Demerger asset valuation and taxability u/s56(2)(x): valuer swap ratio upheld; NCLT approval doesn't bar tax scrutiny; s.194IC inapplicable

Whether assets received on demerger attracted income under s.56(2)(x)-Tribunal (ITAT) held that the scheme satisfied s.2(19AA) read with s.47(vi); Rule 11UA (valuation) cannot be imported into s.2(19AA)(iv) and registered valuer's swap ratio was acceptable, so the exception to s.56(2)(x) applied and the addition was deleted. Outcome: deletion of addition under s.56(2)(x) upheld. Whether NCLT sanction binds tax authorities-ITAT affirmed NCLT approval does not preclude independent tax scrutiny by AO; tax consequences may be examined separately. Outcome: Revenue remains free to examine tax implications. Whether s.194IC TDS applied to payment under unregistered MOU-Tribunal agreed s.194IC did not apply as the agreement did not qualify as a "specified agreement." Outcome: direction to refer TDS default set aside; appeal allowed on this point.

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Issues: (i) Whether addition of Rs. 374,53,83,754/- made u/s 56(2)(x) in AY 2021-22 in relation to assets received pursuant to a scheme of demerger was justified or rightly deleted on the ground that the demerger complied with Section 2(19AA) and the assessee was entitled to exemption under Section 47(vi) (and thus fell under the exception to Section 56(2)(x)); (ii) Whether the direction to make a protective addition u/s 56(2)(x) in AY 2020-21 was maintainable; (iii) Whether the direction to inform AO of the demerged entity to make addition u/s 50C was maintainable; (iv) Whether the payment pursuant to MOU dated 25.03.2021 attracting withholding u/s 194-IC was correctly directed.

Issue (i): Whether the impugned addition u/s 56(2)(x) in AY 2021-22 could be sustained given compliance of the scheme of demerger with Section 2(19AA) and applicability of Section 47(vi).

Analysis: The liabilities relatable to the real estate undertaking were correctly transferred and restated from Rs. 20.28 crores to Rs. 112.38 crores in contemporaneous audited and NCLT documents; Section 2(19AA)(iv) requires proportionate allotment but does not import Rule 11UA; Rule 11UA is notified for Section 56 purposes and cannot be read into Section 2(19AA)(iv); the registered valuer's report and fairness opinion corroborate the valuation; the transaction covered by Section 47(vi) falls within the exception in proviso (c) clause (IX) to Section 56(2)(x); no taxable event relevant to AY 2021-22 had occurred as the appointed date, NCLT sanction and issuance of shares/assets receipt occurred outside AY 2021-22.

Conclusion: Addition u/s 56(2)(x) of Rs. 374,53,83,754/- is not sustainable and is deleted; the scheme of demerger complied with Section 2(19AA) and the assessee is entitled to the exemption under Section 47(vi), bringing the transaction within the exception to Section 56(2)(x).

Issue (ii): Whether the AO's direction to make a protective addition u/s 56(2)(x) in AY 2020-21 was maintainable.

Analysis: Given the substantive addition for the impugned year was deleted on merits and the demerger did not give rise to tax consequence in AY 2020-21, the protective addition direction lacked foundation.

Conclusion: Direction to make protective addition u/s 56(2)(x) in AY 2020-21 is vacated.

Issue (iii): Whether the AO's direction to inform AO of the demerged entity to make addition u/s 50C was maintainable.

Analysis: As the scheme of demerger was held compliant with Section 2(19AA) r.w. Section 47(vi) and the substantive addition under Section 56(2)(x) was deleted, the direction to invoke Section 50C against the demerged entity is not justified.

Conclusion: Direction to the AO to invoke Section 50C against the demerged entity is deleted.

Issue (iv): Whether the payment under the MOU dated 25.03.2021 attracted withholding u/s 194-IC.

Analysis: The transaction was a slump-sale of a real estate undertaking for cash consideration and not a registered 'specified agreement' or JDA as defined in Explanation (ii) to Section 45(5A); the criteria for a 'specified agreement' were not met, hence Section 194-IC does not apply.

Conclusion: Direction to the assessee regarding non-deduction of TDS u/s 194-IC is unwarranted and is dismissed in favour of the assessee.

Final Conclusion: All grounds raised by the Revenue are dismissed and the cross-objections are rendered infructuous; the Tribunal upholds deletion of the additions/directions impugned and dismisses the Revenue's appeal.

Ratio Decidendi: Where a demerger complies with Section 2(19AA) and the transaction falls within Section 47(vi), the exception in proviso (c) clause (IX) to Section 56(2)(x) excludes assets received under such demerger from taxation u/s 56(2)(x), and valuation rules notified for Section 56 cannot be read into the compliance requirements of Section 2(19AA)(iv).

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