Facts

The assessees were shareholders of Ambassador Steamship (P.) Ltd. The High Court of Kerala sanctioned a Scheme ofArrangement 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 transferby 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 itsbusiness.

The assessees sold the 45,318 shares of the amalgamated company of the face value of Rs. 100 each which they had acquired under the Scheme to one B.K. Chatterji and his associates on  February  29, 1976 for the aggregate sum of  Rs. 48,72,523/-. This meantthat they had sold each share for Rs. 107.50/-.

For the assessment year 1976-77, the previous year which ended on March 31, 1976, the ITO levied capital gains tax upon the assessees in respect of the sale       to Chatterji and others.

Issue

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.

View

The definition clearly contemplates the extinguishment of rights in a capital asset distinct and independent of such extinguishment consequent upon the transfer thereof. We do not approve, respectfully, of the limitation of the expression ‘extinguishment of any rights therein’ to such extinguishment on account of

transfers or to the view that the expression ‘extinguishment of any rights therein’ cannot be extended to mean the extinguishment of rights independent of or otherwise than on account of transfer. To so read, the expression is to render it ineffective and its usemeaningless.

Held

That the expression under section 47(ii) of the Act does include the extinguishment of rights in a capital asset independent of and otherwise than on account of transfer. (AY. 1976-77) (CA No. 4437-45 of 1997 dt. 23-2-2011)

Editorial: Vania Silk Mills (P.) Ltd. v. CIT [1991] 191 ITR 647 (SC) is disapproved. Grace Collis v. CIT (1996) 135 CTR 25/1997) 226 ITR 55 (Ker) (HC) is set aside. In CIT v.  Chhaya B. Parikh (Mrs) (ITA (L) No. 2583 of 2012     dt. 24-1-2013 (Bom) (HC) the Court held that demolition of Bungalow will not     be treated as transfer and exemption granted u/s. 54(3) of the Act, cannot be withdrawn, ratio of decision in Vanial  Silk  Mills  (P) Ltd (1991) 191 ITR 647 (SC) is held to be not applicable

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