9911796707
TMI Blog2005 (8) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... r 1978-79 have been referred to this court for its opinion under section 256(1) of the Income-tax Act, 1961 at the instance of the assessee, viz., M/s. Madhura Coats Ltd. "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that, considering the provisions of sections 47, 49 and 55 of the Act, the assessee-company was not entitled to exercise the option to substitute the fair market value as on January 1, 1964, of the shares of J P Coats (India) Ltd., and A F Harvey Ltd., as cost of acquisition of shares of Madura Coats Ltd. sold by it, under section 55 of the Act in computing the capital gain or loss? (2) If the answer to the abovementioned question is in the negative, whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that for purpose of computing capital gains, the assessee-company was required to value the said shares sold by it on the basis of cost and not on the basis of yield method?" The facts of the case are as under: The assessee-company which was incorporated in England, was associated with three Indian companies, viz., Madhura Mills Co. Ltd., A F Harvey Ltd. and J. P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s cost of acquisition under section 55(2) of the Income-tax Act, and further, that the shares should be valued at the fair market value on the basis of the yield method and not on the basis of the cost of the shares. The Income-tax Officer by his order dated August 12, 1981, rejected the claim of the assessee-company to substitute the fair market value as on January 1, 1964, in computing the capital gain on the ground that the said shares sold by the assessee-company were acquired by it in 1974. The Income-tax Officer also rejected the method of valuation of the said shares on the basis of the break up value or yield method, as suggested by the assessee-company, and computed the long-term gain on the sale of the said shares at Rs. 25,64,518 on the basis of cost on the ground that the shares sold were acquired by the assessee-company in 1974. The Commissioner of Income-tax (Appeals) partly allowed the appeal of the assessee-company and held that the assessee-company was entitled to substitute the fair market value of the said shares as on January 1, 1964, sold under sections 47, 49 and 55 of the Act. The Commissioner of Income-tax further determined the cost of the said shares a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anuary, 1954, at the option of the assessee; (ii) where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, and the capital asset became the property of the previous owner before the 1st day of January, 1954, means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of January, 1954, at the option of the assessee; Section 49, sub-section (1) (iii)(e) read with section 47, clause (vi) would indicate that where the capital asset became the property of the assessee on a transfer in a scheme of amalgamation of a capital asset, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be. The cost of acquisition of the asset for the purpose of exercising option under section 55 is given in sub-section (2) of section 55 which provides that for the purposes of sections 48 and 49, "cost of acquisition", in relation to a capital asset would be as follows:- "Where the capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany owned in the three erstwhile companies which were amalgamated. In support of his contention, he has referred to the judgment of the Madras High Court in the case of H.F. Craig Harvey v. CIT reported in [2000] 244 ITR 578. In the said case, the court observed as follows: "The intention of the Legislature is clear that: the transaction of allotment of shares held in the amalgamated company in lieu of the shares in the amalgamating company is not a transfer and there is only a change in the holding of shares in the amalgamating company to the amalgamated company. In other words, there is no transfer and the period of holding of shares in the amalgamating company is taken into account along with the holding of shares in the amalgamated company to determine the question whether the shares are long-term capital assets or short-term capital assets. The legal effect in treating the shares in the amalgamated company should be given full effect to and the legal fiction should be given a logical conclusion and it is impossible to treat the shares held in the amalgamated company as distinct and separate shares from the shares held in the amalgamating company. The cost of acquisition o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the shares held by the assessee in the amalgamated company in the context of levy of capital gains and at that point of time, when the cost of acquisition of shares in the amalgamating company has to be determined, the assessee has an option either to adopt the actual cost of acquisition of shares in the amalgamating company or to adopt the fair market value of the shares as on January 1, 1964. The statutory right is not taken away by section 55(2)(ii) of the Act as the right is available to him under section 55(2)(i) of the Act. It is not possible to give a restricted meaning to the expression found in section 49(2) of the Act that the cost of shares shall be deemed to be the cost of acquisition of shares in the amalgamating company and that figure is an unalterable figure. In our opinion, section 49(2) of the Act and section 55(2)(i) of the Act should be read together." The Madras High Court has placed reliance on the judgment of this court in the case of Harish Mahindra v. CIT [1982] 135 ITR 191 wherein the court was dealing with a case of determination of cost of acquisition of shares acquired before January 1, 1954, but sub-divided after the date into shares of smaller den ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee had no option to ask that the fair market value of the shares as on January 1, 1964 be treated as the cost of acquisition of the shares by the assessee. We, accordingly, answer the said question in the negative and in favour of the assessee. The second question to be answered is "whether the Tribunal has rightly held that for the purpose of computing the capital gains, shares were required to be valued on the basis of cost and not on the basis of yield method?" It may be noted that the Tribunal gave its findings on appeal from the order of the Commissioner of Income-tax (Appeals) directing the Income-tax Officer to take the fair market value of the shares sold on yield basis and not on break up value method for arriving at the cost of shares of J P Coats (India) Ltd. The Tribunal declined to answer the question whether the Commissioner of Income-tax had erred in directing the shares to be valued on yield basis and not on break up value or cost basis on the ground that this is consequential to its order holding that the assessee-company was not entitled to exercise the option of adopting the fair market value. Since the assessee had no option for adopting the fair ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
