Bharucha, J. - (1.) These are the appeals by the Revenue against the decision of a Division Bench of the High Court of Kerala on a reference application at the instance of the assessees under Section 256(1) of the Income-tax Act, 1961. The High Court was called upon to answer the following three questions:"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that on the amalgamation of Ambassador Steamships Pvt. Ltd. With Collis Line Pvt. Ltd., there was a transfer by the assessee of their shares in Ambassador Steamships Pvt. Ltd. 2. In case the answer to question No. 1 above is in the affirmative, whether the Tribunal was right in holding that the transfer was made in consideration of the allotment for to the assessees of shares in Collis Line Pvt. Ltd. 3. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that Section 49(2) of the I.T. Act, 1961 applied to the sale of the shares of the assessees in Collis Line Pvt. Ltd., which were obtained by the assessees on the amalgamation of Ambassador Steamship Pvt. Ltd. with Collis Line Pvt. Ltd. -
(2.) The High Court answered the first question in the negative and in favour of the assessees, namely, that there was no transfer. In view of this answer, it held that the second question did not arise. It answered the third question in the negative and in favour of the assessees. Even so, it held that the taxing authorities could consider taxing the assessees on the basis of the transaction whereunder the share of Rs. 100/- was sold for Rs. 107.50.
(3.) The assessees were shareholders of Ambassador Steamship Pvt. Ltd. The High Court of Kerala sanctioned a Scheme of Arrangement under Sections 391 (2) and 394 of the Companies Act whereby Ambassador Steamship Pvt. Ltd. ("the amalgamating company") was amalgamated with Collis Line Pvt. Ltd. ("the amalgamated company"). The Scheme contemplated the transfer by way of amalgamation of all assets and liabilities of the amalgamating company to the amalgamated company in consideration of the amalgamated company issuing to the members of the amalgamating company 14 equity shares of Rs. 100/- each, credited as fully paid up, in the amalgamated company for each share held in the amalgamating company. Upon amalgamation, the amalgamating company would cease to function and the amalgamated company would take over all its business, assets and liabilities and carry on its business. The sanctioned Scheme stated: "As the residue of the consideration for the said transfer, the Transferee Company shall issue to the members of the Transferor Company 14 equity shares of Rs. 100/- each in the Transferee Company credited as fully paid up in respect of each share held by him or her in the Transferor Company.......";