INCOME TAX ACT, 1961

Section 254(1)

Appeal (Tribunal) - Order of Tribunal - Absence of factual determination on vital aspect -

Assessee belonged to Jindal Group of Companies and was its promoter company. It was holding shares of Jindal Ferro Alloy Ltd. ('JFAL'). Vide amalgamation scheme sanctioned under sections 391-394 of Companies Act, 1956, JFAL got amalgamated with Jindal Strips Ltd. ('JSL'). Consequently, assessee company transferred its shareholding in JFAL in lieu of receipt of shares of JSL and claimed that transaction was exempt from capital gain tax under section 47(vii). AO adopting the value of shares of JSL at the rate of Rs. 218 per share, calculated profit on receipts of shares of JSL under the scheme of amalgamation at Rs. 5,31,28,579, and taxed the same as 'Business income'. As per AO since assessee was holding JFAL shares as stock-in-trade and not as capital asset, it was not entitled to exemption under section 47(vii). CIT(A) upheld this. In further appeal before ITAT at the instance of assessee, Tribunal without recording a categorical finding as to whether shares qualified as 'capital asset' or 'stock-in-trade', allowed the appeals in favour of assessee, holding that no profit accrues when shares of the amalgamated company are received in lieu of shares of amalgamating company. Held: The Supreme Court in CIT v. Mrs. Grace Collis & Ors. (2001) 248 ITR 323 (SC) : 2001 TaxPub(DT) 1188 (SC) went into the expanded definition of 'transfer' under section 2(47). Extinguishment of rights of assessee in capital asset, being shares in amalgamating company, was to be held as 'transfer' within meaning of section 2(47). Therefore, decision of ITAT was liable to be set aside on this short ground alone. However, since parties agreed that such transfer would be exempted under section 47(vii), it was to be examined as to whether scheme of amalgamation, viz., shares held in stock-in-trade resulted in taxable event which rendered factual determination inconsequential as held by ITAT. Tribunal erroneously allowed appeals in favour of assessee without recording a clear-cut finding of fact and resolving the crucial question whether the assessee was holding shares as 'capital asset' or 'stock-in-trade'. In absence of factual determination on above said vital aspect, Tribunal grossly erred in coming to the conclusion that it did and same was wholly irrational and, therefore, matter was restored to Tribunal with a direction to first adjudicate fundamental factual question that had been left undecided.

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