TaxTMI 
TaxTMI 
2005 (8) TMI 95
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.... answer to the abovementioned question is in the negative, whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that for purpose of computing capital gains, the assessee-company was required to value the said shares sold by it on the basis of cost and not on the basis of yield method?" The facts of the case are as under: The assessee-company which was incorporated in England, was associated with three Indian companies, viz., Madhura Mills Co. Ltd., A & F Harvey Ltd. and J. & P. Coats (India) Ltd. The assessee-company had substantial shareholdings in the aforesaid three companies and J & P Coats (India) Ltd. was a 100 per cent, subsidiary of the assessee-company. The assessee-company had acquired 18,500 and, 2,31,500 shares of A & F Harvey Ltd. in November 1962 and March 1965, respectively, aggregating 2.5 lakhs shares. In 1966, A & F Harvey Ltd. issued bonus shares as a result of which the assessee-company became the owner and holder of 3.75 lakhs shares of A & F Harvey Ltd. at the end of 1966. The assessee-company had acquired 2 lakhs shares of J & P Coats (I) Pvt. Ltd. before December 31, 1963. The assessee-company also acquired 1....
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....any, and computed the long-term gain on the sale of the said shares at Rs. 25,64,518 on the basis of cost on the ground that the shares sold were acquired by the assessee-company in 1974. The Commissioner of Income-tax (Appeals) partly allowed the appeal of the assessee-company and held that the assessee-company was entitled to substitute the fair market value of the said shares as on January 1, 1964, sold under sections 47, 49 and 55 of the Act. The Commissioner of Income-tax further determined the cost of the said shares at Rs. 93,01,627 instead of Rs. 48,72,249 which was determined by the Income-tax Officer and also the method of valuing the said shares on the basis of yield method. In appeal by the Revenue, the Tribunal held that considering the provisions of sections 47, 49 and 55 of the Act, the assessee-company was not entitled to substitute the fair market value as on January 1, 1964, in place of the cost of the said shares while computing the long-term capital gain. The Tribunal further held that for the purpose of computing the capital gains, the assessee can only adopt the cost which it had paid and cannot adopt any other method for arriving at the cost of acquisition....
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....of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be. The cost of acquisition of the asset for the purpose of exercising option under section 55 is given in sub-section (2) of section 55 which provides that for the purposes of sections 48 and 49, "cost of acquisition", in relation to a capital asset would be as follows:- "Where the capital asset became the property of the assessee before the 1st day of January, 1964, means the cost of acquisition of the asset to the assessee or the fair market value of the asset as on the 1st day of January, 1964, at the option of the assessee." The learned Tribunal was of the view that since the shares were not acquired before January 1, 1964, clause (i) of sub-section (2) of section 55 was of no avail to the assessee. It further held that clause (ii) of sub-section (2) of section 55 is also of no avail to the assessee as the modes of transfer under section 49(2) do not come under the option available under section 55(2)(ii). The Tribunal held tha....
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....malgamating company is taken into account along with the holding of shares in the amalgamated company to determine the question whether the shares are long-term capital assets or short-term capital assets. The legal effect in treating the shares in the amalgamated company should be given full effect to and the legal fiction should be given a logical conclusion and it is impossible to treat the shares held in the amalgamated company as distinct and separate shares from the shares held in the amalgamating company. The cost of acquisition of shares of the amalgamating company should be taken as the cost of acquisition for the purpose of determination of capital gains and the statutory right cannot be taken away by limiting the scope of section 49(2) of the Act and treating the shares held in the amalgamated company as a new asset. The intention of Parliament is to reduce the tax liability in the case of amalgamation and it is clear that under the provisions of section 49(2), the cost of the shares shall be deemed to be the cost of acquisition of shares in the amalgamating company. .... Once it is held that there is no change in the ownership, the assessee is entitled to exercise hi....
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....hares shall be deemed to be the cost of acquisition of shares in the amalgamating company and that figure is an unalterable figure. In our opinion, section 49(2) of the Act and section 55(2)(i) of the Act should be read together." The Madras High Court has placed reliance on the judgment of this court in the case of Harish Mahindra v. CIT [1982] 135 ITR 191 wherein the court was dealing with a case of determination of cost of acquisition of shares acquired before January 1, 1954, but sub-divided after the date into shares of smaller denomination. In the said decision, the court held that the option available under section 55(2)(i) of the Act was not intended to be restricted only to the capital assets transferred by the assessee, but was available in a case where the said capital assets had become the property of the assessee in any of the manners set out in section 55(2)(v) of the Act. This court held that even if the sub-divided shares transferred by the assessee were not the same capital assets as constituted by the original shares from which the sub-divided shares were derived, the assessee would be entitled to exercise its option contained in section 55(2)(i) of the Act and....
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....ir market value of the shares sold on yield basis and not on break up value method for arriving at the cost of shares of J & P Coats (India) Ltd. The Tribunal declined to answer the question whether the Commissioner of Income-tax had erred in directing the shares to be valued on yield basis and not on break up value or cost basis on the ground that this is consequential to its order holding that the assessee-company was not entitled to exercise the option of adopting the fair market value. Since the assessee had no option for adopting the fair market value of those shares as on January 1, 1964, for the purpose of valuation, there was no question of valuing the shares on yield basis (or on break up value method). The Tribunal held that for the purpose of capital gain tax, the assessee can only go by the cost which he had paid. The finding of the Tribunal is self-contradictory in that there could be no question in acquisition in respect of shares which have, according to the Revenue, ceased to exist on amalgamation of the companies. Since we have answered question No. 1 in the negative and in favour of the assessee's claim to exercise the option to adopt the fair market value as o....