TaxTMI 
TaxTMI 
2017 (7) TMI 661
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....he Commissioner of Income Tax (Appeals) ought to have appreciated the fact that transaction in the capital field will not attract provisions of section 28(iv). In fact, the transfer of assets in amalgamation of companies would be chargeable under the head Capital Gains but specifically exempted in respect of transfer of assets between the holding and subsidiary companies. Hence, it is not chargeable under the head of Profits and Gains from Business or Profession. 2.2 The Commissioner of Income Tax (Appeals) has failed to consider that section 28 of the Act would be applicable only to Revenue transactions carried out by the Appellant in the normal course of its business and any profit or benefit arising out of such business alone shall be taxed under the section. 28(iv) of the Act and not capital transactions like amalgamation which is not the business of the appellant. 2.3 The Commissioner of Income Tax (Appeals) ought to have appreciated the fact that the Appellant Company was already the 100% owner of the surplus of the assets over the liabilities of the subsidiary company and value of shares in the subsidiary reflects this surplus. Thus, when the shares of the subsidiary, on....
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....d before the AO that the transfer of assets in amalgamation of companies would be chargeable under the head "Capital gains" but specifically exempted in respect of transfer of assets between Holding and Subsidiary Companies. Hence, it is not chargeable under the head 'Profits and gains of business'. Section 28(iv) of the Income Tax Act would be applicable to Revenue transactions carried by an assessee in the normal course of the business and any profit or benefit arising out of such business alone shall be taxed under the sub-section 28(iv) of the Income Tax Act. Further transaction in the capital field will not attract provisions of S.28(iv). Hence, S.28(iv) of the Income Tax Act would not be applicable. Not being impressed by the explanation of the assessee company the AO brought to tax the capital reserve u/s. 28(iv) of IT Act. 4.0 Aggrieved by the order of the Assessing Officer (in short 'AO'), the assessee went on appeal before the Learned Commissioner of Income Tax(Appeals) (in short 'Ld.CIT(A)') and the Ld.CIT(A) confirmed the addition made by the AO as per paragraphs No.4.2 of the Ld.CIT(A) order which is extracted as under: 4.2 I have carefully considered the facts of t....
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....ation replaced by assets and liabilities of subsidiary company, there is no fresh annuity or benefit acquired to the company. The assessee further argued that the transfer of assets on amalgamation of companies would be chargeable under the head capital gains but specifically exempted in respect of assets between the holding company and subsidiary company. The AO has made addition u/s.28(iv) which would be applicable only to Revenue transactions carried on by the assessee in the normal course of business but not for amalgamation of the assets. On the other hand, the Ld.DR relied on the orders of the lower authorities. 6.0 We heard the rival submissions and perused the material placed on record. M/s.Sundaram Auto Finance Ltd., was 100% owned subsidiary company of the assessee and the subsidiary company was amalgamated with the assessee company. On amalgamation, there was a surplus representing capital reserve which was taxed by the AO u/s.28(iv) of Income Tax Act. The AO was of the view that the amalgamation resulted in a benefit in the form of surplus of assets over liability of the subsidiary company. As rightly stated by the Ld.AR, the surplus in amalgamation attracts capital g....
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.....28(iv) of Income Tax Act and we set-aside the order of the lower authorities and allow the appeal of the assessee. 7.0 ITA No.284/Mds/2015 (Revenue's appeal) The Department appeal is relating to indexation benefit on capital gains u/s.48 of Income Tax Act. During the previous year relevant to the Assessment Year, the assessee has sold the government securities and claimed indexation benefit on sale of government securities which resulted in loss of Rs. 3,16,61,933/-. The AO disallowed the indexation benefit claimed by the assessee as per 3rd proviso of Sec.48 of Income Tax Act holding that on sale of government securities, indexation benefit is not allowed. On appeal to the Ld.CIT(A), the Ld.CIT(A) allowed the appeal of the assessee. 8.0 Aggrieved by the Ld.CIT(A)'s Order, the Revenue has filed an appeal before us. During the appeal, appearing for the Revenue, the Learned Departmental Representative (in short 'Ld.DR') argued that the government securities are covered by third provision to Sec.48 of income tax act and as per the proviso the indexation benefit is not allowable to the assessee. On the other hand, the Ld.AR argued that government securities are capital assets and....
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.... and debentures it is available to Government Securities as per the third proviso to s.48 of the IT.Act. Therefore, I direct the AO to allow indexation benefit on the Government Securities in which the appellant has made the investments, while working out capital gains on sale of such securities. The ground is allowed. 10.0 The capital asset is defined u/s.2(14) of Income Tax Act as under: 14) 49["capital asset"50 means- (a) property50 of any kind held by an assessee, whether or not connected with his business or profession; (b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992), but does not include- (i) any stock-in-trade [other than the securities referred to in sub-clause (b)]], consumable stores or raw materials held for the purposes of his business or profession ; 51[(ii) personal effects52, that is to say, movable property (including wearing apparel and furniture) held52 for personal use52 by the assessee or any member of his family dependent on him, but excludes- (a) jewellery; (b) archaeological collectio....
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....ssued by the Central Government ;] 66[(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 66a[or deposit certificates issued under the Gold Monetisation Scheme, 2015] notified by the Central Government.] 67[Explanation.-For the removal of doubts, it is hereby clarified that "property" includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever;] 11.0 From the definition of the capital asset, the government securities are not excluded from the definition of capital asset. Therefore, the government securities are capital assets. As per Sec.2(42A) the expression 'security' shall have the meaning assigned to Clause-11 of Securities Contracts Regulation Act, 1956 which includes government securities as discussed in the Ld.CIT(A) orders which was extracted above. In Reserve Bank of India FAQ's Government securities are defined as under: A Government security is a tradable instrument issued by the Central Government or the State Governments. It acknowledges the Government's debt obligation. Such securities are short term (usually called treasury bills,....