2023 (2) TMI 564 - AT - Income Tax

Tribunal allows appeal on income tax addition due to write-off of shares

Teleperformance BPO Holdings Private Limited Versus National Faceless Appeal Centre, Delhi.

The tribunal allowed the appeal filed by the assessee, challenging the addition made under section 60 of the Income Tax Act due to write off of ... Additions of Income of other person u/s 60 & 63(b) - transfer of income without transfer of corresponding asset by the assessee - HELD THAT:- Nexus between two independent transaction i.e. reduction of share capital of TGSPL thereby wiping out the entire equity share holding into TGSPL and issue of equity shares by TGSPL by conversion of FCDs allotted to Serco International SARC. In the above two transactions, in our opinion there is no generation of income that could in any manner be transferred to any other person. Hence, application of section 60 of the Act in the present case fails at the first step itself. Reduction in share capital and share premium of TGSPL and conversion of FCDs into equity shares by TGSPL are two independent events. Undisputedly, with reduction in share capital and share premium the equity shares held by assessee in TGSPL have been wiped out. We fail to comprehend as to how said reduction in share capital and share premium results in transfer of profit by the assessee to Serco International SARL, to whom equity shares have been allotted after conversion of fully convertible Debentures. As is evident from records, FCDs were issued by TGSPL to Serco International SARL much prior to reduction in share capital. Since, there is no generation of income there can be no question of transfer of income to any other person. AO and the CIT(A) have erred in invoking the provisions of section 60 of the Act for making addition - Consequently, the impugned order is liable to be set aside on this ground alone. Assessee appeal allowed. Issues Involved:1. Interpretation of provisions of section 60 of the Income Tax Act, 1961 regarding the addition made on account of write off of investment under the head 'Income from Other Sources'.2. Analysis of whether reduction in share capital and conversion of Fully Convertible Debentures (FCDs) into equity shares constitute a generation of income for the application of section 60.3. Examination of the CIT(A)'s decision upholding the assessment order and confirming the addition under provisions of section 60 and 63(b) of the Act.4. Consideration of the alternate contention raised by the assessee regarding capital loss while computing total income.5. Assessment of the levy of interest under section 234B of the Act.6. Evaluation of the initiation of penalty proceedings under section 271(1)(c) of the Act.Analysis:1. The appeal by the assessee challenged the addition made under section 60 of the Income Tax Act due to the write off of investments in equity shares of a company following a capital reduction scheme approved by the Bombay High Court. The assessee argued that no income was generated as a result of the reduction in share capital and conversion of FCDs into equity shares. The tribunal held that there was no transfer of income to any other person in these transactions, and hence, the provisions of section 60 did not apply. The addition made by the Assessing Officer was deemed incorrect, and the appeal was allowed on this ground.2. The CIT(A) had upheld the assessment order confirming the addition under sections 60 and 63(b) of the Act. However, the tribunal found that the reduction in share capital and the conversion of FCDs into equity shares were two distinct transactions. It was established that no income was generated that could be transferred to another person. Therefore, the tribunal concluded that the application of section 60 failed as there was no income transfer involved. The order of the CIT(A) was set aside on this basis, and the appeal was allowed.3. The assessee raised an alternate contention regarding claiming capital loss while computing total income, but this ground was not pressed by the counsel during the proceedings. As a result, this ground was dismissed as not pressed.4. The tribunal dismissed the ground challenging the levy of interest under section 234B of the Act, stating that charging interest under this section is mandatory and consequential.5. The initiation of penalty proceedings under section 271(1)(c) of the Act was challenged by the assessee. However, the tribunal deemed this challenge premature at the current stage, and thus, the ground was dismissed accordingly.6. The tribunal concluded by partly allowing the appeal filed by the assessee and dismissing the stay application seeking relief from the outstanding demand for the assessment year 2016-17, as it had become infructuous following the decision on the appeal.