Income Tax Appellate Tribunal - Mumbai
Income-Tax Officer vs Madura Coats Ltd. on 31 July, 1986
Equivalent citations: [1986]19ITD384(MUM)
ORDER
Y.R. Meena, Judicial Member
1. This is an appeal by the revenue against the order of the Commissioner (Appeals) dated 23-3-1982. The main issue for our consideration in this appeal is whether the Commissioner (Appeals) has erred in holding that the assessee is entitled for substitution of fair market value as on 1-1-1964 in respect of shares held by it in the amalgamated company as on 1-7-1974.
2. The relevant facts are that the assessee, an Indian company, is assessed as agent of an English company J.P. Coats Ltd. for the assessment year 1978-79. During the accounting year ending on 31-12-1978, the assessee sold 9,60,617 shares in Madura Coats Ltd., an Indian company, for a sum of Rs. 75,32,828. The assessee claimed before the ITO that the expenses in connection with the sale was of an amount of Rs. 96,061 so that the net sale price was Rs. 74,36,767. For the purpose of capital gains tax, the assessee claimed that the acquisition cost of those shares was Rs. 53,76,862, which he claimed on the basis of option available to the assessee under Section 55 of the Income-tax Act, 1961 ('the Act') since the fair market value of those shares as on 1-1-1964 was Rs. 53,76,862 ; and on that basis, he offered the balance for capital gain tax. Thereafter, he filed a revised return and claimed the value of those shares as on 1-1-1964 at Rs. 1,08,70,258. These ate the facts stated by the Commissioner (Appeals) in the operating para of his order. Further, he found that the assessee-company held the original shares in three companies- 3.75 lakh shares of Rs. 10 each in A & F Harvey Ltd. ; 2 lakh shares of Rs. 100 each in J & P Coats (India) Ltd. and 1,200 shares of Rs. 15 each in Madura Mills Co. Ltd. These three Indian companies were amalgamated on 1-7-1974. As a result of the scheme of amalgamation, the assessee-company was allotted shares of new company, i.e., Madura Coats Ltd., in lieu of those shares which the assessee-company had in those earlier three companies. During the previous year relevant to the assessment year 1978-79, the assessee sold shares which he received from the new company, I.e., Madura Coats Ltd., and claimed before the ITO that the assessee can exercise the option for the purpose of capital gain tax, the fair market value as on 1-1-1964 as the cost of the shares. The ITO did not accept the claim of the assessee. According to him, when the shares are sold, which came into existence on 1-7-1974, the assessee cannot opt the value of those shares as on 1-1-1964 when those shares were not at all in existence.
Being aggrieved, the assessee carried the matter before the Commissioner (Appeals) after referring the provisions of Sections 47, 49 and 55 of the Act, held that the assessee had the option to value the cost of shares as on 1-1-1964.
3. Being aggrieved, the revenue came in appeal before us. The submission of the learned departmental representative, Shri Subramanian, was that when those shares were not in existence at all on 1-1-1964, the assessee cannot opt the value of those shares as on 1-1-1964 as the cost of those shares. He drew our attention to the provisions of Sections 47(w) and (v/0, 49(1)(v/»)(e), 55(2) and 55(2)(»). He also relied on the decision of the Gujarat High Court in Bardolia Textile Mills v. ITO [1985J 151 ITR 389 (FB) and CIT v. Gupta & Sons (P.) Ltd. [1984] 146 ITR 506 (MP).
On the other hand, the learned representative for the assessee, Shri Bhakta, submitted that new shares which were issued by Madura Coats Ltd., were the result of scheme of amalgamation of the three companies and this amalgamated company issued only the shares in lieu of the shares issued by those companies to various persons. Therefore, they are not in fact new shares but just a change as a result of amalgamation of those three companies. Therefore, whatever be the cost which the assessee had of the shares in those companies, that cost the assessee had for the new shares and when the option under Section 55 was available regarding sale of old shares which the assessee had in those three companies, the assessee had opted for the shares which were issued by Madura Coats Ltd. which came into existence with effect from 1-1-1974, as the shares were received in lieu of the old shares. He relied on Harish Mahindra v. CIT [1982] 135 ITR 191 (Bom.).
4. We have heard the rival submissions and considered the material on record. The facts stated above are not in dispute that the assessee-company held shares in three companies-(1) A & F Harvey Ltd., (2) J & P Coats (India) Ltd., and (3) Madura Mills Co. Ltd., and they were amalgamated on 1-7-1974. This new company Madura Coats Ltd., which came into existence with effect from 1-7-1974 issued shares to the shareholders of those three old companies in lieu of the shares issued by those three companies. Now the limited issue before us is whether the new shares which were issued by Madura Coats Ltd. with effect from 1-7-1974 and sold thereafter by the assessee, has the assessee the option available for determining the cost of those new shares as on 1-1-1964. In other words, whether the assessee can ask the value of those shares as a cost for capital gain tax on the basis of the fair market value as on 1-1-1964.
Provisions of Section 47(vi) and (vii) provide, any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the amalgamated company, if the amalgamated company is an Indian company, should not be taken as a transfer. Similarly, any transfer by a shareholder, in a scheme of amalgamation of a capital asset being share or shares held by him in the amalgamating company, if, (a) the transfer is made in consideration of the allotment to him of any share or any shares in the amalgamated company, and (b) the amalgamated company is an Indian company. In that case also, it will not be taken as transfer for the purpose of capital gain tax.
Now, we come to provisions of Section 49. Section 49 provides what should be the cost of the asset in different modes of acquisition of shares.
Section 49(1)(iii)(e) provides that where the capital asset became the property of the assessee, under any such transfer as is referred in Clause (iv) or Clause (v) or Clause (vi) of Section 47 (sic). This means that under Section 47(vi) cost of acquisition has the cost at which the original shares were acquired by him. Sub-section (2) of Section 49 provides, where the capital asset being a share or shares in an amalgamated company which is an Indian company became the property of the assessee in consideration of a transfer referred to in Clause (vii) of Section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the share or shares in the amalgamating company. This also refers to the cost which the assessee had for the original shares of the amalgamating companies. These are-A & F Harvey Ltd., J & P Coats (India) Ltd. and Madura Mills Ltd.
Section 55 of the Act provides, the meaning of 'adjusted', 'cost of improvement' and 'cost of acquisition'. Cost of adjusted, cost of any improvement, they are provided in Sub-section (1) of Section 55. What is the cost of acquisition of the asset for the purpose of option of Section 55, that is, given in Sub-section (2) of Section 55. Sub-section (2) provides that for the purpose of Sections 48 and 49 of the Act, 'cost of acquisition' in relation to a capital asset, (z) where the capital asset became the property of the assessee before 1-1-1964, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on 1-1-1964 at the option of the assessee. The shares were not acquired before 1-1-1964. Therefore, Clause (i) of Sub-section (2) is of no help to the assessee. Clause (ii) of Sub-section (2) of Section 55 provides that where the capital asset became the property of the assessee by any of the modes specified in Sub-section (1) of Section 49, and the capital asset became the property of the previous owner before 1-1-1964 means the cost of the capital asset to the previous owner or the fair market value of the asset on 1-1-1964 at the option of the assessee. Here also, the mode of transfer under Section 49(2) does not cover under the option available to the assessee under Section 55(2)(?7). On the contrary, the cost of the asset to the assessee would be the cost when the asset became the property of the assessee by any of the modes specified in Sub-section (1) of Section 49. That also goes back to the position when the assets were acquired originally by the assessee from those old three companies.
The learned departmental representative, Shri Subramanian, relied on the decision of their Lordships of the Madhya Pradesh High Court in the case of Gupta & Sons (P.) Ltd. (supra) wherein their Lordships held that the paramount rule of interpretation is that a statute should be interpreted according to the intent of the persons who made it.
Similarly, their Lordships of the Gujarat High Court in the case of Bardolia Textile Mills (supra) observed that logic alone will not be determinative of a controversy arising from a taxing statute. The provisions of a taxing statute have to be read and understood according to the language of the statute and if the plain language compels the Court to adopt an approach different from that dictated by any rule of logic the Court may have to adopt it. Normally, unless it is shown that the context calls for a different meaning to be given to the term used in the same section, one would be justified in assuming that the term has been used so as to have the same meaning.
The assessee's counsel, Shri Bhakta, relied on the decision of their Lordships of the Bombay High Court in the case of Harish Mahindra (supra). In that case, the assessee acquired share of Rs. 500 before 1-1-1954 ; thereafter he sub-divided it into shares of Rs. 10 each and, thereafter, those divided shares were sold. The issue before their Lordships was in the selling of sub-divided shares, whether the assessee had any option to adopt the fair market value of shares as on 1-1-1954 as the cost of acquisition. Their Lordships held the assets are the same ; and the assessee had the option contained in Clause (i) of Section 55(2). He can opt the value as on 1-1-1954. Considering the facts in the case of Harish Mahindra (supra) relied by the assessee and the facts before us, we feel they are not similar. In the case before us, the facts were that the assessee-company had the shares in three companies; and after their amalgamation, the new company came into existence and that the new company had issued new shares on 1-7-1974. In our view, those new shares were not in existence on or before 1-1-1964. When those new shares which were received by the assessee after amalgamation of those three companies were not in existence on or before 1-1-1964, the assessee had no option for asking for its fair market value as on 1-1-1964 as the cost for the acquisition of the assessee. In the case of Harish Mahindra (supra), share of Rs. 500 was sub-divided into shares of Rs. 10 each. That cannot equate with the case where altogether a new company issued shares after amalgamation of three companies. Therefore, considering the provisions of Sections 47, 49 and 55, we are of the view that the assessee had no option to take the fair market value of the shares as on 1-1-1964 as the cost when those shares were not at all in existence or acquired by the assessee.
5. The second issue for our consideration in this appeal is whether the Commissioner (Appeals) has erred in directing the ITO to take the fair market value of shares sold on the yield basis and not on the break-up value method and arrive at the value of shares of J & P Coats (India) Ltd.
6. When we have held that the assessee has no option for taking the fair market value of the shares as on 1-1-1964 as the cost for the purpose of capital gain tax, this ground is consequential and when we hold that the assessee has no option to cost as on 1-1-1964, there is no question of valuing the shares on yield basis or on break-up value method. For the purpose of capital gain tax, the assessee can only go by the cost which he had paid in ultimately getting the shares, that will only be taken into account.
7. In the result, the departmental appeal is allowed.