TaxTMI 
TaxTMI 
1999 (3) TMI 103
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....dered. A few facts having a bearing on the point in issue may be briefly indicated at the outset. 2.1 The assessee-company was holding 2,81,400 equity shares of Rs. 10 each in M/s. Neomer Ltd.(hereinafter referred to as Neomer). Neomer got amalgamated with the assessee-company under a scheme of amalgamation approved and sanctioned by the High Court under sections 391 and 394 of the Companies Act with effect from 1-1-1983. Under the scheme, the assessee as the amalgamated company, allotted its shares to the shareholders of Neomer in the ratio of 1 equity share of Rs. 100 each credited as fully paid up in respect of 40 shares of Rs. 10. Forty shares of Neomer of face value of Rs. 10 exchange ratio has been arrived at on the basis of valuation report of M/s. Dalal & Shah, C.As. While valuing the intrinsic worth of the shares of the two companies namely, Alembic and Neomer for the purpose of amalgamation, it has been pointed out by the C.As. that the Neomer has been making losses and accumulated losses as on 31st December, 1982 under the head "Miscellaneous Expenditure' to the extent not written off aggregate to Rs. 368 lacs, which would enable Alembic to secure substantial tax bene....
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....ing effective from 1st January, 1983. Therefore, in so far as the assessment year 1987-88 is concerned, the claim of deduction either as business loss or by way of loss under the head 'Capital gains' can not be allowed. On this issue, therefore, this ground in ITA No 512/Ahd./1991 stands dismissed. 3. That leaves us with the ground for deduction of loss for the assessment year 1984-85 involved in ITA No. 4544/Ahd./ 1991. 4. The ld. counsel for the assessee-company argued that the amalgamation with Neomer resulted in a business loss inasmuch as investment of Rs. 28,13,180 for purchase of shares of Neomer has to be written off on amalgamation and no shares could be allotted to self by the assessee-company. The ld. counsel further submitted that the assessee had purchased shares of Neomer for business purposes to maintain control over the management of Neomer and the loss due to amalgamation is, therefore, allowable as business loss. Reliance is placed on the decision of the Hon'ble Gujarat High Court in Addl. CIT v. Laxmi Agents (P.) Ltd. [1980] 125 ITR 227. The ld. counsel further submitted that the amalgamation was for more efficient carrying on of the business by the assesse....
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....(ii) Shaw Wallace & Co. Ltd. v. CIT [1979] 119 ITR 399/1 Taxman 551(Cal.) (iii) CIT v. Rasiklal Maneklal (HUF) [1989] 177 ITR 198/43 Taxman 259 (SC) (iv) Vania Silk Mills (P.) Ltd. v. CIT[1991] 191 ITR 647/59 Taxman 3 (SC) 5. After careful consideration of rival submissions of both the sides, we are inclined to dismiss the ground relating to deduction of Rs. 28,13,180 as business loss or in the alternative as loss under the head 'Capital gains'. In our opinion, scheme of amalgamation of Neomer has got to be viewed as integrated whole while adjudicating upon the point in dispute in the instant appeal. The amalgamation resulted in the absorption and blending of the amalgamating company Neomer with the amalgamated company i.e., the assessee. The assets of Neomer have been taken over by the assessee at existing book values. While determining the exchange ratio. M/s. Dalal & Shah, C.As. have noted that the current value of the fixed assets as well as the advantage attached to the existence of a duly organized undertaking have been kept in view. Various other tangible benefits and advantages which accrued to the assessee-company as a result of merger, as pointed out by the C.As.....
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....y to claim any deduction by way of business loss under section 28 or for that matter under section 37(1). The reliance placed by the ld. counsel on the decision of Hon'ble Gujarat High Court in Laxmi Agents (P.) Ltd.'s case is entirely misplaced inasmuch as the said decision deals with entirely a different issue whether the interest paid on the amounts borrowed for the purchase of shares should be allowed as business expenditure or should be allowed as deduction against the dividend income of the assessee. The said decision affords no assistance to the assessee's case. 6. The next decision relied upon by the ld. counsel is Bombay Dyeing & Mfg. Co. Ltd. case The said decision rendered by the Hon'ble Supreme Court involves the deduction of professional charges paid to a firm of solicitors with regard to amalgamation with another company carrying on the same business of Ginning and Pressing as carried on by the assessee. The Hon'ble Supreme Court took note of the fact that 'both the companies were carrying on complimentary business and their amalgamation was necessary for smooth and efficient conduct of the business. In the background of these facts, expenditure of professional cha....
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....expression 'extinguishment of any right' would necessarily take colour from those associated words and expressions and will have to be restricted to the sense analogous to them. The existence of assets during the process of transfer is an essential pre-condition. The expression 'extinguishment of any rights' would have to be understood as relatable to the factum of transfer and cannot be extended to mean any extinguishment of rights independent of or otherwise than on account of transfer. In the instant case, the amalgamation resulted in dissolution of the Neomer and the shares thereof, therefore, became worthless. In the absence of the assets as well as the dissolution of Neomer, both the conditions envisaged under section 2(47) namely, existence of the asset as well as the transferee as above are not fulfilled. There is, therefore, no transfer and the provisions of section 45 would not apply. In support of the view taken here, reliance is placed on the decision of the Hon'ble Kerala High Court in Mrs. Grace Collis' case and the Hon'ble Calcutta High Court in Shaw Wallace & Co. Ltd.'s case relied upon by the ld. DR. Both these decisions are direct authorities in support of our fin....