AI Drafter 
TaxTMI 
TaxTMI 
2020 (7) TMI 221
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....er normal provision of the Act. The company had computed book profit u/s 115JB at Rs. 210,666,822/-, and computed total tax liability of Rs. 41,986,951/-. The return was picked up for scrutiny under CASS and notice issued on 01-08-2012 u/s 143(2). Subsequently, the assessee company revised its return of income declaring total income NIL. Notice u/s 142(1) were issued and served on the assessee company and finally assessment framed u/s 143(3) of the Act by making various disallowances in the said order. The AO has assessed total income of the assessee of Rs. 21,37,16,635/- as per Book Profit u/s 115JB raising demand of Rs. 429,970/- in the order u/s 143(3) dated 30.03.2014." 3. On appeal the ld. CIT(A) granted part relief. Aggrieved, both the Revenue as well as the assessee are in appeal before us. 4. We have heard Sh. A.K. Gupta, ld. Counsel for the assessee and Sh. Vijay Shankar, ld. DR on behalf of the Revenue. On a careful consideration of the facts and circumstances of the case, perusal of the papers on record and case laws cited, we hold as follows. 5. We first take up the assessee's appeal in ITA No. 2389/Kol/2018. The grounds of appeal are as follows: "1. (....
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....a erred in holding the Income from House Rent at Rs. 450,000/- (decided by Assessing Officer) being 15 times of actual rent on estimate based on the Sale value of the Property of Rs. 120 Crores without considering written submission and provisions of Section 23 of the Income Tax Act, 1961. (ii) That on the fact and in the circumstance of the case, the learned Commissioner of Income Tax (Appeals) - 4, Kolkata had disregarded the earlier assessments wherein the House Property income was assessed in pursuance to Provisions of Section 23 and as such, the decision of the Commissioner of Income Tax (Appeals) - 4, Kolkata is bad in law. 3. That the appellant craves leave to supplement, substitute, add, alter, amend, cancel or otherwise modify all or an)' of the grounds herein before or at the time of hearing, if necessary so arises." 6. The facts relating to ground No. 1 are brought out by the ld. CIT(A) at para 2.0 to 2.3. The findings of the ld. CIT(A) are as follows: "2.0. Ground No. I; Short-term Capital gains from sale of Property at 13, Aurangjeb Road, New Delhi: 2.1. During the relevant assessment year 2011-12 (i.e. previous year 2010-11) ....
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....IE(India) Rs. 1,35,38,000/- (iii) Conversion cost paid for making land & building freehold On 08.10.2010- Rs. 2,00,00,000/- On 08.11.2010-Rs. 39,05,168/- Rs. 2,39,05,168/- (iv) Indexed cost of acquisition: Cost as per Sr. No. (ii)- Rs. 1,35,38,000/- Financial Year Cost of Inflation Index 1981-82 700 2010-11 711 (Rs. 1,35,38,000*711)/100 = Rs. 9,62,55,180/- Rs. 6,62,55,180/- (v) Total of (iii) & (iv) above Rs. 12,01,60,348/- 4. Sold on 14.03.2011 5. Sold to Ms. Savitri Devi Singh 6. Consideration Received Rs. 120,00,00,000/- 7. Value for the purpose of Stamp Duty u/s 50C Rs. 10,26,26,850/- 8. Consideration being the higher of Sr. No. 5 & 6 Rs. 120,00,000/- Less: Cost as per Sr. no. 3(v) above Rs. 12,01,60,348/- Capital Gain Rs. 107,98,39,652/- Rs. 107,98,39,652/- 2.2. However, the Ld. AO did not accept the above computation and disputed the nature of the capital gain. As per the AO, the ownership of the above land came to the appellant company subsidiary only in 2010 i.e. when the nature of land changed from leasehold to freehold on payment of conversion charges. The AO also contended that since the ....
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....his case to avoid capital gains tax on sale of land, by setting off gains with brought forward losses of the assessee firm. As a consequence of this finding, he held that no set off of losses shall be allowed in respect of the said capital gains tax and that the same shall be taxed both under the normal as well as MAT provisions. 8. This decision of the ld. CIT(A) is against the scheme of amalgamation approved by the Hon'ble High Court. The amalgamation scheme approved by the High Court, it is extracted for ready reference: "Background of the amalgamating company * Gupta & Syal Limited Company is a Public Limited company which is wholly owned subsidiary company of the appellant company. * Gupta & Syal Limited has no substantial business activity. The only income earned by the company from sale of Investment and rent only. * In the Balance Sheet of Gupta & Syal Limited the Net Worth of the company is 10.50 lakhs as on 31.03.2009. And in the last two-year profit of the company was Rs. (48,495) and Rs. 71,099 only. The profit mainly earns by the company by selling of investment and rent received. In the books of the company the major assets w....
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....'Pooling of Interests' method as prescribed by the Accounting Standard 14 'Accounting for amalgamation' issued by the Institute of Chartered Accountants of India. Accordingly, assets and liabilities of transferor company as at April 1, 2010 have been incorporated in the financial statements of transferee company in the same manner and form as they appear in the financial statements of the transferor company except for building on leasehold land (including cost of land) of Rs. 5.45 lakhs. This was shown under Investment in the books of transferor company which has been included under fixed assets in the books of transferee company in terms of the scheme of amalgamation. b) Loss of Rs. 17.83 lakhs arising on amalgamation consists of: (Rs. In lakhs) i. Accumulated deficit of transferor company 37.75 ii. Loss on cancellation of shares held inter-se among transferor and transferee companies 10.08 iii. Write back of provision for doubtful debts in the books of transferee company relating to advance to transferor company (30.00) 17.83 c) In terms of scheme of amalgamation no shares of the transferee....
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....ed to JCT Limited / the Transferee Company and accordingly the same pursuant to Section 394 of the Companies Act, 1956 be transferred to and become the liabilities and dues of JCT Limited / The Transferee Company. 6. That all proceedings now pending by or against Transferor Company be continued by or against JCT Limited / the Transferee Company but JCT Limited shall have the right to settle the dues, if any, of the Transferor Company by way ,of swap of any of the investments held by them. 7. That JCT Limited / the Transferee Company shall take over on and from 1st April, 2010 all employees of Transferor Company on the terms and conditions on which they are employed without any interruption of service so that the services of all such employees with Transferor Company upto 1st April, 2010 shall be taken into account for purpose of all retirement benefits, retrenchment, compensation, gratuity and other terminal benefits. 8. That all contracts, deeds, bonds, agreements and other instruments of whatever nature relating to Transferor Company to which Transferor Company are party subsisting or having effect, shall remain in full force and effect against or in fa....
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....dicial to the interests of its members or to public interest. Hence the merger scheme approved by the Hon'ble High Court having in mind the larger public interest, cannot be disturbed by the revenue merely because the assessee is not entitled for benefits u/s 72A of the Act. The expression 'Public interest' was discussed by the Hon'ble Gujarat High Court in the case of Wood Polymer Ltd reported in 109 ITR 177 (Guj) wherein the Hon'ble Court refused to sanction the scheme of amalgamation formulated solely for the purpose of avoiding taxes. It was held that: "The court is charged with a duty, before it finally permits dissolution of the transferorcompany by dissolving it without winding up, to ascertain whether its affairs have been carried on, not only in a manner not prejudicial to its members but in even public interest. The expression "public interest" must take its colour and content from the context in which it is used. The context in which the expression "public interest" is used, enables the court to find out why the transferor company came into existence, for what purpose it was set up, who were its promoters, who were controlling it, what object was sought to be ac....
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.... Act, 1956 reads as under:- Notice to be given to Central Government for applications under sections 391 and 394 - The court shall give notice of every application made to it under section 391 or 394 to the Central Government, and shall take into consideration the representations, if any, made to it by that Government before passing any order under any of these sections. Hence if there be any objections for the income tax department , they could raise the same at that stage i.e prior to sanction of scheme by the court. Once the scheme is approved, it implies that the same has been done after duly considering the representations from the Government / revenue. Similar view was expressed by the Co-ordinate bench of this Tribunal in the case of ITO vs Purbanchaal Power Co. Ltd in ITA No. 201/Kol/2010 dated 17.7.2014 wherein it was held that :- From the above provisions of section 394A of the Companies Act, 1956, legal position enunciated in the decisions of Hon'ble Gujarat High Court in the case of Wood Polymer Ltd ., in re and Bengal Hotels Pvt Ltd in re, supra and Vodafone Essar Gujarat Ltd., supra, evidently makes the purpose clear that if the revenue want....
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....the case of Casby CFS (P) Ltd reported in 231 Taxman 89 (Bom) dated 19.3.2015. (underlining provided by us) 4.5.1. We also find that the Hon'ble Supreme Court in the case of J.K.(Bombay) (P) Ltd vs New Kaiser -I-Hind Spg.& Wvg.Co. reported in 1970 AIR 1041 (SC) dated 22.11.1968 had held : The Principle is that a scheme sanctioned by the court does not operate as a mere agreement between the parties; it becomes binding on the company, the creditors and the shareholders and has statutory force, and therefore the joint-debtor could not invoke the principle of accord and satisfaction. By virtue of the provisions of sec. 391 of the Act, a scheme is statutorily binding even on creditors, and shareholders who dissented from or opposed to its being sanctioned. It has statutory force in that sense and therefore cannot be altered except with the sanction of the Court even if the shareholders and the creditors acquiesce in such alteration. (underlining provided by us) 4.5.2. We find that the aforesaid observations of the Hon'ble Supreme Court had been followed by the Hon'ble Bombay High Court in the case of Sadanand Varde and Others vs State of Maharashtra rep....
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....ome tax department had the opportunity to controvert the specific clause mentioned in para 10(iii) in the scheme of amalgamation , when the scheme was presented before the Hon'ble High Court for approval. Thus applying the principles of res judicata as explained by the Hon'ble Apex Court in the aforesaid case, the issue can be deemed to be heard and decided . Accordingly, the argument that the same cannot be agitated in appeal u/s 391(7) of the Companies Act, 1956 deserves attention and merit. The English Court of Chancery in case of Henderson vs Henderson reported in (1843-60) All ER Rep 378 while construing Explanation IV to Section 11 of Code of Civil Procedure quoted hereunder:- The plea of res judicata applies, except in special case (sic), not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a Judgement, but to every point which properly belonged to the subject of litigation and which the parties, exercising reasonable diligence, might have brought forward at the time". 4.7. It would be relevant to note that the scheme of amalgamation was approved on 6.10.2010 and intimation to this effect was sent by ....
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....licants had knowledge about the passing of order of winding up. They had knowledge or have had occasion to come before this Court earlier, and did not come because they have accepted legality and validity of amalgamation". Applying the Doctrine of Acquiescence and Estoppel the Hon'ble Court held that "It appears to us all the appellants have accepted the scheme of amalgamation and now these companies against whom relief is sought for are no longer in existence and they cannot be reverted back to their earlier position as by this time third parties right have been created by reallocation or reallotment of shareholding for there may be fresh subscribing. In true sense there has been sea change in the shareholding pattern of these companies. Therefore we dismiss the appeal." 4.8. In view of the aforesaid observations and findings in the facts and circumstances of the case, we hold that the accumulated losses of amalgamating companies, comprising of unabsorbed short term capital loss of Rs. 10,26,44,123/- ; unabsorbed long term capital loss of Rs. 6,34,784/- and unabsorbed business loss of Rs. 6,63,574/- , would belong to the amalgamated company pursuant to clause in ....
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.... grant benefit of set off of carry forward losses in respect of the said capital gains both under the normal and MAT provisions. 14. The ld. DR had argued that, for the purpose of indexation, the fact that the assessee had leasehold rights from the year 1966 and that these leasehold rights were converted into free hold rights w.e.f. 26.11.2010 by payment of Rs.2.39 crores as cost of conversion has to be taken into consideration and hence the entire gain cannot be held as long term capital gain for the purpose of indexation. For this the ld. Counsel for the assessee submitted that no indexation has been clained by the assessee on this amount of Rs.2.39 crores paid towards cost of conversion of leasehold property into free hold property. In the result, ground No. 1 of the assessee is allowed. 15. Ground No. 2 is on the issue of addition on account of house rent. The facts are brought out at para 5.1 at page 16 of the order of the ld. CIT(A) which is extracted below: "5.1. In the computation of Income, the appellant company computed Gross Annual Value of the property situated at 13, Aurangzeb Road, New Delhi at Rs. 30,000/- being the rent received by M/s. Gupta & Syal L....
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....ision of Section 23(l)(a), in the case of let out property, only the actual rent received was required to be considered as annual value of property. The AO failed to appreciate such estimation of annual letable value as per provision of Section 23(1 )(a) was called for only in case of vacant property and not where the property was actually let out since in the case of let out property, the assessee was not entitled to anything over and above the agreed rent. The said action of the AO has resulted in taxing notional income in the hands of the assessee, which never accrued and hence cannot be brought to tax. Accordingly, we are of the view that the CIT(A) has rightly deleted the addition and hence, we confirm the order of CIT(A) on this issue. This common issue of revenue's appeal is dismissed." 18. Applying the propositions of law laid down in these case law to the facts of the case, we allow these grounds of the assessee. 19. In the result, this appeal of the assessee is allowed. 20. Now we take up the Revenue appeal in ITA No. 84/Kol/2019. 21. Grounds of appeal are as follows: "1. That on the fact and in the circumstances of the case the Ld. CIT(A) erred in ca....
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.... the expression 'held' as against "owned". Therefore, the contention of the AO that ownership is relevant is not in accordance with the provision of the Act. The above view finds support from the recent judgement of Kolkata ITAT in the case of Stewarts & Lloyds of India Ltd. vs. CIT [ITA No. 372/Kol/2009where it was held that in computing capital gain ownership of the property not to be considered, in computing the capital gain from the date of asset held by the assessee is to be considered." 23. We find no infirmity in this finding as it is supported by the decision of the Kolkata 'A' Bench of the Tribunal in the case of Stewarts & Lloyds of India Ltd. vs. CIT in ITA No. 372/Kol/2009 order dated 02.03.2016 as well as the judgement of Hon'ble Allahabad High Court in the case of Amar Nath Agrawal vs. CIT [2015] 51 taxmann.com 120 (Allahabad). Hence this ground of the Revenue is dismissed. 24. Ground no. 2 is on the issue of computation of disallowance u/s 14A of the Act. The ld. CIT(A) at page 15 para 4.2.1 and 4.2.2 held as follows: "4.2.1 I have gone through the submission of the Ld. AR of the appellant company and the order of the Ld. AO. During the ....
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....m allowing the deduction in respect of said premium over the period of FCCBs i.e. age of the bonds. Therefore, this ground is also partly allowed in favor of the appellant." 27. This issue is covered in favour of the assessee by the judgement of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. [1997] 91 Taxman 340 (SC) and the judgement of the Tribunal in the case of Universal Cables Ltd. vs. CIT [2000] 243 ITR 371 (Calcutta). This Bench of the Tribunal in the case of M/s. Kanoria Chemicals & Industries Ltd. vs. ACIT in ITA No. 1880/Kol/2014 at para 14 page 10 and 11 held as follows: "14. Ground No. 4 of the departmental appeal for the Assessment Year 2009-10 and the Ground No. 2 for the Assessment Year 2010-11, are on the issue of allowability of the claim of the assessee for deduction of premium payable on redemption of FCCB bonds, which the assessee have been claiming on pro rata basis based on over the terms (i.e. Time Period) of the bond. The Assessing Officer disallowed this claim on the ground that:- a) The assessee has not debited its profit and loss account. b) That the liability was contingent in nature. ....