1983 (5) TMI 90 - AT - Income Tax

Summary

Issues:
1. Whether the money received by shareholders from an amalgamated company in lieu of shares involves a transfer under section 2(47) of the Income-tax Act, 1961, leading to liability for capital gains.

Detailed Analysis:
1. The appeal involved a question regarding the receipt of money by a shareholder in exchange for shares held in an amalgamating company, triggering a potential liability for capital gains under section 2(47) of the Income-tax Act, 1961. The assessee, an individual deriving income from various sources, received cash after an amalgamation where the shareholder had the option to receive shares of the transferee-company or cash at a specified rate. The Income Tax Officer (ITO) assessed the difference as short-term capital gains, which was contested by the assessee.

2. The Appellate Assistant Commissioner (AAC) ruled in favor of the assessee, stating that the transaction did not constitute a transfer, sale, exchange, or relinquishment under section 2(47) or section 46(2) of the Act. The AAC relied on precedents from the Gujarat and Bombay High Courts to support the decision that the transaction did not amount to a transfer under the Transfer of Property Act, 1882. Consequently, the AAC held that the assessee was not liable for capital gains on the money received from the amalgamated company.

3. The appeal proceeded to the Tribunal after the revenue challenged the AAC's decision. Despite a notice served to the assessee, no appearance was made, leading to an ex parte decision after hearing the department's representative.

4. The departmental representative reiterated the revenue's grounds, arguing that the assessee, by opting for cash instead of shares, was not eligible for exemption under section 47(vii) of the Act, making the assessee liable for capital gains. Citing relevant case law, the representative contended that the assessee should be taxed on the amount received.

5. The Tribunal analyzed the facts and determined that the transaction did not qualify for exemption under section 47(vii) since the assessee chose to receive cash instead of shares. The Tribunal disagreed with the AAC's reliance on previous cases, distinguishing them based on the nature of the transactions. The Tribunal concluded that the AAC erred in his interpretation and set aside his order, reinstating the ITO's decision to assess the amount received as short-term capital gains. The Tribunal found that the AAC's reliance on the previous cases was misplaced as they did not apply to the current scenario.

6. Consequently, the appeal by the revenue was allowed, and the decision favored taxing the amount received by the assessee as short-term capital gains, overturning the AAC's ruling in the process.