Shares Allotted on Amalgamation for Stock-in-Trade Taxable as Business Income on Allotment if Realisable: Supreme Court in Jindal Equipment Leasing v. CIT [2026 INSC 46]

In M/s Jindal Equipment Leasing Consultancy Services Ltd v. Commissioner of Income Tax (2026 INSC 46), the Supreme Court held that Section 28 is a comprehensive charging provision that does not depend on a "transfer", "sale" or "exchange", and that the true test is whether the assessee has obtained a real and presently realisable profit, judged by actual receipt, present realisability and ascertainability of value (paras 15.3, 18.3, 24.2, 30). Section 47(vii) exempts only capital assets, and no such carve-out exists for stock-in-trade (paras 27–27.4). A Bench of Justice J.B. Pardiwala and Justice R. Mahadevan also rejected the objection that the High Court exceeded its jurisdiction under Section 260A (paras 9.3–9.6) and disposed of the appeals (para 33).

Status: Delhi High Court common judgment dated 07.08.2020 in ITA Nos. 935, 822, 853 and 961 of 2005 (Assessment Year 1997-98) affirmed; matters remitted to the Income Tax Appellate Tribunal for fresh factual adjudication; appeals disposed of; no costs (paras 2, 31, 33).

Headnote: Shares Received on Amalgamation in Lieu of Stock-in-Trade

Income Tax Act, 1961 – Sections 2(1B), 2(14), 2(47), 28(i), 28(iv), 45, 47(vii) and 260A – Amalgamation – Shares of amalgamating company held as stock-in-trade – Allotment of shares of amalgamated company – Business income – Real income – Commercial realisation – Timing of taxability – Appointed date, sanction and allotment – Substantial question of law not formally framed – Incidental or collateral issue – Remand to Tribunal.

Held: (i) The High Court did not exceed its jurisdiction under Section 260A; the taxability of the substitution under Section 28 went to the root of the matter, was incidental or collateral to the question framed, and both sides were heard on it, so Shiv Raj Gupta was distinguishable (paras 9.3–9.6).

(ii) Section 28 is a comprehensive charging provision covering real profits arising in the course of business, in money or in kind, irrespective of whether there is a legal transfer in the strict sense; it does not incorporate the definition of "transfer" in Section 2(47) (paras 15–15.3).

(iii) Amalgamation is a statutory substitution of holdings and not an "exchange" in the legal sense, though Grace Collis recognises it as a "transfer"; the test under Section 28 is not the label but whether a real and presently realisable profit has been obtained (paras 16.3–16.4, 18.1–18.3).

(iv) Taxability may turn on whether the old stock-in-trade has ceased to exist, the new shares have a definite and ascertainable value, and the assessee can immediately dispose of them; shares under a statutory lock-in, or of a closely held unquoted company, illustrate cases where no realisable profit arises on allotment (paras 18.3–18.5).

(v) The charge under Section 28 is attracted only upon allotment of the new shares, not on the appointed date or the date of sanction; later fluctuation in market value does not make the benefit unreal (paras 25–26, 30).

(vi) Section 47 exempts amalgamation only for capital assets; Section 28 has no such carve-out, and insulating trading stock from tax would open an avenue for evasion. The test is fact-sensitive, the burden lies on the Revenue, and the Tribunal must apply it (paras 24.3, 27–27.4, 31).

(paras 9–33)

Case Details: Jindal Equipment Leasing v. CIT (2026 INSC 46)

Final Outcome: High Court judgment affirmed; main issue answered in favour of the Revenue in principle; matters remitted to the Tribunal to decide whether the shares were held as stock-in-trade or investment and whether the shares received were freely realisable; appeals disposed of; no costs.

Case: M/s Jindal Equipment Leasing Consultancy Services Ltd v. Commissioner of Income Tax Delhi – II, New Delhi (with M/s Nalwa Investment Ltd., M/s Abhinandan Tradex Ltd. and M/s Mansarover Tradex Ltd.)

Neutral Citation: 2026 INSC 46

Case No.: Civil Appeal No. 152 of 2026 (arising out of S.L.P. (C) No. 2028 of 2021) with Civil Appeal Nos. 153, 154 and 155 of 2026

Court: Supreme Court of India (Civil Appellate Jurisdiction) – Reportable

Date of Decision: 9 January 2026

Bench: Justice J.B. Pardiwala and Justice R. Mahadevan (author)

Relevant Acts & Sections: Income Tax Act, 1961 – Sections 2(1B), 2(14), 2(47), 28, 45, 47(vii), 49(1)(iii)(e) and 260A; Code of Civil Procedure, 1908 – Section 100

Impugned Order: Common judgment and final order dated 07.08.2020 of the High Court of Delhi in ITA Nos. 935, 822, 853 and 961 of 2005, remanding the matters to the Tribunal (para 2)

Counsel: Mr. Ajay Vohra, Senior Counsel, for the appellants; the learned Additional Solicitor General for the Revenue (paras 4, 5)

Source: Supreme Court of India (official website)

Key Holdings of the Supreme Court

• A High Court may decide an incidental or collateral issue on which the parties were fully heard, even if not framed as a substantial question of law under Section 260A (paras 9.3–9.6).
• Section 28 taxes real business profits in money or in kind and does not require a "transfer", "sale" or "exchange" (paras 15–15.3).
• The substitution of shares upon amalgamation does not by itself give rise to taxable income; it must have the attributes of a commercial realisation yielding a real and presently disposable advantage (para 18.5).
• Actual receipt, present realisability and ascertainability of value together determine the timing of taxability (para 24.2).
• The charge arises only on allotment of the new shares (paras 25, 30).
• No Section 47-type exemption applies to stock-in-trade under Section 28 (paras 27–27.4).
• Whether the test is met is a question of fact for the Tribunal, with the burden on the Revenue (paras 24.3, 31).

Brief Facts of the Case

The appellants are investment companies of the Jindal Group that held shares of Jindal Ferro Alloys Limited (JFAL) and Jindal Strips Limited (JSL) as part of the promoter holding, shown as investments in their balance sheets. By orders dated 19.09.1996 and 03.10.1996 of the High Courts of Andhra Pradesh and Punjab & Haryana, JFAL was amalgamated with JSL with appointed date 01.04.1995 and effective date 22.11.1996; shareholders received 45 JSL shares for every 100 JFAL shares (paras 3.1–3.2).

For Assessment Year 1997-98 the appellants claimed exemption under Section 47(vii). The Assessing Officer, by order dated 29.02.2000, treated the JFAL shares as stock-in-trade, denied the exemption and taxed the value of the JSL shares as business income; the CIT(A) upheld this, finding an adventure in the nature of trade (paras 3.3, 8.1).

The Tribunal, by order dated 17.02.2005, allowed the appeals without deciding whether the shares were stock-in-trade or capital assets, holding, on Rasiklal Maneklal, that there was no transfer and so no profit accrued (para 3.4). On the Revenue's appeals, the High Court on 07.08.2020 held that the Tribunal had overlooked Grace Collis, that if the shares were stock-in-trade the difference in value would be business profit under Section 28 relying on Orient Trading, and remanded the matter to the Tribunal to decide the nature of the holding (para 3.6). This Court had stayed the impugned judgment on 10.02.2021 (para 7).

Issues Before the Supreme Court

1. Whether the High Court exceeded its jurisdiction under Section 260A by observing on taxability under Section 28 without framing a specific substantial question of law (para 9).
2. Whether, if shares of the amalgamating company were held as stock-in-trade, the allotment of shares of the amalgamated company under a court-sanctioned scheme gives rise to taxable business income under Section 28 (para 10).
3. If so, at what point the income accrues or is received, or whether tax arises only on later sale of the substituted shares (para 11).

Court's Findings and Reasoning

Section 260A objection (paras 9–9.6): The Tribunal itself had framed the issue as whether any income accrued on substitution of the shares, and the question framed by the High Court was wide enough to cover taxability. The High Court did not assess income under Section 28 but only clarified the position before remanding, and it recorded and dealt with the appellants' submissions on Section 28. Relying on Mansarovar Commercial and R. Nagaraj, the Court held there was no prejudice and rejected the objection.

Scope of Section 28 (paras 15–15.3): Section 28 is cast in deliberately wide terms; profit must be ascertainable with reasonable definiteness and either received or the subject of a vested right, even in kind. Citing Mazagaon Dock, Ujagar Prints and Dilip Kumar, the Court held that wide charging words are not to be read narrowly, and gave examples such as waiver of trading liability, export cash assistance and foreign exchange fluctuation on trading items.

Nature of amalgamation (paras 16–16.4): Amalgamation extinguishes the transferor's corporate identity and vests its assets and liabilities in the transferee by operation of law, as explained in Saraswati Industrial Syndicate and Mahagun Realtors. Grace Collis held it involves a "transfer" for capital gains, but the real question under Section 28 is whether the substitution yields real commercial profits.

Receipt and realisability (paras 17–18.6): Receipt ordinarily arises on actual allotment. Following Rasiklal Maneklal, amalgamation is not an "exchange". Reconciling Orient Trading, Rasiklal Maneklal and Grace Collis with the real-income principle in E.D. Sassoon and Shoorji Vallabhdas, the Court framed the test of a real and presently realisable profit, illustrated by lock-in and unquoted-share cases where no income arises on allotment.

Authorities on realisation (paras 19–23): Orient Trading (relying on Royal Insurance v. Stephen and Californian Copper Syndicate), Raja Raghunandan Prasad Singh, Raja Mohan Raja Bahadur and Ashokbhai Chimanbhai show that receipt of realisable assets of money's worth can be income, but a mere substitution of holding without realisable value is not.

Valuation and timing (paras 24–26): Following Woodward Governor, profit must be capable of definite valuation. Of the appointed date, the court sanction and allotment, only allotment crystallises the benefit. Subsequent volatility in value does not render the gain notional.

Capital versus business assets (paras 27–27.4): Section 47 rests on the view that amalgamation in the capital field is a restructuring. Stock-in-trade is circulating capital, and exempting trading stock on amalgamation could allow shell entities and engineered losses to escape tax.

Final Outcome and Directions

• Where shares held as stock-in-trade are substituted on amalgamation by shares realisable in money and capable of definite valuation, the substitution gives rise to business income under Section 28, chargeable only on allotment (para 30).
• Main issue answered in favour of the Revenue in principle; whether the shares were held as investment, and whether those received were freely realisable or restricted, is left to the Tribunal on remand (para 31).
• The High Court's judgment affirmed; appeals disposed of in those terms; no costs; pending applications disposed of (paras 33–34).

Legal Principle Laid Down

Section 28 of the Income Tax Act taxes real and presently realisable business profits, whether in money or in kind, and does not depend on a "transfer" under Section 2(47). When shares held as stock-in-trade in an amalgamating company are substituted by shares of the amalgamated company, business income arises on allotment if the new shares are actually received, presently realisable and of ascertainable value; otherwise taxation is deferred to the eventual sale. The exemption in Section 47(vii) is confined to capital assets, and the application of the test is a question of fact on which the Revenue bears the burden (paras 18.3–18.5, 24.2–24.3, 27.4, 30).

Precedents Relied Upon

• Orient Trading Company Ltd. v. CIT, (1997) 224 ITR 371 (SC) – Relied upon – exchange of shares by a dealer may amount to realisation of stock-in-trade. Discussed at paras 18.2, 19, 29.
• CIT v. Grace Collis, (2001) 248 ITR 323 (SC) – Relied upon – amalgamation involves a "transfer" of shares for capital gains. Discussed at paras 16.3, 18.2, 28.
• CIT v. Rasiklal Maneklal (HUF), (1989) 177 ITR 198 – Referred to – allotment on amalgamation is not an "exchange". Discussed at paras 18.1–18.2.
• Shiv Raj Gupta v. CIT, (2020) 425 ITR 420 (SC) – Distinguished – new question under Section 260A without notice. Discussed at paras 9, 9.4.
• Mansarovar Commercial Pvt. Ltd. v. CIT, (2023) 454 ITR 1 (SC) – Relied upon – incidental or collateral issues may be decided though not framed. Discussed at para 9.5.
• Raja Raghunandan Prasad Singh v. CIT, (1933) 1 ITR 113 (PC) – Relied upon – there must be an actually realised or realisable profit. Discussed at para 20.
• CIT v. Woodward Governor India (P) Ltd., (2009) 312 ITR 254 (SC) – Relied upon – profits ascertained by comparing assets at two points; unrealised gains in stock not charged. Discussed at paras 15.2, 24.1.
• CIT v. Mahagun Realtors (P) Ltd., (2022) 19 SCC 1 – Relied upon – nature of amalgamation. Discussed at para 16.2.

Important Paragraphs of the Judgment

Verbatim extracts from the judgment. For the full text, refer to the judgment PDF below.

Para 9.3: "Such a question was incidental or collateral to the main issue, and the absence of a formal formulation would not vitiate the impugned judgment of the High Court."

Para 15.3: "It therefore emerges that Section 28 is a comprehensive charging provision designed to bring within the tax net all real profits and gains arising in the course of business, whether convertible into money or received in money or in kind, and irrespective of whether such accrual or receipt of income is accompanied by a legal transfer in the strict sense."

Para 18.5: "Thus, the substitution of shares upon amalgamation does not, by itself, give rise to taxable income under Section 28. What must be established is that the transaction has the attributes of a commercial realisation resulting in a real and presently disposable advantage."

Para 24.3: "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."

Para 27.3: "If amalgamations involving trading stock were insulated from tax by judicial interpretation, it would open a ready avenue for tax evasion."

Para 30: "The charge under Section 28 is, however, 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."

Practical Impact of the Ruling

• For share dealers and trading entities: Shares received on amalgamation in place of stock-in-trade may be taxed as business income on allotment, if listed or freely tradable and of definite value (paras 24.2, 30).
• For investors: Where shares are held as capital assets, the Section 47(vii) exemption continues to apply; the characterisation of the holding is decisive (paras 27, 31).
• For the Revenue: The burden is on the Department to show a real and presently realisable benefit; lock-in or unquoted shares point the other way (paras 18.4, 24.3).
• For tax appeals: An incidental issue argued by both sides can be decided by the High Court under Section 260A even if not formally framed (paras 9.3–9.6).

FAQs on Shares Received on Amalgamation as Business Income

1. What did the Supreme Court decide in Jindal Equipment Leasing v. CIT?

It held that shares received on amalgamation in lieu of stock-in-trade can give rise to business income under Section 28 on allotment if realisable and of definite value, affirmed the High Court and remitted the facts to the Tribunal (paras 30–31, 33).

2. Does Section 47(vii) protect shares held as stock-in-trade?

No. The exemption is confined to capital assets; Section 28 has no such carve-out (paras 27–27.4).

3. When is the income taxed: appointed date, sanction or allotment?

Only on allotment of the new shares; no benefit accrues or is received on the appointed date or the date of court sanction (paras 25, 30).

4. What if the new shares are locked in or unlisted?

Then the allotment may not be a commercial realisation, and taxation would be deferred until actual sale (paras 18.4–18.5).

5. Did the High Court exceed its jurisdiction under Section 260A?

No. The Section 28 issue was incidental or collateral, the question framed was wide enough, and both sides were heard (paras 9.3–9.6).

Keywords: 2026 INSC 46, Jindal Equipment Leasing v. CIT, shares received on amalgamation, stock-in-trade, Section 28 Income Tax Act, Section 47(vii), business income, real income, commercial realisation, timing of taxability, allotment of shares, Section 260A, Orient Trading, Grace Collis, Rasiklal Maneklal, Justice R. Mahadevan, Justice J.B. Pardiwala, Supreme Court reportable judgment

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Download Judgment PDF – Jindal Equipment Leasing v. CIT

Judgment PDF: 2026 INSC 46 – M/s Jindal Equipment Leasing Consultancy Services Ltd v. Commissioner of Income Tax Delhi – II (Civil Appeal No. 152 of 2026) – Download Judgment PDF

Source: Supreme Court of India (official website).