COMMISSIONER OF INCOME TAX, BOMBAY vs. RASIKLAL MANEKLAL (H.U.F.) & ORS.

CIVIL APPEAL No. 1905/1974Supreme Court[1989] 2 S.C.R. 17929 March 1989Bench: 2 JudgesAuthor: R.S. PATHAK, RANGANATH MISRA OF5 pages
AI SummaryDismissed

What were the facts?

The assessee, Rasiklal Maneklal (H.U.F.), held 90 shares in Shorrock Co. This company was amalgamated with New Shorrock Co. under a scheme sanctioned by the High Court. As per the scheme, the assessee was allotted 45 shares of New Shorrock Co. for every 90 shares held in Shorrock Co. For the assessment year 1961-62, the Income Tax Officer initially did not consider the applicability of Section 12B. Subsequently, the Commissioner of Income-tax issued a notice under Section 33B, proposing to assess Rs. 49,350 as capital gains, considering the allotment of New Shorrock Co. shares as an 'exchange'. The Appellate Tribunal held that the transaction was neither an exchange nor a relinquishment, thus Section 12B was not attracted. The Revenue appealed to the High Court, which answered the reference in favour of the assessee.

What did the Supreme Court hold?

The Supreme Court held that the transaction did not constitute an 'exchange' or 'relinquishment' under Section 12B of the Indian Income Tax Act, 1922. An exchange requires a mutual transfer of ownership of one thing for another, which was absent here as the assessee did not transfer any property to anyone; the allotment of shares in New Shorrock Co. was a consequence of holding shares in Shorrock Co., which itself lost all value upon dissolution. Relinquishment implies abandoning rights to a property that continues to exist, which was also not the case as the Shorrock Co. shares became valueless upon amalgamation and dissolution. Therefore, Section 12B was not attracted. The Court agreed with the High Court's decision. The appeals were dismissed.

What were the issues?

1. Whether on the facts and in the circumstances of the case, the sum of Rs. 49,350 could be assessed in the hands of the assessee as capital gains as having accrued to the assessee by exchange or relinquishment as provided for under section 12B of the Indian Income Tax Act, 1922? (Question of law) 2. If the answer to the above question is in the affirmative, whether the said sum of Rs. 49,350 was assessable in the year 1961-62? (Question of law) Assessee's contentions: The transaction did not constitute an 'exchange' or 'relinquishment' within the meaning of Section 12B of the Act, as held by the Appellate Tribunal and the High Court. Revenue's contentions: The receipt of 45 shares of New Shorrock Co. in exchange for 90 shares of Shorrock Co. resulted in an assessable profit under Section 12B. The High Court's view that it was neither an exchange nor a relinquishment was contested.

Which sections of the Income-tax Act were involved?

Section 12B,Section 33B

AI-generated summary — verify with the full judgment below

COMMISSIONER OF INCOME TAX, BOMBAY A }- ' v v. RASIKLAL MANEKLAL (H.U.F.) & ORS. MARCH 29, 1989 [R.S. PATHAK, CJ AND RANGANATH MISRA, J.] Indian Income Tax Act, 1922-Sub-s. ( 1) of s. 12B-Amalgama- tion of two companies resulting in dissolution of one of them and allot- ment of shares of the surviving company to the shareholders of the dissolved company-Whether amounts to 'exchange' or 'relinquish- ment' within the meaning of the sub-section.

Words and Phrases-Meanings of 'exchange' and 'relinquish- ment'.

Snb-s. (I) of s. 12B of the Indian Income Tax Act, 1922 provides that tax shall be payable by an assessee under the head "Capital gains" in respect ·•f any profits or gains arising from the sale, exchange, relin- quishment or transfer of a capital asset.

The respondent-assessee who owned 90 shares in the Shorrock Co. which stood dissolved under a scheme of amalgamation with another company known as New Shorrock Co., which was sanctioned by the High Court, was allotted 45 shares of the New Shorrock Co. in terms of the provisions of the said scheme. Doring the assessment proceedings for the assessment year 1961-62, the Income Tax Officer --\ omitted to consider

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