2012 (6) TMI 289 - AT - Income Tax

Tax Appeal: Revision order valid under Sec 263, General Reserve not taxable

The Third Member upheld the revision order under Section 263, finding it not barred by limitation as the reassessment order under Section 143(3) was the ... Revision under section 263 by CIT(A) - period of limitation – Held that:- CIT(A) has rightly reckoned the period of limitation from the date of passing of the income-escaping assessment order under section 143(3), read with section 147 - as per the provisions of section 263(1), where an original order is rectified by an order of rectification, it ceases to exist and a rectified order comes into existence. - After the date of rectification, there remains no original order in existence - the assessment was made for the first time u/s 143(3) r.w.s 147 and there was no occasion before that to scrutinize the return and section 263(2) makes it clear that order passed u/s 143(3) r.w.s 147 can be revised. So, it becomes amply clear that the limitation will start from the date of assessment made u/s 143(3) r.w.s 147 i.e 24.12.2008 in this case and not from the date of intimation as has been claimed by the assessee-company - the revision order passed by the Commissioner of Income-tax is within the period of limitation. Income taxable under section 28(iv) – amalgamation - treatment of sum transferred by the assessee to its General Reserve - Held that:- The amount of Rs. 2,899.68 lakhs transferred by the assessee to its General Reserve was not generated out of trading operations. The surplus in fact arose out of acquisition of capital assets. - It was a transaction in the capital segment. In fact, there is no surplus. It was only an accounting notion. It was necessarily to be reflected in the accounts so as to tally the balance sheet. - Even if the surplus is attributed to a capital transaction, there again section 47(vi) provides that any surplus arising in such cases of amalgamation cannot be brought to capital gains tax, as the act of amalgamation is not treated as 'transfer' for the purposes of section 45. - The sum of Rs. 2,899.68 lakhs is not in the nature of any benefit or perquisite and thus, not taxable u/s 28(iv) of the Income-tax Act, 1961. Issues Involved:1. Limitation for invoking revision under Section 263.2. Taxability of the amount credited to General Reserve under Section 28(iv).3. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 263.Detailed Analysis:1. Limitation for Invoking Revision under Section 263:The primary issue was whether the revision order passed by the CIT under Section 263 was barred by limitation. The assessee argued that the limitation should be computed from the date of processing of the revised return under Section 143(1), i.e., 19.07.2004, as the issue of surplus arising from amalgamation was not the subject matter of the reassessment proceedings under Section 147. The CIT contended that the limitation should be computed from the date of the reassessment order under Section 143(3) read with Section 147, i.e., 24.12.2008.Decision:The Third Member agreed with the Judicial Member that the revision order was not barred by limitation. The period of limitation should be reckoned from the date of the reassessment order under Section 143(3) read with Section 147, as it was the first assessment order passed in this case. The revision was within the permissible time limit.2. Taxability of the Amount Credited to General Reserve under Section 28(iv):The CIT directed the Assessing Officer to assess the amount of Rs. 2,899.68 lakhs credited to the General Reserve as business income under Section 28(iv). The assessee contended that this amount was not income but a capital reserve arising from the amalgamation of Spencer Industrial Fund Ltd. (SIFL) with the assessee company. The assessee argued that the amount represented the premium value of shares issued and was capital in nature.Decision:The Third Member agreed with the Accountant Member that the amount of Rs. 2,899.68 lakhs was not in the nature of any benefit or perquisite arising from business and thus not taxable under Section 28(iv). The amount was a balancing figure resulting from the amalgamation and was capital in nature. The Third Member also referenced a similar case (M/s. Quintegra Solutions Ltd.) where the Tribunal held that such an amount could not be treated as income under Section 28(iv).3. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 263:The CIT invoked Section 263, stating that the assessment order was erroneous and prejudicial to the interests of the Revenue as it did not consider the taxability of the amount credited to the General Reserve. The assessee argued that the CIT's jurisdiction under Section 263 was not valid as the issue was not part of the reassessment proceedings.Decision:The Third Member held that the CIT was justified in initiating action under Section 263. The CIT has the authority to revise any proceeding under the Act, and the reassessment order under Section 143(3) read with Section 147 was within his jurisdiction. The revision was valid as the CIT found the assessment order to be erroneous and prejudicial to the interests of the Revenue.Conclusion:The appeal was partly allowed in favor of the assessee. The revision order under Section 263 was held to be within the limitation period, but the amount credited to the General Reserve was not taxable under Section 28(iv). The CIT's jurisdiction to revise the assessment order was upheld.