# M/s Jindal Equipment Leasing Consultancy Services Ltd v. Commissioner of Income Tax Delhi - II, New Delhi

- **Citation:** 2026 INSC 46
- **Court:** Supreme Court of India
- **Decided:** 2026-01-09
- **Case number:** Civil Appeal No. 152 of 2026
- **Bench:** J.B. Pardiwala, R. Mahadevan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-jindal-equipment-leasing-consultancy-services-ltd-v-commissioner-of-income-39074
- **Pages:** 63

## Headnote

Issue arose as regards 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; whether such substitution, in and
of itself, constitutes a realisation giving rise to taxable business
income u/s.28, Income Tax Act, 1961 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; 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 u/s.28 of the I.T. Act.
Headnotes†
Income Tax Act, 1961 - ss.2(1B), 2(14), 2(47), 28, 45(1),
47(vii) - Scope of s.28 - Appellants, investment companies
of the Jindal Group, were shareholders of Jindal Ferro Alloys
Limited (JFAL) and Jindal Strips Limited (JSL) - Pursuant
to a scheme of amalgamation, JFAL was amalgamated with
JSL - In terms of the share exchange ratio approved under the
scheme, shareholders were allotted 45 shares of JSL against
100 shares of JFAL - During the relevant assessment year, the
appellants claimed exemption u/s.47(vii), I.T. Act in respect of
the receipt of JSL shares in lieu of JFAL shares, treating the
same to be capital assets - Exemption denied by Assessing
Officer holding that the shares of JFAL constituted stock-in-
* Author
518
[2026] 1 S.C.R.
Supreme Court Reports
trade in the hands of the appellants and taxed the difference
between the value of the JSL shares (as on the appointed date)
and the book value of JFAL shares - Order upheld by CIT(A) -
However, Tribunal allowed the assessees' appeals - Appeals
filed by Revenue - High Court set aside the Tribunal's order
and remitted the matter for fresh consideration - Challenge to:
Held: Judgment of the High Court affirmed - s.28 is of wide import
and encompasses all profits and gains arising in the course of
business, even when such profit is realised in kind - The statutory
substitution of shares of the amalgamating company by shares
of the amalgamated company is not a mere neutral replacement;
where the new shares are freely marketable and possess a definite
commercial value, the event constitutes a commercial realisation
giving rise to taxable business income - Such profit need not
await actual sale if the benefit received is real and presently
realisable - Where the shares of an amalgamating company, held
as stock-in-trade, are substituted by shares of the amalgamated
company pursuant to a scheme of amalgamation, and such
shares are realisable in money and capable of definite valuation,
the substitution gives rise to taxable business income within the
meaning of s.28 - However, the charge u/s.28 is attracted only
upon the allotment of new shares - At earlier stages namely,
the appointed date or the date of court sanction, no such benefit
accrues or is received - The receipt of shares of the amalgamated
company in substitution of stock-in-trade can give rise to taxable
business profits u/s.28 - However, the actual application of this
principle to the facts of the present case, including whether the
shares received are freely realisable or otherwise subject to
restrictions, or whether the shares are held only as investment
requires factual determination - Matter remitted to the Tribunal
for fresh adjudication in accordance with law. [Paras 29-31, 33]
Income Tax Act, 1961 - s.28 - Profits and gains of business or
profession - Scope of - Explained. [Paras 15-15.3, 18.3-18.6]
Income Tax Act, 1961 - s.28 - Profits and gains of business
or profession - Governing tes

## Text

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[2026] 1 S.C.R. 517 : 2026 INSC 46
M/s Jindal Equipment Leasing Consultancy Services Ltd.
v.
Commissioner of Income Tax Delhi - II, New Delhi
(Civil Appeal No. 152 of 2026)
09 January 2026
[J.B. Pardiwala and R. Mahadevan,* JJ.]
Issue for Consideration
Issue arose as regards 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; whether such substitution, in and
of itself, constitutes a realisation giving rise to taxable business
income u/s.28, Income Tax Act, 1961 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; 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 u/s.28 of the I.T. Act.
Headnotes†
Income Tax Act, 1961 - ss.2(1B), 2(14), 2(47), 28, 45(1),
47(vii) - Scope of s.28 - Appellants, investment companies
of the Jindal Group, were shareholders of Jindal Ferro Alloys
Limited (JFAL) and Jindal Strips Limited (JSL) - Pursuant
to a scheme of amalgamation, JFAL was amalgamated with
JSL - In terms of the share exchange ratio approved under the
scheme, shareholders were allotted 45 shares of JSL against
100 shares of JFAL - During the relevant assessment year, the
appellants claimed exemption u/s.47(vii), I.T. Act in respect of
the receipt of JSL shares in lieu of JFAL shares, treating the
same to be capital assets - Exemption denied by Assessing
Officer holding that the shares of JFAL constituted stock-in-
* Author
518
[2026] 1 S.C.R.
Supreme Court Reports
trade in the hands of the appellants and taxed the difference
between the value of the JSL shares (as on the appointed date)
and the book value of JFAL shares - Order upheld by CIT(A) -
However, Tribunal allowed the assessees' appeals - Appeals
filed by Revenue - High Court set aside the Tribunal's order
and remitted the matter for fresh consideration - Challenge to:
Held: Judgment of the High Court affirmed - s.28 is of wide import
and encompasses all profits and gains arising in the course of
business, even when such profit is realised in kind - The statutory
substitution of shares of the amalgamating company by shares
of the amalgamated company is not a mere neutral replacement;
where the new shares are freely marketable and possess a definite
commercial value, the event constitutes a commercial realisation
giving rise to taxable business income - Such profit need not
await actual sale if the benefit received is real and presently
realisable - Where the shares of an amalgamating company, held
as stock-in-trade, are substituted by shares of the amalgamated
company pursuant to a scheme of amalgamation, and such
shares are realisable in money and capable of definite valuation,
the substitution gives rise to taxable business income within the
meaning of s.28 - However, the charge u/s.28 is attracted only
upon the allotment of new shares - At earlier stages namely,
the appointed date or the date of court sanction, no such benefit
accrues or is received - The receipt of shares of the amalgamated
company in substitution of stock-in-trade can give rise to taxable
business profits u/s.28 - However, the actual application of this
principle to the facts of the present case, including whether the
shares received are freely realisable or otherwise subject to
restrictions, or whether the shares are held only as investment
requires factual determination - Matter remitted to the Tribunal
for fresh adjudication in accordance with law. [Paras 29-31, 33]
Income Tax Act, 1961 - s.28 - Profits and gains of business or
profession - Scope of - Explained. [Paras 15-15.3, 18.3-18.6]
Income Tax Act, 1961 - s.28 - Profits and gains of business
or profession - Governing test u/s.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
[2026] 1 S.C.R.
519
M/s Jindal Equipment Leasing Consultancy Services Ltd. v.
Commissioner of Income Tax Delhi - II, New Delhi
being immediately disposed of for money's worth - Therefore,
the shares must be readily available for trading to be treated
as stock-in-trade:
Held: The true test u/s.28 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 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 - If these conditions are satisfied,
the substitution bears the character of a commercial realisation and
the profit may be taxed u/s.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 - 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. [Paras 18.3-18.6]
Interpretation of Statutes - Income Tax Act, 1961 - s.28 - Profits
and gains of business or profession - Charging provisions,
though construed strictly, are not to be read narrowly when
the language of the provision itself is wide:
Held: The language of s.28 "the profits and gains of any business
or profession" is deliberately wide, i.e., the charge itself is cast in
wide terms - Charging provisions, while construed strictly, are not
to be read in an unduly narrow manner when the language of the
provision itself is wide. [Para 15]
Income Tax Act, 1961 - s.28 - Profits and gains of business
or profession - Amalgamation - Whether there is receipt
or accrual of income upon amalgamation; Commercial
realisability; Definite valuation - Real Income Principle:
520
[2026] 1 S.C.R.
Supreme Court Reports
Held: 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 s.28, the first test is whether such substitution constitutes either a
receipt or an accrual of income - The general position, nevertheless,
is that what the law recognises in amalgamation is the receipt of
shares in substitution of trading assets - Further, mere receipt of
shares does not suffice to attract s.28; commercial realisability is
also required when income is received in kind - Amalgamation is to
be understood as a statutory substitution of holdings, and not as an
"exchange" in the legal sense - Profit must be capable of definite
valuation, so that the real gain or loss stands crystallized - The
test is not satisfied merely by the receipt of realisable shares in
substitution of earlier holdings; such shares must also be capable
of quantification - Therefore, what attracts s.28 is the receipt of
shares coupled with their present realisability and their nexus
with business - These three conditions- actual receipt, present
realisability, and ascertainability of value- together determine the
timing of taxability in cases of amalgamation - The profit arising
on receipt of the amalgamated company's shares may be taxed
u/s.28 where the shares allotted are tradable and possess a definite
market value, thereby conferring a presently realisable commercial
advantage - Where such attributes are absent, the Court cannot,
by analogy, extend s.28 to tax hypothetical accretions in the
absence of an express statutory mandate - The enquiry whether,
consequent upon an amalgamation, the allotment of new shares
has resulted in a real and presently realisable commercial benefit
must be determined on the facts of each case - The burden lies
on the Revenue to establish the same - It is thereafter for the
Tribunal, as the final fact-finding authority, to apply these principles
to the evidence on record. [Paras 17-18.1, 24, 24.2, 24.3]
Words and Phrases - 'Amalgamation' - Concept and legal
character, discussed:
Held: Amalgamation, in corporate law, signifies the statutory
blending of two or more undertakings into one - The transferor
company ceases to exist as a separate corporate entity, its business,
assets, and liabilities are absorbed into and continue within the
transferee - Amalgamation- ordinarily effected through a scheme
[2026] 1 S.C.R.
521
M/s Jindal Equipment Leasing Consultancy Services Ltd. v.
Commissioner of Income Tax Delhi - II, New Delhi
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 - Amalgamation is more than a mere contractual transfer; it is
a statutory process of substitution - Notwithstanding its statutory
character, amalgamation does involve a "transfer" within the
meaning of the Income-tax Act. [Paras 16, 16.1-16.4, 18.2]
Income Tax Act, 1961 - s.28 - Plea of the appellants that
even if the fair market value of the shares allotted in the
amalgamated company exceeded the book value of the shares
held in the amalgamating company, such excess would be
merely hypothetical and illusory until the shares were sold,
given that market value is inherently fluctuating:
Held: The test u/s.28 is not postponed until an actual sale, but is
satisfied once the assessee comes into possession of an asset of
determinable and presently realisable value in substitution of its
trading stock - The fact that such value may fluctuate subsequently
does not render the benefit unreal; valuation for tax purposes is
always carried out at a particular point in time, notwithstanding
subsequent volatility - What matters is that, on the date of allotment,
the assessee must have received realisable instruments capable
of being valued in money's worth, and such receipt constitutes a
real, and not a notional, commercial gain. [Para 26]
Income Tax Act, 1961 - s.47(vii):
Held: 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 u/s.47 (vii)
are satisfied. [Para 12]
Income Tax Act, 1961 - s.28 - Timing of taxability - Charge
u/s.28 not attracted on the mere sanction of the scheme or
on the appointed date:
522
[2026] 1 S.C.R.
Supreme Court Reports
Held: In the context of amalgamation, three points in time require
to be distinguished - First, the appointed date specified in the
scheme, which determines corporate succession and continuity
between the transferor and transferee companies - Secondly, the
sanction of the scheme by the Court, which gives statutory force
to the amalgamation - At these stages, however, there is only a
substitution of rights by legal fiction, without any asset in the hands
of the shareholder capable of commercial exploitation - Thirdly, the
allotment of new shares in the amalgamated company, which alone
crystallises the benefit in the shareholder's hands, for it is only then
that the old stock-in-trade ceases to exist and is replaced by new
shares of definite market value capable of immediate realisation -
Thus, the charge u/s.28 is not attracted on the mere sanction of
the scheme or on the appointed date, but only upon the receipt
of the new shares, when the statutory substitution translates into
a concrete, realisable commercial advantage. [Para 25]
Income Tax Act, 1961 - ss.28, 47 - Exemption in respect of
capital assets - Rationale - Distinction between capital and
business assets:
Held: s.47 expressly carves out an exemption in respect of certain
transfers in the context of amalgamation, but that exemption
is confined to capital assets - The rationale is plain - Where
a shareholder holds shares as an investment, the underlying
object is to remain invested in the corporate venture, and a mere
amalgamation ordinarily does not alter that position - While the
possibility of tax avoidance in the investment field cannot be
ruled out altogether, the legislative judgment reflects that the risk
is relatively low - Thus, the exemption u/s.47 is founded on the
recognition that amalgamation, in the capital field, is essentially
a corporate restructuring and not a true realisation of profit - It
is also common in business parlance for entities to hold shares
either as investments or as stock-in-trade - By contrast, s.28,
which governs profits of business, contains no such carve-out,
nor could it be otherwise - The nature of stock-in-trade is wholly
different from that of an investment - Stock-in-trade represents
circulating capital: it is held not for preservation or appreciation,
but for conversion into money in the ordinary course of business -
Thus, while the Act makes an express exception for amalgamation
of capital assets, no such exception is contemplated in the case
of business assets. [Paras 27, 27.1, 27.4]
[2026] 1 S.C.R.
523
M/s Jindal Equipment Leasing Consultancy Services Ltd. v.
Commissioner of Income Tax Delhi - II, New Delhi
Case Law Cited
Shiv Raj Gupta v. Commissioner of Income-Tax, Delhi [2020] 5
SCR 874 : (2020) 425 ITR 420 (SC) - distinguished.
Commissioner of Income Tax v. Mahagun Realtors (P) Ltd [2022]
4 SCR 502 : (2022) 19 SCC 1; Orient Trading Company Ltd. v.
Commissioner of Income Tax, Calcutta [1997] 1 SCR 446 :
(1997) 3 SCC 340; Commissioner of Income-tax, Cochin v.
Grace Collis and Others [2001] 2 SCR 98 : (2001) 3 SCC 430;
E.D. Sassoon & Co. Ltd v. Commissioner of Income-Tax [1973]
1 SCR 1084 : (1954) 26 ITR 27 (SC); Commissioner of Income
Tax, Bombay City I v. Shoorji Vallabhdas & Co. (1962) 46 ITR
144 (SC) - relied on.
Commissioner of Income Tax, Bombay v. Rasiklal Maneklal (HUF)
and Others [1989] 2 SCR 179 : (1989) 2 SCC 454; Vania Silk Mills
P. Ltd v. Commissioner of Income-Tax [1991] 3 SCR 577 : (1991)
191 ITR 647 (SC); Commissioner of Income-Tax, Andhra Pradesh v.
Motors & General Stores (P) Ltd [1967] 3 SCR 876 : (1967) 66 ITR
692 (SC); Hindustan Lever and Another v. State of Maharashtra
and Another [2003] Supp. 5 SCR 685 : (2004) 9 SCC 438; State
Bank of Travancore v. Commissioner of Income-Tax, Kerala [1986]
1 SCR 25 : (1986) 158 ITR 102 (SC); Godhra Electricity Co. Ltd v.
Commissioner of Income-Tax [1997] 3 SCR 539 : (1997) 225 ITR
746 (SC); Commissioner of Income-Tax v. Excel Industries Ltd.
and Another [2013] 10 SCR 490 : (2013) 358 ITR 295 (SC); R.
Nagaraj (dead) through Legal Heirs and Another v. Rajamani and
Others [2025] 4 SCR 734 : 2025 Livelaw SC 416; Mansarovar
Commercial Pvt. Ltd v. Commissioner of Income-Tax [2023] 8 SCR
452 : (2023) 454 ITR 1 (SC); Mazagaon Dock Ltd v. Commissioner
of Income Tax and Excess Profits Tax [1959] 1 SCR 848 : AIR
1958 SC 861; Ujagar Prints Etc. v. Union of India and Others Etc.
[1989] 1 SCR 344 : (1989) 3 SCC 488; Commissioner of Customs
(Import), Mumbai v. Dilip Kumar and Company and Others [2018]
7 SCR 1191 : (2018) 9 SCC 1 (5-Judge Bench); Commissioner
of Income Tax v. T.V. Sundaram Iyengar & Sons Ltd. [1996] Supp.
5 SCR 785 : (1996) 222 ITR 344 (SC); Commissioner of Income
Tax v. Meghalaya Steels Ltd [2016] 1 SCR 952 : (2016) 383
ITR 217 (SC); Commissioner of Income Tax, Delhi v. Woodward
Governor India P. Ltd [2009] 5 SCR 738 : (2009) 312 ITR 254
(SC); Saraswati Industrial Syndicate Ltd v. Commissioner of Income
Tax [1990] Supp. 1 SCR 332 : (1990) Supp. SCC 675; Religare
524
[2026] 1 S.C.R.
Supreme Court Reports
Finvest Ltd. v. State (NCT of Delhi) [2023] 12 SCR 197 : (2024)
1 SCC 797; Kanchanganga Sea Foods Ltd v. Commissioner of
Income Tax [2010] 7 SCR 866 : (2010) 11 SCC 144; Raja Mohan
Raja Bahadur v. Commissioner of Income Tax [1967] 3 SCR 482
: (1967) 66 ITR 378; Commissioner of Income Tax v. Ashokbhai
Chimanbhai [1965] 1 SCR 758 : (1965) 56 ITR 42; Commissioner
of Income Tax v. Woodward Governor India (P) Ltd. [2009] 5 SCR
738 : (2009) 13 SCC 1; Commissioner of Income Tax v. Express
Newspapers Ltd., 1964 INSC 152 : [1964] 8 SCR 189 - referred to.
Royal Insurance Co. Ltd v. Stephen, 14 Tax Cases 22; Walker's
Settlement, In re, 1935 Ch 567 (CA); Californian Copper Syndicate
Ltd v. Inland Revenue 05 TC 159; Raja Raghunandan Prasad
Singh v. Commissioner of Income Tax, 1933 SCC OnLine
PC 8 - referred to.
Books and Periodicals Cited
Stroud's Judicial Dictionary of Words and Phrases (9th Edn.);
Black's Law Dictionary (11th Edn.)
List of Acts
Income Tax Act, 1961; Companies Act, 2013; Code of Civil
Procedure, 1908.
List of Keywords
Section 28, Income Tax Act, 1961; Profits and gains of business
or profession; Amalgamation; Stock-in-trade; Taxability of gains
arising on amalgamation; Shares of amalgamating company held as
stock-in-trade, substituted by shares of the amalgamated company;
Taxable business income under Section 28, Income Tax Act, 1961;
Shares held as stock-in-trade; Allotment of shares of amalgamated
company; Court-sanctioned scheme of amalgamation; Jindal Ferro
Alloys Limited (JFAL); Jindal Strips Limited (JSL); No taxable profit;
Section 2(14), Income Tax Act, 1961; Section 2(17), Income Tax
Act, 1961; Section 2(47), Income Tax Act, 1961; Section 47(vii),
Income Tax Act, 1961; Section 45, Income Tax Act, 1961; Transfer
of shares; Capital assets; Chargeability of the "profits and gains
of any business or profession"; Statutory substitution of rights;
Whether the substitution of shares results in real commercial
profits; Commercial realisability; Amalgamating company ceases
to exist; The true test under Section 28; Real-income principle;
[2026] 1 S.C.R.
525
M/s Jindal Equipment Leasing Consultancy Services Ltd. v.
Commissioner of Income Tax Delhi - II, New Delhi
Real or completed profit capable of being taxed under Section 28;
Definite valuation; Timing of taxability; Distinction between Capital
and Business assets.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 152 of 2026
From the Judgment and Order dated 07.08.2020 of the High Court
of Delhi at New Delhi in ITA No. 935 of 2005
With
Civil Appeal No(s). 153, 154 and 155 of 2026
Appearances for Parties
Advs. for the Appellant(s):
Ajay Vohra, Ms. Kavita Jha, Sr. Advs., Vaibhav Kulkarni, Aniket
Deepak Agrawal, Ms. Aabgina Chishti.
Advs. for the Respondent(s):
Raghavendra P Shankar, A.S.G., Raj Bahadur Yadav, Udai Khanna,
Karan Lahiri, Mrs. Vimla Sinha, Ms. Seema Bengani, Preeti Rani,
Digvijay Dam.
Judgment / Order of the Supreme Court
Judgment
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 Delhi1 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 Tribunal2 for fresh adjudication
on the question of whether the shares held in the amalgamating
company constituted stock-in-trade or capital assets, upon observing
1
Hereinafter referred to as "the High Court"
2
For short, "the Tribunal"
526
[2026] 1 S.C.R.
Supreme Court Reports
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,
19613, 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
3
For short, "the I.T. Act"
[2026] 1 S.C.R.
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M/s Jindal Equipment Leasing Consultancy Services Ltd. v.
Commissioner of Income Tax Delhi - II, New Delhi
as stock-in-trade, 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 stockin-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 others4, 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
4
(1989) 177 ITR 198 : (1989) 2 SCC 454
528
[2026] 1 S.C.R.
Supreme Court Reports
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 others5. 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, Calcutta6. 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
5
(2001) 248 ITR 323 (SC) : (2001) 3 SCC 430
6
(1997) 224 ITR 371 (SC) : (1997) 3 SCC 340
[2026] 1 S.C.R.
529
M/s Jindal Equipment Leasing Consultancy Services Ltd. v.
Commissioner of Income Tax Delhi - II, New Delhi
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, Delhi7.
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-intrade 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 8, 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) Ltd9 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
7
(2020) 425 ITR 420 (SC)
8
(1991) 191 ITR 647 (SC)
9
(1967) 66 ITR 692 (SC)
530
[2026] 1 S.C.R.
Supreme Court Reports
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 stock-in-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 another11 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-Tax12. Hypothetical or illusory benefits cannot constitute
taxable income, as held in Commissioner of Income Tax,
Bombay City I v. Shoorji Vallabhdas & Co.13, State Bank
of Travancore v. Commissioner of Income-Tax, Kerala14,
Godhra Electricity Co. Ltd v. Commissioner of Income-Tax15
and Commissioner of Income-Tax v. Excel Industries Ltd.
and another16. Even if the fair market value of the shares allotted
in the amalgamated company on the date of allotment exceeds
10
14 Tax Cases 22
11
(2004) 9 SCC 438
12
(1954) 26 ITR 27 (SC)
13
(1962) 46 ITR 144 (SC)
14
(1986) 158 ITR 102 (SC)
15
(1997) 225 ITR 746 (SC)
16
(2013) 358 ITR 295 (SC)
[2026] 1 S.C.R.
531
M/s Jindal Equipment Leasing Consultancy Services Ltd. v.
Commissioner of Income Tax Delhi - II, New Delhi
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
532
[2026] 1 S.C.R.
Supreme Court Reports
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-in-trade, 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.
[2026] 1 S.C.R.
533
M/s Jindal Equipment Leasing Consultancy Services Ltd. v.
Commissioner of Income Tax Delhi - II, New Delhi
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
534
[2026] 1 S.C.R.
Supreme Court Reports
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.