Mohammad Rafiq J. - (1.) THIS Reference has been made by the Income Tax Appellate Tribunal at the instance of the Revenue under Section 256(1) of the Income Tax Act, 1961 pertaining to the assessment year 1973 -74 seeking opinion of this Court on the following question of law: Whether the Tribunal was right in coming to the conclusion that the value of the assets taken over on amalgamation should be taken at book value as was existing in the hands of the amalgamated company for working out the cost of the shares for purposes of determining he gains or loss thereon?
(2.) REFERENCE has been made in relation to assessment of the year 1973 -74 which was sought to be reopened by the Income Tax Officer, (for short, "I.T.O.") who issued notice to the Assessee under Section 148 of the Income Tax Act, 1961 (for short, "the Act") on 2/1/1978. Assessee filed return on 14/2/1978. Assessment was reopened as according to the I.T.O., the Assessee did not disclose true facts of its income. The Assessee Company claimed loss of Rs. 48,510/ - on sale of shares of M/s.Baranagore Jute Factory and M/s.Equitable Coal Co. which was allowed in the original assessment. These shares had come to the Assessee on account of amalgamation of two companies with it namely; M/s.Sri Vijay Laxmi Trading Co. and M/s.Eastern Trading Syndicate (P) Ltd. Amalgamated company M/s.Eastern Trading Company held 300 shares of M/s.Baranagore Jute Co. Ltd. which were taken over for Rs. 54,450/ - @181.50 per share, which the Assessee sold in the market for Rs. 21,000/ - and thus claimed loss of Rs. 33,450/ - whereas the Assessee paid only a sum of Rs. 33,333/ - for its entire acquired assets worth Rs. 1,39,330/ -. According to the Revenue, cost of each share comes to Rs. 43.42 and therefore cost of 300 shares work out to Rs. 13,076/ - only and sale price being Rs. 21,000/ -, there was profit of Rs. 7,974/ - instead of loss of Rs. 33,450/ - which was wrongly allowed at the time of original assessment. Similarly, the Assessee took over the assets of M/s.Vijay Laxmi Co.Ltd. worth Rs. 8,23,546/ - for only Rs. 5,00,000/ -. This amalgamated company held 500 shares of M/s.Equitable Coal Co. Assessee claimed cost of these shares at Rs. 31.62 per share thus totalling Rs. 15,810/ -. These shares were sold @1.50 per share for Rs. 750/ - only. The Assessee claimed straight loss of Rs. 15,060/ - whereas I.T.O. on the basis of the purchase made by the Assessee and proportionate value of shares arrived at loss of Rs. 876/ - only (Rs. 7,924 - Rs. 8,850) as against Rs. 48,510/ - shown by the Assessee (Rs. 33,450 + Rs. 15,060). The I.T.O. passed the assessment order under Section 147(a)/143(3) of the Act on 22/12/1981 by disallowing the loss on sale of shares to the extent of Rs. 47,634/ - and with that addition to the income of Rs. 31,954/ - as per original assessment order computed the net total income of the Assessee at Rs. 79,588/ -. The Assessee thereupon filed appeal before the Commissioner of Income Tax (Appeals), who vide order dated 31/10/1985 while relying on the judgment of Supreme Court in CIT v. : [1965]57ITR299(SC) held that since the assets of the amalgamated companies were taken over as a going concern with all their assets and liabilities, they could not be valued separately to determine the cost on which they were taken over and proceeds of amalgamation thus resulted in slump transaction where it was not possible to allocate the purchase price amongst taken over assets. CIT (Appeals) therefore allowed the claim of the Assessee and accepted the appeal vide its order dated 31/10/1985 reversing the order of assessment.
(3.) REVENUE preferred appeal before the Income Tax Appellate Tribunal Jaipur which relying on its earlier order for the assessment year 1972 -73 on the same Assessee, vide order dated 11/9/1986 held that once it has been conceded that the assets have to be taken at the book value as existing in the hands of the amalgamated companies for working out the cost of the shares, then only possible conclusion is that the method adopted for determination of value of the shares was not proper.;