1986 (7) TMI 142 - AT - Income Tax

Summary

Issues:
1. Whether the assessee is entitled to substitute the fair market value as of 1-1-1964 for shares held in the amalgamated company as of 1-7-1974.
2. Whether the Commissioner (Appeals) erred in directing the ITO to value shares sold based on the yield basis instead of the break-up value method.

Issue 1 Analysis:
The appeal before the Appellate Tribunal ITAT Bombay-A concerned the revenue challenging the Commissioner (Appeals) order regarding the substitution of fair market value for shares held in an amalgamated company. The main contention was whether the assessee could opt for the fair market value as of 1-1-1964 for shares received after the amalgamation of three companies on 1-7-1974. The Tribunal examined the provisions of sections 47, 49, and 55 of the Income-tax Act, 1961 to determine the cost of acquisition for capital gains tax purposes. It was argued that since the new shares were issued post-amalgamation and not in existence before 1-1-1964, the assessee had no option to claim the fair market value as of that date. The Tribunal referred to relevant case laws and held that the assessee could not opt for the fair market value of shares as on 1-1-1964, as they were not acquired before that date, ultimately ruling in favor of the revenue.

Issue 2 Analysis:
The second issue involved the Commissioner (Appeals) directing the ITO to value shares sold on a yield basis rather than the break-up value method for J & P Coats (India) Ltd. The Tribunal determined that since the assessee was not entitled to claim the fair market value as of 1-1-1964 for the shares, the method of valuation based on yield or break-up value was inconsequential. The Tribunal concluded that for capital gains tax purposes, the cost paid by the assessee in acquiring the shares would be the determining factor, and there was no basis for valuing the shares on yield or break-up value method. Consequently, the departmental appeal was allowed in favor of the revenue.

In summary, the Appellate Tribunal ITAT Bombay-A ruled that the assessee was not entitled to substitute the fair market value as of 1-1-1964 for shares held in the amalgamated company and that the method of valuation based on yield or break-up value was irrelevant in the absence of such entitlement. The decision was based on a comprehensive analysis of relevant provisions of the Income-tax Act, 1961 and previous judicial interpretations, ultimately upholding the revenue's appeal.