TaxTMI 
TaxTMI 
2017 (9) TMI 171
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....ed as taken over by the company, despite the absence of any such case before the Commissioner, whose order under section 263 of the Act was subjected to challenge before the Tribunal at the instance of the assessee ? These are the substantial questions of law, on which the parties were heard in this appeal. 2. The respondent-assessee was running a proprietorship concern under the name and style as KAP (India) Constructions, Thrissur. The said establishment, which was pursuing business in civil construction on contract basis, was having the head office at Bangalore and site offices at different places, including in Kerala. The proprietorship concern was run up to September 30, 2000 and thereafter, it was taken over by a limited company by name KAP (India) Projects and Constructions (P) Limited, with all the assets and liabilities of the former, as per the terms agreed and settled. 3. The respondent-assessee filed return for the year 2001-02, declaring a total income of Rs. 47,83,440; of course revealing the income received from the proprietorship concern up to September 30, 2000 and income from other sources as well. Pursuant to scrutiny under section 143(3) of the Act, the assess....
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....wn below 50 per cent. at any point of time. In respect of section 47(xiv)(c), it was stated that the assessee had not received consideration/benefit directly or indirectly in any form or manner other than by way of "allotment of shares" in the company and that he had not received any interest on the balance to his credit under the loan account as well. After considering the explanation and also after perusing the records, the Commissioner observed that all the conditions laid down under section 47(xiv) of the Act had not been fulfilled by the assessee. It was observed that the assessee had received consideration in some form other than by way of allotment of shares, i.e. out of net asset of Rs. 5,17,03,897.63 (Rs. 9,64,39,231.19 Rs. 4,47,35,333.56); as allotment of shares was only to an extent of Rs. 1,52,94,900, whereas a sum of Rs. 2,73,07,905 was treated as "unsecured loan". Based on the said finding, it was held as per annexure B order dated November 24, 2004 that, "goodwill" to an extent of Rs. 2,45,00,000 omitted to be taxed under the capital gain tax and hence annexure A order passed by the Assessing Officer was set aside, directing to recompute the assessee's total inco....
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.... a result of which the sole proprietary concern sells or otherwise transfers any capital asset or intangible asset to the company : Provided that- (a) all the assets and liabilities of the sole proprietary concern relating to the business immediately before the succession become the assets and liabilities of the company ; (b) the shareholding of the sole proprietor in the company is not less than fifty per cent. of the total voting power in the company and his shareholding continues to remain as such for a period of five years from the date of the succession; and (c) the sole proprietor does not receive any consideration or bene fit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company ;" 9. According to the learned standing counsel for the appellant, the amount pumped in by the sole proprietor to his "proprietorship concern" and shown in the current account, can be nothing other than investment, which, when taken over, will form the liability of the company, to be discharged only by allotting shares and in no other manner; to be in conformity with section 47(xiv)(c) and to have the benefit of exemption accordingly. Same is....
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....ferred to the company by the assessee amounted to Rs. 9,64,39,231.19 and the liabilities were to the tune of Rs. 4,47,35,333.56. The value of the assets transferred includes the "goodwill" as well, which was valued at Rs. 2,45,00,000. By virtue of the mandate under section 55(1)(b) and 55(2)(a) of the Income-tax Act, it was noted that the cost of acquisition and cost of improvement of the "goodwill" shall be taken as "nil" and it was accordingly, that the differential portion was worked out and shown as the amount actually due to the assessee. Out of this amount, since the value of the total shares amounted to only Rs. 1,52,94,900 (while showing Rs. 2,73,07,905 as unsecured loan), it was observed that section 47(xiv)(c) was not satisfied completely and the "good will" portion to an extent of Rs. 2,45,00,000 was also liable to be taxed. This is not an attempt on the part of the Commissioner "to generate some more revenue" by refixing the assessment, if two views were possible. It is not a question of two alternate views, but a case of only "one view", which came to be wrongly decided by the Tribunal. As it stands so, it is the correct view that can be sustained and not the impaired ....
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....on 47(xiv)(c) was not attracted; it is to be noted that the "transfer" was effected as on October 1, 2000, on which date, the disputed amount described as the liability of the "proprietorship concern", to the proprietor, was stated as taken over by the company as "unsecured loan" to be discharged to the proprietor on demand. This by itself shows that the company could not have borrowed any amount from the proprietor/assessee, unless the amount was credited to the latter's account. Though the amount actually did not come to the hands of the assessee/proprietor, the moment it is shown as "loan" repayable to the proprietor, there results an indirect admission that the said amount had already come to the credit of the proprietor/assessee; from whom the company had taken over the "loan". By virtue of the legal fiction in this regard, it can be easily said that, part of the consideration was paid by the company to the "proprietor" pursuant to taking over the proprietorship concern with all the assets and liabilities; which included the cost of the "goodwill" as well, to an extent of Rs. 2,45,00,000. In so far as there is no dispute that the total number of shares transferred was only....
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...., 2002 was Rs. 3 crores of which, I sub scribed Rs. 153 lakhs being 50 per cent. of the paid-up capital. The conditions of provisions (b) have been satisfied. So far, the percentage of my shareholding has not come down. All the assets and liabilities of the company. Nowhere in the section, it is mentioned that shares should be issued for the whole amount. As and when shares are issued, my shareholding should not be less than 50 per cent. of the total voting power. That condition is fully satisfied. 2. Regarding provision (c), I may inform you that I have not received any consideration or benefit directly or indirectly in any form or manner other than by way of allotment of shares in the company. I have not received any interest on the balance to my credit under loan account also. 3. Provision 'b' also does not stipulate that shares should be issued for the value of entire assets taken over by the company. 4. For the reasons mentioned above, I strongly object to your proposal to set aside the assessment to bring to tax the value of goodwill of Rs. 2,45,00,000 under the head 'Capital gains'." It was with reference to the said stand/case, that the matter was con....