (1965) 55 ITR 741 (SC), CIT vs. Shahzada Nand & Sons (1966) 60 ITR 392 (SC). In nut-shell, I hold that there was transfer and transfer was for consideration and s. 47(vii) does not apply to assessee s case. 12.In grounds of appeal, assessee in ground No. (xii) has raised issue that even if capital gain is leviable on receipt of bonds, cost of such bonds will be nil. In that case, there is no liability of capital gains in view of decision of Supreme Court in case of CIT vs. B.C. Srinivasa Setty (1981) 21 CTR (SC) 138 : (1981) 128 ITR 294 (SC). Since I have held that s. 47(vii) will not be applicable, there is no question of exempting value of shares received from amalgamated company, because it is single and composite transaction in which shares and bonds are given to shareholders of amalgamating company in lieu of holding shares in amalgamating company. Thus, main ground fails." 9. Being aggrieved by order of CIT (A), assessee has come up in appeal before Tribunal. At outset, learned counsel for assessee stated that there are two issues involved in present appeal, namely, (1) whether there was transfer of capital asset within meaning of s. 2(47), and (2) if so, whether assessee would still be not liable to tax on capital gains, by virtue of provisions of s. 47(vii). As regards first issue, learned counsel for assessee submitted that same is covered in favour of assessee by direct decision of Hon ble Karnataka High Court in case of Master Raghuveer Trust (supra) which CIT (A), as appellate authority, ought to have followed instead of by passing same in manner he did. learned counsel for assessee stated that even if it is to be presumed that there was transfer within meaning of s. 2(47), it would be his endeavour to impress upon Tribunal that still, assessee would not be liable to tax on capital gains, by virtue of provisions of s. 47(vii). In this connection, he further stated that there was no dispute about fact that in instant case there was amalgamation of SEPL with Alkapuri within meaning of s. 2(1A), as all conditions stipulated in that section have been fulfilled by concerned companies. He also stated that there was no doubt about genuineness or bona fide in scheme of amalgamation inasmuch as same was approved by Hon ble High Court in company petition made under Companies Act, 1956. Thereafter, he invited attention of Tribunal to s. 47(vii), and submitted that assessee had, in fact, transferred shares held by it in amalgamating company, viz., SEPL in consideration of allotment of shares to it of amalgamated company, viz., Alkapuri. fact that assessee had also received bonds of amalgamated company would not, in opinion of learned counsel, disentitle assessee to claim exemption as contemplated under that section. According to learned counsel for assessee IT authorities were not justified in taking view that exemption as contemplated in s. 47(vii), would be available to assessee in case of allotment of only shares of amalgamated company but not in case where assessee has been allotted shares plus something by amalgamated company. According to him, if we were to accept stand taken by IT authorities, we will have to insert word only at appropriate place in said section. This would amount to re-writing section which is neither function of IT authorities nor that of Tribunal or Courts. learned counsel for assessee emphasised that we have to read said section as it is and nothing more should be read in it as was done by IT authorities. According to learned counsel for assessee, amalgamated company could have given transister radio or discount coupon of certain value or some such thing along with allotment of its shares to shareholders of amalgamating company. That would not have disentitled shareholders t o claim exemption as contemplated under s. 47(vii). Similarly, fact that b o n d s of Alkapuri were allotted to shareholders of amalgamating company would not make any difference in claiming exemption as contemplated under s. 47(vii). He, therefore, urged that IT authorities were not justified in charging capital gains of Rs. 1,05,427 in hands of assessee. In this connection, he relied on order of Tribunal in case of H.K. Bhavnani (IT Appeal Nos. 1766 and 1767 (Bom) of 1977-78 dt. 6th July, 1978) wherein, assessee was shareholder of Central Bank of India Ltd., Bank of India Ltd. and Union Bank of India Ltd., which were merged respectively with Tata Engg. & Locomotive Co. Ltd., Ahmedabad Manufacturing & Calico Printing Co. Ltd. and Mahindra and Mahindra Co. Ltd. ITO had brought to tax long- term capital gains in respect of shares and debentures which assessee received from first company as well as shares of second company and short-term capital gains in respect of shares of third company. AAC had held that by virtue of provisions of s. 47(vii), no capital gains were chargeable in hands of assessee. This action of AAC was upheld by Tribunal in following manner : "4. At hearing of these appeals it is fairly conceded by learned Departmental Representative Shri Anjaria that objection raised by Department in this to order of AAC allowing assessee s claim that no capital gains charge is attracted is directly covered by decision of Bombay High Court in CIT vs. Rasiklal Maneklal (HUF) (1974) 95 ITR 656 (Bom) which is against contention of Revenue. It is, however, stated by him that since decision has not been accepted by Department and matter is said to have been pursued further, he does not wish to concede Department s case. In view of decision of Bombay High Court referred to by him and which has also been relied on by AAC in his order, we consider that appeals of Department on this point are without any merit. Furthermore, we may add AAC has also referred to provisions of s. 47(vii) in accepting contention of assessee that s. 47(vii) excludes from operation of s. 45 any transfer by shareholder, in scheme of amalgamation, of capital asset being share or shares held by him in amalgamating company, if (a) transfer is made in consideration of allotment to him of any share or shares in amalgamated company and (b) amalgamated company is Indian company. As this is clear statutory provision which supports assessee and as no argument has been advanced before us by learned Departmental Representative as to why this is not before us by learned Departmental Representative as to why this is not applicable to facts of this case, we uphold order of AAC, even apart from decision of Bombay High Court in Rasiklal Maneklal (HUF) s case (supra) which was concerned with charge of capital gains in respect of similar transaction under repealed Indian IT Act, 1922." 10. learned standing counsel for Department, first of all, adverted to relevant provisions of Companies Act, under which amalgamation takes place between companies perhaps with view to impress upon Tribunal that shareholders of amalgamating company are privy to scheme of amalgamation. He also adverted to cls. 5, 10 and 11 of scheme of amalgamation approved by Hon ble High Court. Relying on decision in case of CIT vs. R.M. Amin (1971) 82 ITR 194 (Guj), he submitted that in instant case, there was transfer inasmuch as in satisfaction of his shareholding in amalgamating company, assessee got shares of amalgamated company plus 11 per cent redeemable bonds. He further submitted that if we were to accept stand taken on behalf of assessee that it would be entitled to exemption as contemplated under s. 47(vii), certain anomalous situation would arise. In this connection, he invited attention of Tribunal to s. 49(2) and pointed out that it talks of share or shares and nothing else. Therefore, what would be cost of acquisition of bonds which assessee received on amalgamation ? When assessee sells bonds in future, he would as well relying on decision in case of CIT vs. B.C. Srinivasa Setty (1981) 21 CTR (SC) 138 : (1981) 128 ITR 294 (SC) take stand that no capital gains would be attracted on sale of such bonds as they had not cost him anything. Similarly, inviting attention of Tribunal to s. 2(42A) Expln. (i) and (c) he submitted that it would be difficult to determine period for which assessee held bonds for purpose of deciding whether such bonds should be treated as short-term capital asset or long-term capital asset . He also submitted that in given case, shareholder of amalgamating company may receive only 10 per cent shares of amalgamated company and 90 per cent of its debenture/bonds for consideration of his shareholding in amalgamating company and thus try to avoid capital gains altogether. His other line of argument was that since s. 47(vii) is exception, same should be interpreted strictly to effectuate charging of capital gains. Relying on decision in cases of Sevantilal Maneklal Sheth vs. CIT (1968) 68 ITR 503 (SC) and Bengal Immunity Co. Ltd. vs. State of Bihar AIR 1955 SC 661, he submitted that it is sound rule of interpretation that statute should be so construed as to prevent mischief and to advance remedy according to true intention of makers of statute. He also relied on following observations in case of Gursahai Saigal vs. CIT (1963) 48 ITR 1 (SC) : "Now it is well recognised that rule of construction on which assessee relies applies only to taxing provision and has no application to all provisions in taxing statute. It does not, for example, apply to provision not creating charge for tax but laying down machinery for its calculation or procedure for its collection. provisions in taxing statute dealing with machinery for assessment have to be construed by ordinary rules of construction, that is to say, in accordance with clear intention of legislature which is to make charge levied effective. . . ." He also invited attention of Tribunal to following observations in case of CWT vs. Sadiqali Samsuddin (1984) 41 CTR (Guj) 282 : (1985) 152 ITR 190 (Guj) : ". . On recognised principles of interpretation of statutes, exception clause is to be strictly construed. It is, therefore, difficult for us to agree with learned counsel for Revenue that there is no warrant in section for giving restricted meaning to term cash . On principle as well as on authority, it is settled position in law that exception clause must be construed strictly and cannot be interpreted so as to nullify or destroy main provision. (See T. Devadasan vs. Union of India AIR 1964 SC 179). exception has to be confined within its own limits and must be restricted to matter embraced within it and it is not permissible to extend meaning of exception by analogy or by reference to meaning of same or similar word, in other cases, so as to include cases which cannot be reasonably brought within purview of language employed. . . ." Inviting attention of Tribunal to decision in case of Master Raghuveer Trust, learned standing counsel for Revenue submitted that Hon ble High Court has not held that on amalgamation of two companies, no transfer was involved. Thereafter, he referred to decision of Hon ble Supreme Court in case of McDowell & Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148(SC), more particularly, to following observations of Justice Chinnappa Reddy of report : ". . . In our view, proper way to construe taxing statute, while considering device to avoid tax, is not to ask whether provisions should be construed literally or liberally, nor whether transaction is not unreal and not prohibited by statute, but whether transaction is device to avoid tax, and whether transaction is such that judicial process may accord its approval to it. hint of this approach is to be found in judgment of Desai, J. in Wood Polymer Ltd., In re and Bengal Hotels Ltd., In re (1977) 47 Comp. Cas. 597 (Guj), where learned judge refused to accord sanction to amalgamation of companies as it would lead to avoidance of tax." Inviting attention of Tribunal to page 171 of report, he pointed out that all learned judges had agreed with aforesaid view expressed by Justice Chinnappa Reddy. Finally, he submitted that order of Tribunal in case of Shri H.K. Bhavnani should not be followed in instant case as decision of Tribunal in that case was on concession made on behalf of Revenue. He, therefore, urged that order of CIT (A) should be upheld. 11. learned counsel for assessee, in his reply, submitted that there appears to be some confusion in mind of Revenue when reference was made to provisions of ss. 49(2) and 2(42A). According to him, there are two separate and distinct stages which should be kept in mind. first stage is amalgamation of companies and second stage is when shareholder of amalgamated company selling his shares and certain other things which were allotted to him on amalgamation by amalgamated company. In instant case, we are concerned with first stage and, therefore, there is no need to get influenced by provisions contained in s. 49(2) and 2(42A). According to learned counsel for assessee, there is no anomaly as apprehended by Revenue. As and when assessee sells shares of amalgamated company, which are allotted to him on amalgamation, we will have to consider provisions of ss. 49(2) and 2(42A), in order to ascertain cost o f acquisition and period for which such shares were held by shareholder. However, in case of sale of bonds by assessee, provisions of said sections are not to be considered at all. Thereafter, learned counsel for assessee dealt with canon of construction of statute. According to him, statute contains (i) machinery/charging provisions, (ii) exception provisions, and (iii) exemption/relief provisions. charging provisions and exception provisions have to be interpreted strictly as has been held in number of cases which were cited on behalf of Revenue. However, according to him, it is trite law that exemption/relief provisions of statute are to be interpreted liberally. In this connection, he relied on decision in cases of CIT vs. Clive Insurance Co. Ltd. 1978 CTR (SC) 68 : (1978) 113 ITR 636 (SC) and CIT vs. Simpson & Co. (1980) 122 ITR 283 (Mad). Since in instant case, we are dealing with exemption/relief provisions like s. 47(vii), learned counsel for assessee strongly urged that same should be interpreted liberally. learned counsel for assessee submitted that decision in c s e of McDowell & Co. Ltd. (supra) has no application to facts and circumstances of case under consideration as it is not case of Revenue that amalgamation of SEPL with Alkapuri was done with view to avoid tax or that it was colourable transaction or that parties never intended to act upon it. learned counsel for assessee once again emphasized fact that since amalgamation of SEPL with Alkapuri was approved by Hon ble High Court in company petition, it would be difficult to attach motive on part of shareholders of both companies. If motive of shareholders/ companies was to evade tax, Hon ble High Court would not have approved amalgamation as was done by it in case of Wood Polymer Ltd., In re (1977) 109 ITR 177 (Guj). Finally, be invited attention of Tribunal to decision in case of Master Raghuveer Trust (supra), more particularly at page 360 of report and highlighted fact that after recasting question, Hon ble High Court had in fact, held that there was no transfer of capital asset within meaning of s. 2(47) on amalgamation of two companies, of which assessee was shareholder of amalgamating company prior to amalgamation. learned counsel for assessee also highlighted fact that Hon ble High Court has clearly held that if provisions of s. 47(vii) were to be applied then exemption claimed by assessee has to be accepted. In doing so, Hon ble High Court has not approved action of Tribunal giving pro rata exemption in respect of shares allotted to assessee and denying such exemption in respect of bonds/debentures allotted to assessee by amalgamated company. 12. We have carefully considered rival submissions of parties and material already brought on record. At outset, we may mention that learned counsel for assessee had not argued in detail first issue involved in appeal, viz., whether there was transfer of capital asset within meaning of s. 2(47), as according to him, even if it is assumed that there was transfer of capital asset within meaning of s. 2(47), capital gains would still not be exigible to tax by virtue of exemption provisions contained in s. 47(vii). learned standing counsel for Revenue stoutly argued that on facts and circumstances of case, assessee would not be entitled to claim exemption under s. 47(vii). In order to resolve this dispute, it would be necessary to refer to certain provisions of Act, to which our attention was drawn by learned counsel of parties. Sec. 2(1A) defines expression amalgamation in relation to companies. Since there is no dispute that conditions stipulated therein are fulfilled by SEPL and Alkapuri, we do not discuss anything further on this aspect of matter. Sec. 2(14) defines capital assets . Here also, there is no dispute that shares of SEPL and Alkapuri are capital assets as defined in that section. Sec. 2(42A) defines short-term capital asset to mean capital asset held by assessee for not more than 36 months immediately preceding date of its transfer. material portion of said section for our purpose is date of its transfer. material portion of said section for our purpose is reproduced below : "Explanation : (i) In determining period for which any capital asset is held by assessee (a) and (b) (c) in case of capital asset being share or shares in Indian company, which becomes property of assessee in consideration of transfer referred to in cl. (vii) of s. 47, there shall be included period for which share or shares in amalgamating company were held by assessee." Sec. 2(47) defines transfer . Since arguments were advanced by both parties on assumption that there was transfer in relation to capital asset in case under consideration, it is not necessary to discuss anything further in this regard. Suffice it to say that in decision of Master Raghuveer Trust (supra), Hon ble Karnataka High Court has held that no transfer of capital asset is involved within meaning of s. 2(47) in case of amalgamation of companies. Sec. 45 of Act is charging section for taxing income under head Capital gains . relevant portion of sub-s. (1) of said section reads as under: "Any profits or gains arising from transfer of capital asset effected in previous year shall, . . . be chargeable to income-tax under head Capital gains , and shall be deemed to be income of previous year in which transfer took place." Sec. 47 enumerates instances which are not regarded as transfer for purpose of s. 45. Since both learned counsels had vigorously argued on this aspect of matter, we reproduce below relevant provisions of said section : "47. Nothing contained in s. 45 shall apply to following transfers : (i) to (vi) (vii) any transfer by shareholder, in scheme of amalgamation, of capital asset being share or shares held by him in amalgamating company if (a) transfer is made in consideration of allotment to him of any share or shares in amalgamated company, and (b) amalgamated company is Indian company ;" Sec. 49 provides for cost with reference to certain modes of acquisition. For our purpose, sub-s. (2) of s. 49 is relevant and it reads as under : "(2) Where capital asset being share or shares in amalgamated company which is Indian company became property of assessee in consideration of transfer referred to in cl. (vii) of s. 47, cost of acquisition of asset shall be deemed to be cost of acquisition to him of share or shares in amalgamating company." 13. It is case of assessee that just because it was allotted 11 per cent bonds along with shares of amalgamated company in consideration of its transferring shares of amalgamating company, it should not lose exemption as provided under s. 47(vii). Further, if s. 47(vii) contemplated allotment of only share or shares of amalgamated company in consideration of its transferring share or shares of amalgamating company, legislature would have used word only at some appropriate place in that section. In absence of use of word only at appropriate place in said section, Revenue was not justified in denying exemption to it as contemplated under that section. case of Revenue, on other hand, is that what is contemplated under that section is allotment of only share or shares of amalgamated company in consideration of transfer of share or shares of amalgamating company. In order to strengthen this stand, Revenue wanted to get support from provisions of s. 2(42A) and s. 49(2) (reproduced above). Revenue has also taken up stand that amalgamation of SEPL with Alkapuri was done with view to avoid tax. Therefore, in view of decision in case of McDowell & Co. Ltd. (supra), such attempt made by assessee should not be encouraged, assessee, on other hand, has taken up stand that since amalgamation of SEPL with Alkapuri was approved by Hon ble High Court in company petition made under Companies Act, it cannot be presumed that amalgamation of companies involved was made with view to avoid tax. If that would have b e e n case, Hon ble High Court would not have approved amalgamation as it was done in case of Wood Polymer Ltd. (supra). Therefore, decision in case of McDowell & Co. Ltd. (supra) has no application to facts and circumstances of instant case. 14. On plain reading of s. 47(vii), we are of view that shareholder of amalgamating company would be entitled to claim exemption from provisions of s. 45 if following conditions are fulfilled by him : (a) he transfers his share or shares in amalgamating company, (b) in consideration of such transfer, he has been allotted share or shares of amalgamated company, and (c) amalgamated company is Indian company. It is not in dispute that in instant case, assessee fulfills conditions (a) and (c) above. However, there is dispute between parties in respect of fulfillment of condition mentioned in (b) above, viz., whether shareholder of amalgamating company loses exemption contemplated under s. 47(vii), merely on ground that along with allotment of share or shares of amalgamated company, he receives something else from amalgamated company. In our considered opinion, since there is no restriction provided in condition (b) above that along with allotment of share or shares of amalgamated company, assessee should not receive anything else from amalgamated company, we fail to appreciate how exemption contemplated under s. 47(vii) could be denied to assessee. As we are concerned in present case with certain things received by assessee from amalgamated company in consideration of his transferring shares of amalgamating company, it is not possible for us to give any decision as to what will happen in future when assessee transfers 11 per cent bonds merely because s. 2(42A) and s. 49(2) do not deal with such situation but they deal with situation where shares of amalgamated company are sold by previous shareholder of amalgamating company. In this view of matter, w e entirely agree with submissions made on behalf of assessee that there is some confusion in mind of Revenue in not appreciating two separate and distinct stages. In instant case, we are concerned with first stage, viz., amalgamation of two companies and consequences arising therefrom. We are not concerned with second stage where shareholder of amalgamated company sells his shares and certain other things allotted to him on amalgamation. If we keep these two separate and distinct stages in mind, we are of opinion that assessee would be entitled to claim exemption contemplated under s. 47(vii). It is no doubt true that in case of Master Raghuveer Trust (supra), Hon ble High Court has not given its decision on provisions of s. 47(vii). However, it is pertinent to note that in said case, Hon ble High Court has not approved action of Tribunal granting pro rata exemption under s. 47(vii), in respect of shares allotted and denying such exemption in respect of bonds/debentures allotted to shareholder by amalgamated company. In our view, once it is held that assessee is entitled to claim exemption under s. 47(vii), it is of no consequence to see whether along with allotment of share or shares of amalgamated company, assessee has also received bonds/debentures. We are fortified in view we are taking by order of Tribunal in case of H.K. Bhavnani (supra), relevant portion of which is reproduced above, more particularly latter portion of that order, which reads as under : "Furthermore, we may add AAC has also referred to provisions of s. 47(vii) in accepting contention of assessee that s. 47(vii) excludes from operation of s. 45 any transfer by shareholder, in scheme of amalgamation, of capital asset being share or shares held by him in amalgamating company, if (a) transfer is made in consideration of allotment to him of any share or shares in amalgamated company, and (b) amalgamated company is Indian company. As this is clear statutory provision which supports assessee and as no argument has been advanced before us by learned Departmental Representatives as to why this is not applicable to facts of this case, we uphold order of AAC, even apart from decision of Bombay High Court in Rasiklal Maneklal (HUF) (supra) which was concerned with charge of capital gains in respect of similar transaction under repealed Indian IT Act of 1922." As regards applicability of decision in case of McDowell & Co. Ltd. (supra), we do not find any merit in submissions made on behalf of Revenue. If object and purpose of shareholders and concerned companies were to avoid/evade tax, Hon ble High Court would not have approved amalgamation in company petition made under Companies Act, as Hon ble High Court was pleased to do in case of Wood Polymer Ltd. (supra). Again, it is pertinent to note that there is no allegation made by Revenue that amalgamation between SEPL and Alkapuri was with view to evade tax or that it was colourable transaction or that parties never intended to act upon it. In this view of matter, we fail to appreciate how decision in case of McDowell & Co. Ltd. (supra) could be applied. For aforesaid reasons, we hold that IT authorities were not justified in working out capital gains of Rs. 1,05,427 in hands of assessee. We would, therefore, set aside orders of IT authorities. 15. In result, appeal is allowed. *** GAUTAM SARABHAI TRUST NO. 31 v. INCOME TAX OFFICER
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