1992 (7) TMI 23 - HC - Income Tax

Court includes shares allotted in amalgamation scheme in capital base from correct date.

The High Court ruled in favor of including shares allotted in a scheme of amalgamation in the capital base of a company from the appointed date of the ... Company, Reference, Surtax Issues:Interpretation of the date of allotment of shares in a scheme of amalgamation for the purpose of including them in the capital base of a company under the Companies (Profits) Surtax Act, 1964.Analysis:The judgment delivered by the High Court of Bombay pertains to an application under section 256(2) of the Income-tax Act, 1961, regarding the inclusion of shares allotted in a scheme of amalgamation in the capital base of a company. The scheme of amalgamation between the assessee-company and a U.K. company was sanctioned by the Bombay High Court and the Calcutta High Court with effect from July 1, 1978. The consideration for the transfer included equity shares worth Rs. 89,50,000, which were actually allotted on May 3, 1979. The Department sought to raise a question regarding the inclusion of these shares in the capital base as on January 1, 1978, for surtax purposes. The Tribunal allowed this inclusion, considering the appointed date of the scheme of amalgamation as the relevant point for inclusion in the capital base.The High Court pointed out factual errors in the question raised by the Department, clarifying that the correct date of allotment was May 3, 1979, and not December 31, 1969, as mentioned. The relation back date should be July 1, 1978, and not January 1, 1969, as erroneously stated. The court emphasized that the shares were allotted in the same previous year and should be included in the capital base as on July 1, 1978, in line with the Tribunal's decision.Referring to precedents, the court cited cases where the legal effect of the order sanctioning the scheme of amalgamation was considered to come into operation from the appointed date. The court held that the value of shares issued under the scheme of amalgamation should form part of the capital base of the company from the appointed date, which in this case was July 1, 1978. Therefore, the court concluded that the shares allotted to the U.K. company must be included in the capital base of the assessee-company from the appointed date, rendering the question raised by the Department unnecessary.Conclusively, the court discharged the rule, indicating that no useful purpose would be served by directing the Tribunal to frame the question and refer it to the court. The judgment favored the inclusion of shares in the capital base as on the appointed date of the scheme of amalgamation, thereby resolving the issue raised by the Department under section 256(2) of the Income-tax Act, 1961.