2008 (4) TMI 241 - HC - Income Tax

Acquisition of property - payment of consideration in the form of allotment of fully paid shares - scheme of amalgamation involved transfer of shares to the shareholders of foreign company from which the property was transferred to assessee under the scheme - assessee will not be entitled to contend that the acquisition of land by them did not involve any cost to them remand the matter to the AO for fresh consideration after verifying the terms of amalgamation approved by the HC

Summary

Issues:
1. Levy of capital gains on land acquired by the Government from the appellant.
2. Determination of cost of acquisition for the purpose of assessing capital gains.
3. Interpretation of the scheme of amalgamation approved by the High Court regarding the transfer of property.

Analysis:

1. Levy of Capital Gains:
The Tribunal upheld the levy of capital gains on land acquired from the appellant by the Government for the assessment years 1990-91 and 1991-92. The appellant did not offer the compensation received under the head "capital gains" as no amount was spent towards the cost of acquisition. The officer assessed capital gains on the compensation amount, a decision upheld by the first appellate authority and the Tribunal, leading to the filing of appeals.

2. Cost of Acquisition:
The appellant contended that since no payment was made for the acquisition of land, there was no cost of acquisition, and thus, no capital gains should arise. The Revenue argued that under Section 55(2), the appellant is liable to pay tax on the capital gains by adopting the value of the land as on 1.1.1974. The Court found that the assumption by the authorities that there was no consideration in the acquisition of property was incorrect. The scheme of amalgamation involved the transfer of shares to the shareholders of the foreign company, which constituted consideration in the form of the value of shares allotted. Therefore, the acquisition of property in the course of amalgamation did involve payment of consideration, albeit in the form of fully paid shares.

3. Interpretation of Amalgamation Scheme:
The Court determined that the acquisition of land by the appellant in the course of amalgamation did involve a cost, as shares were transferred to the shareholders of the foreign company in exchange for the property. The Court set aside the orders of the Tribunal and lower authorities, remanding the matter to the Assessing Officer for fresh consideration after verifying the terms of the amalgamation approved by the High Court. It was clarified that if the cost of acquisition is to be adopted as the value as on 1.1.1974, the value fixed by the Tribunal should be adopted to avoid further litigation on this ground.

In conclusion, the judgment focused on the correct interpretation of the scheme of amalgamation and the determination of the cost of acquisition for assessing capital gains on the land acquired by the Government from the appellant.