2023 (4) TMI 1336 - HC - Income Tax

Reassessment orders under Section 148A(d) upheld for share buyout proceeds and interest taxation timing differences

The Madras HC dismissed writ petitions challenging reassessment orders under Section 148A(d) regarding taxability of share buyout proceeds and interest ... Validity of reassessment orders u/s 148A(d) - taxability of the buyout of shares and interest received on the aforesaid amount - HELD THAT:- Identical challenge in M/s. Satluj Credit & Holdings Private Limited rep. By its Director Prasanna Natarajan Versus Income Tax Officer, Corporate Ward 6 (1) , Chennai, The Principal Commissioner of Income Tax, Chennai [2023 (5) TMI 224 - MADRAS HIGH COURT] have dismissed the Writ Petition as held that assessing authority has rightly concluded that there is no capital gains that arises from the transaction since the entire transaction was a buyout of shares by virtue of order of the Apex Court. The officer, in this regard refers to the statement of the Apex Court that the transaction 'does not amount to shares being transferred inter vivos, nor can the payment for the shares be treated as deemed dividend'. Thus the clear inference that the officer has arrived at, is that there can be no instance of capital gain tax nor any levy under Section 2 (22) (e) of the Act dealing with deemed As pointed out that the receipt itself has not been held to be exempt, we see nothing untoward in the assessing authority having come to the aforesaid prima facie conclusion under the impugned order that there is escapement of income. This legal issue is to be decided by the assessing authority after detailed consideration of the petitioner's arguments in assessment and the matter is preliminary at this juncture. On the liability to interest on the sum it is a timing difference, and the officer prima facie believes that the interest must be taxed in AY 2019-20 relatable to the year when the order was passed by the Apex Court on the ground of accrual. Though the petitioner would suggest that the receipt had been delayed and it only after a few years that the amounts had been received, such submission involves the appreciation of facts and are best considered by the authorities. The argument of petitioner to the effect that the taxability of the receipt has not been put to it in the showcause notice is also devoid of merit, since the assessing authority has raised these issues specifically in the penultimate paragraph of the Annexure to notice under Section 148A(b). A notice under Section 148A(b) is not expected to be as detailed as order of assessment and it would suffice that the issue on the basis of which the reassessment is proposed is outlined broadly therein. It is for the assessee/petitioner to respond on all aspects of the matter and seek clarifications, where it so requires. In light of the aforesaid submission, the same order is taken to be passed in these matters as well.These Writ Petitions are dismissed. Issues involved: Challenge to notices u/s 148A(b) of Income-Tax Act, 1961, taxability of amount received for buyout of shares, liability to tax interest income, interpretation of Section 56(2)(x), adequacy of notice content.Judgment Summary:Challenge to Notices u/s 148A(b): The petitioner challenged notices u/s 148A(b) of the Income-Tax Act, 1961, dated 01.03.2023 and 21.03.2023, along with an order u/s 148(A)(d) dated 06.04.2023 and a notice u/s 148 dated 06.04.2023. The main grounds of challenge included the tax liability on the buyout of shares and interest income, alleging lack of tax liability and inadequacy of notice content.Taxability of Amount Received for Buyout of Shares: The petitioner, a private limited company, received a sum of Rs. 18,62,03,348/- for the buyout of shares as per the order of the Apex Court. The taxability of this amount was in question, with the petitioner proposing to offer the interest income for AY 2023-24. The assessing authority contended that the amount should not be treated as exempt income under the Income-Tax Act.Liability to Tax Interest Income: The assessing authority believed that the interest income on the sum received should be taxed in AY 2019-20 due to accrual timing, despite the petitioner's argument of delayed receipt. The officer's view was that the interest must be taxed in the relevant year based on the order of the Apex Court.Interpretation of Section 56(2)(x): The petitioner argued that Section 56(2)(x) did not apply as the consideration for the amount received was in the form of shares, not money without consideration. The interest income was proposed to be taxed in AY 2023-24.Adequacy of Notice Content: The assessing authority raised specific taxability issues in the notice under Section 148A(b), outlining the alleged escapement of income and interest tax liability. The petitioner's claim of insufficient notice content was deemed meritless, as the notice sufficiently highlighted the proposed reassessment grounds.Conclusion: The High Court dismissed the writ petition, stating that the legal issues raised required detailed consideration by the assessing authority. The judgment reiterated the similarity of the present case to a previous one and upheld the dismissal of the writ petitions.Note: The judgment was delivered by the Hon'ble Dr. Justice Anita Sumanth of the Madras High Court.