9911796707
TMI Blog1978 (7) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) Whether, on the facts and in the circumstances of the case, capital gains and profits under section 41(2) in respect of the sale of machinery should have been determined at Rs. 54,219 and Rs. 33,939, respectively, as returned by the assessee ?" The assessee is a company and we are concerned with the assessment year 1962-63, the relevant accounting year being the year ended 31st December, 1961. Prior to 1956 there were two private limited companies, viz., Maharani Shri Khalsabai Cotton Mills (Private) Ltd. of Dewas and Surat Cotton Spinning and Weaving Mills (Private) Ltd., Surat. With effect from 1st January, 1956, the two companies were amalgamated into one unit under the name and style of Maharani Shri Khalsabai Cotton Mills Privat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were allotted and distributed one fully paid up share of Rs. 5 in respect of each fully paid up share of Rs. 15 held by them. The result was that the transferor-company notionally obtained as a free scrip 22,500 shares of Scindia of the face value of Rs. 5 each. By another resolution passed at the ordinary annual general meeting of the shareholders of Scindia held on 20th March, 1954, the two types of shares (one of the face value of Rs. 15 and the other of the face value of Rs. 5) were consolidated into one share of the face value of Rs. 20 each. The effective result was that the 22,500 shares of the face value of Rs. 15 each purchased by the transferor-company stood converted into 22,500 shares of the face value of Rs. 20 each as a combi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets when one company merged into another. In his view, the company which is merged lost its independent entity but continued intact as a unit of the new company. In his view, therefore, the cost to the continuing company will be the same as the actual cost to the merged company. In his view, therefore, the amount of Rs. 90,000 (in respect of bonus shares issued in 1958) and the amount of Rs. 1,12,500 (which was the addition made to the book value after the resolutions of 20th March, 1954) were required to be deleted for the purpose of computation of capital loss. The loss in respect of the sale in Scindia's shares was, therefore, reduced by him. The matter was then carried in appeal to the AAC. The AAC upheld the order of the ITO and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y him would be allotted 16 new ordinary shares in the transferee-company of Rs. 7-8-0 each. If the basis of this ratio and the basis of the entire amalgamation was that these shares of Scindia were valued at the book value at which they appeared in the transferor-company, then, it was submitted before the Tribunal and accepted by the Tribunal that this book value would be the cost to the transferee-company. After the resolutions of 20th March, 1954, a higher cost had been shown for the Scindia share in the books of the transferor-company which higher value was reflected in the books of the transferee-company at the time of and pursuant to amalgamation. The Tribunal accepted the contention of the assessee that this was the cost to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eached by the Tribunal that the book value of this item in the books of the transferor-company would represent the cost to the transferee-company will have to be upheld. In this connection, the auditors of the company had addressed a letter to the AAC in which the basis of amalgamation had been explained. It appears to us that if this letter is properly understood, the basis of the amalgamation is as we have explained earlier. It is in this sense that the Tribunal has understood the amalgamation. The approach of the ITO and the AAC that there is no transfer of assets or that there was no change in the legal personality appears to be totally incorrect and does not represent the true legal position. In the view that we have taken of the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
