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TMI Blog1998 (9) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. This amalgamation took place in pursuance of the scheme sanctioned by the Reserve Bank of India under section 44A of the Banking Regulation Act, 1949 (for short "the Regulation Act"). From the date of the amalgamation, all movable and immovable assets with liabilities of the bank stood transferred to the assessee. Immovable properties such as plots of land and buildings acquired by the bank from its debtors in satisfaction of the debts owed to it were also transferred to the assessee. The assessee sold these properties in the above assessment years and realised certain surplus. The Income-tax Officer treated the surpluses as profits arising out of the banking business and taxed the surpluses as the assessee's business income by rejecting its contention that the surpluses represent capital gains. In the appeals before the Appellate Assistant Commissioner, the assessee contended that these properties were non-banking assets and the surpluses realised on their sale cannot constitute business income. It was further submitted that buildings were let out by the bank on rent and after the amalgamation the same tenants continued to reside therein and income from these buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equently, the character of these immovable properties changed in the hands of the assessee. These immovable properties do not retain the character of the properties being acquired from the debtors of the bank in satisfaction of its debts. It was further submitted that in view of the restrictions imposed by section 9 of the Regulation Act, the assessee was under legal obligation to dispose of the non-banking assets within a period of seven years of its acquisition. Thus, according to the assessee, the transfer of these immovable properties in its favour and disposal thereof were under the compulsion of law, the first being the amalgamation scheme passed by the Reserve Bank of India under section 44A and the disposal of the non-banking assets as per section 9 of the Regulation Act. As per the assessee the surplus realised from the transfer of the immovable assets cannot be treated as its business income. On behalf of the Revenue, it was submitted that the immovable properties were acquired in satisfaction of debts owed to the bank. So it constituted stock-in-trade of the money-lending business carried on by the bank. Any amount realised in excess of the amount due must be treated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, the income earned from the sale of these properties cannot be treated as business income, cannot be accepted. The provisions of the Act or the Regulation Act, do not support the assessee's claim that the income earned from the sale of these properties cannot be treated as banking business. Transfer of these properties to the assessee and sale thereof though under compulsion of law, cannot diminish the liability of the assessee and after sale of these properties, if the assessee realises surplus, the same will have to be treated as business income. The submission of the assessee that the character of these properties has changed from that of stock-in-trade to non-banking assets and, therefore, surplus realised by sale of these properties cannot be treated as income, cannot be accepted. The bank acquired these properties in satisfaction of the debts owed to it. These properties were transferred to the assessee in amalgamation scheme and, therefore, these properties continue as stock-in-trade of the assessee. Payment by the assessee at the market value will not change the character of these properties in the assessee's hands. The Madras High Court in the case of A. VR. V. Vell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. In proceedings under the Companies Act, 1956, the two companies were amalgamated by the order of the High Court as a result of which ISGEC stood dissolved and ceased to exist. The appellant-company was to meet the liabilities of ISGEC. After the amalgamation, the appellant-company derived benefits and it claimed that it was not liable to be taxed thereon under section 41(1) of the Act. On these facts the Supreme Court held that when two companies are merged or so joined as to form a third company or one is absorbed into the other or blended with the other, the amalgamated company loses its identity. By reversing the decision of the Punjab and Haryana High Court, the Supreme Court held that ISGEC ceased to exist in the eye of law and the appellant-company was a different entity to which deductions were allowable and the appellant-company was not liable to be taxed under section 41(1) of the Act on the benefit derived by it. The decision of the Supreme Court also does not support the case of the assessee. The Allahabad High Court in the case of Bareilly Corporation Bank Ltd. v. CIT (No. 2) [1952] 22 ITR 528, was considering the case of a bank engaged in money-lending business ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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