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TMI Blog2001 (2) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... Court was called upon to answer the following three questions : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that on the amalgamation of Ambassador Steamships Pvt. Ltd. with Collis Line Pvt. Ltd., there was a transfer by the assessees of their shares in Ambassador Steamships Pvt. Ltd. ? 2. In case the answer to question No. 1 above is in the affirmative, whether the Tribunal was right in holding that the transfer was made in consideration of the allotment to the assessees of shares in Collis Line Pvt. Ltd. ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that section 49(2) of the Income-tax Act, 1961, applied to the sale of the shares of the assessees in Collis Line Pvt. Ltd. which were obtained by the assessees on the amalgamation of Ambassador Steamships Pvt. Ltd. with Collis Line Pvt. Ltd. ?" The High Court answered the first question in the negative and in favour of the assessees, namely, that there was no transfer. In view of this answer, it held that the second question did not arise. It answered the third question in the negative and in favour of the assessees. Even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the scheme the assessees had received 14 shares of the face value of Rs. 100 each in the amalgamated company for one share of the face value of Rs. 100 in the amalgamating company. He multiplied the number of shares of the amalgamated company that the assessees had sold by their face value of Rs. 100 and divided the result by 14 to arrive at their cost. The price at which the assessees had sold the shares less their cost as aforesaid was the capital gain that the Income-tax Officer subjected to tax. The Income-tax Officer rejected the contention of the assessees that sections 49(2) and 47(vii) were not attracted as the assessees had not become the owners of the shares of the amalgamated company in consideration of the transfer of their shares in the amalgamating company. The order of the Income-tax Officer was confirmed by the Commissioner of Income-tax (Appeals). The matter went up before the Tribunal and the Tribunal upheld the appellate order. From out of the order of the Tribunal, the questions aforestated were referred to the High Court and answered as set out above. For the purposes of appreciating the controversy in this appeal, it is necessary to set out the rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of Rs. 49,350 could be assessed in the hands of the assessee as capital gains as having accrued to the assessee by exchange or relinquishment as provided for under section 12B of the Act ?" This court held that no exchange was involved in the transaction. An exchange involved the transfer of property by one person to another and, reciprocally, the transfer of property by that other to the first person. There had to be a mutual transfer of ownership of one thing for the ownership of another. In the case before the court the assessee could not be said to have transferred any property to anyone. When he was allotted shares of the amalgamated company, he was entitled to such allotment because of his holding 90 shares of the amalgamating company. The holding of the 90 shares in the amalgamating company was merely a qualifying condition entitling the assessee to the allotment of the 45 shares in the amalgamated company. The dissolution of the amalgamating company deprived the holding of the 90 shares of that company of all value. Learned counsel for the assessees submitted that no capital gains tax could be levied upon the assessees in respect of the sale by them of their shares in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court reversed the decision of the Tribunal. This court held in appeal therefrom that when an asset was destroyed there was no question of transferring it to others. The destruction or loss brought about the destruction of the right of the owner of the asset in it, but it was not on account of a transfer but on account of the disappearance of the asset. The extinguishment of the right in an asset on account of the extinguishment of the asset was not a transfer of the right but its destruction. The destruction of the right on account of the destruction of the asset could not be equated with the extinguishment of the right on account of its transfer. Section 45 of the Act was, therefore, not attracted. The fact that while paying for the total loss or damage to the property the insurance company took over such property or whatever was left of it did not change the nature of the insurance claim, which was an indemnity or compensation for the loss. The payment of the insurance claim was not in consideration of the property taken over by the insurance company, for one was not consideration for the other. This court then, having so very rightly held that section 45 was not attracted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that, therefore, there was no transfer within the meaning of section 45, it was unnecessary for this court in Vania Silk Mills Pvt. Ltd.'s case [1991] 191 ITR 647 to go on to consider the definition in section 2(47) and the meaning to be attached to the expression "extinguishment of any rights therein". In his submission, the decision in Vania Silk Mills Pvt. Ltd.'s case [1991] 191 ITR 647 (SC) was to this extent obiter dicta. The definition in section 2(47) of "transfer" included sale and exchange. In each of those cases there was an extinguishment of the right of the seller or exchanger in the capital asset. To restrict the extinguishment of rights to extinguishment on account of transfer was, in learned counsel's submission, to render the expression "extinguishment of any rights therein' otiose and to nullify the effect of their use in the definition. We have given careful thought to the definition of "transfer" in section 2(47) and to the decision of this court in Vania Silk Mills Pvt. Ltd.'s case [1991] 191 ITR 647. In our view., the definition clearly contemplates the extinguishment of rights in a capital asset distinct and independent of such extinguishment consequent up ..... X X X X Extracts X X X X X X X X Extracts X X X X
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