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PETITIONER: COMMISSIONER OF INCOME  TAX, BOMBAY

       Vs.

RESPONDENT: RASIKLAL MANEKLAL (H.U.F.) & ORS.

DATE OF JUDGMENT29/03/1989

BENCH: PATHAK, R.S. (CJ) BENCH: PATHAK, R.S. (CJ) MISRA RANGNATH

CITATION:  1989 AIR 1333            1989 SCR  (2) 179  1989 SCC  (2) 454        JT 1989 (2)    16  1989 SCALE  (1)719

ACT:     Indian Income Tax Act, 1922--Sub-s. (1) of s. 12B--Amal- gamation of two companies resulting in dissolution of one of them and allotment of shares of the surviving company to the shareholders  of the dissolved company--Whether  amounts  to ’exchange’  or  ’relinquishment’ within the meaning  of  the sub-section.     Words  and Phrases--Meanings of ’exchange’  and  ’relin- quishment’.

HEADNOTE:     Sub-s. (1) 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 of any  profits  or  gains arising from the sale, exchange, relinquishment or  transfer of a capital asset.     The  respondent-assessee  who  owned 90  shares  in  the Shorrock Co. which stood dissolved under a scheme of amalga- mation with another company known as New Shorrock Co., which was  sanctioned by the High Court, was aborted 45 shares  of the New Shorrock Co. in terms of the provisions of the  said scheme. During the assessment proceedings for the assessment year 1961-62, the Income Tax Officer omitted to consider the applicability  of s. 12B 10 the case of the assessee.  Later on,  the  Commissioner issued a notice under s. 33B  to  the assessee  stating that the receipt of 45 shares of  the  New Shorrock  Co.  "in exchange" of his original holding  of  90 shares  in  the Shorrock Co. had resulted in  an  assessable profit, and passed an order directing the Income Tax Officer to  revise  the  assessment  and to  include  an  amount  of Rs.49,350  representing the capital gain resulting from  the transaction. On appeal by the assessee the Appellate  Tribu- nal  held  that the transaction represented neither  an  ex- change  nor a relinquishment and, therefore, s. 12B  of  the Act  was  not  attracted. However, at the  instance  of  the Revenue the Tribunal referred the question to the High Court which answered it in favour of the assessee. Dismissing the appeals, 180     HELD: The sole question is whether the receipt of the 45 shares  of the New Shorrock Co. upon amalgamation by  reason

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of the share holding of 90 shares of the Shorrock Co. can be described as an "exchange" or a "relinquishment" within  the meaning of s. 12B. It seems plain to us that no exchange  is involved in the transaction. An exchange involves the trans- fer  of property by one person to another  and  reciprocally the transfer of property by that other to the first  person. There  must be a mutual transfer of ownership of  one  thing for  the  ownership  of another. In the  present  case,  the assessee cannot be said to have transferred any property  to any one. When he was allotted the shares of the New Shorrock Co. he was entitled to such allotment because of his holding the  90 shares of Shorrock Co. The holding of the 90  shares in the Shorrock Co. was merely a qualifying condition  enti- tling the assessee to the allotment of the 45 shares of  the New  Shorrock  Co. The dissolution of the Shorrock  Co.  de- prived  the holding of the 90 shares of that company of  all value. [183B-E]     On  the question whether there was  any  relinquishment, the  decision  must again be against the Revenue.  A  relin- quishment takes place when the owner withdraws himself  from the  property and abandons his rights thereto.  It  presumes that  the property continues to exist after the  relinquish- ment. Upon amalgamation, the shares of the Shorrock Co. lost all value as that company stood dissolved. [183E-F]

JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.  1905-06 (NT) of 1974 and 3414 of 1984.     From the Judgment and Order dated 24.7.73 and 7.9.81  of the  Bombay High Court in I.T.R. No. 19 of 1967, 66 of  1964 and 27 of 1972 respectively.     B. Datta, Additional Solicitor General, M.B. Rao and Ms. A. Subhashini for the Appellant.     Soli J. Sorabji, Harish Salve, Mrs. A.K. Verma and  Jeel Peres for the Respondents. The Judgment of the Court was delivered by     PATHAK,  CJ.  The assessee is a Hindu  Undivided  Family deriving  income  from interest  on  securities,  dividends, property  and dealing in shares. In 1941 the  assessee  pur- chased  a share of the Shorrock Spinning  and  Manufacturing Co. Ltd., hereinafter referred to as 181 "the  Shorrock  Co.",  of the face value of  Rs.  1,000  for Rs.3,307.  Later this share was split into 10 shares of  Rs. 100 each, and from time to time a total of 80 shares of  the face value of Rs. 100 each was issued to the assessee by way of  bonus shares. In consequence, on 31 December,  1959  the assessee  owned  90 shares in the Shorrock Co. of  the  face value of Rs. 100 each.     There  is another company called the New Shorrock  Spin- ning  and Manufacturing Co. Ltd. to which reference  may  be made as "the New Shorrock Co.". It was decided to amalgamate the  Shorrock Co. with the New Shorrock Co., and upon  peti- tions  filed under s. 39 1 and s. 394 of the Companies  Act, 1956  the Gujarat High Court made an order dated 23  Septem- ber,  1960 directing meetings of the share holders  of  both the  companies. The meetings were held on 27  October,  1960 and the scheme of amalgamation was approved. On 25 November, 1960  the High Court sanctioned the scheme  of  amalgamation and declared that the scheme would be binding on members  of both the Companies.     Under  the scheme of amalgamation, the  undertaking  and all  the property rights and powers as well as all  liabili-

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ties  and  duties of the Shorrock Co. were to  stand  trans- ferred and vest with effect from 1 January, 1960 in the  New Shorrock Co. The scheme of amalgamation provided further for an increase in the share capital of the New Shorrock Co. and it  permitted the creation of 14,625 new ordinary shares  of the  face value of Rs. 125 each of the  transferee  company. The  newly created shares were to rank pari passu  with  the existing  shares of the transferee company in all  respects. Under  the  scheme the New Shorrock Co., as  the  transferee company,  was directed to allot to members of  the  Shorrock Co.,  the  transferor company, one share in  the  transferee company for every two shares of the transferor company  held by  them. The order of the Court directed that the  Shorrock Co.  should  file  a certified copy of the  order  with  the Registrar of Companies within 14 days for registration,  and on such certified copy being delivered the transferor compa- ny would stand dissolved and the Registrar of Companies  was to place all documents relating to the transferor company on the  file relating to the transferee company and the  folios relating  to the two companies were to be  consolidated  ac- cordingly.     During  the  assessment proceedings for  the  assessment year  1961-62,  the previous year being the  financial  year ended  31  March,  1961, the Income  Tax  Officer,  although apprised  of the fact of the scheme of amalgamation  and  of the acquisition by the assessee of 45 shares of the 182 New Shorrock Co. omitted to consider the applicability of s. 12B of the Indian Income Tax Act, 1922. On 21 January,  1964 the Commissioner of Income-tax issued a notice under s.  33B of  the Act to the assessee stating that the receipt  of  45 shares of the New Shorrock Co. "in exchange" of his original holding  of 90 shares in the Shorrock Co. in  December  1960 had  resulted in an assessable profit, and this  aspect  had been  overlooked by the Income Tax Officer when  making  the regular  assessment, and, therefore, he proposed a  revision of  the assessment. After heating the assessee, the  Commis- sioner of Income Tax passed an order dated 29 January,  1964 directing  the Income Tax Officer to revise  the  assessment and  to  include  an amount of  Rs.49,350  representing  the capital gain resulting from the transaction of the  acquisi- tion  of  45 shares of New Shorrock Co. in place of  the  90 shares held in Shorrock Co. On appeal by the assessee before the  Income Tax Appellate Tribunal, the  Appellate  Tribunal held  that the transaction represented neither  an  exchange nor  a relinquishment and, therefore, s. 12B of the Act  was not attracted.                   At the instance of the Revenue the  Appel-               late Tribunal referred the following questions               to the High Court for its opinion:                     "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  ac-               crued  to the assessee by exchange  or  relin-               quishment as provided for under section 12B of               the Act?                    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?"     Before  the High Court the Revenue did not contend  that the  transaction constituted a sale or a transfer,  and  the parties confined themselves to the point whether the  trans- action  represented an exchange or a relinquishment for  the purposes  of  s. 12B. The High Court took the view  that  no

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exchange can be said to have taken place on the allotment of the  45 shares of the New Shorrock Co. under the  scheme  of amalgamation. Nor, in the opinion of the High Court, did  it constitute  a relinquishment. In the result, the High  Court answered  both  questions  in favour  of  the  assessee  and against the Revenue.               The  relevant  portion of s. 12B  of  the  Act               provides:               183               S.  12B(1)  Capital gains. The  tax  shall  be               payable by an assessee under the head "Capital               gains"  in  respect of any  profits  or  gains               arising  from the sale, exchange,  relinquish-               ment  or transfer of a capital asset  effected               after  the 31st day of March, 1956,  and  such               profits and gains shall be deemed to be income               of  the previous year in which the  sale,  ex-               change, relinquishment or transfer took place.     The  sole  question  is whether the receipt  of  the  45 shares  of the New Shorrock Co. upon amalgamation by  reason of the share holding of 90 shares of the Shorrock Co. can be described as an "exchange" or a "relinquishment" within  the meaning  of s. 12B of the Act. It seems plain to us that  no exchange  is  involved in the transaction. An  exchange  in- volves the transfer of property by one person to another and reciprocally  the transfer of property by that other to  the first  person. There must be a mutual transfer of  ownership of  one thing for the ownership of another. In  the  present case,  the assessee cannot be said to have  transferred  any property to any one. When he was allotted the shares of  the New  Shorrock Co. he was entitled to such allotment  because of his holding the 90 shares of Shorrock Co. The holding  of the  90 shares in the Shorrock Co. was merely  a  qualifying condition entitling the assessee to the allotment of the  45 shares of the New Shorrock Co. The dissolution of the  Shor- rock  Co.  deprived  the holding of the 90  shares  of  that company of all value.     On  the question whether there was  any  relinquishment, the  decision  must again be against the Revenue.  A  relin- quishment takes place when the owner withdraws himself  from the  property and abandons his rights thereto.  It  presumes that  the property continues to exist after the  relinquish- ment. Upon amalgamation, the shares of the Shorrock Co.,  as has  been mentioned earlier, lost all value as that  company stood dissolved. There is no relinquishment.     The  connected  cases raise similar questions,  and  are dealt with accordingly.     In the result, we agree with the view taken by the  High Court, and dismiss these appeals with costs. H.L.C.                                        Appeals   dis- missed. 184