2022 (12) TMI 684 - AT - Income Tax

Assessee's Appeal Partly Allowed on Demerger Compliance & Deemed Dividend Issue

Grasim Industries Ltd. Versus DCIT, Central Circle-1 (4), Mumbai And (Vice-Versa)

Grasim Industries Ltd. Versus DCIT, Central Circle-1 (4), Mumbai And (Vice-Versa) - TMI Issues Involved:1. Whether the demerger of the financial services business constitutes an undertaking as per Section 2(19AA) of the Income Tax Act.2. Whether the Revenue can go behind the scheme approved by the NCLT.3. Applicability of Section 2(22)(a) regarding deemed dividend.4. Valuation of the shares for the purpose of deemed dividend.5. Levy of interest under Section 115P of the Act.Issue-wise Detailed Analysis:1. Whether the Demerger Constitutes an Undertaking as per Section 2(19AA):The Tribunal examined whether the demerger of the financial services business (FSB) by the assessee complied with the conditions laid down in Section 2(19AA). The Tribunal noted that the financial services business was indeed carried out by Aditya Birla Nuvo Ltd (ABNL) as one of its business segments. The assets and liabilities transferred included fixed assets, equity shares in Aditya Birla Finance Ltd, fund-based lending, and investments in mutual funds, along with corresponding liabilities. The Tribunal held that the demerger was compliant with Section 2(19AA) as all assets and liabilities of the undertaking were transferred on a going concern basis, satisfying the conditions of the section.2. Whether the Revenue Can Go Behind the Scheme Approved by the NCLT:The Tribunal agreed with the Revenue that the approval of the scheme by the NCLT does not preclude the Revenue from examining the tax implications of the scheme. It was held that the Revenue is duty-bound to determine the tax liability of the assessee under the Income Tax Act, and this does not amount to rewriting the scheme approved by the NCLT. The Tribunal emphasized that the assessing officer is merely examining whether the scheme complies with the tax provisions, particularly Section 2(19AA).3. Applicability of Section 2(22)(a) Regarding Deemed Dividend:The Tribunal held that there was no distribution by the assessee of any of its assets to the shareholders. The shares of Aditya Birla Capital Ltd issued to the shareholders of the assessee were not previously assets of the assessee but were newly issued shares by Aditya Birla Capital Ltd. The Tribunal noted that the provisions of Section 2(22)(a) do not apply as there was no release of accumulated profits by the assessee to its shareholders. Additionally, the exception under Section 2(22)(v) for shares issued pursuant to a demerger by the resulting company to the shareholders of the demerged company was applicable.4. Valuation of the Shares for the Purpose of Deemed Dividend:Given that the Tribunal held that there was no deemed dividend chargeable to tax, the issue of valuation of shares for the purpose of deemed dividend did not arise. Consequently, the grounds related to the valuation of shares in the Revenue's appeal were dismissed.5. Levy of Interest Under Section 115P of the Act:As the Tribunal concluded that there was no deemed dividend and no dividend distribution tax was payable, the issue of levy of interest under Section 115P did not survive. Therefore, the ground related to the levy of interest was dismissed.Conclusion:The Tribunal allowed the assessee's appeal in part, holding that the demerger complied with Section 2(19AA) and that the provisions of Section 2(22)(a) regarding deemed dividend were not applicable. The Revenue's appeal concerning the valuation of shares for deemed dividend purposes was dismissed, as was the issue of levy of interest under Section 115P.