JUDGMENT

PATHAK, CJI. :— The assessee is a Hindu Undivided Family deriving income from interest on securities, dividends, property and dealing in shares. In 1941 the assessee purchased a share of the Shorrock Spinning and Manufacturing Co. Ltd., hereinafter referred to as "the Shorrock Co.", of the face value of Rs. 1,000/- for Rs.,3,307/-. Later this share was split into 10 shares of Rs. 100/-each, and from time to time a total of 80 shares of the face value of Rs. 100/- each was issued to the assessee by way of bonus shares. In consequence, on 31 December, 1959 the assessee owned 90 shares in the, Shorrock Co. of the face value of Rs. 100/- each.

2. There is another company called the New Shorrock Spinning and Manufacturing Co. Ltd. to which reference may be made as "the New Shorrock Co.". It was decided to amalgamate the Shorrock Co. with the New Shorrock Co., and upon petitions filed under S. 391 and S. 394 of the Companies Act, 1956 the Gujarat High Court made an order dated 23 September, 1960 directing meetings of the share holders of both the companies. The meetings were held on 27 October, 1960 and the scheme of amalgamation was approved. On 25 November, 1960 the High Court sanctioned the scheme of amalgamation and declared that the scheme would be binding on members of both the Companies.

3. Under the scheme of amalgamation the undertaking and all the property rights and powers as well as all liabilities and duties of the Shorrock Co. were to stand transferred and vest with effect from 1 January, 1960 in the New Shorrock Co. The scheme of amalgamation provided further for an increase in the share capital of the New Shorrock Co. and it permitted the creation of 14,625 new ordinary shares of the face value of Rs. 125/-each of the transferee company. The newly created shares were to rank pari passu with the existing shares of the transferee company in all respects. Under the scheme the New Shorrock Co., as the transferee company, was directed to allot to members of the Shorrock Co., the transferee company, one share in the transferee company for every two shares of the transfer or company held by them. The order of the Court directed that the Shorrock Co. should file a certified copy of the order with the Registrar of Companies within 14 days for registration, and on such certified copy being delivered the transferor company would stand dissolved and the Registrar of Companies was to place all documents relating to the transferor company on the file relating to the transferee company and the folios relating to the two companies were to be consolidated accordingly.

4. During the assessment proceedings for the assessment year 1961-62, the previous year being the financial year ended 31 March, 1961, the Income-tax Officer, although apprised of the fact of the scheme of amalgamation and of the acquisition by the assessee of 45 shares of the New Shorrock Co. omitted to consider the applicability of S. 12B of the Indian Income-tax Act, 1922. On 21 January, 1964 the Commissioner of Income-tax issued a notice under S. 33B of the Act to the assessee stating that the receipt of 45 shares of the New Shorrock Co. "in exchange" of his original holding of 90 shares in the Shorrock Co. in December,1960 had resulted in an assessable profit, and this aspect had been overlooked by the Income-tax Officer when making the regular assessment, and, therefore, he proposed a revision of the assessment. After hearing the assessee, the Commissioner of Income-tax passed an order dated 29 January, 1964 directing the Income-tax Officer to revise the assessment and to include an amount of Rs. 49,350/- representing the capital gain resulting from the transaction of the acquisition of 45 shares of New Shorrock Co. in place of the 90 shares held in Shorrock Co. On appeal by the assessee before the Income-tax Appellate Tribunal, the Appellate Tribunal held that the transaction represented neither an exchange nor a relinquishment and, therefore, S. 12B of the