The company where I hold shares has been amalgamated with another company. 1,000 shares held by me in the amalgamating company of Rs 100 each (market value of Rs 150 per share) have been replaced by equal number of shares of the same value in the amalgamated company (market value Rs 250 per share). Kindly advise whether there would be tax liability for capital gain arising by such replacement of old shares by the new shares?
A R Bandopadhaya, Midnapur

No, in view of clause (vii) of section 47 of the IT Act, 1961 which provides that section 45 would not apply in the case of 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; and
b) the amalgamated company is an Indian Company. Even judicially, it has been decided that no `transfer' takes place in the situation mentioned earlier. The Kerala HC in the case of Grace Collis & ORS v.CIT (1997) 226 ITR 55 (Ker) has said that there has to be the concern of the shareholder in the process that is known as 'transfer' . If it is a situation that is made available to him as a consequence of the order of the company court in a petition u/s 394 of the Companies Act resulting in amalgamation of company, it is as a result of the consideration for and arising out of the process of amalgamation of the two companies. Hence it is not possible to term the situation as arising out of transfer in any sense of the situation.

In the context of proceedings of amalgamation and consequences thereof, it is abundantly clear that what is given as a consideration in the matter of amalgamation would not plainly amount to what is understood by 'transfer' . This is out of consideration of amalgamation granted by court. The shareholders cannot be understood to be a party in regard thereto in any manner.

During 1995-96, the company, where I am working as an accountant, has paid Rs 6,300 as fine for traffic offences in regard to vehicles owned by it. The AO proposes to disallow this claim on the ground that fines paid for violations of law are not admissible expenses in computing the taxable income of the company. Is he correct in this approach?
Nand Kishore Jain, Mumbai

Yes. In view of the Supreme Court's decisions in the cases of Hazi Aziz and Abdul Shakoaor Bros vs CIT (1961) 41 ITR 350 (SC)& CIT V Patel Brothers & Co. Ltd (1995) 215 ITR 165 (SC).

In the course of purchase of a machinery (a capital asset) for the firm's business on installment basis, the assessee was required to execute a bank guarantee and pay a commission of Rs 21,000 to the bank for this purpose. The firm is of the view that such commission can be claimed as revenue expenditure. Kindly advise.
ABC & Co, Delhi

Yes. A similar question came in for the consideration of the Kerala high court in the case of CIT v GTN Textiles Ltd (1997) 93 Taxman 204 (Ker). In this decision, the court said that the ways of thinking about asking for loan in an inevitable situation of the person being in the nature of a broke do not hold water in the present commercial society. It has now become more or less a business strategy or exigency to embark upon the purchase activity not only of the capital assets but also of other goods. The high court in its approach cannot be a passive spectator to the changing ways of life and attitude of the commercial society. This would also be an additional indicator of the snapping of the connection of the amount in question with the capital asset in view of the fact that going in for easy installments or deferred payments will have to be appreciated in its own way rather than linking it with the capital asset in a pedantic attitude. Hence such expense has been held to be a revenue expenditure.

Kindly advise whether expenditure incurred in replacing a worn out false hard board ceiling by asbestos sheets in the office building can be claimed as a revenue expenditure in income-tax assessment.
K Anandeshwar, Jodhpur.

Yes. The false ceiling is not a ceiling by itself since it is only an addition to the original ceiling. Therefore, the expenditure involved in the matter of replacing the hard board ceiling into asbestos sheets ceiling would not bring in any new assets or bring an enduring benefit to the assessee. Therefore, it can not be considered to be towards capital outlay.

My income tax file has been transferred to Mumbai from Amritsar without any reference to me. It would be considerably inconvenient to me to get my assessments done at Bombay. The tax authorities at Amritsar are not prepared to accept my request for retransfer of case to Amritsar. What remedy is available to me to get the status-quo-ante?
R S Parashar, Amritsar

Section 127(1) of the Income tax Act read with sub-section (3) of the said section, postulates giving the assessee a reasonable opportunity of being heard before a case is transferred from one city, locality or place to another city, locality or place (not in the same city). In view of this, it was incumbent for the IT authorities at Amritsar to give you an opportunity of being heard before transferring the case to Bombay. This having not been done, the order passed is aba-ainitio void-being contrary to the principle of natural justice. This can be challenged by a writ petition , if the I.T. authorities are not prepared to entertain your submissions against the order passed.

I am a member of a Hindu undivided family consisting of myself, my husband and my two sons. The HUF owns immovable properties let out on rent in the name of myself and my husband and income, therefrom is assessed as family's income since past many years. Because of some differences with my husband, we have severed our relationship and I am now living separately though there has been no legal separation so far. Kindly advise, how income from properties registered in my name are to be assessed and who would bear the liability for tax concerning these properties.?
Malti Joshi, Pune

The membership in the HUF cannot be terminated by unilateral act leading to the divesting of any right in the estate in the joint family unless there is a partition between the members of the joint family or any family settlement as such. The expression `Hindu undivided family' therefore, is to be interpreted and understood and construed in the sense as it is understood in the Hindu Law. Hence, you can not severe yourself from the membership of the HUF comprising of your self, your husband and two sons by mere mutual understanding unless a partition, full or partial, takes place. Hence income from properties in your name would continue to be assessed in the HUF's hand and if tax is not realizable from the HUF minus you, the rents from the properties in your name can be attached by the IT Department to realize its tax demands.

Section 64 of the Finance Act 1997 provides for declaration of income `chargeable to tax' under the VDIS. Suppose a person for the year 1997-98 has an undisclosed income of Rs 2 lakh on this tax would work out to be Rs 48,000 after excluding the basic exemption of Rs 40,000. Thus he would be left with Rs 1.52 lakh after payment of tax. How much he can credit in this books Rs 1,52,000 or Rs 1,12,000?
R K Bansal, Delhi

After including basic exemption of Rs 40,000 for 1997-98, obviously he can credit the amount of Rs 1,52,000 in his books. Section 64 visualizes filing of declaration for `income chargeable to tax' under the Income tax Act. Under this Act the income chargeable to tax would be after deduction of basic exemption of Rs 40,000, but this does not imply that this amount does not exist.

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