1999 (3) TMI 103 - AT - Income Tax

Summary

Issues Involved:
1. Claim of deduction of Rs. 28,13,180 as business loss.
2. Alternative claim of deduction of Rs. 28,13,180 under the head 'Capital gains'.
3. Relevant assessment year for the deduction.

Detailed Analysis:

1. Claim of Deduction of Rs. 28,13,180 as Business Loss:
The assessee-company claimed a deduction of Rs. 28,13,180 on the ground that a business loss was incurred due to the cancellation of its investment in the shares of Neomer upon amalgamation. The Tribunal evaluated whether the amalgamation resulted in a business loss. The assessee argued that the investment in Neomer was for business purposes to maintain control over Neomer's management, and the loss due to amalgamation should be allowable as a business loss. The Tribunal, however, concluded that the amalgamation should be viewed as an integrated whole, considering both tangible and intangible benefits accrued to the assessee, such as tax savings and potential waivers from financial institutions. The Tribunal found that no actual loss was incurred as the assets and liabilities of Neomer were absorbed by the assessee-company. Therefore, the claim for deduction as a business loss was dismissed.

2. Alternative Claim of Deduction of Rs. 28,13,180 Under the Head 'Capital Gains':
The assessee alternatively claimed the loss under the head 'Capital gains'. The Tribunal examined whether the transaction could be considered a transfer under section 47(vi) of the Income-tax Act. It was determined that the amalgamation did not constitute a transfer since the shares of Neomer were extinguished and no actual transfer of assets occurred. The Tribunal referred to various judicial pronouncements, including decisions by the Hon'ble Supreme Court and High Courts, to support the view that the amalgamation did not result in a transfer as defined under section 2(47). Consequently, the provisions of section 45 were not applicable, and the claim for deduction under 'Capital gains' was also dismissed.

3. Relevant Assessment Year for the Deduction:
The Tribunal considered the relevant assessment year for the deduction. It was concluded that the material date for the amalgamation was 1st January 1983, making the relevant assessment year 1984-85. The Tribunal dismissed the claim for the assessment year 1987-88, as the formalities completed in 1986 did not alter the effective date of amalgamation.

Conclusion:
The Tribunal dismissed the ground for deduction of Rs. 28,13,180 for both the assessment years 1984-85 and 1987-88. The claims for deduction as business loss and under the head 'Capital gains' were not substantiated under the provisions of the Income-tax Act and relevant judicial precedents.