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Issues: Whether, on allotment of shares in the transferee company under a scheme of amalgamation, the transaction constituted an exchange or relinquishment so as to attract capital gains under section 12B of the Indian Income-tax Act, 1922.
Analysis: An exchange requires reciprocal transfer of property, with one person transferring property to another and receiving property in return. On the facts, the assessee did not transfer any property when the new shares were allotted under the amalgamation scheme; the allotment arose because of the pre-existing shareholding in the transferor company. A relinquishment requires the owner to abandon rights in property that continues to exist, but after amalgamation the transferor company stood dissolved and its shares lost all value, so there was no subsisting property capable of relinquishment.
Conclusion: The receipt of shares in the transferee company was neither an exchange nor a relinquishment under section 12B, and the capital gains provision was not attracted; the decision was in favour of the assessee.
Final Conclusion: The appeals failed because the share allotment pursuant to amalgamation did not create a taxable capital gain under the provision invoked.
Ratio Decidendi: A transaction under amalgamation does not amount to an exchange unless there is reciprocal transfer of ownership, and it does not amount to a relinquishment unless the owner abandons rights in property that continues to subsist.
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