- (1.) This is a reference under Section 66(1) of the Indian Income-tax Act, 1922. The following question of law ahs been referred to this Court: Whether, on the facts and in the circumstances of the case, there was any exchange within the meaning of Section 12B when the assessee was allotted shares in Birla Cotton Spinning and Weaving Mills Ltd. as a result of the amalgamation of Rajputana General Dealers Ltd. and Merchandise & Stores Ltd. so as to result in any capital loss in respect of the assessment year 1961-62 under Section 12B of the Indian Income-tax Act, 1922.
(2.) The assessee held shares in other companies. It held 8878 shares of the face value of Rs.10/- each in Rajputana General Dealers Ltd. and 28,500 shares of the face value of Rs.10/- each in Merchandise & Stores Ltd. These two companies were amalgamated with Birla Cotton Spinning and Weaving Mills Ltd. under a scheme of amalgamation approved by the High Court of Punjab and the High Court of Rajasthan by orders dated May 20, 1960 and April 22, 1960 respectively. As a result of the amalgamation the shareholders in Merchandise & Stores Ltd. got one ordinary share of Rs.10/- each in Birla Cotton Spinning and Weaving Mills Ltd. for every 4.75 ordinary shares of Rs.10/- each fully paid up held by them in Merchandise and Stores Ltd. Similarly, every shareholder in Rajputana General Dealers Ltd. got one ordinary share of Rs.10/- in Birla Cotton Spinning & Weaving Mills Ltd. for every 2.58 ordinary shares of Rs.10/- each in Rajputana General Dealers Ltd. on the date of the order approving the scheme. The assessee claimed that in the said transaction of amalgamation it sustained a capital loss. The shares of Rajputana General Dealers Ltd. and Merchandise and Stores Ltd. were not quoted on any Stock-exchange whereas the shares of Birla Cotton Spinning & Weaving Mills Ltd. were quoted on the Calcutta Stock-Exchange. The fair value of shares of Rajputana General Dealers Ltd. and Merchandise and Stores Ltd. as represented by the break-up value of shares of the two companies on the date of amalgamation was much more than the market value of the equivalent share of Birla Cotton Spinning & Weaving Mills Ltd. As per quotation in the Calcutta Stock Exchange the assessee claimed to have suffered a capital loss of Rs.1,66,255/- under Section 12B. The Income-tax Officer rejected this contention which was upheld on appeal by the Appellate Assistant Commissioner and also by the Appellate Tribunal.
(3.) Under Section 12B tax is payable under the head ?Capital gains? in respect of any profits or gains arising from the sale, exchange or transfer of a capital asset. Section 45 of the Income-tax Act, 1961 corresponds to Section 12B of the Act of 1922. Clause (vi) of Section 47 of the new Act makes the provision of Section 45 in applicable to ?any transfer, in a scheme of amalgamation of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is a Indian company?. This clause was inserted by Section 19 of Finance (No.2) Act, 1967 with effect from 1st April, 1967. Mr. Bajoria learned Counsel for the assessee contended that the insertion of this clause was sufficient to indicate that prior to 1st April, 1967 a transaction as in the present case would attract the provision of Section 45 of the1961 Act which corresponds to Section 12B of the 1922 Act. Mr. Bajoria invited our attention to the Memorandum of the Finance Ministry explaining the provision in Finance (No.2) Bill, 1967 by which clause (vi) was proposed to be inserted in Section 47 of the 1961 Act. Paragraph 36of the Memorandum says that under the present law certain tax liabilities are attracted in the case of a company merging with another company under a scheme of amalgamation, and also, in the case of share-holders of the amalgamating company. Learned Counsel for the assessee submitted that the memorandum could be considered by Court only for the limited object of ascertaining the purpose for which the bill was introduced.;