2020 (9) TMI 542 - HC - Income Tax

Transfer of business for equity shares not a slump sale under Income Tax Act.

M/s. Areva T & D India Ltd., Now known as M/s. GE T & D India Ltd. Versus The Commissioner of Income Tax

The Court held that the transfer of the appellant's non-transmission and distribution business to its subsidiary in exchange for equity shares, approved ... Slump sale u/s 50B or not - Transfer of business in lieu of equity shares to its subsidiary by a scheme of arrangement as approved by HC - Presence of monetary consideration or not - investment in Tax Savings Bonds u/s 54EC - assessee stated that the transfer should not suffer any capital gains tax at all - whether the assessee was estopped from raising the contention by way of an alternate plea?. HELD THAT:- The fundamental legal principle is that there is no estoppel in Taxation Law. It is beneficial to refer to the decision of the Division Bench of the Delhi High Court in the case of CIT Vs. Bharath General Reinsurance Co. Ltd. [1970 (12) TMI 5 - DELHI HIGH COURT]. - AO, CIT(A) and the Tribunal committed a fundamental error in shutting out the contention raised by the assessee solely on the ground that the assessee approached the Bond Issuing Authorities for availing the benefit under Section 54EC. - There is no estoppel on the part of the assessee to pursue their claim and accordingly, we reject the argument of the Revenue in this regard. Slump Sale or not - Existence of monetary consideration - Held that:- to bring the transaction within the definition of Section 2(42C) of the Act as a slump sale, there should be a transfer of an undertaking as a result of the sale for lump sum consideration. - Therefore, necessarily the sale should be by way of transfer of ownership in exchange of a price paid or promised or part paid and part promised and the price should be a money consideration. If there is no monetary consideration involved in the transaction, then it would be not possible for the Revenue to bring the transaction done by the assessee within the definition of the term ‘slump sale’ as defined under Section 2(42C) of the Act. - mere use of the expression ‘consideration for transfer’ cannot be said to be a transaction as a sale. - Decision in the case of Motors and General Stores (P.) Ltd. [1967 (5) TMI 3 - SUPREME COURT] followed. Scope of the term purchase - Held that:- The Constitution Bench of the Hon’ble Supreme Court in the case of Devi Das Gopal Krishnan Vs. State of Punjab [reported in [1967 (4) TMI 131 - SUPREME COURT], while interpreting the provision of the Punjab General Sales Tax Act, 1948, considered the definition of the word ‘purchase’ - The above judgment of the Constitution Bench will come to the aid and assistance of the assessee as the transfer, pursuant to approval of a scheme of arrangement, is not a contractual transfer, but a statutorily approved transfer and cannot be brought within the definition of the word ‘sale’ Decided in favor of assessee. Issues Involved:1. Whether the transfer of the appellant’s non-transmission and distribution business valued at Rs. 41.3 Crores in exchange for equity shares under a scheme of arrangement approved by the Calcutta High Court is a slump sale and exigible to capital gain tax under Section 50B of the Income Tax Act, 1961.2. Whether the Tribunal's finding is consistent with the law declared by the Bombay High Court in CIT Vs. Bharat Bijlee Ltd.Issue-wise Detailed Analysis:1. Transfer of Non-Transmission and Distribution Business as Slump Sale:The primary issue is whether the transfer of the appellant’s non-transmission and distribution (non T&D) business to its subsidiary in exchange for equity shares, under a scheme approved by the Calcutta High Court, constitutes a slump sale under Section 50B of the Income Tax Act, 1961. The assessee argued that the transaction should not be treated as a slump sale since it was executed through a scheme of arrangement and involved no monetary consideration but only the allotment of shares.The Assessing Officer, CIT(A), and Tribunal concluded that the transfer fell under Section 50B, treating it as a slump sale, primarily because the assessee approached Bond Issuing Authorities for investment in bonds under Section 54EC to avoid capital gains tax. However, the Court held that there is no estoppel in Taxation Law, and the assessee could raise an alternate plea. The Court referred to the Delhi High Court’s decision in CIT Vs. Bharath General Reinsurance Co. Ltd., emphasizing that the income-tax department must determine whether income is assessable in a particular year, regardless of the assessee’s initial position.The Court noted that the scheme of arrangement approved by the Calcutta High Court involved the transfer of the non T&D business in exchange for 39,00,000 equity shares of Rs. 10 each at a premium of Rs. 96 per share, totaling Rs. 41.3 Crores. The Court found no monetary consideration involved, which is essential for a transaction to be classified as a sale under Section 2(42C) of the Act. The Court relied on the definition of 'sale' under the Transfer of Property Act, 1882, and the Sale of Goods Act, 1930, which requires monetary consideration.The Court also referred to the Supreme Court’s decision in CIT Vs. Motors and General Stores (P.) Ltd., which distinguished between sale and exchange, noting that a transaction involving the exchange of shares is not a sale. The Court concluded that since there was no monetary consideration, the transaction could not be classified as a slump sale under Section 50B.2. Consistency with Bombay High Court’s Decision in CIT Vs. Bharat Bijlee Ltd.:The Court examined whether the Tribunal’s finding was consistent with the Bombay High Court’s decision in CIT Vs. Bharat Bijlee Ltd. In that case, the Bombay High Court held that a transfer involving the issuance of preference shares and bonds, without monetary consideration, was an exchange and not a slump sale under Section 50B.The Court noted that the Tribunal had erred in not considering the alternate plea raised by the assessee, influenced by the decision in Avaya Global Connect Ltd. The Court highlighted that the Bombay High Court in Bharat Bijlee Ltd. had distinguished the Delhi High Court’s decision in SREI Infrastructure Finance Ltd. based on the presence of monetary consideration in the latter case. Since the transaction in the assessee’s case involved only the allotment of shares and no monetary consideration, the Court found it consistent with the Bombay High Court’s decision.The Court also referred to the Supreme Court’s decision in CIT Vs. Rasiklal Maneklal (HUF), which held that the allotment of shares could not be construed as a transfer. Additionally, the Court emphasized that the transfer under a scheme of arrangement approved by the High Court is a statutory transfer and not a contractual one, further supporting the assessee’s position.Conclusion:The Court concluded that the transfer of the non T&D business to the subsidiary company was not a slump sale under Section 50B of the Act, as it involved no monetary consideration but only the allotment of shares. The Tribunal’s finding was inconsistent with the law declared by the Bombay High Court in CIT Vs. Bharat Bijlee Ltd. The appeal was allowed, and the substantial questions of law were answered in favor of the assessee.