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TMI Blog1986 (11) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... . 100 of Alkapuri credited as fully paid up ; (ii) one 11 per cent Redeemable Bond of face value of Rs. 100 of Alkapuri credited as fully paid-up. In other words, the assessee received 1815 equity shares and 1512, 11 per cent Redeemable Bonds of Alkapuri of Rs. 100 each. 4. On the aforesaid facts, during the course of the assessment proceedings, the assessee claimed exemption from tax of capital gains on two counts. viz., (a) there was no transfer of capital asset involved within the meaning of section 2(47) of the Income-tax Act, 1961 (' the Act '), and (b) even if there was a transfer, the capital gains was not exigible to tax by virtue of section 47(vii) of the Act. Reliance was also placed on the decision in the cases of CIT v. Rasiklal Maneklal HUF [1974] 95 ITR 656 (Bom.) and CIT v. Master Raghuveer Trust [1985] 151 ITR 368 (Kar.). The ITO, however, negatived the assessee's claim in the following manner : " 4. The case law CIT v. Rasiklal Maneklal is not relevant in the case as it relates to the position of law before the introduction of section 47(vii). The entire argument regarding the occurrence of transfer or otherwise along the lines suggested by you in paragrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration for transfer of shares is paid partly by shares and partly by cash bonds or debentures ' implying thereby that there is in that case transfer to which the benefit of section 47(vii) may or may not be extended as the position of law is still uncertain. Moreover the department has gone in further appeal against this order of Karnataka High Court. Now the reason why this uncertain position of law does not favour the assessee is that the deemed non-transfer under section 47(vii) applied only in a case where to quote the status ' the transfer is made in consideration of the allotment to him of any share or shares in the amalgamated company '. This refers only to the event of allotment of shares only in the amalgamated company. By no logic or law can the redeemable bonds be held equal or synonymous with the shares. In fact shares and redeemable bonds are on quite a different footing vis-a-vis their rights and interest in the company which can be given back to the shareholder either in full or in ' instalments '. In any case there is no basis for equating issue of bonds with the allotments of share in the amalgamated company on the plea that shares can be substituted by redeemable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se to capital gain or loss. This case was decided on April 10, 1974 hence it was not available to the Bombay High Court. In this case, the Hon'ble High Court has emphasised that one of the terms of amalgamation was that the shares will be issued and delivered to the shareholders in exchange for ordinary shares of Merchandise Stores Ltd. See page 218 ; otherwise the High Court has accepted that where the amalgamated company issued the shares, there is no transfer by that company to the allottee see page 219. But for the fact that as a term of amalgamation there was an exchange of shares, the judgment of the High Court would have been entirely different. In our case, there is no such term. The direct judgment is that of the Karnataka High Court reported in CIT v. Master Raghuveer Trust [1985] 151 ITR 368 where the High Court has considered both Bombay and Calcutta High Courts' judgments and upheld the view that there is no transfer by shareholder of amalgamating company. II. There is no consideration for the so-called transfer. See CIT v. Madurai Mills Co. Ltd. [1973] 89 ITR 45 (SC), CIT v. R. M. Amin [1977] 106 ITR 368 at page 372 (SC). III. Even otherwise the transaction is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts. Coming to the first question as to whether there is transfer when the shareholder of amalgamating company receives shares of the amalgamated company in lieu of the shares held by him in the amalgamating company whether there is a transfer or not, there is no doubt that Bombay High Court in two decisions mentioned above and Calcutta High Court (sic) 119 ITR 393 have held that there is no transfer. But where the shareholder receives shares and bonds in question which has not been answered by any of the High Courts. They have not answered as to whether without benefit of section 47(vii) of the Income-tax Act, such transaction would amount to transfer or not. The Bombay High Court has not referred to section 47(vii) at all whereas the Karnataka High Court in the case of CIT v. Master Raghuveer Trust [1985] 151 ITR 368 did not express opinion on the applicability of section 47(vii) but when the consideration for transfer of shares is paid partly by shares and partly by bonds or debentures. If the reasoning advanced by the learned counsel to be accepted, section 47(vii) will become redundant or otiose. If there was no transfer without the benefit of section 47(vii), I am at a loss t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f there was the intention of the Legislature to include the bonds within the meaning of share or shares, these would have set it out in clear terms. Thus, I am in agreement with the ITO's logic that when assessee receives share or shares along with bonds, debenture, etc., this being a composite transaction, section 47(vii) would not apply. ' In a taxing statute one has to look merely at what is clearly said. There is no room for intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied ' (Per Rowlatt, J.), Cape Brandy Syndicate v. IR [1921] 1 KB 64, 71, 12 TC 3 58, 3 66 approved in CIT v. Ajax Products Ltd. [1965] 55 ITR 741, 747 (SC), CIT v. Shahzada Nand Sons [1966] 60 ITR 392, 400 (SC). In the nut-shell, I hold that there was a transfer and the transfer was for consideration and section 47(vii) does not apply to the assessee's case. 12. In the grounds of appeal, the assessee in ground No. (xii) has raised the issue that even if the capital gain is leviable on receipt of bonds, the cost of such bonds will be nil. In that case, there is no liability of capital gains in view of decision of Supreme Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see had also received bonds of the amalgamated company would not, in the opinion of the learned counsel, disentitle the assessee to claim exemption as contemplated under that section. According to the learned counsel for the assessee the income-tax authorities were not justified in taking a view that the exemption as contemplated in section 47(vii), would be available to the assessee in a case of allotment of only the shares of the amalgamated company but not in a case where the assessee has been allotted shares plus something by the amalgamated company. According to him, if we were to accept the stand taken by the income-tax authorities, we will have to insert the word ' only ' at an appropriate place in the said section. This would amount to re-writing the section which is neither the function of the income-tax authorities nor that of the Tribunal or the Courts. The learned counsel for the assessee emphasised that we have to read the said section as it is and nothing more should be read in it as was done by the income-tax authorities. According to the learned counsel for the assessee, the amalgamated company could have given a transister radio or a discount coupon of certain valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner has also referred to the provisions of section 47(vii) in accepting the contention of the assessee that section 47(vii) excludes from the operation of section 45 any transfer by a shareholder, in a scheme of amalgamation, of a capital asset being a share or shares held by him in the amalgamating company, if (a) the transfer is made in consideration of the allotment to him of any share or shares in the amalgamated company and (b) the amalgamated company is an Indian company. As this is the clear statutory provision which supports the assessee and as no argument has been advanced before us by the learned departmental representative as to why this is not applicable to the facts of this case, we uphold the order of the Appellate Assistant Commissioner, even apart from the decision of the Bombay High Court in Rasiklal Maneklal (HUF)'s case which was concerned with the charge of capital gains in respect of similar transaction under the repealed Indian Income-tax Act, 1922." 10. The learned standing counsel for the department, first of all, adverted to the relevant provisions of the Companies Act, under which amalgamation takes place between the companies perhaps with a view to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the makers of the statute. He also relied on the following observations in the case of Gursahai Saigal v. CIT [1963] 48 ITR 1 (SC) : " Now it is well recognised that the rule of construction on which the assessee relies applies only to a taxing provision and has no application to all provisions in a taxing statute. It does not, for example, apply to a provision not creating a charge for the tax but laying down the machinery for its calculation or procedure for its collection. The provisions in a taxing statute dealing with machinery for assessment have to be construed by the ordinary rules of construction, that is to say, in accordance with the clear intention of the Legislature which is to make a charge levied effective. . . ." He also invited the attention of the Tribunal to the following observations in the case of CWT v. Sadiqali Samsuddin [1985] 152 ITR 190 (Guj.) : " . . On recognised principles of interpretation of statutes, an exception clause is to be strictly construed. It is, therefore, difficult for us to agree with the learned counsel for the revenue that there is no warrant in the section for giving a restricted meaning to the term ' cash '. On principle as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of the revenue when reference was made to the provisions of sections 49(2) and 2(42A). According to him, there are two separate and distinct stages which should be kept in mind. The first stage is the amalgamation of the companies and the second stage is when a shareholder of the amalgamated company selling his shares and certain other things which were allotted to him on amalgamation by the amalgamated company. In the instant case, we are concerned with the first stage and, therefore, there is no need to get influenced by the provisions contained in section 49(2) and 2(42A). According to the learned counsel for the assessee, there is no anomaly as apprehended by the revenue. As and when the assessee sells the shares of the amalgamated company, which are allotted to him on amalgamation, we will have to consider the provisions of sections 49(2) and 2(42A), in order to ascertain the cost of acquisition and the period for which such shares were held by the shareholder. However, in the case of the sale of bonds by the assessee, the provisions of the said sections are not to be considered at all. Thereafter, the learned counsel for the assessee dealt with the canon of construction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so, the Hon'ble High Court has not approved the action of the Tribunal giving pro rata exemption in respect of the shares allotted to the assessee and denying such exemption in respect of the bonds/debentures allotted to the assessee by the amalgamated company.. 12. We have carefully considered the rival submissions of the parties and the material already brought on record. At the outset, we may mention that the learned counsel for the assessee had not argued in detail the first issue involved in the appeal, viz., whether there was a transfer of capital asset within the meaning of section 2(47), as according to him, even if it is assumed that there was a transfer of capital asset within the meaning of section 2(47), the capital gains would still not be exigible to tax by virtue of the exemption provisions contained in section 47(vii). The learned standing counsel for the revenue stoutly argued that on the facts and circumstances of the case, the assessee would not be entitled to claim exemption under section 47(vii). In order to resolve this dispute, it would be necessary to refer to certain provisions of the Act, to which our attention was drawn by the learned counsel of the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny transfer by a shareholder, in a scheme of amalgamation, of a capital asset being a share or shares held by him in the amalgamating company if--- (a) the transfer is made in consideration of the allotment to him of any share or shares in the amalgamated company, and (b) the amalgamated company is an Indian company ;" Section 49 provides for the cost with reference to certain modes of acquisition. For our purpose, sub-section (2) of section 49 is relevant and it reads as under : " (2) Where the capital asset being a share or shares in an amalgamated company which is an Indian company became the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the share or shares in the amalgamating company." 13. It is the case of the assessee that just because it was allotted 11 per cent bonds along with shares of the amalgamated company in consideration of its transferring the shares of the amalgamating company, it should not lose the exemption as provided under section 47(vii). Further, if section 47(vii) contemplated allotment of only the shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erely on the ground that along with the allotment of share or shares of the amalgamated company, he receives something else from the amalgamated company. In our considered opinion, since there is no restriction provided in the condition (b) above that along with the allotment of share or shares of the amalgamated company, the assessee should not receive anything else from the amalgamated company, we fail to appreciate how the exemption contemplated under section 47(vii) could be denied to the assessee. As we are concerned in the present case with certain things received by the assessee from the amalgamated company in consideration of his transferring the shares of the amalgamating company, it is not possible for us to give any decision as to what will happen in future when the assessee transfers 11 per cent bonds merely because section 2(42A) and section 49(2) do not deal with such a situation but they deal with a situation where shares of the amalgamated company are sold by the previous shareholder of the amalgamating company. In this view of the matter, we entirely agree with the submissions made on behalf of the assessee that there is some confusion in the mind of the revenue in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was concerned with the charge of capital gains in respect of similar transaction under the repealed Indian Income-tax Act of 1922." As regards the applicability of the decision in the case of McDowell Co. Ltd., we do not find any merit in the submissions made on behalf of the revenue. If the object and purpose of the shareholders and the concerned companies were to avoid/evade tax, the Hon'ble High Court would not have approved the amalgamation in a company petition made under the Companies Act, as the Hon'ble High Court was pleased to do in the case of Wood Polymer Ltd. Again, it is pertinent to note that there is Do allegation made by the revenue that the amalgamation between SEPL and Alkapuri was with a view to evade tax or that it was a colourable transaction or that the parties never intended to act upon it. In this view of the matter, we fail to appreciate how the decision in the case of McDowell Co. Ltd. could be applied. For the aforesaid reasons, we hold that the income-tax authorities were not justified in working out capital gains of Rs. 1,05,427 in the hands of the assessee. We would, therefore, set aside the orders of the income-tax authorities. 15. ..... 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