1996 (6) TMI 37 - HC - Income Tax

Summary

Issues Involved:
1. Whether the amalgamation of Ambassador Steamships Pvt. Ltd. with Collis Line Pvt. Ltd. constituted a transfer of shares by the assessees.
2. If it was a transfer, whether the allotment of shares in Collis Line Pvt. Ltd. was in consideration of this transfer.
3. Whether Section 49(2) of the Income-tax Act, 1961, applied to the sale of the shares in Collis Line Pvt. Ltd. obtained through the amalgamation.

Issue-Wise Detailed Analysis:

1. Transfer of Shares on Amalgamation:
The primary issue was whether the amalgamation of Ambassador Steamships Pvt. Ltd. with Collis Line Pvt. Ltd. constituted a transfer of shares by the assessees. The court examined the terms of the amalgamation order, specifically clause 5, which mandated the issuance of shares in Collis Line Pvt. Ltd. to the shareholders of Ambassador Steamships Pvt. Ltd. The court noted that this issuance was a direct result of the court's order and not a voluntary transfer by the shareholders. The court relied on the Supreme Court's decision in CIT v. Rasiklal Maneklal (HUF) [1989] 177 ITR 198, which held that such an arrangement does not constitute a transfer. Consequently, the court concluded that the amalgamation did not amount to a transfer of shares by the assessees.

2. Consideration for Allotment of Shares:
Given the court's conclusion that the amalgamation did not constitute a transfer, the question of whether the allotment of shares in Collis Line Pvt. Ltd. was in consideration of this transfer became moot. The court did not need to address this issue further as it was contingent on the first issue being answered in the affirmative.

3. Application of Section 49(2) of the Income-tax Act, 1961:
The court examined whether Section 49(2) applied to the sale of shares in Collis Line Pvt. Ltd. obtained through the amalgamation. Section 49(2) stipulates that the cost of acquisition of shares in an amalgamated company should be deemed to be the cost of acquisition of shares in the amalgamating company if the shares were acquired in consideration of a transfer referred to in Section 47(vii). Since the court determined that there was no transfer under Section 47(vii), it followed that Section 49(2) did not apply. The court emphasized that the shares were issued as a result of the court's order in the amalgamation proceedings and not through a transfer by the shareholders.

Conclusion:
The court answered the first question in the negative, determining that the amalgamation did not constitute a transfer of shares by the assessees. Consequently, the second question did not arise. The third question was also answered in the negative, concluding that Section 49(2) did not apply to the sale of the shares in Collis Line Pvt. Ltd. The judgment was in favor of the assessees and against the Revenue.