C.I.T., COCHIN vs. GRACE COLLIS

C.A. No.-004437-004445 - 1997Supreme Court23 February 2001Bench: Y.K.SABHARWAL S.N.HEGDE S.P.BHARUCHA6 pages
For Petitioner: SUSHMA SURIFor Respondent: P. N. RAMALINGAM
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What did the Supreme Court hold?

The Supreme Court held that the definition of 'transfer' in Section 2(47) of the Income Tax Act, 1961, includes the extinguishment of rights in a capital asset independent of and otherwise than on account of a transfer. The Court respectfully disagreed with the limitation of this expression to extinguishment on account of transfers, finding it would render the expression ineffective. Therefore, the rights of the assessees in their shares of the amalgamating company stood extinguished upon amalgamation, constituting a transfer within the meaning of Section 2(47). Consequently, Section 47(vii) applied, and the cost of acquisition of the shares in the amalgamated company had to be determined under Section 49(2) as the cost of acquisition of the shares in the amalgamating company. The Court found no reason to deviate from the Income Tax Officer's computation of capital gains, noting that the assessees could have disclosed the cost of their original shares. The appeals were allowed, setting aside the High Court's judgment.

What were the facts?

The Revenue appealed against a decision of the Kerala High Court concerning the assessees, Mrs. Grace Collis and others, for Assessment Year 1976-77. The case involved the amalgamation of Ambassador Steamships Pvt. Ltd. with Collis Line Pvt. Ltd. under a Scheme of Arrangement sanctioned by the High Court. As per the scheme, shareholders of the amalgamating company received 14 equity shares of Rs. 100 each in the amalgamated company for each share held in the amalgamating company. The assessees later sold 45,318 shares of Collis Line Pvt. Ltd. for Rs. 48,72,523, which amounted to Rs. 107.50 per share. The Income Tax Officer levied capital gains tax, applying Section 49(2) read with Section 47(vii) of the Income Tax Act, 1961, to determine the cost of acquisition. This order was confirmed by the CIT(Appeals) and the Tribunal.

What were the issues?

The Supreme Court had to decide three questions referred by the High Court: 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that on the amalgamation of Ambassador Steamships Pvt. Ltd. with Collis Line Pvt. Ltd., there was a transfer by the assessee of their shares in Ambassador Steamships Pvt. Ltd. (turning on Section 2(47) and Section 45 of the Income Tax Act, 1961). 2. In case the answer to question No. 1 is in the affirmative, whether the Tribunal was right in holding that the transfer was made in consideration of the allotment to the assessees of shares in Collis Line Pvt. Ltd. (turning on Section 47(vii) of the Income Tax Act, 1961). 3. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that Section 49(2) of the I.T. Act, 1961 applied to the sale of the shares of the assessees in Collis Line Pvt. Ltd., which were obtained by the assessees on the amalgamation of Ambassador Steamship Pvt. Ltd. with Collis Line Pvt. Ltd. (turning on Section 49(2) of the Income Tax Act, 1961). Assessee's Contentions: The assessees contended that there was no transfer of their shares in the amalgamating company, and therefore, Section 2(47) and Section 45 were not attracted. They relied on the decision in Commissioner of Income-tax, Bombay v. Rasiklal Maneklal (HUF) and the interpretation of 'extinguishment of any rights therein' in Section 2(47) as being confined to extinguishment on account of transfer. Revenue's Contentions: The Revenue argued that the definition of 'transfer' in Section 2(47) included 'extinguishment of any rights therein' and that this extinguishment occurred upon amalgamation, making it a transfer. They also submitted that the decision in Vanias case regarding the interpretation of 'extinguishment of any rights therein' was obiter dicta.

Which sections of the Income-tax Act were involved?

Section 2(47),Section 45,Section 47(vii),Section 49(2)

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Cause title — parties, addresses and appearances
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6 CASE NO.: Appeal (civil) 4437-4445 of 1997 PETITIONER: COMMISSIONER OF INCOME TAX, COCHIN Vs. RESPONDENT: MRS. GRACE COLLIS AND ORS. DATE OF JUDGMENT: 23/02/2001 BENCH: Y.K.Sabharwal, S.N.Hegde, S.P.Bharucha

JUDGMENT: Bharucha, J. L.....I.........T.......T.......T.......T.......T.......T..J These are the appeals by the Revenue against the decision of a Division Bench of the High Court of Kerala on a reference application at the instance of the assessees under Section 256(1) of the Income Tax Act, 1961. The High Court was called upon to answer the following three questions : 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that on the amalgamation of Ambassador Steamships Pvt. Ltd. with Collis Line Pvt. Ltd., there was a transfer by the assessee of their shares in Ambassador Steamships Pvt. Ltd. ? 2. In case the answer to question No. 1 above is in the affirmative, whether the Tribunal was right in holding that the transfer was made in consideration of the allotment for to the assessees of shares in Collis

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