2020 (6) TMI 528

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....assessee in holding that the period of holding of the assets transferred by the assessee, M/s Feroke Boards Limited on 18-05-2010 includes the holding period of the previous owner within the meaning of section 2(42A) of the Income Tax Act without appreciating that Explanation to section 49(1) of the Income- Tax Act, 1961 is applicable in the case of the assessee. 4. The Ld. Commissioner of Income- Tax (Appeals) failed to appreciate that modes of acquisition of the concerned asset by the Previous Owner was specifically excluded as per Explanation to sec. 49(1) for considering any benefit of previous owner and cost was taken at nil accordingly, both by the Assessee and the AO. Accordingly, the benefit of period of holding of asset by the previous owner could not be allowed to the assessee for computation of Capital Gains. 5. The Ld. Commissioner of Income- Tax( appeals) has failed to appreciate that the assessee acquired the asset on 01-04- 2008 and transferred the same on 18-05-2010 i.e. within period of less than 36 months. The claim of the assessee that the holding period of the asset should be taken including the holding period to the previous owner of the asset....

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....y is known as M/s.Feroke Boards Limited. The Intangibles including the brand name never belonged to the assessee company prior to the amalgamation. They belonged to the amalgamating companies who renounced their rights and ceased to exist consequent to the amalgamation with effect from 1/4/2008. The scheme of amalgamation is reproduced as under: "Effective Date" means the last of the dates on which certified copies of the order(s) of the High Court sanctioning the Scheme are filed with the Registrar. 1.9 "Transferor Companies" or the Amalgamating Companies means both 1.9A FEROKE BOARDS LIMITED (Transferor company No.1), a company incorporated on 20/12/1991 under the Companies Act, 1956 having its Registered Office at W/239, Post Karad Via, Farook College, Calicut, Kerala-673632. 1.9B FEROKE PLYWOOD PRWATE LIMITED (Transferor company No.2), a company incorporated on 28/04/1988 under the Companies Act, 1956 having its Registered Office at Post Karad Via, Farook College, Malappuram, Kerala-673 632. 1.10 Transferee Company" or the "Amalgamated Company" means FEROKE BOARDS LIMITED, a Company incorporated on 26/07/ 1993 under the Comp....

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....nounced in favour of any other person, the period shall be reckoned from the date of offer of such right by the company or institution, as the case may be ,making such offer." Explanation (b) is applicable only to transfer of other capital assets / tangibles by an amalgamated company where the period of holding by a previous owner is determined. The contention of the assessee's AR that the transfer falls within the provision of explanation (b), is therefore not acceptable. iv) A financial asset is not tangible. Instead, its existence is "represented by evidence of its existence." The paper in money has no intrinsic value. Its value is derived by virtue of what it represents. Similarly its period of holding is undetermined. That is why the provision of explanation (e) to sec 2(42A) comes to the rescue. For the above reasons the period of holding of the intangibles by the assessee company at the time of transfer to M/s Masonite Holdings Pvt Ltd being less than 36 months as determined in explanation l(e) to Sec 2(42A),the transfer is treated as short term. Accordingly the assessment is completed treating the receipts as Short term Capital Gains.....

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....d, which essentially reiterates the submissions made before the Income Tax Authorities. 9. We have heard the rival submissions and perused the material on record. The assessee during the relevant assessment year, vide manufacturing and asset transfer agreement had sold to M/s.Masonite Holdings Private Limited, its "brand name", "trademark", "packaging design" and "knowhow" etc. and also "product intangibles" and "marketing intangibles". The assessee-company totally received a sum of Rs. 13,87,20,000 as per the terms of agreement dated 18.05.2010 and supplementary agreement dated 31.03.2011. The A.O. had treated the assets transferred by the assessee to M/s.Masonite Holdings Private Limited as a "financial asset" governed by Explanation 1(i)(e) to section 2(42A) of the I.T.Act and since the period of holding of the intangibles by the assessee at the time of transfer being less than 36 months, the transfer was treated by the A.O. as STCG. Since the relevant clause of the manufacture and asset transfer agreement and its supplementary agreement are extracted in the orders of the A.O. and CIT(A), the same is not reproduced here. 9.1 The first issue to be decided is whether the ....

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....clause (via) or clause (viaa) or clause (vica) or clause (viab) of section 47". Section 47(vi) of the I.T.Act reads "any transfer, in a scheme of amalgamation of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company". The assessee's case was a scheme of amalgamation and assessee is an Indian company. Therefore, it is not correct for the Assessing Officer to consider 01.04.2008 as the date on which the assets were acquired, because the brand name was already there with Feroke Boards Limited (one of the companies that got merged with Feroke Boards & Doors (P) and later renamed Feroke Boards Limited). The brand name was registered with Trade Marks Registry (Trade Mark No.1432867 dated 14.03.2006). Section 47(vi) states "any transfer, in a scheme of amalgamation of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian Company" is not to be treated as transfer. The term "amalgamation" is defined in section 2(IB) and the assessee's case fall under the said definition. Therefore, there is no transfer taking place on 01.04.2008. The period of holding is much more tha....