1989 (3) TMI 3 - SC - Income Tax

Relinquishment - Capital Gains - Tribunal held that the transaction represented neither an exchange nor a relinquishment and, therefore, section 12B of the Act was not attracted - On the question whether there was any relinquishment, the decision must again be against the Revenue. A relinquishment takes place when the owner withdraws himself from the property and abandons his rights thereto. It presumes that the property continues to exist after the relinquishment

Summary

Issues:
1. Whether the receipt of shares upon amalgamation constitutes an "exchange" or "relinquishment" for the purpose of section 12B of the Income-tax Act, 1922.
2. Whether the capital gain resulting from the transaction is assessable in the relevant assessment year.

Detailed Analysis:
The judgment involves a case where the assessee, a Hindu undivided family, acquired shares in a company through a scheme of amalgamation. The issue at hand was whether the receipt of these shares upon amalgamation should be considered an "exchange" or "relinquishment" under section 12B of the Income-tax Act, 1922. The assessee originally held 90 shares in the transferor company, which stood dissolved post-amalgamation. The Revenue contended that a capital gain had accrued to the assessee due to the acquisition of shares in the transferee company. The Commissioner of Income-tax directed the revision of the assessment to include the capital gain amount. However, the Income-tax Appellate Tribunal held that the transaction did not constitute an exchange or relinquishment, hence section 12B was not applicable.

The matter was referred to the High Court, where the focus was on whether the transaction qualified as an exchange or relinquishment. The High Court determined that the transaction did not amount to either. The High Court's interpretation was that no exchange occurred upon the allotment of shares in the new company post-amalgamation, nor did it constitute a relinquishment. Consequently, the High Court ruled in favor of the assessee on both counts, rejecting the Revenue's arguments.

The Supreme Court analyzed the relevant portion of section 12B of the Act, which pertains to capital gains arising from the sale, exchange, relinquishment, or transfer of a capital asset. The Court deliberated on whether the receipt of shares in the new company post-amalgamation, based on the holding of shares in the old company, could be classified as an exchange or relinquishment. The Court concluded that no exchange took place as there was no mutual transfer of ownership involved. The holding of shares in the old company was merely a qualifying condition for the allotment of shares in the new company. Additionally, the Court determined that no relinquishment occurred as the original shares lost all value post-amalgamation due to the dissolution of the old company.

In summary, the Supreme Court upheld the High Court's decision, dismissing the Revenue's appeals and affirming that the transaction did not constitute an exchange or relinquishment under section 12B of the Income-tax Act, 1922.