My client held shares of the amalgamating company as stock-in-trade and received shares of the amalgamated company under the court-sanctioned scheme. Is there business income at that point, or only when those shares are sold?
It depends. Section 28 does not require a sale, an exchange or a transfer - business profit can be realised in kind - so the substitution of shares on an amalgamation can be charged as business income where shares held as stock-in-trade are replaced by shares that are freely realisable and capable of definite valuation. It is not automatic: the Court laid down a fact-sensitive test of commercial realisability, put the burden of establishing it on the Revenue, and held that the charge is attracted only on allotment of the new shares and not on the appointed date or the date the scheme is sanctioned. The Delhi High Court's judgment was affirmed and the matter remitted to the Tribunal to decide, on the facts, whether the shares were stock-in-trade at all and whether what was received was freely realisable.
Decided by the Supreme Court (Supreme Court of India - J.B. Pardiwala J and R. Mahadevan J; the judgment is authored by R. Mahadevan J) on 2026-01-09, reported as 2026 INSC 46 - Civil Appeal No. 152 of 2026 [arising out of S.L.P. (C) No. 2028 of 2021], heard with Civil Appeal No. 153 of 2026 [S.L.P. (C) No. 2190 of 2021] (Nalwa Investment Ltd.), Civil Appeal No. 154 of 2026 [S.L.P. (C) No. 2188 of 2021] (Abhinandan Tradex Ltd., earlier Abhinandan Investment Ltd.) and Civil Appeal No. 155 of 2026 [S.L.P. (C) No. 2197 of 2021] (Mansarover Tradex Ltd., earlier Mansarover Investment Ltd.); Assessment Year 1997-98. No reporter citation appears on the judgment.. It bears on section 28, section 47(vii), section 2(47), section 2(14), section 2(1B), section 45, section 260A of the Income Tax Act 1961, in Assessment & Scrutiny, How Tax Law Is Read, Capital Gains and Appeals matters.
Two arguments that practitioners have run for years on amalgamations are closed by this judgment. The first is that nothing is taxable because there is no 'transfer' - Rasiklal Maneklal, and the point that an amalgamation is a statutory substitution rather than a bilateral exchange. The Court accepted the premise (para 18.1: allotment on amalgamation is not an 'exchange') and still held it irrelevant, because s.28 does not incorporate the s.2(47) definition and the two provisions operate in distinct and independent fields (para 15). The second is that s.47(vii) covers amalgamations generally; it does not, because the exemption is confined to capital assets and s.28 carries no equivalent carve-out (paras 27 to 27.4). What the judgment gives back is the timing rule and the realisability test: the charge crystallises only on allotment (para 30), and the Revenue must establish that the shares received were tradable and of ascertainable value (para 24.3). Where the amalgamated company is closely held, its shares unquoted, or the allotment is subject to a statutory lock-in, the Court's own illustrations (para 18.4) say no income arises at that stage. Expect the department to read paragraphs 29 and 30 alone and to assess on allotment without addressing realisability at all.
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The four appellants are investment companies of the Jindal Group. They held shares in Jindal Ferro Alloys Limited (JFAL) as part of the promoter holding representing controlling interest, had given non-disposal undertakings to the financial institutions that had lent to the operating companies, and showed the shares as investments in their balance sheets. During the previous year relevant to assessment year 1997-98, JFAL was amalgamated with Jindal Strips Limited (JSL), a widely held public company, under a scheme sanctioned by the High Courts of Andhra Pradesh and Punjab & Haryana by orders of 19.09.1996 and 03.10.1996; the appointed date was 01.04.1995 and the orders were filed with the Registrar of Companies on 22.11.1996, the effective date. Shareholders of JFAL were allotted 45 shares of JSL for every 100 shares of JFAL. The appellants returned the receipt of the JSL shares as exempt under s.47(vii), treating the JFAL shares as capital assets. In an assessment under s.143(3) dated 29.02.2000 the Assessing Officer held the JFAL shares to be stock-in-trade, denied the s.47(vii) exemption, and taxed the difference between the value of the JSL shares as on the appointed date and the book value of the JFAL shares as business income; the Commissioner (Appeals) upheld that, finding the acquisition to be an adventure in the nature of trade. The Tribunal, by order dated 17.02.2005, allowed the assessees' appeals without deciding whether the holding was stock-in-trade or capital asset, holding on Rasiklal Maneklal that no profit accrues unless shares are sold or transferred for consideration. On the Revenue's appeals the Delhi High Court, by a common judgment dated 07.08.2020 in ITA Nos. 935, 822, 853 and 961 of 2005, set that aside and remanded, holding that where the shares were capital assets the receipt was a transfer under s.2(47) though exempt under s.47(vii), and that where they were stock-in-trade the difference in value was taxable business profit under s.28 on the authority of Orient Trading. The assessees appealed; the Supreme Court had stayed the High Court's judgment by order dated 10.02.2021 (para 7).
Where shares of an amalgamating company held as stock-in-trade are substituted by shares of the amalgamated company under a scheme of amalgamation, and those shares are realisable in money and capable of definite valuation, the substitution gives rise to taxable business income under s.28; but the charge is attracted only on allotment of the new shares, and not at the appointed date or on the date the court sanctions the scheme (para 30). Whether the shares were in fact freely realisable, or subject to restrictions, or held only as investment, is a question of fact on which the burden lies on the Revenue (paras 24.3 and 31). The main issue was answered in favour of the Revenue in principle, the High Court's judgment was affirmed, the matter was remitted to the Tribunal for fresh adjudication in accordance with law, and all four appeals were disposed of in those terms with no order as to costs (paras 31 and 33).
The Court took the preliminary objection first. Section 260A confines the High Court to formulated substantial questions, and Shiv Raj Gupta holds that a new question cannot be decided without formulation and a hearing (para 9). But the Tribunal had itself framed the issue as whether any income accrues on the substitution of JFAL shares by JSL shares, and the question the High Court framed - whether the Tribunal was correct in holding that no transfer takes place where the assessee gets shares of the amalgamated company in lieu of shares of the amalgamating company - was wide enough to cover the taxability of the substitution generally; the High Court did not itself assess income under s.28 but only said the s.47 exemption would not apply if the shares were stock-in-trade, and both sides had been heard on the s.28 point, so no prejudice arose (paras 9.3 and 9.4). Mansarovar Commercial Pvt. Ltd. was applied for the proposition that incidental or collateral issues on which parties have been fully heard may be considered without express framing (para 9.5), and the objection was rejected (para 9.6). On the merits the Court set out ss.2(1B), 2(14), 2(47), 28, 45(1) and 47(vii) (para 12) and drew the structural point: s.2(14) excludes stock-in-trade from capital assets, s.2(47) defines transfer only in relation to capital assets, s.45 charges only on transfer of a capital asset subject to the s.47 exemptions, and s.47 is an exemption rather than a charging provision - only a transaction covered by a charge can be exempt (para 12.1). It then delineated s.28: the charge is deliberately wide, requires income arising from or in the course of business ascertainable with reasonable definiteness which the assessee has received or acquired a vested right to receive and commercially realise even if in kind, and does not incorporate the s.2(47) definition of transfer, so s.28 and s.45 operate in distinct and independent fields (para 15). Wide charging language is not to be read narrowly - Mazagaon Dock, Ujagar Prints and Dilip Kumar and Company (para 15.1) - and s.28 has been applied without any conventional transfer to waiver of a trading liability (T.V. Sundaram Iyengar & Sons), to export cash assistance and subsidies (Meghalaya Steels) and to foreign exchange fluctuation on trading items (Woodward Governor) (para 15.2). On amalgamation the Court took Saraswati Industrial Syndicate and Mahagun Realtors for the proposition that the transferor's corporate identity is extinguished while the venture continues in the transferee, so that amalgamation is a statutory process of substitution and not merely a contractual transfer (paras 16 to 16.2). It noted that Grace Collis, overruling Vania Silk Mills, held amalgamation to involve a transfer for capital gains purposes, and that although the s.28 test does not turn on that label, the conclusion cannot be ignored (para 16.3). The Court accepted the assessees' characterisation that allotment under a court-sanctioned scheme is not an 'exchange' because there is no bilateral bargain and the amalgamating company has ceased to exist - Rasiklal Maneklal (para 18.1) - and held that the true test is not the legal label but whether the assessee has obtained a profit that is real and presently realisable, applying the real income principle from E.D. Sassoon and Shoorji Vallabhdas (para 18.3). It set out three conditions: the old stock-in-trade has ceased to exist in the books, the shares received possess a definite and ascertainable value, and the assessee is immediately on allotment in a position to dispose of them and realise money (para 18.3). Two illustrations were given of when the test fails - a statutory lock-in preventing sale, and an amalgamated company that is closely held with shares not quoted on any recognised stock exchange (para 18.4) - and the Court said that unless the asset is freely tradable and of ascertainable market value the real income principle bars taxation at the stage of amalgamation (para 18.5). Realisation was then traced through the authorities: Orient Trading and Royal Insurance Co. Ltd. v. Stephen for the idea that realisation occurs when the old investment ceases to figure in the company's affairs and its worth can be determined finally in money (para 19), Californian Copper Syndicate for the proposition that shares taken as price are realisable and so money's worth, Raja Raghunandan Prasad Singh for the requirement that what is received be money's worth and that there be an actually realised or realisable profit or loss (para 20), Raja Mohan Raja Bahadur for receipt of income embedded in commercial assets once title passes (para 21), and Ashokbhai Chimanbhai and E.D. Sassoon for the rule that profits do not accrue day to day and that the test of accrual is a right to claim (para 22). Kanchanganga Sea Foods was cited for the requirement that the recipient have control over income received in kind (para 18). From this the Court concluded at para 23 that mere substitution yields no completed profit unless the shares are stock-in-trade and readily available for realisation. On valuation it applied Woodward Governor and the commercial accounting rule that profit is ascertained by comparing assets at two points and that unrealised appreciation in stock is not brought to charge until crystallised (para 24.1), holding that the charge crystallises on allotment when the assessee receives realisable instruments capable of valuation, so that actual receipt, present realisability and ascertainability of value together determine timing (para 24.2), and that the test is fact-sensitive with the burden on the Revenue (para 24.3). The timing analysis distinguished the appointed date, the date of sanction and the date of allotment, and located the charge at allotment alone (para 25). The contention that fair market value exceeding book value is hypothetical until sale was rejected: valuation for tax is always done at a point in time and subsequent volatility does not make the benefit unreal (para 26). Finally, the Court explained why s.47 carves out capital assets and s.28 does not: an investor remains invested and amalgamation in the capital field is corporate restructuring rather than realisation, whereas stock-in-trade is circulating capital held for conversion into money (paras 27 to 27.2), and insulating trading stock would open an avenue for warehousing stock in shell entities and engineering losses (para 27.3).
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.
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Handle my notice → Ask a CA on WhatsAppIt depends. Section 28 does not require a sale, an exchange or a transfer - business profit can be realised in kind - so the substitution of shares on an amalgamation can be charged as business income where shares held as stock-in-trade are replaced by shares that are freely realisable and capable of definite valuation. It is not automatic: the Court laid down a fact-sensitive test of commercial realisability, put the burden of establishing it on the Revenue, and held that the charge is attracted only on allotment of the new shares and not on the appointed date or the date the scheme is sanctioned. The Delhi High Court's judgment was affirmed and the matter remitted to the Tribunal to decide, on the facts, whether the shares were stock-in-trade at all and whether what was received was freely realisable. This was decided by the Supreme Court (Supreme Court of India - J.B. Pardiwala J and R. Mahadevan J; the judgment is authored by R. Mahadevan J) and bears on section 28, section 47(vii), section 2(47), section 2(14), section 2(1B), section 45, section 260A of the Income Tax Act 1961. It is reported as 2026 INSC 46 - Civil Appeal No. 152 of 2026 [arising out of S.L.P. (C) No. 2028 of 2021], heard with Civil Appeal No. 153 of 2026 [S.L.P. (C) No. 2190 of 2021] (Nalwa Investment Ltd.), Civil Appeal No. 154 of 2026 [S.L.P. (C) No. 2188 of 2021] (Abhinandan Tradex Ltd., earlier Abhinandan Investment Ltd.) and Civil Appeal No. 155 of 2026 [S.L.P. (C) No. 2197 of 2021] (Mansarover Tradex Ltd., earlier Mansarover Investment Ltd.); Assessment Year 1997-98. No reporter citation appears on the judgment.. Two arguments that practitioners have run for years on amalgamations are closed by this judgment. The first is that nothing is taxable because there is no 'transfer' - Rasiklal Maneklal, and the point that an amalgamation is a statutory substitution rather than a bilateral exchange. The Court accepted the premise (para 18.1: allotment on amalgamation is not an 'exchange') and still held it irrelevant, because s.28 does not incorporate the s.2(47) definition and the two provisions operate in distinct and independent fields (para 15). The second is that s.47(vii) covers amalgamations generally; it does not, because the exemption is confined to capital assets and s.28 carries no equivalent carve-out (paras 27 to 27.4). What the judgment gives back is the timing rule and the realisability test: the charge crystallises only on allotment (para 30), and the Revenue must establish that the shares received were tradable and of ascertainable value (para 24.3). Where the amalgamated company is closely held, its shares unquoted, or the allotment is subject to a statutory lock-in, the Court's own illustrations (para 18.4) say no income arises at that stage. Expect the department to read paragraphs 29 and 30 alone and to assess on allotment without addressing realisability at all. If it applies to you, the first step is this: Settle the character of the holding first. If the shares of the amalgamating company were capital assets, the receipt is a transfer under s.2(47) but is exempt under s.47(vii) - the assessees stopped disputing that limb before the Supreme Court (para 8.3). Everything in this judgment bites only if the holding was stock-in-trade, and that is the very question remitted to the Tribunal.
The four appellants are investment companies of the Jindal Group. They held shares in Jindal Ferro Alloys Limited (JFAL) as part of the promoter holding representing controlling interest, had given non-disposal undertakings to the financial institutions that had lent to the operating companies, and showed the shares as investments in their balance sheets. During the previous year relevant to assessment year 1997-98, JFAL was amalgamated with Jindal Strips Limited (JSL), a widely held public company, under a scheme sanctioned by the High Courts of Andhra Pradesh and Punjab & Haryana by orders of 19.09.1996 and 03.10.1996; the appointed date was 01.04.1995 and the orders were filed with the Registrar of Companies on 22.11.1996, the effective date. Shareholders of JFAL were allotted 45 shares of JSL for every 100 shares of JFAL. The appellants returned the receipt of the JSL shares as exempt under s.47(vii), treating the JFAL shares as capital assets. In an assessment under s.143(3) dated 29.02.2000 the Assessing Officer held the JFAL shares to be stock-in-trade, denied the s.47(vii) exemption, and taxed the difference between the value of the JSL shares as on the appointed date and the book value of the JFAL shares as business income; the Commissioner (Appeals) upheld that, finding the acquisition to be an adventure in the nature of trade. The Tribunal, by order dated 17.02.2005, allowed the assessees' appeals without deciding whether the holding was stock-in-trade or capital asset, holding on Rasiklal Maneklal that no profit accrues unless shares are sold or transferred for consideration. On the Revenue's appeals the Delhi High Court, by a common judgment dated 07.08.2020 in ITA Nos. 935, 822, 853 and 961 of 2005, set that aside and remanded, holding that where the shares were capital assets the receipt was a transfer under s.2(47) though exempt under s.47(vii), and that where they were stock-in-trade the difference in value was taxable business profit under s.28 on the authority of Orient Trading. The assessees appealed; the Supreme Court had stayed the High Court's judgment by order dated 10.02.2021 (para 7). The matter was decided on 2026-01-09 by the Supreme Court (Supreme Court of India - J.B. Pardiwala J and R. Mahadevan J; the judgment is authored by R. Mahadevan J). On those facts the Supreme Court held as follows. Where shares of an amalgamating company held as stock-in-trade are substituted by shares of the amalgamated company under a scheme of amalgamation, and those shares are realisable in money and capable of definite valuation, the substitution gives rise to taxable business income under s.28; but the charge is attracted only on allotment of the new shares, and not at the appointed date or on the date the court sanctions the scheme (para 30). Whether the shares were in fact freely realisable, or subject to restrictions, or held only as investment, is a question of fact on which the burden lies on the Revenue (paras 24.3 and 31). The main issue was answered in favour of the Revenue in principle, the High Court's judgment was affirmed, the matter was remitted to the Tribunal for fresh adjudication in accordance with law, and all four appeals were disposed of in those terms with no order as to costs (paras 31 and 33).
The Court took the preliminary objection first. Section 260A confines the High Court to formulated substantial questions, and Shiv Raj Gupta holds that a new question cannot be decided without formulation and a hearing (para 9). But the Tribunal had itself framed the issue as whether any income accrues on the substitution of JFAL shares by JSL shares, and the question the High Court framed - whether the Tribunal was correct in holding that no transfer takes place where the assessee gets shares of the amalgamated company in lieu of shares of the amalgamating company - was wide enough to cover the taxability of the substitution generally; the High Court did not itself assess income under s.28 but only said the s.47 exemption would not apply if the shares were stock-in-trade, and both sides had been heard on the s.28 point, so no prejudice arose (paras 9.3 and 9.4). Mansarovar Commercial Pvt. Ltd. was applied for the proposition that incidental or collateral issues on which parties have been fully heard may be considered without express framing (para 9.5), and the objection was rejected (para 9.6). On the merits the Court set out ss.2(1B), 2(14), 2(47), 28, 45(1) and 47(vii) (para 12) and drew the structural point: s.2(14) excludes stock-in-trade from capital assets, s.2(47) defines transfer only in relation to capital assets, s.45 charges only on transfer of a capital asset subject to the s.47 exemptions, and s.47 is an exemption rather than a charging provision - only a transaction covered by a charge can be exempt (para 12.1). It then delineated s.28: the charge is deliberately wide, requires income arising from or in the course of business ascertainable with reasonable definiteness which the assessee has received or acquired a vested right to receive and commercially realise even if in kind, and does not incorporate the s.2(47) definition of transfer, so s.28 and s.45 operate in distinct and independent fields (para 15). Wide charging language is not to be read narrowly - Mazagaon Dock, Ujagar Prints and Dilip Kumar and Company (para 15.1) - and s.28 has been applied without any conventional transfer to waiver of a trading liability (T.V. Sundaram Iyengar & Sons), to export cash assistance and subsidies (Meghalaya Steels) and to foreign exchange fluctuation on trading items (Woodward Governor) (para 15.2). On amalgamation the Court took Saraswati Industrial Syndicate and Mahagun Realtors for the proposition that the transferor's corporate identity is extinguished while the venture continues in the transferee, so that amalgamation is a statutory process of substitution and not merely a contractual transfer (paras 16 to 16.2). It noted that Grace Collis, overruling Vania Silk Mills, held amalgamation to involve a transfer for capital gains purposes, and that although the s.28 test does not turn on that label, the conclusion cannot be ignored (para 16.3). The Court accepted the assessees' characterisation that allotment under a court-sanctioned scheme is not an 'exchange' because there is no bilateral bargain and the amalgamating company has ceased to exist - Rasiklal Maneklal (para 18.1) - and held that the true test is not the legal label but whether the assessee has obtained a profit that is real and presently realisable, applying the real income principle from E.D. Sassoon and Shoorji Vallabhdas (para 18.3). It set out three conditions: the old stock-in-trade has ceased to exist in the books, the shares received possess a definite and ascertainable value, and the assessee is immediately on allotment in a position to dispose of them and realise money (para 18.3). Two illustrations were given of when the test fails - a statutory lock-in preventing sale, and an amalgamated company that is closely held with shares not quoted on any recognised stock exchange (para 18.4) - and the Court said that unless the asset is freely tradable and of ascertainable market value the real income principle bars taxation at the stage of amalgamation (para 18.5). Realisation was then traced through the authorities: Orient Trading and Royal Insurance Co. Ltd. v. Stephen for the idea that realisation occurs when the old investment ceases to figure in the company's affairs and its worth can be determined finally in money (para 19), Californian Copper Syndicate for the proposition that shares taken as price are realisable and so money's worth, Raja Raghunandan Prasad Singh for the requirement that what is received be money's worth and that there be an actually realised or realisable profit or loss (para 20), Raja Mohan Raja Bahadur for receipt of income embedded in commercial assets once title passes (para 21), and Ashokbhai Chimanbhai and E.D. Sassoon for the rule that profits do not accrue day to day and that the test of accrual is a right to claim (para 22). Kanchanganga Sea Foods was cited for the requirement that the recipient have control over income received in kind (para 18). From this the Court concluded at para 23 that mere substitution yields no completed profit unless the shares are stock-in-trade and readily available for realisation. On valuation it applied Woodward Governor and the commercial accounting rule that profit is ascertained by comparing assets at two points and that unrealised appreciation in stock is not brought to charge until crystallised (para 24.1), holding that the charge crystallises on allotment when the assessee receives realisable instruments capable of valuation, so that actual receipt, present realisability and ascertainability of value together determine timing (para 24.2), and that the test is fact-sensitive with the burden on the Revenue (para 24.3). The timing analysis distinguished the appointed date, the date of sanction and the date of allotment, and located the charge at allotment alone (para 25). The contention that fair market value exceeding book value is hypothetical until sale was rejected: valuation for tax is always done at a point in time and subsequent volatility does not make the benefit unreal (para 26). Finally, the Court explained why s.47 carves out capital assets and s.28 does not: an investor remains invested and amalgamation in the capital field is corporate restructuring rather than realisation, whereas stock-in-trade is circulating capital held for conversion into money (paras 27 to 27.2), and insulating trading stock would open an avenue for warehousing stock in shell entities and engineering losses (para 27.3). In the words reproduced by the source cited on this page: "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." The decision followed or applied Commissioner of Income-tax, Cochin v. Grace Collis (2001) 248 ITR 323 (SC) : (2001) 3 SCC 430 - relied on; recorded as having overruled Vania Silk Mills and as holding that amalgamation involves a 'transfer' for capital gains purposes (paras 3.6 and 16.3); Commissioner of Income Tax, Bombay v. Rasiklal Maneklal (HUF) (1989) 177 ITR 198 : (1989) 2 SCC 454 - accepted only for the narrow proposition that allotment on a court-sanctioned amalgamation is not an 'exchange', and held not to govern s.28 (para 18.1); Orient Trading Company Ltd. v. Commissioner of Income Tax, Calcutta (1997) 224 ITR 371 (SC) : (1997) 3 SCC 340 - relied on for the nature of 'realisation', treated as of general application though it dealt with an exchange (paras 19, 28.1 and 29); Shiv Raj Gupta v. Commissioner of Income-Tax, Delhi (2020) 425 ITR 420 (SC) - distinguished; the s.260A objection based on it was rejected (paras 9 to 9.6); Mansarovar Commercial Pvt. Ltd. v. Commissioner of Income-Tax (2023) 454 ITR 1 (SC) - applied on incidental or collateral issues not framed as substantial questions of law (para 9.5); Commissioner of Income Tax v. Woodward Governor India (P) Ltd. (2009) 13 SCC 1 / (2009) 312 ITR 254 (SC) - relied on for commercial accounting and the treatment of unrealised gains in stock-in-trade (paras 15.2 and 24.1); Saraswati Industrial Syndicate Ltd v. Commissioner of Income Tax 1990 Supp SCC 675 and Commissioner of Income Tax v. Mahagun Realtors (P) Ltd (2022) 19 SCC 1 - relied on for the legal character of amalgamation (paras 16 and 16.2); Raja Raghunandan Prasad Singh v. Commissioner of Income Tax (1933) 1 ITR 113 (PC), Raja Mohan Raja Bahadur v. Commissioner of Income Tax (1967) 66 ITR 378 and Commissioner of Income Tax v. Ashokbhai Chimanbhai (1965) 56 ITR 42 - relied on for receipt in kind, money's worth and accrual (paras 20 to 22); Vania Silk Mills P. Ltd v. Commissioner of Income-Tax (1991) 191 ITR 647 (SC) - pressed by the appellants; the judgment records it as overruled by Grace Collis (paras 4.2 and 16.3).
It was decided by the Supreme Court on 2026-01-09 and is reported as 2026 INSC 46 - Civil Appeal No. 152 of 2026 [arising out of S.L.P. (C) No. 2028 of 2021], heard with Civil Appeal No. 153 of 2026 [S.L.P. (C) No. 2190 of 2021] (Nalwa Investment Ltd.), Civil Appeal No. 154 of 2026 [S.L.P. (C) No. 2188 of 2021] (Abhinandan Tradex Ltd., earlier Abhinandan Investment Ltd.) and Civil Appeal No. 155 of 2026 [S.L.P. (C) No. 2197 of 2021] (Mansarover Tradex Ltd., earlier Mansarover Investment Ltd.); Assessment Year 1997-98. No reporter citation appears on the judgment.. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 28, section 47(vii), section 2(47), section 2(14), section 2(1B), section 45, section 260A, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Where shares of an amalgamating company held as stock-in-trade are substituted by shares of the amalgamated company under a scheme of amalgamation, and those shares are realisable in money and capable of definite valuation, the substitution gives rise to taxable business income under s.28; but the charge is attracted only on allotment of the new shares, and not at the appointed date or on the date the court sanctions the scheme (para 30). Whether the shares were in fact freely realisable, or subject to restrictions, or held only as investment, is a question of fact on which the burden lies on the Revenue (paras 24.3 and 31). The main issue was answered in favour of the Revenue in principle, the High Court's judgment was affirmed, the matter was remitted to the Tribunal for fresh adjudication in accordance with law, and all four appeals were disposed of in those terms with no order as to costs (paras 31 and 33). It arises in Assessment & Scrutiny, How Tax Law Is Read, Capital Gains and Appeals matters, on section 28, section 47(vii), section 2(47), section 2(14), section 2(1B), section 45, section 260A of the Income Tax Act 1961, and was decided by Supreme Court of India - J.B. Pardiwala J and R. Mahadevan J; the judgment is authored by R. Mahadevan J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If the holding was stock-in-trade, build the record on realisability as at the date of allotment: whether the amalgamated company's shares were quoted on a recognised stock exchange, whether any lock-in or non-disposal restriction applied, and whether there was an open market to ascribe a disposal value. Those are the Court's own examples of when the charge does not arise (para 18.4), and they are the ground on which the assessment can still fail. Pin the taxable event to allotment. Resist any assessment computed by reference to the appointed date or the date of the court's sanction - the Court held no benefit accrues or is received at either stage (paras 25 and 30) - and check which previous year the allotment actually falls in, because the assessment in this case was framed on the value of the shares as on the appointed date (para 8.1). Put the burden where the judgment puts it. Para 24.3 says the test is fact-sensitive, that the burden lies on the Revenue to establish a real and presently realisable commercial benefit, and that it is for the Tribunal as final fact-finding authority to apply the principles to the evidence. Do not build the appeal on a s.260A framing objection. The Court rejected that contention here (paras 9.3 to 9.6): a question incidental or collateral to the framed question, on which both sides were heard, may be dealt with without separate formulation, and Shiv Raj Gupta was distinguished as a case where a new head of income was introduced without notice.
Still good law. This is a Supreme Court judgment of 9 January 2026 and it disposes of the appeals on the point. No search for later treatment has been made; this entry is written from the judgment text alone, and nothing has been checked for subsequent decisions, review petitions, curative proceedings or legislative change. What would displace it is a larger Bench of the Supreme Court, a review or curative order in these appeals, or an amendment addressing the taxability of shares received on amalgamation where the holding is stock-in-trade. Note also that the principle stated here is expressly fact-sensitive (para 24.3), so a later decision could confine it on facts without doubting it. Two further things temper the status. The appeals were not finally decided on the facts: the main issue was answered in favour of the Revenue in principle, the High Court's judgment was affirmed and the matter was remitted to the Tribunal for fresh adjudication, so what these assessees ultimately pay is still open, and the findings on whether the shares were stock-in-trade at all and whether what was received was freely realisable are yet to be made. And the judgment is a construction of s.28 and not of s.45. It leaves s.47(vii) intact for a holding that is a capital asset within s.2(14), and it leaves undisturbed the reasoning that an allotment on amalgamation is not an exchange within s.2(47), holding only that the point does not matter to the charge under s.28. Anyone reading the decision as having removed the capital gains exemption on an amalgamation has read it too widely, and an appeal on the remitted findings will reach the High Court under s.260A on those findings rather than on the principle. That finding was checked against a published source, which is linked on this page, on 2026-09-05. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Written from the text of the judgment only; nothing here comes from a digest or a reporter. No reporter citation is given because none appears on the judgment - the only citation the document itself carries is the neutral citation 2026 INSC 46, and the appeal and SLP numbers. The judgment states no figures for the assessees: it gives the share exchange ratio (45 shares of JSL for every 100 of JFAL) but not the amounts assessed, not the book value of the JFAL shares and not the value put on the JSL shares, so nothing quantitative can be taken from this entry. Three internal slips a reader should be aware of. At para 3.2 the scheme is said to have been sanctioned 'under Sections 391 - 394 of the Companies Act, 2013' on orders of 1996; the judgment's own para 16.1 records that the 2013 Act deals with amalgamation in Sections 230 - 232, so the reference appears to be a slip for the earlier Act. At para 17.1 the Court states that 'for the amalgamation to be approved, 90% of the shareholders must vote in favour', without citing any provision for that threshold; the definition of amalgamation extracted at para 12 from s.2(1B)(iii) speaks instead of shareholders holding not less than three-fourths in value. At para 13 the deeming provision for inventory converted into a capital asset is called 'Section 28(via)' while the same provision is printed as '(vi-a)' in the extract at para 12. The judgment does not mention the Income-tax Act 2025 anywhere, so this entry says nothing about the successor provisions. The outcome is recorded as 'mixed' rather than 'revenue' deliberately: the main issue was answered in favour of the Revenue in principle and the High Court's judgment affirmed, but the Court substantially qualified what the High Court had said, imposed the commercial-realisability and definite-valuation conditions, placed the burden on the Revenue, and ruled out any charge at the appointed date or on sanction of the scheme. It does not decide whether these particular assessees held the JFAL shares as stock-in-trade or as capital assets - that is the question remitted, and the appellants' own case was that the shares were promoter holdings representing controlling interest, shown as investments, and tied up by non-disposal undertakings to lenders. It does not decide whether the JSL shares the appellants received were freely realisable, or what effect those non-disposal undertakings have on realisability. It gives no rule for computing the profit: it does not say what value is to be taken for the shares received (last traded price, an average, or something else), it does not say what is to be set against that value - book value, cost, or the opening stock figure - and it does not deal with the valuation dispute the CIT(A) had rejected, which it expressly leaves to the Tribunal (para 5.10). It does not say what the cost or carrying value of the newly allotted shares becomes for the purpose of the later sale, so the risk of the same appreciation being taxed twice is not addressed; s.49(1)(iii)(e) was raised in argument (para 4.5) but is not ruled on. It does not tell you how a court-sanctioned lock-in or a contractual restriction short of a statutory lock-in is to be treated - the illustration at para 18.4(A) is of a statutory lock-in only. It does not say how a partly listed or thinly traded amalgamated company is to be judged, only the two poles of a freely quoted company and a closely held one with no quotation. It does not address the position of a shareholder who takes cash as a dissenter, though the Revenue's argument referred to that (para 5.6). It does not touch the amalgamating or amalgamated company's own tax position - only the shareholder's. It says nothing about s.28(iv) as a distinct route, notwithstanding that the Revenue relied on it (para 5.4). And, because the assessment year here is 1997-98, it does not consider the later special valuation and anti-abuse provisions that were mentioned only in passing in argument, nor any provision of the Income-tax Act 2025, which the judgment does not mention at all. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Where shares of an amalgamating company held as stock-in-trade are substituted by shares of the amalgamated company under a scheme of amalgamation, and those shares are realisable in money and capable of definite valuation, the substitution gives rise to taxable business income under s.28; but the charge is attracted only on allotment of the new shares, and not at the appointed date or on the date the court sanctions the scheme (para 30). Whether the shares were in fact freely realisable, or subject to restrictions, or held only as investment, is a question of fact on which the burden lies on the Revenue (paras 24.3 and 31). The main issue was answered in favour of the Revenue in principle, the High Court's judgment was affirmed, the matter was remitted to the Tribunal for fresh adjudication in accordance with law, and all four appeals were disposed of in those terms with no order as to costs (paras 31 and 33).
TaxSphere, “Jindal Equipment Leasing Consultancy Services Ltd v CIT”, https://taxnotice.vittsphere.com/caselaw/case/jindal-equipment-leasing-amalgamation-shares-held-as-stock-in-trade-section-28/ (validity last checked 2026-09-05)
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The NCLT has sanctioned our scheme and the order calls it an amalgamation. The Assessing Officer says it is not an amalgamation for income-tax and has refused section 47 and section 72A. Can he do that?
Which transfers in an amalgamation or a demerger are outside section 45, and what cost and holding period do the shares in the transferee company carry afterwards?
My shares in the amalgamating company simply ceased to exist on the merger. Is that a transfer at all?
We hived off a division under a court-sanctioned scheme and claimed section 47(vib) and section 72A(4). The Assessing Officer says it is not a "demerger". What exactly does section 2(19AA) require, and what is the position where Ind AS forced us to record the assets at a different value?
