The assessee was holding shares in  Jindal Ferro Alloy Ltd.(JFAL)  Consequent to the scheme of amalgamation sanctioned under sections 391 to 394 of the Companies Act, 1956 , JFAL was amalgamated with Jindal Strips Ltd (JSL) and the assessee received shares in JSL. In terms of the scheme of amalgamation, the shareholders of JFAL were to be allotted 45 shares in JSL in lieu of 100 shares in JFAL. The assessee claimed that the transaction was exempt from capital gains tax under section 47(vii) . The Assessing Officer adopting the value of JSL shares at Rs. 218 per share, calculated the profit on receipt of the JSL shares under the scheme of amalgamation at Rs. 5,31,28,579, and taxed it as “business income”. The appellate authority upheld the action of the Assessing Officer. In further appeal before the Tribunal, the Tribunal without recording a categorical finding as to whether the shares qualified as “capital asset” or “stock-in- trade”, allowed the appeals holding that no profit accrued when shares in the amalgamated company were received in lieu of shares in the amalgamating-company. On appeal  the Court held that   although under the scheme of amalgamation, the amalgamating-company got extinguished in the sense that the surviving entity now was only the amalgamated company the shares that were with the assessees had undergone the amalgamation process whereby they were replaced with new shares which would be valued entirely on different fundamentals. Subsequent to the amalgamation it was not the same stock in the inventory of the assessees. Under the Companies Act, the dissenting shareholders are given the option of receiving cash or equivalent kind as the price for the shares on the basis of the exchange ratio. In other words, the dissenting shareholders receive the value of their shareholding while the approving shareholders receive the same value in the form of shares in the amalgamated company. The process of amalgamation in its legal effect from the taxation viewpoint would apply equally, irrespective of the status of the shareholder. The taxable event is not just a matter of entries made in the account books of the assessee but is essentially one of substance and of the real nature of what transpired in the transaction. The income generated from the transaction has to be charged to Income-tax as per provisions of law. The fundamental principle to be followed is that the basic substance of the transaction has to be separated from the form and the taxing statute has to be applied accordingly. The decision of the Tribunal was plainly erroneous. The matter needed to be remanded to the Tribunal since the factual dispute between the parties had not been decided.( AY.1997-98)