COMMISSIONER OF INCOME TAX, BOMBAY versus RASIKLAL MANEKLAL (H.U.F.) & ORS.

Citation: [1989] 2 S.C.R. 179 · Decided: 29-03-1989 · Supreme Court of India · Bench: R.S. PATHAK · Disposal: Dismissed

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Judgment (excerpt)

COMMISSIONER OF INCOME TAX, BOMBAY 
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v. 
RASIKLAL MANEKLAL (H.U.F.) & ORS. 
MARCH 29, 1989 
[R.S. PATHAK, CJ AND RANGANATH MISRA, J.] 
Indian Income Tax Act, 1922-Sub-s. ( 1) of s. 12B-Amalgama-
tion of two companies resulting in dissolution of one of them and allot-
ment of shares of the surviving company to the shareholders of the 
dissolved company-Whether amounts to 'exchange' or 'relinquish-
ment' within the meaning of the sub-section. 
Words and Phrases-Meanings of 'exchange' and 'relinquish-
ment'. 
Snb-s. (I) of s. 12B of the Indian Income Tax Act, 1922 provides 
that tax shall be payable by an assessee under the head "Capital gains" 
in respect ·•f any profits or gains arising from the sale, exchange, relin-
quishment or transfer of a capital asset. 
The respondent-assessee who owned 90 shares in the Shorrock 
Co. which stood dissolved under a scheme of amalgamation with 
another company known as New Shorrock Co., which was sanctioned 
by the High Court, was allotted 45 shares of the New Shorrock Co. in 
terms of the provisions of the said scheme. Doring the assessment 
proceedings for the assessment year 1961-62, the Income Tax Officer 
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omitted to consider the applicability of s. 12B to the case of the assessee. 
> Later on, the Commissioner issued a notice under s. 33B to the assessee 
~ stating that the receipt of 45 shares of the New Shorrock Co. "in 
exchange" of his original holding of 90 shares in the Shorrock Co. had 
resulted in an assessable profit, and passed an order directing the 
Income Tax Officer to revise the assessment and to include au amount 
of Rs.49,350 representing the capital gain resulting from the transac-
. 
tion. Ou appeal by the assessee the Appellate Tribunal held that the 
.\ transaction represented neither an exchange nor a relinquishment and, 
therefore, s. 12B of the Act was not attracted. However, at the instance 
of the Revenue the Tribunal referred the question to the High Court 
which answered it in favour of the assessee. 
Dismissing the appeals, 
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180 
SUPREME COURT REPORTS 
[1989] 2 S.C.R. 
HELD: The sole question is whether the receipt of the 45 shares y· 
of the New Shorrock Co. upon amalgamation by reason of the share 
holding of 90 shares of the Shorrock Co. can be described as an 
"exchange" or a "relinquishment" within the meaning of s. 12B. It 
seems plain to us that no exchange is involved in the transaction. An 
exchange involves the transfer of property by one person to another and 
reciprocally the transfer of property by that other to the first person. 
There must be a mutual transfer of ownership of one thing for the t 
ownership of another. In the present case, the assessee cannot be said to ; 
have transferred any property to any one. When he was allotted the 
shares of the New Shorrock Co. he was entitled to such allotment 
because of bis holding the 90 shares of Shorrock Co. The holding of the 
90 shares in the Shorrock Co. was merely a qualifying condition entitl-
ing the assessee to the allotment of the 45 shares of the New Shorrock 
Co. The dissolution of the Shorrock Co. deprived the holding of the 90---\ 
shares of that company of all value. [183B-E] 
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On the question whether there was any relinquishment, the 
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decision must again be against the Revenue. A relinquishment takes 
place when the owner withdraws himself from the property and 
abandons his rights thereto. It presumes that the property continues to 
exist after the relinquishment. Upon amalgamation, the shares of the 
Shorrock Co. lost all value as that company stood dissolved. [183E-FI 
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CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 
1905-06 (NT) of 1974 and 3414 of 1984. 
From the Judgment and Order dated 24.7.73 and 7.9.81 of the 
Bombay High Court in I.T.R. No. 19 of 1967, 66 of 1964 and 27 of 
1972 respectively. 
B. Datta, Additional Solicitor General, M.B. Rao and Ms. A.:.-
Subhashini for the Appellant. 
Soli J. Sorabji, Harish Salve, Mrs. A.K. Verma and Jee! Peres 
for the Respondents. 
The Judgment of the Court was delivered by 
PATHAK, CJ. The assessee is a Hindu Undivided Family 
deriving income from interest on securities, dividends, property and 
dealing in shares. In 1941 the assessee purchased a share of the Shor-
rock Spinning and Manufacturing Co. Ltd., hereinafter referred to as 
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C.l.T. v. RASIKLAL [PATHAK, CJI) 
181 
"the Shorrock Co.", of the face value of Rs

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