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TMI Blog2016 (1) TMI 1505X X X X Extracts X X X X X X X X Extracts X X X X ..... is supported by the decision of Bharat Development P. Ltd. [ 1980 (8) TMI 18 - DELHI HIGH COURT] wherein held an accounting reserve which is created in the books of the amalgamated company to give accounting effect to the amalgamation is nothing but an entry passed with the sole object to balance the books of account which are maintained on the principle of double entry system of book keeping. As such, when the exchange of shares was based on fair valuation basis, there was no question of any benefit or perquisite being earned by the assessee or by the amalgamating companies. In our view section 28(iv) of the Act therefore had no application in the assessee s case. AO was not justified in assessing this amount as income of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not justified in deleting the addition made on account of Amalgamation Reserve of Rs.14,10,00,000/- without appreciating the findings of the AO as well as facts of the case that the said amount is income of the assessee as per section 28(iv) read with section 2(24)(vd) of the I. T. Act, 1961. 4. Briefly stated facts are that the assessee company is engaged in manufacturing of sale of electrical goods. The assessee in audited accounts clause 17A for the year ended 31.03.2003 furnished details of Scheme of Amalgamation approved by Hon ble Calcutta High Court dated 28.03.2003, pursuant to which three companies were amalgamated with the assessee during the relevant year and amalgamation reserve was created in the assessee s books for givi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rket value of the shares evaluated on the basis of valuation report. Therefore, the acquisition transaction has been taken on the basis of the market value of the shares of the ss company vis-a-vis net worth of those assets taken over. Therefore, the amalgamation transaction has taken place on the basis of comparable variables. It was fair deal and approved by the Hon'ble High Court of Madras. There is no complaint against the method of valuation or the market value assigned, shares of the assessee company or the value assigned to the assets taken over. When the transaction bf amalgamation is passed through a judicial process, the assessee has to record the values in its books of accounts. Obviously, the value of the assets will have to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee company. Therefore, the assets are compared to the market value of the shares of the assessee company. The face value will obviously be less. Thus, in such a transaction of amalgamation, there is always a possibility of the assessee gaining a book surplus being the difference between the market value and the face value of the shares. In my opinion, it is not a revenue gain nor it is in the nature of any benefit or perquisite to the assessee company. Therefore, respectfully following the ratio decided by the Hon'ble Third Member in the case of Spencer Co Ltd. (supra), assessee's appeal on ground no. 2.1 to 2.4 are allowed. Aggrieved, now revenue is in second appeal before Tribunal. 5. We have heard rival submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olders of the amalgamating companies. He referred to the scheme of arrangement which was sanctioned by the Hon ble Calcutta High Court that the share exchange ratio was also approved by Hon ble Calcutta High court, which was based on intrinsic fair value of shares of the amalgamating companies and the amalgamated company. He stated the fact that the shares were allotted by the assessee having face value of Rs. 10/- each, yet if determined the exchange ratio Calcutta High court has taken into consideration the intrinsic fair value of the shares issued by the assessee. Since the intrinsic fair value of assessee s shares were higher than the face value of the shares allotted and while exchanging the shares on fair valuation basis accounting di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... algamating company by their own shares. This is the only form in which the amalgamated companies pay for the assets of the amalgamating companies. These shares may be issued at any convenient value. The shareholders of the previous company, i. e., the transferring-company, may be given more shares than they previously had or they may be given less shares. This depends on the scheme of amalgamation entered into between the two sets of shareholders which is again subject to the approval of the court. If less shares are issued, i.e., for lesser than par value, then a surplus appears in the account. If more shares of greater than par value are issued, then a deficit will appear in the amalgamated account. In no event will this surplus or defici ..... X X X X Extracts X X X X X X X X Extracts X X X X
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