Amalgamation not a "transfer" for capital gains tax

The High Court held that the amalgamation of Syndicate Bank Ltd. with Industrial Credit & Development Syndicate did not constitute a "transfer" under section 2(47) of the I.T. Act, 1961, attracting capital gains tax. The Court determined that no transfer occurred when shares were transferred as part of the approved amalgamation scheme. Consequently, the proportionate exemption under section 47(vii) was not applicable. As a result, the amalgamation did not trigger capital gains tax liability, and each party was ordered to bear their own costs.

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Issues Involved:
1. Whether the amalgamation of Syndicate Bank Ltd. with Industrial Credit & Development Syndicate constituted a "transfer" under section 2(47) of the I.T. Act, 1961, attracting capital gains tax.
2. Whether proportionate exemption under section 47(vii) was applicable if the transfer was involved.

Summary:

Issue 1: Transfer under Section 2(47)
The Tribunal held that no transfer was involved within the meaning of section 2(47) of the I.T. Act when the amalgamating company transferred its shares consequent to the scheme of amalgamation approved by the court. The Tribunal observed that section 47(vii) clarifies that no transfer is involved when a shareholder receives shares or cash from the amalgamated company in lieu of his shares in the amalgamating company. The High Court cited various precedents, including CIT v. Madurai Mills Co. Ltd. and CIT v. R. M. Amin, to support the view that receiving shares or assets in lieu of shares during amalgamation does not constitute a transfer under section 2(47). The Court concluded that the allotment of shares by ICDS to the shareholders of SB Ltd. was not a transfer for consideration within the meaning of section 2(47).

Issue 2: Proportionate Exemption under Section 47(vii)
The Tribunal's observation that proportionate exemption would be available if the consideration was partly in shares and partly in cash or other forms was addressed. The High Court clarified that if section 47(vii) is applicable, there is no question of pro rata exemption; otherwise, the computation must follow section 48. The Court reframed the first question to focus on whether the amalgamation resulted in a transfer of a capital asset under section 2(47), and answered it in the negative, favoring the assessee. Consequently, the second question did not survive and was not answered.

Conclusion:
The High Court concluded that the amalgamation did not result in a transfer of capital assets under section 2(47) of the Act, thus not attracting capital gains tax. The parties were directed to bear their own costs.

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