Disposal of assets

Taxpayer contended that merger of wholly owned subsidiary duly approved by the High Court was fully covered under the provisions of S.97 of the Income Tax Ordinance, 2001, resultantly no gain or loss shall be taken to have arisen on disposal of its assets; that First Appellate Authority erred in confirming the action of Assessing Officer not to accept the claim that provisions of S.97A of the Income Tax Ordinance, 2001 squarely applied, whereby, no gain or loss shall be taken to have arisen on disposal of assets under the scheme of arrangement and reconstruction duly approved by the High Court and that First Appellate Authority erred in confirming the action of Assessing Officer, wherein, it had been held that the merger of wholly owned subsidiary under the scheme of arrangement duly approved by the High Court fell under the ambit of disposal of shares in terms of S.75 of the Income Tax Ordinance, 2001

Validity

Merger of two or more companies was essentially a process of corporate reconstruction whereby assets of merging companies were either clubbed or brought together in the surviving or new company, however, proprietary rights of assets remained intact

No financial transaction could be said to have taken place between the merging companies

In the scheme of merger arrangement there did not take place any sale, disposition, exchange or relinquishment or extinguishment of any right on the part of amalgamating companies that gave rise to any income or gain resulting a taxable event

Taxpayer had fulfilled all the conditions laid down in S.97 of the Income Tax Ordinance, 2001

Addition made under S.37 of the Income Tax Ordinance, 2001 and confirmed by the First Appellate Authority was illegal and void ab initio and the same was deleted by the Appellate Tribunal.