Ita/170/2000 Of /S.the Commonwealth Trust India v. The Commisisioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR TUESDAY, THE 8TH APRIL 2008 / 19TH CHAITHRA 1930 ITA.No. 170 of 2000(M) ---------------------- ITA.128/COCH//1995 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT: ----------------- M/S.THE COMMON WEALTH TRUST(INDIA) LTD., SOUTH MANANCHIRA ROAD, KOZHIKODE. BY ADV. SRI.P.BALACHANDRAN RESPONDENTS: ------------- THE COMMISSIONER OF INCOME TAX,CALICUT. BY ADV. SRI.P.K.R.MENON(SR.),SC FOR IT THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 08/04/2008, ALONG WITH ITA NO.135 OF 2000, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR &T.R.RAMACHANDRAN NAIR, JJ. .................................................................... I.T.Appeal Nos.170 & 135 of 2000....................................................................Dated this the 8th day of April, 2008. JUDGMENT C.N.Ramachandran Nair, J. The connected appeals filed by the appellant arise from order of theTribunal upholding levy of capital gains on land acquired from the appellantby the Government during the previous years relevant for the assessmentyears 1990-91 and 1991-92. The land acquired originally belonged toBasel Mission Trading Co. which was declared as an enemy property duringthe first world war and taken over by the British Government. The BritishGovernment thereafter transferred the property to a U.K. Company by nameCommonwealth Trust Limited. The property in the form of land andbuildings remained that of British company until 1977. However, in theyear 1977 the High Court approved a scheme of amalgamation whereunderthe landed properties of the British company namely, the amalgamatingcompany was transferred to the petitioner which is an Indian company.During the previous years relevant for assessment years 1990-91 and 1991-92, Government of Kerala acquired some extent of land from the companyand paid compensation. The company did not offer the compensation received for assessment under the head "capital gains" for the reason that ithad not spent any amount towards cost of acquisition. Even though thefactual position was not controverted, the officer assessed capital gains onthe compensation amount which is upheld by the first appellate authorityand the Tribunal, against which these appeals are filed. 2. Sri.P.Balachandran, Senior counsel appearing for the appellantcontended that the land in respect of which compensation for acquisitionwas received, originally belonged to Basel Mission which was acquired bythe British Company as enemy property. Thereafter the property wastransferred to British company and in turn to the assessee-company underthe scheme of acquisition and since no payment was made for acquisition ofland, there was no cost of acquisition and so much so, capital gain does notarise. He has relied on various court decisions including that of theSupreme Court in support of his contention that capital gain does not arisein a case where there is no cost involved in the acquisition of property.Senior counsel for the Revenue on the other hand contended that by virtueof Section 55(2), the appellant is liable to pay tax on the capital gains byadopting the value of the land as on 1.1.1974. We do not think we shouldanswer the question on the facts based on which decision was rendered byall the authorities including the Tribunal because we are of the view that the assumption by all the authorities that there was no consideration in theacquisition of property by the assessee is incorrect. In fact some of thedocuments produced in court pertain to amalgamation. We find that thescheme of amalgamation approved by the High Court involved transfer ofshares to the shareholders of the foreign company from which the propertywas transferred to the petitioner under scheme of amalgamation approvedby the High Court. In other words, if shares were transferred to theshareholders of the foreign company, then the transfer of property to theappellant-company is against consideration in the form of value of sharesallotted to the shareholders of the amalgamating company. Share capital isa liability of the company to the shareholders and so much so, value ofshares allotted constitute value of the property acquired by the company inthe course of amalgamation. So much so, we are of the view that theacquisition of property in the course of amalgamation involved payment ofconsideration, though in the form of allotment of fully paid shares to theshareholders of the amalgamating company. If this is the position, then theassessee will not be entitled to contend that the acquisition of land by themin the course of amalgamation did not involve any cost to them. Sinceorders are based on wrong assumption of facts and without examining thenature and content of the scheme of amalgamation approved by the High Court under which the property vested in the assessee-company, we setaside the orders of the Tribunal and that of lower authorities and remand thematter to the Assessing Officer for fresh consideration after verifying theterms of amalgamation approved by the High Court and after giving anopportunity of hearing to the assessee. However, we make it clear that ifcost of acquisition is adopted as the value as on 1.1.1974, then the valuefixed by the Tribunal shall be adopted for the sake of finality so that anotherround of litigation is avoided on this ground. C.N.RAMACHANDRAN NAIRJudge pms T.R.RAMACHANDRAN NAIRJudge