TaxTMI 
TaxTMI 
1995 (3) TMI 152
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....at certain dispute arose between Smt. Madhavrao Scindia and Rajmata Vijayaraje Scindia in regard to various properties and assets owned by the HUF and companies, namely, Scindia Investment P. Ltd., K.B. Bank Ltd., Scindia Potteries P. Ltd. and Manjri Stud Farms. The dispute was referred to the sole arbitrator Shri D. M. Harish, Advocate, who gave an award on 1-4-1980 concerning the various matters referred to him. This award has been made rule of the Bombay High Court on 11-7-1980. As per para 11 of the award certain assets with a book value of Rs. 30,21,434 were directed to be exchanged between the two companies, namely, Scindia Investment P. Ltd. and K. B. Bank Ltd. The said para reads as under : "I award and direct that SIPL and K.B. Bank exchange their aforementioned assets in the following manner : (a) SIPL transfers 1,29,572 shares of Nirlon Synthetic Fibres & Chemicals Ltd. To K.B. Bank at the value of Rs. 20 per share. Rs. 25,91,440 (b) SIPL transfers 4,400 shares of Scindia Potteries to K.B. Bank at book value Rs. 1,28,750 (c) SIPL transfers the debt owed to it by Scindia Potteries to K.B. Bank to the extent of Rs. 2,27,460 (d) SIPL transfers the following M....
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.... (e) By adjustment ot the amount received from Madhavrao in the books of SIPL Rs. 2,00,000 (f) By payment of the amount received by Rajmata from the HUF on partial partition as directed hereinafter Rs. 8,79,326 (g) By transfer of 149-665 kgs of silver received by her from Madhavrao Rs. 4,87,627 (h) By payment out of the amount of Rs. 50,115 received by Rajmata on partial partition of the HUF as directed hereinafter and the balance of Rs. 2,717 out of the amount of Rs. 18,083 received from Madhavrao Rs. 52,832 --------------------------- Rs. 25,00,000" As per the award assessee made adjustments in its books of account which for the assessment year 1981-82 were closed on 31st December, 1980. On the basis of the award and the entries made by the assessee in its books of account, Assessing Officer initially assessed the capital gains on the exchange of assets at Rs. 17,32,667 and computed the business income at Rs. 20,904 vide assessment order dated 24-3-1984. Subsequently, on 8-5-1985, order under section 154 was passed revising the computation of capital gains to Rs. 27,41,174. Both these orders were challenged in appeal before the CIT(A), Central Range, Bombay. ....
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.... any transfer of a capital asset by a subsidiary company to the holding company, if--- (a) the whole of the share capital of the subsidiary company is held by the holding company, and (b) the holding company is an Indian company." A plain reading of section 47(v) reveals that the benefit under the said section can be claimed if two conditions are satisfied. There must be a transfer of a capital asset by a subsidiary company of which the whole of the share capital is held by the holding company and subsequently, secondly, the holding company is an Indian company. Prior to the transfer of the assets, SIPL was the holding company and K.B. Bank Ltd., a subsidiary company. However, there has been a dispute between the two parties, namely, Mrs. Madhavrao Scindia and Smt. Rajamata Vijayaraje Scindia. That dispute was resolved by arbitration. As a result of the arbitration award the shares of K.B. Bank held by SIPL and its nominees had to be transferred to Smt. Rajamata Vijayaraje Scindia at the value of Rs. 50 per share. Thus when the award is implemented the SIPL no longer remains the holding company of the K. B. Bank as the entire share holding are transferred to Smt. Rajamata ....
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....d to K. B. Bank Ltd. and has deducted therefrom the book value of the assets transferred by K.B. Bank Ltd. to the SIPL and worked out the capital gains. In our view, it is not the fair determination of the capital gains, if any, arising as a result of the transfer of the assets. 8. Section 45 of the Income-tax Act, 1961 which relates to the taxation of capital gains reads as under : " 45. (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 53, 54, 54B, 54D, 54E, 54F, 54G and 54H be chargeable to income tax under the head 'Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place. (2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax ....
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....geable as income under the head 'Capital gains' of the previous year in which such compensation or part thereof, or such consideration or part thereof, was first received ; and (b) the amount by which the compensation or consideration is enhanced or further enhanced by the court, Tribunal or other authority shall be deemed to be income chargeable under the head 'Capital gains' of the previous year in which such amount is received by the assessee. Explanation : For the purposes of this sub-section,--- (i) in relation to the amount referred to in clause (b), the cost of acquisition and the cost of improvement shall be taken to be nil ; (ii) the provisions of this sub-section shall apply also in a case where the transfer took place prior to the 1st day of April, 1988 ; (iii) where by reason of the death of the person who made the transfer, or for any other reason, the enhanced compensation or consideration is received by any other person, the amount referred to in clause (b) shall be deemed to be the income, chargeable to tax under the head 'Capital gains', of such other person. (6) Notwithstanding anything contained in sub-section (1), the difference between the re-....
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....ave in these circumstances remitted the matter back to the Assessing Officer for the purposes of determination of the market value of the assets transferred by K. B. Bank Ltd. to SIPL in order to ascertain as to whether any profits and gains arose to the assessee as a result of exchange of assets. However, we feel that it is unnecessary as even if the result of the enquiry is against the assessee, the Assessing Officer would not be in a position to ascertain the capital gain & chargeable to tax under the provisions of the Act, as there is another difficulty in computation of capital gains. Under section 48 of the Income-tax Act, 1961, the income chargeable under the head 'Capital gains' are to be computed by deducting 'from the full value of the consideration' received or accruing as a result of the transfer of the capital asset certain amounts of expenditure incurred wholly and exclusively in connection with the transfer and the cost of acquisition of the assets and the cost of improvement thereto. Here comes the difficulty. The capital gains are to be computed with reference to the 'full value of consideration'. Thus, the full value of consideration received or accruing as a resu....