COMMISSIONER OF INCOME TAX Vs. MASTER RAGHUVEER TRUST

JUDGEMENT

(1.) THE Tribunal, Bangalore Bench, at the instance of the Revenue has referred the following two questions under s. 256(1) of the IT Act, 1961 (the 'Act'):

(2.) THE facts in detail will be found in the statement of the case and may briefly be summarised as follows: THE assessee trust was a shareholder in the Syndicate Bank Ltd. ("SB Ltd."). After the nationalisation of banks in July, 1969, the SB Ltd., was amalgamated with the Industrial Credit and Development Syndicate (ICDS) as per the scheme approved by this Court under s. 394 of the Companies Act, 1956, 1956. Consequently, the assessee received equity shares, advance call deposit certificates, debentures and redeemable bonds in the ICDS of the total value of Rs. 235 for every unit of Rs. 100 of the face value of the share held by the assessee in the SB Ltd. For the asst. yr. 1974-75 the assessee claimed exemption of the capital gains realised from scheme of amalgamation on two grounds: (i) that there was no transfer involved as required under s. 2(47) of the Act; and (ii) even if there was a transfer, the sum realised therefrom was exempt under s. 47(vii) of the Act. THE ITO rejected both the contentions. He determined the capital gains at Rs. 12,750 after allowing certain deductions. Challenging the legality of the order of assessment, the assessee appealed to the AAC reiterating the contentions which were not accepted by the ITO. THE AAC allowed the appeal observing that the transaction involved in the scheme of amalgamation did not attract the levy of capital gains since there was no transfer and even if it was a transfer then s. 47(vii) regards such a transaction as no transfer. As against the order of the AAC, the Department preferred an appeal before the Tribunal and the assessee preferred cross-objections. In the cross-objections it was contended that the AAC should have held that in the event of the transaction being held to be a transfer, then under s. 47(vii) that part of the capital gains arising from that portion of the consideration attributable to the shares in the ICDS would be exempt from taxation.

(3.) CONSEQUENT on the amalgamation, the SB Ltd. has been struck off from the register, as required under s. 394(1)(iv) of the Companies Act, 1956. The question to be considered herein is whether there was a transfer of capital asset within the meaning of s. 2(47) of the Act and if so whether the assessee got shares, debentures and redeemable bonds from ICDS as a consideration for that transfer. Sec. 2(47):