Case Law Details
CIT Vs Nalwa Investment Ltd. (Delhi High Court)
The issue under consideration is whether proceeds release from shares exchange with new shares because of amalgamation process will be taxable under income tax?
High Court states that, under the scheme of amalgamation, the amalgamating company is getting extinguished in the sense that the surviving entity now is only the amalgamated company. However, we cannot ignore the fact that the shares that were with the assessees have undergone the amalgamation process whereby they are replaced with new shares which would be valued entirely on different fundamentals. Subsequent to the amalgamation it is not the same stock in the inventory of the assessees. Under the Companies Act, the shareholders who dissent to the scheme of the amalgamation [“dissenting shareholders”] are given the option of receiving cash or equivalent kind as the price for the shares on the basis of exchange ratio. In another words, the dissenting shareholders receive the value of their shareholding while the approving shareholders receive the same value in the form of shares of the amalgamated company. The process of amalgamation in its legal effect from the taxation viewpoint would apply equally, irrespective of the status of the shareholder. The taxable event is not just a matter of entries made in the account books of the assessee but is essentially one of substance and of the real nature of what transpired in the transaction. The income generated from the transaction has to be charged to Income tax as per provisions of law. #The fundamental principle to be followed is that the basic substance for the transaction has to be separated from the form and the taxing statue has to be applied accordingly. In light of the above discussion, the findings of the Tribunal are plainly erroneous. Thus, question of law formulated before us is answered in favour of the Revenue and against the assessees.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
1. The present appeals under Section 260A of the Income Tax Act, 1961 (‘the Act’) filed by the Revenue are directed against the common order dated 17th February, 2005, (‘impugned order’) passed by the Income Tax Appellate Tribunal (‘ITAT’) in ITA No.(s) 1739,1740,1742 & 1743/Del/2001 Assessment Year 1997-98 (‘AY’), allowing the appeals preferred by the Respondent-assessees against the order of the CIT(A). Resultantly, additions made by the Assessing Officer (‘AO’) in the orders of assessment, as confirmed by CIT(A) have been set-aside.
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