Sen, J. - (1.) The facts found and/or admitted in these proceedings are shortly as follows : Cheviot Mills Co. and Orient Jute Mills Co. Ltd. belonging to the Andrew Yule group of companies had been carrying on business in jute. It was decided to amalgamate the two companies and a scheme was drawn up accordingly which, inter alia, provided that the undertaking of Orient Jute Mills Co Ltd. including all its assets and liabilities, would vest in Cheviot Mills Co. Ltd. and that the latter would allot fully paid up ordinary shares against similar shares in Orient Jute Mills Co. Ltd. in stipulated rates. The scheme was approved and sanctioned by this court under Section 391 read with s, 394 of the Companies Act, 1956. In terms of the order of this court, the amalgamation of the said companies became effective from 31st July, 1960.
(2.) In the assessment year 1961-62, the relevant accounting year being the year ended on the 30th November, 1960, the accounts of the assessee included the amalgamated accounts for 4 months after the 31st July, 1960. It was contended by the assessee that, as it had succeeded to the business of Orient Jute Mills Co. Ltd., it was entitled to take the cost of the acquired assets as that on the 1st January, 1954, under Section 12B(3) and on such basis the assessee claimed a capital loss of Rs. 2,15,983. The ITO was of the view that on merger or amalgamation the corporate entity of a company would not disintegrate but would continue to exist as part and parcel of the company with which it was merged. He held that the Orient Jute Mills Co. Ltd. continued to exist after amalgamation with Cheviot Mills Co. Ltd. and that there was no question of computation of the value of the assets under Section 12B.
(3.) The assessee preferred an appeal from the order of the ITO. The AAC proceeded on the basis that succession to a business entailed that the same would be carried on thereafter. After amalgamation in the instant case he found that the assessee-company was not carrying on the same business as that of Orient Jute Mills Co. Ltd. The business of Orient Jute Mills Co. Ltd., he held, was discontinued as the company itself lost its separate entity on amalgamation. He noted further that the factory building of Orient Jute Mills Co. Ltd., stripped of all plants and machinery, had been rented out. Some of such plants and machinery were in the assessee's business and the rest had been sold. On these facts, he concluded that the business of Orient Jute Mills Co. Ltd. had neither been carried on by the assessee nor had the assessee succeeded to the same. The assessee was, therefore, not entitled to substitute the market value of the assets as on the 1st January, 1954, and there was no material loss.;