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Whether the Tribunal was correct in holding that where the assessee gets shares of Amalgamated Company in lieu of shares of amalgamating company, no transfer takes place ?

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Sec. 2(47), 28(i), 45 & 47(vii) of Income-tax Act, 1961— Capital gain—Transfer takes place where the assessee gets shares of Amalgamated Company in lieu of shares of amalgamating company and income generated from the transaction has to be charged to income-tax as per provisions of law

Facts: Whether Tribunal was correct in holding that where the assessee gets shares of Amalgamated Company in lieu of shares of amalgamating company, no transfer takes place ?

Held, that under the scheme of amalgamation, the amalgamating company is getting extinguished in the sense that the surviving entity now is only the amalgamated company. However, the shares that were with the assessees have undergone the amalgamation process whereby they are replaced with new shares which would be valued entirely on different fundamentals. Subsequent to the amalgamation it is not the same stock in the inventory of the assessees. Under the Companies Act, the shareholders who dissent to the scheme of the amalgamation are given the option of receiving cash or equivalent kind as the price for the shares on the basis of exchange ratio. In another words, the dissenting shareholders receive the value of their shareholding while the approving shareholders receive the same value in the form of shares of the amalgamated company. The process of amalgamation in its legal effect from the taxation viewpoint would apply equally, irrespective of the status of the shareholder. The taxable event is not just a matter of entries made in the account books of the assessee but is essentially one of substance and of the real nature of what transpired in the transaction. The income generated from the transaction has to be charged to income-tax as per provisions of law. The fundamental principle to be followed is that the basic substance for the transaction has to be separated from the form and the taxing statue has to be applied accordingly. In light of the above discussion, the findings of the Tribunal are plainly erroneous. Thus, question of law formulated before us is answered in favour of the Revenue and against the assessees. - CIT V/s NALWA INVESTMENT LTD. - [2020] 28 ITCD Online 001 (DEL)