Page 316 – SEKAR REPORTER

2026 INSC 46 REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 152 OF 2026 [Arising out of S.L.P. (C) No. 2028 of 2021] M/S JINDAL EQUIPMENT LEASING CONSULTANCY SERVICES LTD … APPELLANT(S) VERSUS COMMISSIONER OF INCOME TAX DELHI – II, NEW DELHI … RESPONDENT(S) WITH CIVIL APPEAL NO. 153 OF 2026 [Arising out of S.L.P. (C) No. 2190 of 2021] M/S NALWA INVESTMENT LTD. … APPELLANT(S) VERSUS COMMISSIONER OF INCOME TAX – V NEW DELHI … RESPONDENT(S) Signature Not VerifiedDigitally signed by WITH NITIN TALREJA Date: 2026.01.09 16:59:31 IST Reason: CIVIL APPEAL NO. 154 OF 2026 [Arising out of S.L.P. (C) No. 2188 of 2021] M/S ABHINANDAN TRADEX LTD. (EARLIER KNOWN AS M/S ABHINANDAN INVESTMENT LTD) … APPELLANT(S) VERSUS COMMISSIONER OF INCOME TAX DELHI – I, NEW DELHI … RESPONDENT(S) WITH CIVIL APPEAL NO. 155 OF 2026 [Arising out of S.L.P. (C) No. 2197 of 2021] M/S MANSAROVER TRADEX LTD (EARLIER KNOWN AS M/S MANSAROVER INVESTMENT LTD) … APPELLANT(S) VERSUS COMMISSIONER OF INCOME TAX DELHI – II, NEW DELHI … RESPONDENT(S) J U D G M E N T R. MAHADEVAN, J. Leave granted. 2. The present appeals arise out of a common judgment and final order dated 07.08.2020 passed by the High Court of Delhi in ITA Nos. 935, 822, 853, and 961 of 2005, pertaining to the Assessment Year 1997-98. By the impugned judgment, the High Court remanded the matters to the Income Tax Appellate Tribunal for fresh adjudication on the question of whether the shares held in the amalgamating company constituted stock-in-trade or capital assets, upon observing that, if the shares were, in fact, held as stock-in-trade, the transaction would fall outside the purview of Section 47(vii) of the Income Tax Act, 1961 , and its taxability would consequently be governed by Section 28 under the head “profits and gains of business or profession”. FACTUAL MATRIX 3. The facts, which are common to all these appeals, may be briefly stated as under: 3.1. The appellants are investment companies of the Jindal Group. The shares of the operating companies, namely Jindal Ferro Alloys Limited (JFAL) and Jindal Strips Limited (JSL), were held as part of the promoter holding, representing controlling interest. The appellants had also furnished non-disposal undertakings to the financial institutions / lenders who had advanced loans to the operating companies. These shares were reflected as investments in the balance sheets of the appellants. 3.2. During the previous year relevant to the assessment year 1997-98, pursuant to a scheme of amalgamation approved by orders dated 19.09.1996 and 03.10.1996 of the High Courts of Andhra Pradesh and Punjab & Haryana respectively, under Sections 391 – 394 of the Companies Act, 2013, JFAL was amalgamated with JSL. As per the sanctioned scheme, the appointed date of amalgamation was 01.04.1995, and the orders sanctioning the amalgamation were filed with the Registrar of Companies on 22.11.1996 (the effective date). Under the scheme of amalgamation, the shareholders of JFAL were allotted 45 shares of JSL for every 100 shares of JFAL held by them. Accordingly, the appellants were allotted shares of JSL in lieu of the shares of JFAL. 3.3. The appellants, in their returns of income filed for the assessment year in question, claimed exemption under Section 47(vii) of the I.T. Act in respect of the receipt of JSL shares in lieu of JFAL shares, treating the same to be capital assets. However, in the assessment completed under Section 143(3) vide order dated 29.02.2000, the Assessing Officer treated the shares of JFAL as stock-intrade, denied the exemption under Section 47(vii), and brought to tax the value of JSL shares as business income, computed with reference to their market value. The said order was upheld by the Commissioner of Income Tax (Appeals). 3.4. On further appeals, the Tribunal vide order dated 17.02.2005, allowed the assessees’ appeals by observing that it was unnecessary to decide whether the shares were held as stock-in-trade or capital assets since no profit accrues unless the shares held by the appellants are either sold or transferred for consideration, irrespective of the nature of holding. It was further observed that there was admittedly no sale of shares and, therefore, the only question for consideration was whether the allotment of JSL shares in lieu of JFAL shares under the scheme of amalgamation amounted to a “transfer”. Following the decision of this Court in Commissioner of Income Tax, Bombay v. Rasiklal Maneklal (HUF) and others , the Tribunal concluded that there was no transfer of shares and, consequently, no taxable profit could be said to have accrued to the appellants. 3.5. The Revenue challenged the Tribunal’s decision before the High Court, raising the following substantial questions of law: “1. Whether shares received by the assesses on amalgamation are entitled to the benefit of section 47(vii) without the Tribunal concluding that the said shares were held by the assesses as capital assets? 2. Whether the benefit of Section 47(vii) is limited to determination of capital gains and only in regard to capital assets? 3. Whether income would accrue to the assesses on shares received by amalgamations and will be taxable in view of non-applicability of Section 47(vii)?” 3.6. After hearing both sides, the High Court, by the impugned judgment, disposed of the appeals in favour of the Revenue and against the assessees. In doing so, it held that the Tribunal had erred in placing reliance on Rasiklal Maneklal while failing to consider the later and binding decision of this Court in Commissioner of Income-tax, Cochin v. Grace Collis and others . The High Court observed that where the shares of the amalgamating company were held as capital assets, the receipt of shares of the amalgamated company would constitute a “transfer” within the meaning of Section 2(47) of the I.T. Act, though such transfer would be exempt under Section 47(vii). However, in the alternative scenario where the shares were held as stock-in-trade, the High Court held that upon the assessees receiving shares of the amalgamated company in lieu of those held in the amalgamating company, the assesses had, in effect, realised the value of their trading assets, and the difference in value would be taxable as business profit under Section 28. In reaching this conclusion, the High Court relied upon the decision of this Court in Orient Trading Company Ltd. v. Commissioner of Income Tax, Calcutta . Accordingly, the matter was remanded to the Tribunal for determination of the nature of the appellants’ holding of JFAL shares, i.e., whether such holdings constituted capital assets or stock-in-trade. 3.7. Aggrieved thereby, the appellants have preferred the present appeals before this Court. CONTENTIONS OF THE PARTIES 4. Mr. Ajay Vohra, learned Senior Counsel for the appellants, primarily submitted that the impugned judgment of the High Court is liable to be set aside as it travels beyond the jurisdiction conferred under Section 260A of the I.T. Act. It was pointed out that the appeals before the High Court were admitted on a limited question, namely, whether the Tribunal was correct in holding that where the assessees get shares of the amalgamated company in lieu of shares of the amalgamating company, no transfer takes place. However, while disposing of the appeals, the High Court went further and proceeded to examine the taxability of such receipt, treating it as stock-in-trade or a capital asset. Since that issue was neither specifically raised nor framed at the time of admission, the adjudication was impermissible and contrary to the framework laid down by this Court in Shiv Raj Gupta v. Commissioner of Income-Tax, Delhi . 4.1. It was further submitted that the receipt of shares of the amalgamated company does not amount to either a “sale” or an “exchange”. It was urged that upon amalgamation, the amalgamating company stands dissolved and consequently, its shares cease to exist. Therefore, when shareholders receive shares of the amalgamated company in lieu of the extinguished shares of the amalgamating company, there is no subsisting property capable of being exchanged and accordingly, no taxable business income arises from such transaction. Moreover, the definition of “transfer” under Section 2(47) is relevant only for the purpose of computing capital gains and has no application to stock-in-trade. Only the exploitation or realisation of stock-in-trade gives rise to business income, which is to be computed strictly in accordance with Section 28 of the I.T. Act. 4.2. Reliance was placed on the decision of this Court in Vania Silk Mills P. Ltd v. Commissioner of Income-Tax , wherein it was held that the mere destruction or loss of an asset does not constitute a “transfer”. The term “transfer” in Section 45 connotes that there must be something transferred to someone – some property, right, or interest passing from one person to another. When an asset ceases to exist, there can be no such transfer. Further reliance was placed on Commissioner of Income-Tax, Andhra Pradesh v. Motors & General Stores (P) Ltd wherein, it was held that to constitute an “exchange”, there must be a subsisting property capable of being transferred or exchanged. Reference was also made to Rasiklal Maneklal, in which, it was held that the receipt of shares of an amalgamated company in lieu of shares held in the amalgamating company under an approved scheme of amalgamation, does not amount to an “exchange”. Consequently, it was submitted that the allotment of shares in the amalgamated company, in substitution for the shares held in the amalgamating company, does not amount to a realisation of stock-in-trade by way of sale or exchange, so as to give rise to taxable business income. 4.3. The learned Senior Counsel submitted that the authorities relied upon by the High Court were distinguishable from the present case. In Orient Trading, the assessee had exchanged shares of one existing company for shares of another; that case did not involve amalgamation or dissolution of the company whose shares were exchanged. Likewise, the English decision in Royal Insurance Co. Ltd v. Stephen10 dealt with realisation of investments, not stockin-trade by an insurance company assessed under a special statutory regime, and is inapplicable under Indian law. Similarly, Hindustan Lever and another v. State of Maharashtra and another concerned the legislative competence to levy stamp duty on an order of amalgamation. Observations therein as to the transfer of property between amalgamating and amalgamated companies were made in a wholly different context and cannot govern the computation of business income. 4.4. On the concept of accrual of business income, it was urged that taxable income arises only when a debt in praesenti is created in favour of the assessee, though payable in future, as laid down in E.D. Sassoon & Co. Ltd v. Commissioner of Income-Tax . Hypothetical or illusory benefits cannot constitute taxable income, as held in Commissioner of Income Tax, Bombay City I v. Shoorji Vallabhdas & Co. , State Bank of Travancore v. Commissioner of Income-Tax, Kerala , Godhra Electricity Co. Ltd v. Commissioner of Income-Tax and Commissioner of Income-Tax v. Excel Industries Ltd. and another . Even if the fair market value of the shares allotted in the amalgamated company on the date of allotment exceeds the book value of the shares in the amalgamating company, such appreciation is purely notional. Real income would arise only upon the actual sale of the allotted shares, and until such realisation no business income accrues. 4.5. It was also emphasized that the scheme of the Act itself supports this view. Wherever the legislature intends to tax notional or deemed income, it has enacted specific provisions, for example, Section 28(iv) or valuation rules such as Rule 11UAB. Further, Section 49(1)(iii)(e) specifically provides that for capital gains, the cost of shares in the amalgamated company shall be deemed to be the cost of shares in the amalgamating company. By parity of reasoning, in the case of stock-in-trade also, the original cost must be preserved and any profit should be recognized only at the time of realisation. 4.6. It was finally submitted that the receipt of shares of the amalgamated company in lieu of shares held in the amalgamating company, even when such shares are held as stock-in-trade, does not constitute a “sale” or “exchange” giving rise to taxable business income. Any benefit is, at best, hypothetical until the shares are actually sold. The impugned judgment of the High Court, which disregards settled principles and binding precedents, is erroneous and liable to be set aside. 5. On the other hand, the learned Additional Solicitor General appearing for the respondent(s) – Department opposed the present appeals and supported the impugned judgment of the High Court. It was submitted that if shares are held as stock-in-trade, the profit accruing from the receipt of shares of the amalgamated company in lieu of those of the amalgamating company would be taxable under the head “profits and gains of business or profession”. For the purpose of analyzing this issue, it is assumed that the assessees held the shares of the amalgamating company as stock-in-trade prior to the amalgamation, though this issue remains to be decided by the Tribunal on remand. 5.1. It was submitted that the Tribunal fell in error in holding that no profit accrues unless the shares held by an assessee are either sold or transferred otherwise for consideration, irrespective of the nature of holding. The Tribunal did not refer to any sub-section of Section 28 of the I.T. Act to support its conclusion that a sale or transfer alone can give rise to “profits and gains of business or profession”. It failed to engage with Section 28 entirely, relying instead solely on Rasiklal Maneklal. That decision, it was pointed out, is relevant only to the taxation of capital gains under the Income- tax Act, 1922, and has been clarified to be inapplicable by this Court in Grace Collis. Since the issue of Section 45 is not under contest in these proceedings, Rasiklal Maneklal has no further bearing. 5.2. It was submitted that the High Court rightly held that the spotlight should not entirely be on the concept of “transfer” but instead on whether there is business income in the hands of the assessee, and further that income is recognised when it is earned or realized, irrespective of whether it is in cash or kind”. This finding demonstrates that transfer is not a necessary precondition for taxation of business income under Section 28. 5.3. According to the learned Senior Counsel, the appellants themselves admitted in their written submissions that the definition of “transfer” under Section 2(47) has no application to the computation of business income. To this extent, the appellants do not dispute the High Court’s finding. Yet, the appellants continue to contend that realisation of stock-in-trade giving rise to taxable business income can only be through sale or exchange. Such a submission has no basis in light of Section 28. 5.4. It was further submitted that the plain language of Section 28 makes it clear that profits and gains of business or profession are chargeable irrespective of whether they arise by way of sale, exchange, or otherwise. Unlike Section 45, which specifically requires a transfer of a capital asset, Section 28 is agnostic to the manner in which income accrues. In particular, Sections 28(i) and 28(iv) bring out this position, covering profits, gains, and benefits arising from business activities, whether convertible into money or not. 5.5. Reliance was placed on Orient Trading, where this Court held that the exchange of securities by a share dealer amounted to realisation of stock-intrade, resulting in taxable profits. The said decision directly answers the appellants’ contention as it involved stock-in-trade and upheld that realisation may occur upon exchange, and not merely upon sale. 5.6. Applying the above legal principles, the learned Senior Counsel submitted that the High Court was correct in concluding that upon amalgamation, the shares of the amalgamating company cease to exist and their value stands realised either in cash (for dissenting shareholders) or in shares of the amalgamated company (for approving shareholders). Such realisation, when resulting in profit, is taxable under Section 28. 5.7. The learned Senior Counsel submitted that the appellants’ reliance on cases such as E.D. Sassoon & Co. Ltd and Motors & General Stores (P) Ltd is misplaced. E.D. Sassoon, in fact, supports the Revenue’s case by holding that income accrues when the right to receive is acquired, even if actual receipt is later. Motors & General Stores has already been distinguished in Orient Trading as being confined to the meaning of “sale” in Section 10(2)(vii) of the 1922 Act, and is therefore inapplicable. Similarly, Rasiklal Maneklal and Vania Silk Mills pertain to capital gains and transfer under Section 45, which the appellants themselves concede, have no bearing on the computation of business income. 5.8. It was further submitted that the levy in the present case is not on hypothetical income. As explained in Excel Industries, income accrues when it becomes due and when there exists a corresponding liability on the other party. Here, by virtue of the amalgamation scheme sanctioned by the Court, there was a corresponding liability on the amalgamated company to issue shares (or pay cash to dissenters) in exchange for the extinguished shares of the amalgamating company. This satisfies the test of real income under Excel Industries. 5.9. Even assuming, without conceding, that the Tribunal was correct in requiring a “sale” or “transfer”, it was argued that a scheme of amalgamation itself has “all the trappings of a sale”, as held in Hindustan Lever. Thus, even on the appellants’ theory, the taxable event occurred. 5.10. Finally, on the appellants’ contention regarding valuation of shares, the learned Senior Counsel submitted that this issue was considered and rejected by the CIT(A) with cogent reasoning, and that the Tribunal may examine this factual issue afresh on remand, if necessary. That issue, however, need not detain this Court, which is concerned only with the legal question. 5.11. Accordingly, the learned Senior Counsel submitted that the High Court’s reasoning is sound, the Tribunal’s judgment is unsustainable, and the present appeals deserve to be dismissed. ANALYSIS AND FINDINGS 6. We have heard learned counsel appearing for the parties and perused the materials available on record. 7. By order dated 10.02.2021, this Court stayed the effect and operation of the impugned judgment and order under challenge. 8. Apparently, the appellants were shareholders of JFAL. Pursuant to the orders of the High Courts of Andhra Pradesh and Punjab and Haryana dated 19.09.1996 and 03.10.1996, JFAL merged with JSL, a widely held public company. Upon the amalgamation become effective, JFAL ceased to exist as a legal entity. In terms of the share exchange ratio approved under the scheme, shareholders were allotted 45 shares of JSL against 100 shares of JFAL. 8.1. During the relevant assessment year, the appellants claimed exemption under Section 47(vii) of the I.T. Act in respect of the receipt of JSL shares, contending that the shares of JFAL were held as capital assets. The Assessing Officer, however, denied exemption, holding that the shares of JFAL constituted stock-in-trade in the hands of the appellants. He accordingly taxed the difference between the value of the JSL shares (as on the appointed date) and the book value of JFAL shares. The CIT(A) upheld this view, dismissing the appeals on the finding that the appellants’ acquisition of shares was an adventure in the nature of trade, attracting taxation under Section 28 of the I.T. Act. Thus, there were concurrent findings that the assessees belonging to the same group which controlled JFAL, engaged in a scheme for profit-making by exchanging their stock-in-trade holdings in JFAL for shares of JSL. 8.2. On further appeals, the Tribunal, by order dated 17.02.2005, allowed the assessees’ claims. It declined to decide the factual question whether the JFAL shares were held as capital assets or as stock-in-trade, holding instead that no profit accrues unless the shares are either sold or transferred for consideration, irrespective of the nature of holding. 8.3. In the Revenue’s appeals, the High Court by the impugned judgment, set aside the Tribunal’s order and remitted the matter for fresh consideration. The High Court returned two findings: first, that if shares are held as capital assets, an amalgamation is indeed a transfer within the meaning of Section 2(47) of the I.T. Act, though exempt under Section 47(vii). The assessees no longer dispute this finding before this Court. Second, the High Court held that if the shares are held as stock-in-trade, the profit arising to the assessees from the receipt of JSL shares in lieu of JFAL shares would be taxable as “profits and gains of business or profession” under Section 28. It is the second finding, which has necessitated the present appeals before this Court. 9. At the outset, the learned Senior Counsel appearing for the appellants raised a preliminary objection that the High Court had transgressed its jurisdiction in remitting the matter to the Tribunal with an observation that, if the shares were stock-in-trade, the taxability would arise under Section 28 of the I.T. Act. It was urged that such an issue was neither expressly framed as a substantial question of law by the High Court nor raised by the Revenue in its appeals. Reliance was placed on Shiv Raj Gupta, where this Court held that the High Court cannot decide a new question of law without formally framing it under Section 260A (4) and without affording the parties an opportunity to meet that case. The following paragraphs are apposite in this context: “18. It can be seen that the substantial question of law that was raised by the High Court did not contain any question as to whether the non-compete fee could be taxed under any provision other than Section 28(ii)(a) of the Income Tax Act, 1961. Without giving an opportunity to the parties followed by reasons for framing any other substantial question of law as to the taxability of such amount as a capital receipt in the hands of the assessee, the High Court answered the substantial question of law raised as follows: (Shiv Raj Gupta case [CIT v. Shiv Raj Gupta, 2014 SCC OnLine Del 7305: (2015) 372 ITR 337], SCC OnLine Del paras 63 & 65) “63. In view of the aforesaid discussion, we deem it appropriate and proper to treat Rs 6.60 crores as consideration paid for sale of shares, rather than a payment under Section 28(ii)(a) of the Act. … … 65. The substantial question of law is accordingly answered in favour of the appellant Revenue and against the respondent-assessee but holding that Rs 6.60 crores was taxable as capital gains in the hands of the respondent-assessee being a part of the full value sale consideration paid for transfer of shares. The appellant Revenue will be entitled to costs as per the Delhi High Court Rules.” Clearly, without any recorded reasons and without framing any substantial question of law on whether the said amount could be taxed under any other provision of the Income Tax Act, the High Court went ahead and held that the amount of INR 6.6 crores received by the assessee was received as part of the full value of the sale consideration paid for transfer of shares — and not for handing over management and control of CDBL and is consequently not taxable under Section 28(ii)(a) of the Income Tax Act. Nor is it exempt as a capital receipt being non-compete fee, as it is taxable as a capital gain in the hands of the respondent-assessee as part of the full value of the sale consideration paid for transfer of shares. This finding would clearly be in the teeth of Section 260-A (4), requiring the judgment to be set aside on this score.” 9.1. Undoubtedly, Section 260A envisages that an appeal to the High Court lies only where a substantial question of law arises. Sub-sections (3) and (4) mandate the formulation of such questions, while the proviso to sub-section (4) preserves the Court’s power, for recorded reasons, to entertain any other substantial question of law not earlier framed. For ease of reference, the said provision is reproduced as follows: “260-A. Appeal to High Court.—(1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal before the date of establishment of the National Tax Tribunal, if the High Court is satisfied that the case involves a substantial question of law. (2) The Principal Chief Commissioner or Chief Commissioner or the Principal Commissioner or Commissioner or an assessee aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub-section shall be— (a) filed within one hundred and twenty days from the date on which the order appealed against is received by the assessee or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner; (b)…. (c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved. (2-A) The High Court may admit an appeal after the expiry of the period of one hundred and twenty days referred to in clause (a) of sub-section (2), if it is satisfied that there was sufficient cause for not filing the same within that period. (3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question. (4) The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question: Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question. (5) The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit. (6) The High Court may determine any issue which— (a) has not been determined by the Appellate Tribunal; or (b) has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to in sub-section (1). (7) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section.” 9.2. The scheme is consciously modelled on Section 100 of the Code of Civil Procedure, 1908, which similarly confines jurisdiction in second appeal to substantial questions of law. Both provisions embody the legislative policy of limiting higher appellate interference to questions of law, while at the same time, permitting the Court to deal with necessary or incidental questions that arise, provided reasons are recorded and parties are heard. In a recent judgment in R. Nagaraj (dead) through legal heirs and another v. Rajamani and others17, this Court held that although a separate issue need not be framed on every point, a finding on a disputed question, while deciding a connected issue, is sufficient. 17 2025 Livelaw SC 416 9.3. In the present case, the High Court did not specifically frame the question of law as to whether the substitution of shares was taxable under Section 28 of the I.T. Act. However, the said issue went to the very root of the matter, and the High Court was bound to consider it in view of the issue already framed by the Tribunal and the submissions advanced by both sides before the Tribunal as well as before the High Court. Such a question was incidental or collateral to the main issue, and the absence of a formal formulation would not vitiate the impugned judgment of the High Court. 9.4. Furthermore, the present case does not fall within the mischief noticed in Shiv Raj Gupta for the following reasons: • First, the Tribunal itself had framed the substantial issue as “whether any income accrues to the appellants on the event of substitution of shares of Jindal Ferro Alloys Ltd. by the shares of Jindal Strips Ltd. under the scheme of amalgamation approved by the High Court of Andhra Pradesh and High Court of Punjab & Haryana”. While answering this question in the negative, the Tribunal left open the determination of whether the shares were held as investments or as stock-in-trade. Once such a finding was recorded, the real question of law was not merely the applicability of Section 47, but more broadly the taxability of the amalgamation transaction under the Act. • Second, in appeal, the High Court framed the following substantial question of law: “Whether the Tribunal was correct in holding that where the assessee gets shares of the amalgamated company in lieu of shares of the amalgamating company, no transfer takes place?” This formulation was wide enough to cover not only the application of Section 47 but also the broader question of taxability of such substitution of shares under the Act. The High Court did not itself assess income under Section 28, but only clarified that if the shares were stock-in-trade, the exemption of Section 47 would not apply, and the matter required reconsideration by the Tribunal so as to determine whether the shares were held as stock-intrade or as capital assets, as without that determination the taxability or eligibility for exemption could not be ascertained. • Third, there was no violation of natural justice in the present case, unlike in Shiv Raj Gupta where an altogether new head of income was introduced without notice to the assessee. Here, the High Court expressly recorded the preliminary objections and submissions of the appellants with respect to Section 28 and dealt with them. Thus, the parties had full opportunity to address this aspect before remand. Merely because a specific substantial question of law was not framed, it cannot be concluded that prejudice was caused to the parties, if both parties had the opportunity to address the issues in dispute. 9.5. Reference may also be made to Mansarovar Commercial Pvt. Ltd v. Commissioner of Income-Tax , where a similar contention was raised based on Shiv Raj Gupta. This Court held that issues incidental or collateral, on which the parties have been fully heard, can be considered by the High Court even if not expressly framed as substantial questions of law, especially where they arise directly from the Tribunal’s findings. The following paragraphs from the said decision are pertinent in this regard: “45.13. As regards the reliance placed upon the decision of this Court in Shiv Raj Gupta v. CIT [Shiv Raj Gupta v. CIT, (2021) 11 SCC 58 : AIR 2020 SC 3556], by the learned Senior Counsel appearing on behalf of the appellants on non-framing of substantial question of law in terms of Section 260-A of the Act so far as the interest liability is concerned, it is submitted that the said decision shall not be applicable to the facts of the case at hand and more particularly in case of an interest which is automatic and mandatory. It is submitted that in the said case, the dispute was with respect to capital gains which by its very nature is a separate head of income and the issue relates to the very taxability. That therefore, failure to raise a question of taxability of capital gains in a particular case may tantamount to a failure in raising a substantial question of law in terms of Section 260-A of the Act. However, the same may not apply on interest as the interest is automatic and mandatory.” “85. As regards the submission on behalf of the assessees that no substantial question of law was framed on levy of interest, at the outset, it is required to be noted that both the parties made submissions on levy of interest elaborately which have been dealt with and considered by the High Court in light of the Constitution Bench decision of this Court in Anjum M.H. Ghaswala [CIT v. Anjum M.H. Ghaswala, (2002) 1 SCC 633] . Even otherwise, the said issue can be said to be incidental or collateral. Even otherwise, in view of the decision of this Court in Anjum M.H. Ghaswala [CIT v. Anjum M.H. Ghaswala, (2002) 1 SCC 633] holding that the levy of interest under Section 234-A is statutory interest and mandatory and automatic, thereafter the said issue cannot be said to be a question of law.” (Emphasis Supplied) 9.6. Accordingly, the High Court cannot be said to have exceeded its jurisdiction under Section 260A in making the impugned observation on Section 28 before remanding the matter. The preliminary contention of the appellants is, therefore, devoid of merit and stands rejected. 10. Now, another issue that arises for determination in these appeals is whether the High Court, while remanding the matter to the Tribunal to ascertain whether the shares of the amalgamating company were held as stock-in-trade or as capital assets, was justified in recording a finding that, if such shares were held as stock-in-trade, the allotment of shares of the amalgamated company pursuant to a court-sanctioned scheme of amalgamation would give rise to taxable business income in the hands of the appellants under Section 28 of the I.T. Act. 11. These appeals, therefore, raise a substantial question concerning the taxability of gains said to arise on amalgamation, where shares of the amalgamating company held by the assessees as stock-in-trade, stand substituted by shares of the amalgamated company. The core controversy is whether such substitution, in and of itself, constitutes a realisation giving rise to taxable business income under Section 28 and if so, the conditions under which such accrual or receipt can be said to arise in the commercial sense, or whether the incidence of taxation arises only upon the subsequent sale of the substituted shares. 12. Before proceeding further, it is apposite to refer to the statutory framework covering the issue involved in the present appeals. The relevant provisions of the I.T. Act are extracted below, for better appreciation: Section 2(1B) – Amalgamation “‘amalgamation’, in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that— (i) all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation; (ii) all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation; (iii) shareholders holding not less than [three-fourths] in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation, otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first-mentioned company.” Section 2(14) – Capital asset “capital asset” means – (a) property of any kind held by an assessee, whether or not connected with his business or profession, (b) … (c) … but does not include— (i) any stock-in-trade [other than the securities referred to in sub-clause (b)], consumable stores or raw materials held for the purposes of his business or profession. (j) …” Section 2(47) – Transfer “transfer”, in relation to a capital asset, includes, (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law …” Section 28 — Profits and gains of business or profession “The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”,— (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year; … (iv) the value of any benefit or perquisite arising from business or the exercise of a profession, whether— (a) convertible into money or not; or (b) in cash or in kind or partly in cash and partly in kind;] … (vi-a) the fair market value of inventory on the date on which it is converted into, or treated as, a capital asset determined in the prescribed manner; ….” Section 45(1) — Capital gains “Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, be chargeable to income-tax under the head “Capital gains”, and shall be deemed to be the income of the previous year in which the transfer took place.” Section 47 – Transactions not regarded as transfer “Nothing contained in section 45 shall apply to the following transfers: …. (vii) any transfer by a shareholder, in a scheme of amalgamation, of a capital asset being a share or shares held by him in the amalgamating company, if— (a) the transfer is made in consideration of the allotment to him of any share or shares in the amalgamated company except where the shareholder itself is the amalgamated company, and (b) the amalgamated company is an Indian company; ….” 12.1. The above provisions make it clear that the scope of taxability on amalgamation depends on the nature of the shares held. Section 2(14) excludes stock-in-trade from the definition of a capital asset, while Section 2(47) defines “transfer” only in relation to capital assets. Section 28 casts a wide net, taxing the “profits and gains of business or profession”, including benefits or perquisites arising from business, whether convertible into money or not, or in cash or kind. Section 45 imposes capital gains tax only on the transfer of a capital asset, subject to exceptions under Section 47, including the transfer of shares in a scheme of amalgamation. Section 47(vii) specifically exempts from capital gains tax any transfer by a shareholder of a capital asset being shares of the amalgamating company, in consideration of the allotment of shares in the amalgamated company, provided the amalgamated company is an Indian company. There is a difference between a charging provision and an exemption provision. A provision that enables the levy of tax on a particular transaction is a charging provision. Only a transaction that is covered by a charging provision is taxable. Only if the transaction is taxable can there be an exemption. Therefore, the transfer of shares arising out of an order of amalgamation, even if it is treated as a capital asset, is generally taxable but would be exempt from taxation only if both the requirements under Section 47 (vii) are satisfied. 13. On behalf of the appellants, it was contended that no taxable event arises at the stage of amalgamation. According to them, income can be said to arise only upon the actual realisation or sale of the substituted shares, and not at the point of their allotment in the amalgamated company. The scheme of the Act, it was submitted, proceeds on the foundational premise that only real income is taxable unless Parliament, by express words, enacts a contrary legal fiction. Illustratively, Section 28(via) expressly deems the fair market value of inventory converted into a capital asset to be taxable, even without the receipt of money. This demonstrates that where the legislature intends to tax notional accretions, it does so explicitly. In the absence of any analogous deeming provision in respect of amalgamations, Section 28 cannot be judicially expanded to cover hypothetical or unrealised gains. 14. Conversely, on behalf of the Revenue, it was submitted that Section 28 does not predicate the existence of a “transfer”, “sale” or “exchange”. What the provision taxes are the “profits and gains of business or profession”, which may be realised either in cash or in kind. Where stock-in-trade ceases to exist and is substituted by another commodity or asset of ascertainable value, profit accrues. According to the Revenue, the language of Section 28 is wide enough to encompass all benefits or advantages arising from business activity, irrespective of the form of realisation. Therefore, once the shares held as stock-in-trade in the amalgamating company ceases to exist and are replaced by shares of the amalgamated company of higher value, a business profit arises which is liable to be taxed under Section 28. Scope of Section 28 15. Before considering the rival submissions, it is necessary to delineate the scope of Section 28. The provision contemplates the chargeability of the “profits and gains of any business or profession” carried on by the assessees during the relevant previous year. What is material, therefore, is that there must be income arising from or in the course of business to be treated as profits or gains. Such profit must be ascertainable with reasonable definiteness at the relevant point of time, and the assessees must have either received it, or acquired a vested right to receive and commercially realise it, even if the receipt is in kind. It is not necessary for the benefit to be capable of being converted into money. Significantly, Section 28 does not prescribe any precondition as to the precise mode through which the profit must arise. The moment any income arises out of business or profession, the provision becomes applicable. It does not incorporate the definition of “transfer” under Section 2(47), unlike Section 45. It is sufficient if there is “income”, and the “transfer”, whether it is actual, material, or immaterial, is not relevant. The two provisions thus operate in distinct and independent fields. As already mentioned, the language of Section 28 – “the profits and gains of any business or profession” is deliberately wide, i.e., the charge itself is cast in wide terms. It is well settled that charging provisions, while construed strictly, are not to be read in an unduly narrow manner when the language of the provision itself is wide. 15.1. In Mazagaon Dock Ltd v. Commissioner of Income Tax and Excess Profits Tax , this Court held that the language of Section 42(2) of the 1922 Act, though strict in nature, could not be artificially restricted. Expressions such as “business’ and “profits derived” were held to be of wide import in fiscal statutes and must be construed broadly to give effect to the legislative intent. The Court rejected the narrow interpretation urged by the assessee and clarified that wide words used in charging provisions cannot be cut down merely to avoid unusual or harsh consequences. Similarly, in Ujagar Prints Etc. v. Union of India and others Etc. , the Court reiterated that wide statutory language must receive its full amplitude and cannot be artificially confined. Further, in Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company and others , this Court clarified that “strict interpretation” does not connote a literal or pedantic reading. Instead, legislative intent must be combined with the words of the statute to arrive at a meaning that is neither too narrow nor too broad. 15.2. Thus, business profits may accrue or be realised in diverse circumstances, even in the absence of a conventional sale, transfer, or exchange in the strict legal sense. To confine the operation of Section 28 to such modes would unduly restrict a provision that Parliament has intentionally couched in broad terms. Illustratively, waiver of a trading liability has been treated as taxable business income under Section 28, as held in Commissioner of Income Tax v. T.V. Sundaram Iyengar & Sons Ltd. Again, in Commissioner of Income Tax v. Meghalaya Steels Ltd , this Court noted that under Section 28, income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, would be income chargeable to income tax under the head “Profits and gains of business or profession”. It was held that if cash assistance received or receivable against exports schemes is included as income under the head “Profits and gains of business or profession” subsidies which go to the reimbursement of cost in the production of goods of a particular business would also have to be included under the same head, and not under the head “Income from other sources”. Likewise, in Commissioner of Income Tax, Delhi v. Woodward Governor India P. Ltd , this Court held that foreign exchange fluctuations on trading items directly affect the profit and loss account, thereby forming part of the computation of business profits. Although that case concerned the deduction of fluctuation losses, its reasoning underscores that real income under Section 28 may accrue without any conventional “transfer”. 15.3. It therefore emerges that Section 28 is a comprehensive charging provision designed to bring within the tax net all real profits and gains arising in the course of business, whether convertible into money or received in money or in kind, and irrespective of whether such accrual or receipt of income is accompanied by a legal transfer in the strict sense. Amalgamation – Concept and Legal character 16. Amalgamation, in corporate law, signifies the statutory blending of two or more undertakings into one. It is distinct from winding up: while the transferor company ceases to exist as a separate corporate entity, its business, assets, and liabilities are absorbed into and continue within the transferee. As held in Saraswati Industrial Syndicate Ltd v. Commissioner of Income Tax25, the transferor company ceases to exist, and the transferee emerges with a blended corporate personality, inheriting all rights and liabilities. Stroud’s Judicial Dictionary of Words and Phrases (9th Edn.) describes amalgamation as the “welding or blending of two or more concerns into one”. Black’s Law Dictionary (11th Edn.) similarly defines it as the “act of combining or uniting; consolidation; amalgamation of two small companies to form a new corporation”. In Walker’s Settlement, In re26, amalgamation was explained as the state of two companies being so joined as to form a third, or of one company 25 1990 Supp SCC 675 26 1935 Ch 567 (CA) being absorbed into another [See: Religare Finvest Ltd. v. State (NCT of Delhi ]. 16.1. Notably, the Companies Act, 2013 contains no express definition of amalgamation. Instead, Sections 230 – 232 prescribe the procedure and spell out the legal effect, namely, the extinguishment of the transferor’s corporate identity and the vesting of its assets, rights, and obligations in the transferee. Thus, amalgamation – ordinarily effected through a scheme of compromise or arrangement sanctioned by the Court or Tribunal – is founded on agreement between shareholders and creditors, but its legal effect is statutory: upon sanction, all assets, rights, and liabilities of the transferor vest in the transferee by operation of law. In other words, amalgamation is more than a mere contractual transfer; it is a statutory process of substitution. 16.2. In Commissioner of Income Tax v. Mahagun Realtors (P) Ltd , this Court explained that amalgamation is unlike liquidation. Though the corporate shell of the transferor disappears, its business continues within the transferee, and courts therefore identify the successor-in-interest upon whom rights and obligations devolve. The relevant paragraphs are extracted below for proper understanding: “19. Amalgamation, thus, is unlike the winding up of a corporate entity. In the case of amalgamation, the outer shell of the corporate entity is undoubtedly destroyed; it ceases to exist. Yet, in every other sense of the term, the corporate venture continues — enfolded within the new or the existing transferee entity. In other words, the business and the adventure lives on but within a new corporate residence i.e. the transferee company. It is, therefore, essential to look beyond the mere concept of destruction of corporate entity which brings to an end or terminates any assessment proceedings. There are analogies in civil law and procedure where upon amalgamation, the cause of action or the complaint does not per se cease — depending of course, upon the structure and objective of enactment. Broadly, the quest of legal systems and courts has been to locate if a successor or representative exists in relation to the particular cause or action, upon whom the assets might have devolved or upon whom the liability in the event it is adjudicated, would fall.” “21. In Saraswati Syndicate [Saraswati Industrial Syndicate Ltd. v. CIT, 1990 Supp SCC 675], the facts were that after amalgamation, the transferee company claimed exemption from tax, of a sum which had been allowed as a trading liability, on accrual basis, in the hands of the transferee company which had ceased to exist. The Revenue disallowed that claim; that view was upheld. This Court stated that : (SCC pp. 679-81, paras 5-6) “5. … In amalgamation two or more companies are fused into one by merger or by taking over by another. Reconstruction or “amalgamation” has no precise legal meaning. The amalgamation is a blending of two or more existing undertakings into one undertaking, the shareholders of each blending company become substantially the shareholders in the company which is to carry on the blended undertakings. There may be amalgamation either by the transfer of two or more undertakings to a new company, or by the transfer of one or more undertakings to an existing company. Strictly “amalgamation” does not cover the mere acquisition by a company of the share capital of other company which remains in existence and continues its undertaking but the context in which the term is used may show that it is intended to include such an acquisition. See: Halsbury’s Laws of England, 4th Edn., Vol. 7, para 1539. Two companies may join to form a new company, but there may be absorption or blending of one by the other, both amount to amalgamation. When two companies are merged and are so joined, as to form a third company or one is absorbed into one or blended with another, the amalgamating company loses its entity. 6. In General Radio & Appliances Co. Ltd. v. M.A. Khader [General Radio & Appliances Co. Ltd. v. M.A. Khader, (1986) 2 SCC 656], the effect of amalgamation of two companies was considered. M/s General Radio and Appliances Co. Ltd. was tenant of a premises under an agreement providing that the tenant shall not sublet the premises or any portion thereof to anyone without the consent of the landlord. M/s General Radio and Appliances Co. Ltd. was amalgamated with M/s National Ekco Radio and Engineering Co. Ltd. under a scheme of amalgamation and order of the High Court under Sections 391 and 394 of Companies Act, 1956. Under the amalgamation scheme, the transferee company, namely, M/s National Ekco Radio and Engineering company had acquired all the interest, rights including leasehold and tenancy rights of the transferor company and the same vested in the transferee company. Pursuant to the amalgamation scheme the transferee company continued to occupy the premises which had been let out to the transferor company. The landlord initiated proceedings for the eviction on the ground of unauthorised subletting of the premises by the transferor company. The transferee company set up a defence that by amalgamation of the two companies under the order of the Bombay High Court all interest, rights including leasehold and tenancy rights held by the transferor company blended with the transferee company, therefore the transferee company was legal tenant and there was no question of any subletting. The Rent Controller and the High Court both decreed the landlord’s suit. This Court in appeal held that under the order of amalgamation made on the basis of the High Court’s order, the transferor company ceased to be in existence in the eye of the law and it effaced itself for all practical purposes. This decision lays down that after the amalgamation of the two companies the transferor company ceased to have any entity and the amalgamated company acquired a new status and it was not possible to treat the two companies as partners or jointly liable in respect of their liabilities and assets. In the instant case the Tribunal rightly held that the appellant company was a separate entity and a different assessee, therefore, the allowance made to Indian Sugar company, which was a different assessee, could not be held to be the income of the amalgamated company for purposes of Section 41(1) of the Act. The High Court was in error in holding that even after amalgamation of two companies, the transferor company did not become non-existent instead it continued its entity in a blended form with the appellant company. The High Court’s view that on amalgamation there is no complete destruction of corporate personality of the transferor company instead there is a blending of the corporate personality of one with another corporate body and it continues as such with the other is not sustainable in law. The true effect and character of the amalgamation largely depends on the terms of the scheme of merger. But there cannot be any doubt that when two companies amalgamate and merge into one the transferor company loses its entity as it ceases to have its business. However, their respective rights or liabilities are determined under the scheme of amalgamation but the corporate entity of the transferor company ceases to exist with effect from the date the amalgamation is made effective.” “30. In Bhagwan Dass Chopra v. United Bank of India [Bhagwan Dass Chopra v. United Bank of India, 1987 Supp SCC 536] it was held that in every case of transfer, devolution, merger or scheme of amalgamation, in which rights and liabilities of one company are transferred or devolved upon another company, the successor-in-interest becomes entitled to the liabilities and assets of the transferor company subject to the terms and conditions of contract of transfer or merger, as it were. Later, in Singer India Ltd. v. Chander Mohan Chadha [(2004) 7 SCC 1] this Court held as follows: (SCC p. 10, para 8) “8. … there can be no doubt that when two companies amalgamate and merge into one, the transferor company loses its identity as it ceases to have its business. However, their respective rights and liabilities are determined under the scheme of amalgamation, but the corporate identity of the transferor company ceases to exist with effect from the date the amalgamation is made effective.” 16.3. At this juncture, it must be noted that the High Court relied on Hindustan Lever, which, though not in the context of taxation, observed that amalgamation bears all the “trappings of a sale”. We shall, however, proceed to analyse Section 28 in the context of amalgamation since the test under Section 28 is somewhat different: it does not hinge on whether there is a sale, transfer, or exchange in the strict legal sense, as already discussed. At the same time, it cannot be overlooked that this Court in Grace Collis, overruling Vania Silk Mills, held that amalgamation, for the purposes of capital gains under Section 45, does involve a “transfer” of shares. Even if that ratio was rendered in the context of capital gains, once this Court has recognized that amalgamation entails a transfer, that conclusion cannot be ignored while considering the ambit of Section 28. 16.4. The real question, therefore, is whether an amalgamation – though, in company law, it operates as a statutory substitution of rights – nonetheless gives rise to taxable business profits under Section 28 of the I.T. Act. That enquiry is not concluded merely by characterising the event as a “transfer”. It requires a deeper examination of whether the substitution of shares results in real commercial profits, having accrued or arisen in the course of business, so as to be chargeable as business income under Section 28. Whether there is receipt or accrual of income upon amalgamation 17. In the context of amalgamation, what transpires is essentially a statutory substitution of one form of holding for another. The shareholder’s interest in the transferor company is replaced by a corresponding interest in the transferee company. For the purposes of Section 28, the first test is whether such substitution constitutes either a receipt or an accrual of income. 17.1. It is settled law that income yielding business profits may be realised not only in money but also in kind. Thus, where an assessee receives shares of the amalgamated company in place of its shares held as trading stock, there is, in form, a receipt of consideration in kind. Though such amalgamations receive the sanction of the Court/Tribunal to be effectuated, they are preceded by decisions taken in meetings of shareholders. In such meetings, valuation reports are placed before the shareholders, and for the amalgamation to be approved, 90% of the shareholders must vote in favour of the amalgamation. The report contains details of the share exchange ratio. Though the value of each share is determined at that stage, it is not tradable, as no right is vested at that point. Ordinarily, such receipt arises only upon the actual allotment of shares, since until that point no asset is placed in the hands of the assessee. It cannot, however, be ruled out that in certain cases, the terms of the sanctioned scheme may themselves create, from an earlier date, a vested and imminent enforceable right to allotment; in such situations, one may speak of “accrual”. The general position, nevertheless, is that what the law recognises in amalgamation is the receipt of shares in substitution of trading assets. Commercial realisability 18. Coming to the next test, it must be underscored that mere receipt of shares does not suffice to attract Section 28; commercial realisability is also required when income is received in kind. Moreover, in Kanchanganga Sea Foods Ltd v. Commissioner of Income Tax , it was observed that the recipient of income must have control over the income received, emphasising that mere receipt in kind is not enough. 18.1. It must also be clarified at this stage that amalgamation, in strict legal terms, does not amount to an “exchange.” In Rasiklal Maneklal, this Court held that the allotment of shares in the amalgamated company under a court- sanctioned scheme is not the result of a bilateral bargain between two parties, i.e., there is no mutual or reciprocal transfer of ownership. Since the amalgamating company itself ceases to exist, the element of mutual transfer that characterises an exchange is absent. Therefore, amalgamation, as held in other decisions, is to be understood as a statutory substitution of holdings, and not as an “exchange” in the legal sense. 18.2. Thus, the jurisprudence discloses three related strands: first, cases such as Orient Trading, relying on English decision (Royal Insurance Co. Ltd. v. Stephen), which will be discussed later, emphasise that receipt of an asset of definite money’s worth in substitution for another may amount to commercial realisation attracting Section 28; second, the decision in Rasiklal Maneklal, which clarifies that allotment on amalgamation is not an “exchange”, along with other decisions holding it to be a statutory substitution; and third, the ruling in Grace Collis, which makes it clear that, notwithstanding its statutory character, amalgamation does involve a “transfer” within the meaning of the Income-tax Act. 18.3. Reconciling these strands, the true test under Section 28, as already noted, is not the legal label of “exchange” or “transfer”, but whether the assessee, in consequence of the amalgamation and thereby of its business, has obtained a profit that is real and presently realisable. The well-known real-income principle, as emphasised in E.D. Sassoon and Shoorji Vallabhdas, must be applied. Therefore, the enquiry for the Court is whether, as a result of the amalgamation, the assessee has in fact realised a profit in the commercial sense. This assessment may turn on whether: (A) The old stock-in-trade has ceased to exist in the assessee’s books; (B) The shares received in the amalgamated company possess a definite and ascertainable value; and (C) The assessee, immediately upon allotment, is in a position to dispose of such shares and realise money. 18.4. If these conditions are satisfied, the substitution bears the character of a commercial realisation and the profit may be taxed under Section 28. Where, however, the allotment of shares is merely a statutory substitution mandated by the scheme of amalgamation, without yielding an immediately realisable benefit, no income can be said to accrue or be received at that stage, and taxability arises only upon the eventual sale of the shares. For instance: (A) If a shareholder of Company A receives shares of Company B pursuant to a court-sanctioned amalgamation, but such shares are subject to a statutory lockin period during which they cannot be sold in the market, the allotment cannot be equated with a commercial realisation. It represents only a replacement of one form of holding by another, without any immediate gain capable of monetisation. (B) Similarly, where the amalgamated company is closely held and its shares are not quoted on any recognized stock exchange, the mere allotment of such shares does not generate a realisable profit, since no open market exists to ascribe a fair disposal value. 18.5. These illustrations, which are not exhaustive, underline that unless the assessee is, by virtue of the substitution, placed in possession of an asset which is freely tradable and of an ascertainable market value, the principle of real income bars taxation at the stage of amalgamation. Thus, the substitution of shares upon amalgamation does not, by itself, give rise to taxable income under Section 28. What must be established is that the transaction has the attributes of a commercial realisation resulting in a real and presently disposable advantage. Where this test is satisfied, taxability may arise at the stage of substitution. Otherwise, the accrual or receipt of income is deferred until actual sale. 18.6. In other words, as noted earlier, the governing test under Section 28 is not the presence of a sale, exchange, or extinguishment of rights in the technical sense, but whether the assessee has, in consequence of business operations, come into possession of a real and presently realisable commercial benefit. This may take the form of money directly received, or assets in kind capable of being immediately disposed of for money’s worth. The shares, therefore, must be readily available for trading to be treated as stock-in-trade. 19. We may now refer to the judgment in Orient Trading. Although it dealt with an exchange, the observations therein as to the nature of “realisation” are of general application. The Court, relying on English decision (Royal Insurance Co. Ltd. v. Stephen), explained that a realisation takes place when the old investment ceases to figure in the affairs of the company and its worth – whether by way of profit or loss – can be determined with finality in monetary terms. At that point, the old investment is regarded as closed and a new investment is treated as having commenced. The emphasis is that realisation is not merely a matter of accounting entries, but arises where the fo

January 10, 2026

by Sekar Reporter · Published January 10, 2026

2026 INSC 46 REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 152 OF 2026 [Arising out of S.L.P. (C) No. 2028 of 2021] M/S JINDAL EQUIPMENT LEASING CONSULTANCY SERVICES LTD … APPELLANT(S) VERSUS COMMISSIONER OF INCOME TAX DELHI – II, NEW DELHI … RESPONDENT(S) WITH CIVIL APPEAL NO. 153 OF 2026 [Arising out of S.L.P. (C) No. 2190 of 2021] M/S NALWA INVESTMENT LTD. … APPELLANT(S) VERSUS COMMISSIONER OF INCOME TAX – V NEW DELHI … RESPONDENT(S) Signature Not VerifiedDigitally signed by WITH NITIN TALREJA Date: 2026.01.09 16:59:31 IST Reason: CIVIL APPEAL NO. 154 OF 2026 [Arising out of S.L.P. (C) No. 2188 of 2021] M/S ABHINANDAN TRADEX LTD. (EARLIER KNOWN AS M/S ABHINANDAN INVESTMENT LTD) … APPELLANT(S) VERSUS COMMISSIONER OF INCOME TAX DELHI – I, NEW DELHI … RESPONDENT(S) WITH CIVIL APPEAL NO. 155 OF 2026 [Arising out of S.L.P. (C) No. 2197 of 2021] M/S MANSAROVER TRADEX LTD (EARLIER KNOWN AS M/S MANSAROVER INVESTMENT LTD) … APPELLANT(S) VERSUS COMMISSIONER OF INCOME TAX DELHI – II, NEW DELHI … RESPONDENT(S) J U D G M E N T R. MAHADEVAN, J. Leave granted. 2. The present appeals arise out of a common judgment and final order dated 07.08.2020 passed by the High Court of Delhi in ITA Nos. 935, 822, 853, and 961 of 2005, pertaining to the Assessment Year 1997-98. By the impugned judgment, the High Court remanded the matters to the Income Tax Appellate Tribunal for fresh adjudication on the question of whether the shares held in the amalgamating company constituted stock-in-trade or capital assets, upon observing that, if the shares were, in fact, held as stock-in-trade, the transaction would fall outside the purview of Section 47(vii) of the Income Tax Act, 1961 , and its taxability would consequently be governed by Section 28 under the head “profits and gains of business or profession”. FACTUAL MATRIX 3. The facts, which are common to all these appeals, may be briefly stated as under: 3.1. The appellants are investment companies of the Jindal Group. The shares of the operating companies, namely Jindal Ferro Alloys Limited (JFAL) and Jindal Strips Limited (JSL), were held as part of the promoter holding, representing controlling interest. The appellants had also furnished non-disposal undertakings to the financial institutions / lenders who had advanced loans to the operating companies. These shares were reflected as investments in the balance sheets of the appellants. 3.2. During the previous year relevant to the assessment year 1997-98, pursuant to a scheme of amalgamation approved by orders dated 19.09.1996 and 03.10.1996 of the High Courts of Andhra Pradesh and Punjab & Haryana respectively, under Sections 391 – 394 of the Companies Act, 2013, JFAL was amalgamated with JSL. As per the sanctioned scheme, the appointed date of amalgamation was 01.04.1995, and the orders sanctioning the amalgamation were filed with the Registrar of Companies on 22.11.1996 (the effective date). Under the scheme of amalgamation, the shareholders of JFAL were allotted 45 shares of JSL for every 100 shares of JFAL held by them. Accordingly, the appellants were allotted shares of JSL in lieu of the shares of JFAL. 3.3. The appellants, in their returns of income filed for the assessment year in question, claimed exemption under Section 47(vii) of the I.T. Act in respect of the receipt of JSL shares in lieu of JFAL shares, treating the same to be capital assets. However, in the assessment completed under Section 143(3) vide order dated 29.02.2000, the Assessing Officer treated the shares of JFAL as stock-intrade, denied the exemption under Section 47(vii), and brought to tax the value of JSL shares as business income, computed with reference to their market value. The said order was upheld by the Commissioner of Income Tax (Appeals). 3.4. On further appeals, the Tribunal vide order dated 17.02.2005, allowed the assessees’ appeals by observing that it was unnecessary to decide whether the shares were held as stock-in-trade or capital assets since no profit accrues unless the shares held by the appellants are either sold or transferred for consideration, irrespective of the nature of holding. It was further observed that there was admittedly no sale of shares and, therefore, the only question for consideration was whether the allotment of JSL shares in lieu of JFAL shares under the scheme of amalgamation amounted to a “transfer”. Following the decision of this Court in Commissioner of Income Tax, Bombay v. Rasiklal Maneklal (HUF) and others , the Tribunal concluded that there was no transfer of shares and, consequently, no taxable profit could be said to have accrued to the appellants. 3.5. The Revenue challenged the Tribunal’s decision before the High Court, raising the following substantial questions of law: “1. Whether shares received by the assesses on amalgamation are entitled to the benefit of section 47(vii) without the Tribunal concluding that the said shares were held by the assesses as capital assets? 2. Whether the benefit of Section 47(vii) is limited to determination of capital gains and only in regard to capital assets? 3. Whether income would accrue to the assesses on shares received by amalgamations and will be taxable in view of non-applicability of Section 47(vii)?” 3.6. After hearing both sides, the High Court, by the impugned judgment, disposed of the appeals in favour of the Revenue and against the assessees. In doing so, it held that the Tribunal had erred in placing reliance on Rasiklal Maneklal while failing to consider the later and binding decision of this Court in Commissioner of Income-tax, Cochin v. Grace Collis and others . The High Court observed that where the shares of the amalgamating company were held as capital assets, the receipt of shares of the amalgamated company would constitute a “transfer” within the meaning of Section 2(47) of the I.T. Act, though such transfer would be exempt under Section 47(vii). However, in the alternative scenario where the shares were held as stock-in-trade, the High Court held that upon the assessees receiving shares of the amalgamated company in lieu of those held in the amalgamating company, the assesses had, in effect, realised the value of their trading assets, and the difference in value would be taxable as business profit under Section 28. In reaching this conclusion, the High Court relied upon the decision of this Court in Orient Trading Company Ltd. v. Commissioner of Income Tax, Calcutta . Accordingly, the matter was remanded to the Tribunal for determination of the nature of the appellants’ holding of JFAL shares, i.e., whether such holdings constituted capital assets or stock-in-trade. 3.7. Aggrieved thereby, the appellants have preferred the present appeals before this Court. CONTENTIONS OF THE PARTIES 4. Mr. Ajay Vohra, learned Senior Counsel for the appellants, primarily submitted that the impugned judgment of the High Court is liable to be set aside as it travels beyond the jurisdiction conferred under Section 260A of the I.T. Act. It was pointed out that the appeals before the High Court were admitted on a limited question, namely, whether the Tribunal was correct in holding that where the assessees get shares of the amalgamated company in lieu of shares of the amalgamating company, no transfer takes place. However, while disposing of the appeals, the High Court went further and proceeded to examine the taxability of such receipt, treating it as stock-in-trade or a capital asset. Since that issue was neither specifically raised nor framed at the time of admission, the adjudication was impermissible and contrary to the framework laid down by this Court in Shiv Raj Gupta v. Commissioner of Income-Tax, Delhi . 4.1. It was further submitted that the receipt of shares of the amalgamated company does not amount to either a “sale” or an “exchange”. It was urged that upon amalgamation, the amalgamating company stands dissolved and consequently, its shares cease to exist. Therefore, when shareholders receive shares of the amalgamated company in lieu of the extinguished shares of the amalgamating company, there is no subsisting property capable of being exchanged and accordingly, no taxable business income arises from such transaction. Moreover, the definition of “transfer” under Section 2(47) is relevant only for the purpose of computing capital gains and has no application to stock-in-trade. Only the exploitation or realisation of stock-in-trade gives rise to business income, which is to be computed strictly in accordance with Section 28 of the I.T. Act. 4.2. Reliance was placed on the decision of this Court in Vania Silk Mills P. Ltd v. Commissioner of Income-Tax , wherein it was held that the mere destruction or loss of an asset does not constitute a “transfer”. The term “transfer” in Section 45 connotes that there must be something transferred to someone – some property, right, or interest passing from one person to another. When an asset ceases to exist, there can be no such transfer. Further reliance was placed on Commissioner of Income-Tax, Andhra Pradesh v. Motors & General Stores (P) Ltd wherein, it was held that to constitute an “exchange”, there must be a subsisting property capable of being transferred or exchanged. Reference was also made to Rasiklal Maneklal, in which, it was held that the receipt of shares of an amalgamated company in lieu of shares held in the amalgamating company under an approved scheme of amalgamation, does not amount to an “exchange”. Consequently, it was submitted that the allotment of shares in the amalgamated company, in substitution for the shares held in the amalgamating company, does not amount to a realisation of stock-in-trade by way of sale or exchange, so as to give rise to taxable business income. 4.3. The learned Senior Counsel submitted that the authorities relied upon by the High Court were distinguishable from the present case. In Orient Trading, the assessee had exchanged shares of one existing company for shares of another; that case did not involve amalgamation or dissolution of the company whose shares were exchanged. Likewise, the English decision in Royal Insurance Co. Ltd v. Stephen10 dealt with realisation of investments, not stockin-trade by an insurance company assessed under a special statutory regime, and is inapplicable under Indian law. Similarly, Hindustan Lever and another v. State of Maharashtra and another concerned the legislative competence to levy stamp duty on an order of amalgamation. Observations therein as to the transfer of property between amalgamating and amalgamated companies were made in a wholly different context and cannot govern the computation of business income. 4.4. On the concept of accrual of business income, it was urged that taxable income arises only when a debt in praesenti is created in favour of the assessee, though payable in future, as laid down in E.D. Sassoon & Co. Ltd v. Commissioner of Income-Tax . Hypothetical or illusory benefits cannot constitute taxable income, as held in Commissioner of Income Tax, Bombay City I v. Shoorji Vallabhdas & Co. , State Bank of Travancore v. Commissioner of Income-Tax, Kerala , Godhra Electricity Co. Ltd v. Commissioner of Income-Tax and Commissioner of Income-Tax v. Excel Industries Ltd. and another . Even if the fair market value of the shares allotted in the amalgamated company on the date of allotment exceeds the book value of the shares in the amalgamating company, such appreciation is purely notional. Real income would arise only upon the actual sale of the allotted shares, and until such realisation no business income accrues. 4.5. It was also emphasized that the scheme of the Act itself supports this view. Wherever the legislature intends to tax notional or deemed income, it has enacted specific provisions, for example, Section 28(iv) or valuation rules such as Rule 11UAB. Further, Section 49(1)(iii)(e) specifically provides that for capital gains, the cost of shares in the amalgamated company shall be deemed to be the cost of shares in the amalgamating company. By parity of reasoning, in the case of stock-in-trade also, the original cost must be preserved and any profit should be recognized only at the time of realisation. 4.6. It was finally submitted that the receipt of shares of the amalgamated company in lieu of shares held in the amalgamating company, even when such shares are held as stock-in-trade, does not constitute a “sale” or “exchange” giving rise to taxable business income. Any benefit is, at best, hypothetical until the shares are actually sold. The impugned judgment of the High Court, which disregards settled principles and binding precedents, is erroneous and liable to be set aside. 5. On the other hand, the learned Additional Solicitor General appearing for the respondent(s) – Department opposed the present appeals and supported the impugned judgment of the High Court. It was submitted that if shares are held as stock-in-trade, the profit accruing from the receipt of shares of the amalgamated company in lieu of those of the amalgamating company would be taxable under the head “profits and gains of business or profession”. For the purpose of analyzing this issue, it is assumed that the assessees held the shares of the amalgamating company as stock-in-trade prior to the amalgamation, though this issue remains to be decided by the Tribunal on remand. 5.1. It was submitted that the Tribunal fell in error in holding that no profit accrues unless the shares held by an assessee are either sold or transferred otherwise for consideration, irrespective of the nature of holding. The Tribunal did not refer to any sub-section of Section 28 of the I.T. Act to support its conclusion that a sale or transfer alone can give rise to “profits and gains of business or profession”. It failed to engage with Section 28 entirely, relying instead solely on Rasiklal Maneklal. That decision, it was pointed out, is relevant only to the taxation of capital gains under the Income- tax Act, 1922, and has been clarified to be inapplicable by this Court in Grace Collis. Since the issue of Section 45 is not under contest in these proceedings, Rasiklal Maneklal has no further bearing. 5.2. It was submitted that the High Court rightly held that the spotlight should not entirely be on the concept of “transfer” but instead on whether there is business income in the hands of the assessee, and further that income is recognised when it is earned or realized, irrespective of whether it is in cash or kind”. This finding demonstrates that transfer is not a necessary precondition for taxation of business income under Section 28. 5.3. According to the learned Senior Counsel, the appellants themselves admitted in their written submissions that the definition of “transfer” under Section 2(47) has no application to the computation of business income. To this extent, the appellants do not dispute the High Court’s finding. Yet, the appellants continue to contend that realisation of stock-in-trade giving rise to taxable business income can only be through sale or exchange. Such a submission has no basis in light of Section 28. 5.4. It was further submitted that the plain language of Section 28 makes it clear that profits and gains of business or profession are chargeable irrespective of whether they arise by way of sale, exchange, or otherwise. Unlike Section 45, which specifically requires a transfer of a capital asset, Section 28 is agnostic to the manner in which income accrues. In particular, Sections 28(i) and 28(iv) bring out this position, covering profits, gains, and benefits arising from business activities, whether convertible into money or not. 5.5. Reliance was placed on Orient Trading, where this Court held that the exchange of securities by a share dealer amounted to realisation of stock-intrade, resulting in taxable profits. The said decision directly answers the appellants’ contention as it involved stock-in-trade and upheld that realisation may occur upon exchange, and not merely upon sale. 5.6. Applying the above legal principles, the learned Senior Counsel submitted that the High Court was correct in concluding that upon amalgamation, the shares of the amalgamating company cease to exist and their value stands realised either in cash (for dissenting shareholders) or in shares of the amalgamated company (for approving shareholders). Such realisation, when resulting in profit, is taxable under Section 28. 5.7. The learned Senior Counsel submitted that the appellants’ reliance on cases such as E.D. Sassoon & Co. Ltd and Motors & General Stores (P) Ltd is misplaced. E.D. Sassoon, in fact, supports the Revenue’s case by holding that income accrues when the right to receive is acquired, even if actual receipt is later. Motors & General Stores has already been distinguished in Orient Trading as being confined to the meaning of “sale” in Section 10(2)(vii) of the 1922 Act, and is therefore inapplicable. Similarly, Rasiklal Maneklal and Vania Silk Mills pertain to capital gains and transfer under Section 45, which the appellants themselves concede, have no bearing on the computation of business income. 5.8. It was further submitted that the levy in the present case is not on hypothetical income. As explained in Excel Industries, income accrues when it becomes due and when there exists a corresponding liability on the other party. Here, by virtue of the amalgamation scheme sanctioned by the Court, there was a corresponding liability on the amalgamated company to issue shares (or pay cash to dissenters) in exchange for the extinguished shares of the amalgamating company. This satisfies the test of real income under Excel Industries. 5.9. Even assuming, without conceding, that the Tribunal was correct in requiring a “sale” or “transfer”, it was argued that a scheme of amalgamation itself has “all the trappings of a sale”, as held in Hindustan Lever. Thus, even on the appellants’ theory, the taxable event occurred. 5.10. Finally, on the appellants’ contention regarding valuation of shares, the learned Senior Counsel submitted that this issue was considered and rejected by the CIT(A) with cogent reasoning, and that the Tribunal may examine this factual issue afresh on remand, if necessary. That issue, however, need not detain this Court, which is concerned only with the legal question. 5.11. Accordingly, the learned Senior Counsel submitted that the High Court’s reasoning is sound, the Tribunal’s judgment is unsustainable, and the present appeals deserve to be dismissed. ANALYSIS AND FINDINGS 6. We have heard learned counsel appearing for the parties and perused the materials available on record. 7. By order dated 10.02.2021, this Court stayed the effect and operation of the impugned judgment and order under challenge. 8. Apparently, the appellants were shareholders of JFAL. Pursuant to the orders of the High Courts of Andhra Pradesh and Punjab and Haryana dated 19.09.1996 and 03.10.1996, JFAL merged with JSL, a widely held public company. Upon the amalgamation become effective, JFAL ceased to exist as a legal entity. In terms of the share exchange ratio approved under the scheme, shareholders were allotted 45 shares of JSL against 100 shares of JFAL. 8.1. During the relevant assessment year, the appellants claimed exemption under Section 47(vii) of the I.T. Act in respect of the receipt of JSL shares, contending that the shares of JFAL were held as capital assets. The Assessing Officer, however, denied exemption, holding that the shares of JFAL constituted stock-in-trade in the hands of the appellants. He accordingly taxed the difference between the value of the JSL shares (as on the appointed date) and the book value of JFAL shares. The CIT(A) upheld this view, dismissing the appeals on the finding that the appellants’ acquisition of shares was an adventure in the nature of trade, attracting taxation under Section 28 of the I.T. Act. Thus, there were concurrent findings that the assessees belonging to the same group which controlled JFAL, engaged in a scheme for profit-making by exchanging their stock-in-trade holdings in JFAL for shares of JSL. 8.2. On further appeals, the Tribunal, by order dated 17.02.2005, allowed the assessees’ claims. It declined to decide the factual question whether the JFAL shares were held as capital assets or as stock-in-trade, holding instead that no profit accrues unless the shares are either sold or transferred for consideration, irrespective of the nature of holding. 8.3. In the Revenue’s appeals, the High Court by the impugned judgment, set aside the Tribunal’s order and remitted the matter for fresh consideration. The High Court returned two findings: first, that if shares are held as capital assets, an amalgamation is indeed a transfer within the meaning of Section 2(47) of the I.T. Act, though exempt under Section 47(vii). The assessees no longer dispute this finding before this Court. Second, the High Court held that if the shares are held as stock-in-trade, the profit arising to the assessees from the receipt of JSL shares in lieu of JFAL shares would be taxable as “profits and gains of business or profession” under Section 28. It is the second finding, which has necessitated the present appeals before this Court. 9. At the outset, the learned Senior Counsel appearing for the appellants raised a preliminary objection that the High Court had transgressed its jurisdiction in remitting the matter to the Tribunal with an observation that, if the shares were stock-in-trade, the taxability would arise under Section 28 of the I.T. Act. It was urged that such an issue was neither expressly framed as a substantial question of law by the High Court nor raised by the Revenue in its appeals. Reliance was placed on Shiv Raj Gupta, where this Court held that the High Court cannot decide a new question of law without formally framing it under Section 260A (4) and without affording the parties an opportunity to meet that case. The following paragraphs are apposite in this context: “18. It can be seen that the substantial question of law that was raised by the High Court did not contain any question as to whether the non-compete fee could be taxed under any provision other than Section 28(ii)(a) of the Income Tax Act, 1961. Without giving an opportunity to the parties followed by reasons for framing any other substantial question of law as to the taxability of such amount as a capital receipt in the hands of the assessee, the High Court answered the substantial question of law raised as follows: (Shiv Raj Gupta case [CIT v. Shiv Raj Gupta, 2014 SCC OnLine Del 7305: (2015) 372 ITR 337], SCC OnLine Del paras 63 & 65) “63. In view of the aforesaid discussion, we deem it appropriate and proper to treat Rs 6.60 crores as consideration paid for sale of shares, rather than a payment under Section 28(ii)(a) of the Act. … … 65. The substantial question of law is accordingly answered in favour of the appellant Revenue and against the respondent-assessee but holding that Rs 6.60 crores was taxable as capital gains in the hands of the respondent-assessee being a part of the full value sale consideration paid for transfer of shares. The appellant Revenue will be entitled to costs as per the Delhi High Court Rules.” Clearly, without any recorded reasons and without framing any substantial question of law on whether the said amount could be taxed under any other provision of the Income Tax Act, the High Court went ahead and held that the amount of INR 6.6 crores received by the assessee was received as part of the full value of the sale consideration paid for transfer of shares — and not for handing over management and control of CDBL and is consequently not taxable under Section 28(ii)(a) of the Income Tax Act. Nor is it exempt as a capital receipt being non-compete fee, as it is taxable as a capital gain in the hands of the respondent-assessee as part of the full value of the sale consideration paid for transfer of shares. This finding would clearly be in the teeth of Section 260-A (4), requiring the judgment to be set aside on this score.” 9.1. Undoubtedly, Section 260A envisages that an appeal to the High Court lies only where a substantial question of law arises. Sub-sections (3) and (4) mandate the formulation of such questions, while the proviso to sub-section (4) preserves the Court’s power, for recorded reasons, to entertain any other substantial question of law not earlier framed. For ease of reference, the said provision is reproduced as follows: “260-A. Appeal to High Court.—(1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal before the date of establishment of the National Tax Tribunal, if the High Court is satisfied that the case involves a substantial question of law. (2) The Principal Chief Commissioner or Chief Commissioner or the Principal Commissioner or Commissioner or an assessee aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub-section shall be— (a) filed within one hundred and twenty days from the date on which the order appealed against is received by the assessee or the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner; (b)…. (c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved. (2-A) The High Court may admit an appeal after the expiry of the period of one hundred and twenty days referred to in clause (a) of sub-section (2), if it is satisfied that there was sufficient cause for not filing the same within that period. (3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question. (4) The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question: Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question. (5) The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit. (6) The High Court may determine any issue which— (a) has not been determined by the Appellate Tribunal; or (b) has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to in sub-section (1). (7) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section.” 9.2. The scheme is consciously modelled on Section 100 of the Code of Civil Procedure, 1908, which similarly confines jurisdiction in second appeal to substantial questions of law. Both provisions embody the legislative policy of limiting higher appellate interference to questions of law, while at the same time, permitting the Court to deal with necessary or incidental questions that arise, provided reasons are recorded and parties are heard. In a recent judgment in R. Nagaraj (dead) through legal heirs and another v. Rajamani and others17, this Court held that although a separate issue need not be framed on every point, a finding on a disputed question, while deciding a connected issue, is sufficient. 17 2025 Livelaw SC 416 9.3. In the present case, the High Court did not specifically frame the question of law as to whether the substitution of shares was taxable under Section 28 of the I.T. Act. However, the said issue went to the very root of the matter, and the High Court was bound to consider it in view of the issue already framed by the Tribunal and the submissions advanced by both sides before the Tribunal as well as before the High Court. Such a question was incidental or collateral to the main issue, and the absence of a formal formulation would not vitiate the impugned judgment of the High Court. 9.4. Furthermore, the present case does not fall within the mischief noticed in Shiv Raj Gupta for the following reasons: • First, the Tribunal itself had framed the substantial issue as “whether any income accrues to the appellants on the event of substitution of shares of Jindal Ferro Alloys Ltd. by the shares of Jindal Strips Ltd. under the scheme of amalgamation approved by the High Court of Andhra Pradesh and High Court of Punjab & Haryana”. While answering this question in the negative, the Tribunal left open the determination of whether the shares were held as investments or as stock-in-trade. Once such a finding was recorded, the real question of law was not merely the applicability of Section 47, but more broadly the taxability of the amalgamation transaction under the Act. • Second, in appeal, the High Court framed the following substantial question of law: “Whether the Tribunal was correct in holding that where the assessee gets shares of the amalgamated company in lieu of shares of the amalgamating company, no transfer takes place?” This formulation was wide enough to cover not only the application of Section 47 but also the broader question of taxability of such substitution of shares under the Act. The High Court did not itself assess income under Section 28, but only clarified that if the shares were stock-in-trade, the exemption of Section 47 would not apply, and the matter required reconsideration by the Tribunal so as to determine whether the shares were held as stock-intrade or as capital assets, as without that determination the taxability or eligibility for exemption could not be ascertained. • Third, there was no violation of natural justice in the present case, unlike in Shiv Raj Gupta where an altogether new head of income was introduced without notice to the assessee. Here, the High Court expressly recorded the preliminary objections and submissions of the appellants with respect to Section 28 and dealt with them. Thus, the parties had full opportunity to address this aspect before remand. Merely because a specific substantial question of law was not framed, it cannot be concluded that prejudice was caused to the parties, if both parties had the opportunity to address the issues in dispute. 9.5. Reference may also be made to Mansarovar Commercial Pvt. Ltd v. Commissioner of Income-Tax , where a similar contention was raised based on Shiv Raj Gupta. This Court held that issues incidental or collateral, on which the parties have been fully heard, can be considered by the High Court even if not expressly framed as substantial questions of law, especially where they arise directly from the Tribunal’s findings. The following paragraphs from the said decision are pertinent in this regard: “45.13. As regards the reliance placed upon the decision of this Court in Shiv Raj Gupta v. CIT [Shiv Raj Gupta v. CIT, (2021) 11 SCC 58 : AIR 2020 SC 3556], by the learned Senior Counsel appearing on behalf of the appellants on non-framing of substantial question of law in terms of Section 260-A of the Act so far as the interest liability is concerned, it is submitted that the said decision shall not be applicable to the facts of the case at hand and more particularly in case of an interest which is automatic and mandatory. It is submitted that in the said case, the dispute was with respect to capital gains which by its very nature is a separate head of income and the issue relates to the very taxability. That therefore, failure to raise a question of taxability of capital gains in a particular case may tantamount to a failure in raising a substantial question of law in terms of Section 260-A of the Act. However, the same may not apply on interest as the interest is automatic and mandatory.” “85. As regards the submission on behalf of the assessees that no substantial question of law was framed on levy of interest, at the outset, it is required to be noted that both the parties made submissions on levy of interest elaborately which have been dealt with and considered by the High Court in light of the Constitution Bench decision of this Court in Anjum M.H. Ghaswala [CIT v. Anjum M.H. Ghaswala, (2002) 1 SCC 633] . Even otherwise, the said issue can be said to be incidental or collateral. Even otherwise, in view of the decision of this Court in Anjum M.H. Ghaswala [CIT v. Anjum M.H. Ghaswala, (2002) 1 SCC 633] holding that the levy of interest under Section 234-A is statutory interest and mandatory and automatic, thereafter the said issue cannot be said to be a question of law.” (Emphasis Supplied) 9.6. Accordingly, the High Court cannot be said to have exceeded its jurisdiction under Section 260A in making the impugned observation on Section 28 before remanding the matter. The preliminary contention of the appellants is, therefore, devoid of merit and stands rejected. 10. Now, another issue that arises for determination in these appeals is whether the High Court, while remanding the matter to the Tribunal to ascertain whether the shares of the amalgamating company were held as stock-in-trade or as capital assets, was justified in recording a finding that, if such shares were held as stock-in-trade, the allotment of shares of the amalgamated company pursuant to a court-sanctioned scheme of amalgamation would give rise to taxable business income in the hands of the appellants under Section 28 of the I.T. Act. 11. These appeals, therefore, raise a substantial question concerning the taxability of gains said to arise on amalgamation, where shares of the amalgamating company held by the assessees as stock-in-trade, stand substituted by shares of the amalgamated company. The core controversy is whether such substitution, in and of itself, constitutes a realisation giving rise to taxable business income under Section 28 and if so, the conditions under which such accrual or receipt can be said to arise in the commercial sense, or whether the incidence of taxation arises only upon the subsequent sale of the substituted shares. 12. Before proceeding further, it is apposite to refer to the statutory framework covering the issue involved in the present appeals. The relevant provisions of the I.T. Act are extracted below, for better appreciation: Section 2(1B) – Amalgamation “‘amalgamation’, in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that— (i) all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation; (ii) all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation; (iii) shareholders holding not less than [three-fourths] in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation, otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first-mentioned company.” Section 2(14) – Capital asset “capital asset” means – (a) property of any kind held by an assessee, whether or not connected with his business or profession, (b) … (c) … but does not include— (i) any stock-in-trade [other than the securities referred to in sub-clause (b)], consumable stores or raw materials held for the purposes of his business or profession. (j) …” Section 2(47) – Transfer “transfer”, in relation to a capital asset, includes, (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law …” Section 28 — Profits and gains of business or profession “The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”,— (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year; … (iv) the value of any benefit or perquisite arising from business or the exercise of a profession, whether— (a) convertible into money or not; or (b) in cash or in kind or partly in cash and partly in kind;] … (vi-a) the fair market value of inventory on the date on which it is converted into, or treated as, a capital asset determined in the prescribed manner; ….” Section 45(1) — Capital gains “Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, be chargeable to income-tax under the head “Capital gains”, and shall be deemed to be the income of the previous year in which the transfer took place.” Section 47 – Transactions not regarded as transfer “Nothing contained in section 45 shall apply to the following transfers: …. (vii) any transfer by a shareholder, in a scheme of amalgamation, of a capital asset being a share or shares held by him in the amalgamating company, if— (a) the transfer is made in consideration of the allotment to him of any share or shares in the amalgamated company except where the shareholder itself is the amalgamated company, and (b) the amalgamated company is an Indian company; ….” 12.1. The above provisions make it clear that the scope of taxability on amalgamation depends on the nature of the shares held. Section 2(14) excludes stock-in-trade from the definition of a capital asset, while Section 2(47) defines “transfer” only in relation to capital assets. Section 28 casts a wide net, taxing the “profits and gains of business or profession”, including benefits or perquisites arising from business, whether convertible into money or not, or in cash or kind. Section 45 imposes capital gains tax only on the transfer of a capital asset, subject to exceptions under Section 47, including the transfer of shares in a scheme of amalgamation. Section 47(vii) specifically exempts from capital gains tax any transfer by a shareholder of a capital asset being shares of the amalgamating company, in consideration of the allotment of shares in the amalgamated company, provided the amalgamated company is an Indian company. There is a difference between a charging provision and an exemption provision. A provision that enables the levy of tax on a particular transaction is a charging provision. Only a transaction that is covered by a charging provision is taxable. Only if the transaction is taxable can there be an exemption. Therefore, the transfer of shares arising out of an order of amalgamation, even if it is treated as a capital asset, is generally taxable but would be exempt from taxation only if both the requirements under Section 47 (vii) are satisfied. 13. On behalf of the appellants, it was contended that no taxable event arises at the stage of amalgamation. According to them, income can be said to arise only upon the actual realisation or sale of the substituted shares, and not at the point of their allotment in the amalgamated company. The scheme of the Act, it was submitted, proceeds on the foundational premise that only real income is taxable unless Parliament, by express words, enacts a contrary legal fiction. Illustratively, Section 28(via) expressly deems the fair market value of inventory converted into a capital asset to be taxable, even without the receipt of money. This demonstrates that where the legislature intends to tax notional accretions, it does so explicitly. In the absence of any analogous deeming provision in respect of amalgamations, Section 28 cannot be judicially expanded to cover hypothetical or unrealised gains. 14. Conversely, on behalf of the Revenue, it was submitted that Section 28 does not predicate the existence of a “transfer”, “sale” or “exchange”. What the provision taxes are the “profits and gains of business or profession”, which may be realised either in cash or in kind. Where stock-in-trade ceases to exist and is substituted by another commodity or asset of ascertainable value, profit accrues. According to the Revenue, the language of Section 28 is wide enough to encompass all benefits or advantages arising from business activity, irrespective of the form of realisation. Therefore, once the shares held as stock-in-trade in the amalgamating company ceases to exist and are replaced by shares of the amalgamated company of higher value, a business profit arises which is liable to be taxed under Section 28. Scope of Section 28 15. Before considering the rival submissions, it is necessary to delineate the scope of Section 28. The provision contemplates the chargeability of the “profits and gains of any business or profession” carried on by the assessees during the relevant previous year. What is material, therefore, is that there must be income arising from or in the course of business to be treated as profits or gains. Such profit must be ascertainable with reasonable definiteness at the relevant point of time, and the assessees must have either received it, or acquired a vested right to receive and commercially realise it, even if the receipt is in kind. It is not necessary for the benefit to be capable of being converted into money. Significantly, Section 28 does not prescribe any precondition as to the precise mode through which the profit must arise. The moment any income arises out of business or profession, the provision becomes applicable. It does not incorporate the definition of “transfer” under Section 2(47), unlike Section 45. It is sufficient if there is “income”, and the “transfer”, whether it is actual, material, or immaterial, is not relevant. The two provisions thus operate in distinct and independent fields. As already mentioned, the language of Section 28 – “the profits and gains of any business or profession” is deliberately wide, i.e., the charge itself is cast in wide terms. It is well settled that charging provisions, while construed strictly, are not to be read in an unduly narrow manner when the language of the provision itself is wide. 15.1. In Mazagaon Dock Ltd v. Commissioner of Income Tax and Excess Profits Tax , this Court held that the language of Section 42(2) of the 1922 Act, though strict in nature, could not be artificially restricted. Expressions such as “business’ and “profits derived” were held to be of wide import in fiscal statutes and must be construed broadly to give effect to the legislative intent. The Court rejected the narrow interpretation urged by the assessee and clarified that wide words used in charging provisions cannot be cut down merely to avoid unusual or harsh consequences. Similarly, in Ujagar Prints Etc. v. Union of India and others Etc. , the Court reiterated that wide statutory language must receive its full amplitude and cannot be artificially confined. Further, in Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company and others , this Court clarified that “strict interpretation” does not connote a literal or pedantic reading. Instead, legislative intent must be combined with the words of the statute to arrive at a meaning that is neither too narrow nor too broad. 15.2. Thus, business profits may accrue or be realised in diverse circumstances, even in the absence of a conventional sale, transfer, or exchange in the strict legal sense. To confine the operation of Section 28 to such modes would unduly restrict a provision that Parliament has intentionally couched in broad terms. Illustratively, waiver of a trading liability has been treated as taxable business income under Section 28, as held in Commissioner of Income Tax v. T.V. Sundaram Iyengar & Sons Ltd. Again, in Commissioner of Income Tax v. Meghalaya Steels Ltd , this Court noted that under Section 28, income from cash assistance, by whatever name called, received or receivable by any person against exports under any scheme of the Government of India, would be income chargeable to income tax under the head “Profits and gains of business or profession”. It was held that if cash assistance received or receivable against exports schemes is included as income under the head “Profits and gains of business or profession” subsidies which go to the reimbursement of cost in the production of goods of a particular business would also have to be included under the same head, and not under the head “Income from other sources”. Likewise, in Commissioner of Income Tax, Delhi v. Woodward Governor India P. Ltd , this Court held that foreign exchange fluctuations on trading items directly affect the profit and loss account, thereby forming part of the computation of business profits. Although that case concerned the deduction of fluctuation losses, its reasoning underscores that real income under Section 28 may accrue without any conventional “transfer”. 15.3. It therefore emerges that Section 28 is a comprehensive charging provision designed to bring within the tax net all real profits and gains arising in the course of business, whether convertible into money or received in money or in kind, and irrespective of whether such accrual or receipt of income is accompanied by a legal transfer in the strict sense. Amalgamation – Concept and Legal character 16. Amalgamation, in corporate law, signifies the statutory blending of two or more undertakings into one. It is distinct from winding up: while the transferor company ceases to exist as a separate corporate entity, its business, assets, and liabilities are absorbed into and continue within the transferee. As held in Saraswati Industrial Syndicate Ltd v. Commissioner of Income Tax25, the transferor company ceases to exist, and the transferee emerges with a blended corporate personality, inheriting all rights and liabilities. Stroud’s Judicial Dictionary of Words and Phrases (9th Edn.) describes amalgamation as the “welding or blending of two or more concerns into one”. Black’s Law Dictionary (11th Edn.) similarly defines it as the “act of combining or uniting; consolidation; amalgamation of two small companies to form a new corporation”. In Walker’s Settlement, In re26, amalgamation was explained as the state of two companies being so joined as to form a third, or of one company 25 1990 Supp SCC 675 26 1935 Ch 567 (CA) being absorbed into another [See: Religare Finvest Ltd. v. State (NCT of Delhi ]. 16.1. Notably, the Companies Act, 2013 contains no express definition of amalgamation. Instead, Sections 230 – 232 prescribe the procedure and spell out the legal effect, namely, the extinguishment of the transferor’s corporate identity and the vesting of its assets, rights, and obligations in the transferee. Thus, amalgamation – ordinarily effected through a scheme of compromise or arrangement sanctioned by the Court or Tribunal – is founded on agreement between shareholders and creditors, but its legal effect is statutory: upon sanction, all assets, rights, and liabilities of the transferor vest in the transferee by operation of law. In other words, amalgamation is more than a mere contractual transfer; it is a statutory process of substitution. 16.2. In Commissioner of Income Tax v. Mahagun Realtors (P) Ltd , this Court explained that amalgamation is unlike liquidation. Though the corporate shell of the transferor disappears, its business continues within the transferee, and courts therefore identify the successor-in-interest upon whom rights and obligations devolve. The relevant paragraphs are extracted below for proper understanding: “19. Amalgamation, thus, is unlike the winding up of a corporate entity. In the case of amalgamation, the outer shell of the corporate entity is undoubtedly destroyed; it ceases to exist. Yet, in every other sense of the term, the corporate venture continues — enfolded within the new or the existing transferee entity. In other words, the business and the adventure lives on but within a new corporate residence i.e. the transferee company. It is, therefore, essential to look beyond the mere concept of destruction of corporate entity which brings to an end or terminates any assessment proceedings. There are analogies in civil law and procedure where upon amalgamation, the cause of action or the complaint does not per se cease — depending of course, upon the structure and objective of enactment. Broadly, the quest of legal systems and courts has been to locate if a successor or representative exists in relation to the particular cause or action, upon whom the assets might have devolved or upon whom the liability in the event it is adjudicated, would fall.” “21. In Saraswati Syndicate [Saraswati Industrial Syndicate Ltd. v. CIT, 1990 Supp SCC 675], the facts were that after amalgamation, the transferee company claimed exemption from tax, of a sum which had been allowed as a trading liability, on accrual basis, in the hands of the transferee company which had ceased to exist. The Revenue disallowed that claim; that view was upheld. This Court stated that : (SCC pp. 679-81, paras 5-6) “5. … In amalgamation two or more companies are fused into one by merger or by taking over by another. Reconstruction or “amalgamation” has no precise legal meaning. The amalgamation is a blending of two or more existing undertakings into one undertaking, the shareholders of each blending company become substantially the shareholders in the company which is to carry on the blended undertakings. There may be amalgamation either by the transfer of two or more undertakings to a new company, or by the transfer of one or more undertakings to an existing company. Strictly “amalgamation” does not cover the mere acquisition by a company of the share capital of other company which remains in existence and continues its undertaking but the context in which the term is used may show that it is intended to include such an acquisition. See: Halsbury’s Laws of England, 4th Edn., Vol. 7, para 1539. Two companies may join to form a new company, but there may be absorption or blending of one by the other, both amount to amalgamation. When two companies are merged and are so joined, as to form a third company or one is absorbed into one or blended with another, the amalgamating company loses its entity. 6. In General Radio & Appliances Co. Ltd. v. M.A. Khader [General Radio & Appliances Co. Ltd. v. M.A. Khader, (1986) 2 SCC 656], the effect of amalgamation of two companies was considered. M/s General Radio and Appliances Co. Ltd. was tenant of a premises under an agreement providing that the tenant shall not sublet the premises or any portion thereof to anyone without the consent of the landlord. M/s General Radio and Appliances Co. Ltd. was amalgamated with M/s National Ekco Radio and Engineering Co. Ltd. under a scheme of amalgamation and order of the High Court under Sections 391 and 394 of Companies Act, 1956. Under the amalgamation scheme, the transferee company, namely, M/s National Ekco Radio and Engineering company had acquired all the interest, rights including leasehold and tenancy rights of the transferor company and the same vested in the transferee company. Pursuant to the amalgamation scheme the transferee company continued to occupy the premises which had been let out to the transferor company. The landlord initiated proceedings for the eviction on the ground of unauthorised subletting of the premises by the transferor company. The transferee company set up a defence that by amalgamation of the two companies under the order of the Bombay High Court all interest, rights including leasehold and tenancy rights held by the transferor company blended with the transferee company, therefore the transferee company was legal tenant and there was no question of any subletting. The Rent Controller and the High Court both decreed the landlord’s suit. This Court in appeal held that under the order of amalgamation made on the basis of the High Court’s order, the transferor company ceased to be in existence in the eye of the law and it effaced itself for all practical purposes. This decision lays down that after the amalgamation of the two companies the transferor company ceased to have any entity and the amalgamated company acquired a new status and it was not possible to treat the two companies as partners or jointly liable in respect of their liabilities and assets. In the instant case the Tribunal rightly held that the appellant company was a separate entity and a different assessee, therefore, the allowance made to Indian Sugar company, which was a different assessee, could not be held to be the income of the amalgamated company for purposes of Section 41(1) of the Act. The High Court was in error in holding that even after amalgamation of two companies, the transferor company did not become non-existent instead it continued its entity in a blended form with the appellant company. The High Court’s view that on amalgamation there is no complete destruction of corporate personality of the transferor company instead there is a blending of the corporate personality of one with another corporate body and it continues as such with the other is not sustainable in law. The true effect and character of the amalgamation largely depends on the terms of the scheme of merger. But there cannot be any doubt that when two companies amalgamate and merge into one the transferor company loses its entity as it ceases to have its business. However, their respective rights or liabilities are determined under the scheme of amalgamation but the corporate entity of the transferor company ceases to exist with effect from the date the amalgamation is made effective.” “30. In Bhagwan Dass Chopra v. United Bank of India [Bhagwan Dass Chopra v. United Bank of India, 1987 Supp SCC 536] it was held that in every case of transfer, devolution, merger or scheme of amalgamation, in which rights and liabilities of one company are transferred or devolved upon another company, the successor-in-interest becomes entitled to the liabilities and assets of the transferor company subject to the terms and conditions of contract of transfer or merger, as it were. Later, in Singer India Ltd. v. Chander Mohan Chadha [(2004) 7 SCC 1] this Court held as follows: (SCC p. 10, para 8) “8. … there can be no doubt that when two companies amalgamate and merge into one, the transferor company loses its identity as it ceases to have its business. However, their respective rights and liabilities are determined under the scheme of amalgamation, but the corporate identity of the transferor company ceases to exist with effect from the date the amalgamation is made effective.” 16.3. At this juncture, it must be noted that the High Court relied on Hindustan Lever, which, though not in the context of taxation, observed that amalgamation bears all the “trappings of a sale”. We shall, however, proceed to analyse Section 28 in the context of amalgamation since the test under Section 28 is somewhat different: it does not hinge on whether there is a sale, transfer, or exchange in the strict legal sense, as already discussed. At the same time, it cannot be overlooked that this Court in Grace Collis, overruling Vania Silk Mills, held that amalgamation, for the purposes of capital gains under Section 45, does involve a “transfer” of shares. Even if that ratio was rendered in the context of capital gains, once this Court has recognized that amalgamation entails a transfer, that conclusion cannot be ignored while considering the ambit of Section 28. 16.4. The real question, therefore, is whether an amalgamation – though, in company law, it operates as a statutory substitution of rights – nonetheless gives rise to taxable business profits under Section 28 of the I.T. Act. That enquiry is not concluded merely by characterising the event as a “transfer”. It requires a deeper examination of whether the substitution of shares results in real commercial profits, having accrued or arisen in the course of business, so as to be chargeable as business income under Section 28. Whether there is receipt or accrual of income upon amalgamation 17. In the context of amalgamation, what transpires is essentially a statutory substitution of one form of holding for another. The shareholder’s interest in the transferor company is replaced by a corresponding interest in the transferee company. For the purposes of Section 28, the first test is whether such substitution constitutes either a receipt or an accrual of income. 17.1. It is settled law that income yielding business profits may be realised not only in money but also in kind. Thus, where an assessee receives shares of the amalgamated company in place of its shares held as trading stock, there is, in form, a receipt of consideration in kind. Though such amalgamations receive the sanction of the Court/Tribunal to be effectuated, they are preceded by decisions taken in meetings of shareholders. In such meetings, valuation reports are placed before the shareholders, and for the amalgamation to be approved, 90% of the shareholders must vote in favour of the amalgamation. The report contains details of the share exchange ratio. Though the value of each share is determined at that stage, it is not tradable, as no right is vested at that point. Ordinarily, such receipt arises only upon the actual allotment of shares, since until that point no asset is placed in the hands of the assessee. It cannot, however, be ruled out that in certain cases, the terms of the sanctioned scheme may themselves create, from an earlier date, a vested and imminent enforceable right to allotment; in such situations, one may speak of “accrual”. The general position, nevertheless, is that what the law recognises in amalgamation is the receipt of shares in substitution of trading assets. Commercial realisability 18. Coming to the next test, it must be underscored that mere receipt of shares does not suffice to attract Section 28; commercial realisability is also required when income is received in kind. Moreover, in Kanchanganga Sea Foods Ltd v. Commissioner of Income Tax , it was observed that the recipient of income must have control over the income received, emphasising that mere receipt in kind is not enough. 18.1. It must also be clarified at this stage that amalgamation, in strict legal terms, does not amount to an “exchange.” In Rasiklal Maneklal, this Court held that the allotment of shares in the amalgamated company under a court- sanctioned scheme is not the result of a bilateral bargain between two parties, i.e., there is no mutual or reciprocal transfer of ownership. Since the amalgamating company itself ceases to exist, the element of mutual transfer that characterises an exchange is absent. Therefore, amalgamation, as held in other decisions, is to be understood as a statutory substitution of holdings, and not as an “exchange” in the legal sense. 18.2. Thus, the jurisprudence discloses three related strands: first, cases such as Orient Trading, relying on English decision (Royal Insurance Co. Ltd. v. Stephen), which will be discussed later, emphasise that receipt of an asset of definite money’s worth in substitution for another may amount to commercial realisation attracting Section 28; second, the decision in Rasiklal Maneklal, which clarifies that allotment on amalgamation is not an “exchange”, along with other decisions holding it to be a statutory substitution; and third, the ruling in Grace Collis, which makes it clear that, notwithstanding its statutory character, amalgamation does involve a “transfer” within the meaning of the Income-tax Act. 18.3. Reconciling these strands, the true test under Section 28, as already noted, is not the legal label of “exchange” or “transfer”, but whether the assessee, in consequence of the amalgamation and thereby of its business, has obtained a profit that is real and presently realisable. The well-known real-income principle, as emphasised in E.D. Sassoon and Shoorji Vallabhdas, must be applied. Therefore, the enquiry for the Court is whether, as a result of the amalgamation, the assessee has in fact realised a profit in the commercial sense. This assessment may turn on whether: (A) The old stock-in-trade has ceased to exist in the assessee’s books; (B) The shares received in the amalgamated company possess a definite and ascertainable value; and (C) The assessee, immediately upon allotment, is in a position to dispose of such shares and realise money. 18.4. If these conditions are satisfied, the substitution bears the character of a commercial realisation and the profit may be taxed under Section 28. Where, however, the allotment of shares is merely a statutory substitution mandated by the scheme of amalgamation, without yielding an immediately realisable benefit, no income can be said to accrue or be received at that stage, and taxability arises only upon the eventual sale of the shares. For instance: (A) If a shareholder of Company A receives shares of Company B pursuant to a court-sanctioned amalgamation, but such shares are subject to a statutory lockin period during which they cannot be sold in the market, the allotment cannot be equated with a commercial realisation. It represents only a replacement of one form of holding by another, without any immediate gain capable of monetisation. (B) Similarly, where the amalgamated company is closely held and its shares are not quoted on any recognized stock exchange, the mere allotment of such shares does not generate a realisable profit, since no open market exists to ascribe a fair disposal value. 18.5. These illustrations, which are not exhaustive, underline that unless the assessee is, by virtue of the substitution, placed in possession of an asset which is freely tradable and of an ascertainable market value, the principle of real income bars taxation at the stage of amalgamation. Thus, the substitution of shares upon amalgamation does not, by itself, give rise to taxable income under Section 28. What must be established is that the transaction has the attributes of a commercial realisation resulting in a real and presently disposable advantage. Where this test is satisfied, taxability may arise at the stage of substitution. Otherwise, the accrual or receipt of income is deferred until actual sale. 18.6. In other words, as noted earlier, the governing test under Section 28 is not the presence of a sale, exchange, or extinguishment of rights in the technical sense, but whether the assessee has, in consequence of business operations, come into possession of a real and presently realisable commercial benefit. This may take the form of money directly received, or assets in kind capable of being immediately disposed of for money’s worth. The shares, therefore, must be readily available for trading to be treated as stock-in-trade. 19. We may now refer to the judgment in Orient Trading. Although it dealt with an exchange, the observations therein as to the nature of “realisation” are of general application. The Court, relying on English decision (Royal Insurance Co. Ltd. v. Stephen), explained that a realisation takes place when the old investment ceases to figure in the affairs of the company and its worth – whether by way of profit or loss – can be determined with finality in monetary terms. At that point, the old investment is regarded as closed and a new investment is treated as having commenced. The emphasis is that realisation is not merely a matter of accounting entries, but arises where the fo

“J U D G M E N T R. MAHADEVAN, J. Leave granted. 2. The present criminal appeal has been filed challenging the final judgment and order dated 09.04.2025 passed by the High Court...

SEKAR REPORTER

SEKAR REPORTER Blog

Madras high court our judges medal video

Madras high court judges cricket videos

Madras high court won cricket.match PTAsh , Abdul kutgose , Rajasekar man of the match and Navj and judges got cup. Full photes

Quashed HONOURABLE DR.JUSTICEANITA SUMANTH and THE HONOURABLE MR.JUSTICE C.KUMARAPPAN WA.Nos.1228, 312, 1291, 310, 313, 314 & 315 of 2023 and WA.Nos.432, 623, 433, 862, 757 & 624 of 2020 and

Recent Posts

Recent Posts