Amalgamation reserve not taxable under section 28(iv); government securities remain eligible for indexation under section 48.

Amalgamation surplus credited to capital reserve on merger of a wholly owned subsidiary was treated as a capital adjustment, not a business benefit or perquisite under section 28(iv), so the addition was deleted. The ruling also held that government securities are capital assets and are not excluded from indexation by the third proviso to section 48, which applies to bonds and debentures other than capital indexed bonds issued by the Government. Indexation benefit was therefore admissible on their transfer, and the Revenue's challenge failed.

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Issues: (i) Whether the surplus arising on amalgamation of a wholly owned subsidiary and credited to capital reserve was taxable as a benefit or perquisite under section 28(iv). (ii) Whether indexation benefit was admissible on transfer of government securities under section 48.

Issue (i): Whether the surplus arising on amalgamation of a wholly owned subsidiary and credited to capital reserve was taxable as a benefit or perquisite under section 28(iv).

Analysis: The surplus arose on amalgamation in the capital field and not from normal business operations. The merged entity's reserves reflected the excess of assets over liabilities, but that did not constitute a business benefit or perquisite within section 28(iv). The capital gains consequence of the amalgamation was also stated to be separately exempted under the Act.

Conclusion: The surplus on amalgamation was not taxable under section 28(iv) and the addition was deleted.

Issue (ii): Whether indexation benefit was admissible on transfer of government securities under section 48.

Analysis: Government securities are capital assets and are distinct from bonds and debentures for the purpose of the third proviso to section 48. The proviso denies indexation only in relation to bonds or debentures other than capital indexed bonds issued by the Government, and does not exclude government securities. Accordingly, the assessee was entitled to indexation benefit.

Conclusion: Indexation benefit was admissible on sale of government securities and the Revenue's ground failed.

Final Conclusion: The assessee succeeded on the amalgamation reserve issue, and the Revenue's challenge to allowance of indexation on government securities was rejected.

Ratio Decidendi: An amount credited as amalgamation reserve on merger of a company is not a benefit or perquisite arising from business under section 28(iv), and government securities are not barred from indexation under section 48 merely because the proviso excludes bonds and debentures.

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