TaxTMI 
TaxTMI 
TaxTMI 
2020 (7) TMI 221
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....uted 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. (i) That on the facts and in the circumstances of the case, the le....
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....tual 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) Gupta & Syal Ltd., a wholly owned subsidiary company of the appellant company was amalgamated with the appellant company w.e.f 01-04-2010 under ....
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....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 land was sold within 36 months from the date it was owned by the appellant company therefore the resultant gain will be short term capital gain only. Accordingly, the AO denied the indexation benefit and computed the gain at Rs. 117,55,49,732/....
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....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 was a Building on leasehold land of Rs. 5.45 lakhs and HDFC Prudence Mutual Fund-Growth of Rs. 2.70 lakhs. The detail of land in question is also given as below: * The land is located at 13, Aurangzeb Road, New Delhi. The Property was spread over 1.497 acres and had building constructed on it. * M/s. Gupta & Sya....
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....y 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 company have been issued to the shareholders of the transferor company being wholly owned subsidiary of the transferee company." 9. The Hon'ble High Court in its order u/s 394 of the Companies Act, 1956 dated 10.05.2011 in part 2 ordered as follows: "2. That with effect from Is1 April, 2010, the Business Enterprises of Transferor Company with all its assets as on 1st April, 2010 including land, buildings, plant & machinery, tools, impl....
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....ents 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 favour of JCT Limited / the Transferee Company and may be enforced as fully and effectually as if instead of Transferor Company, JCT Limited / the Transferee Company had been a party thereto. 9. That the vesting of Business Enterprises of Transferor Company in JCT Limiited / the Transferee Company shall not affect, any transaction or proceedings already concluded or taken by Transferor Company on and after April, 2010 to the end and intent that JCT Limited / the Transferee Company accepts on b....
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....se 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 achieved through creation of the transferor company and why it was being dissolved by merging it with another company, That is the colour and content of the expression "public interest" as used in the second proviso to section 394(1) of the Act which have to be enquired into. If the only purpose appears to be to acquire certain capital asset through the intermediary of the transferor-company created for that very purpose to meet the requirement of law, and in the process to defeat tax liability which would otherwise arise, i....
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....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 wants to object to the proposed scheme of amalgamation, it has to do so in the course of proceedings before the High Court but before the final order is passed. Whenever such objections have been raised, these have been considered on merits by the concerned High Court and also incorporated the condition for safeguarding the interest of revenue in the very scheme. As a matter of public policy, once a scheme of amalgamation is approved by Hon'ble High Court no authority should be allowed to tinker with the scheme. In the present case of the assessee, neither the official liquida....
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....ction. 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 reported in 247 ITR 609 (Bom) wherein it was held that : "Once a scheme becomes sanctioned by the court, it ceases to operate as a mere agreement between the parties and becomes binding on the company, the creditors and the shareholders and has statutory operation by virtue of the provisions of section 391 of the Companies Act." The said judgement of Hon'ble Bombay High Court further provided that an appeal, if any, against the order of amalgamation lies u/s 391(7) of the Companies Act, 1956 and the same cannot be agitated in any collateral proceeding. The relevant extract of the same is reproduced here....
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....il 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 the assessee to the income tax department in January 2011 (copies of letters enclosed in pages 33 to 37 of paper book). The same was acted upon by the assessee assuming acceptance from the income tax department since no appeal against the said judgement of the Hon'ble High Court was filed before the Hon'ble Supreme Court. Thus, at this juncture, if the revenue is allowed to challenge the same u/s 391(7) of the Companies Act, 1956, then it would be clearly barred by the doctrine of acquiescence and estoppel. In law, acquiescence occurs when a person knowingly stands by without raising any objection to the infringement of his or her rights, while someone else unknowin....
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....se 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 para 10(iii) of the scheme of amalgamation which was approved by the Hon'ble Calcutta High Court vide order dated 6.10.2010. Since the losses belonged to the amalgamated company i.e the assessee herein, the provisions of section 72 and section 74 of the Act would come into play with respect to set off of the same against the respective incomes of the assessee . In view of this, the provisions of non-compliance of section 72A of the Act as narrated by the ld CITA does not hold any water. Accordingly, the Grounds 1 & 2 raised by the assessee are allowed." 12. Applying the propositions of the law laid down in the case law cited above to the facts of the case we have to necessarily ....
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....sehold 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 Ltd., a wholly owned subsidiary of the appellant company during the year from Mr. Samir Thapar. The very said property sold out for Rs. 120 Crs. As per the documents produced by the appellant company, the rateable value of the property has been computed at Rs. 30,800 only and accordingly municipal tax of Rs. 6,160/- has been assessed. The AO did not accept the appellant computation of Gross Annual Value and stated that Gross Annual Value of the property should be 15 times of the actual rent of Rs. 2,500 presently received from director. Therefore, the AO computed Gross Annual value at Rs. 4,50,000/- [2500 x 15 x 12] and made a net addition of Rs. 2,94,000/-to the total income of the appellant company." 16.....
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....is 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 calculating capital gain tax as long term capital gain tax rather short term capital gain tax. 2. The CIT(A), Kolkata had not justified in deleting the disallowance of Rs. 26,88,303/- u/s 14A. 3. Expenditure relating to Premium payable on redemption of FCCB for Rs. 4,41,08,784/- had not been charged to P/L account as revenue expenditure. Hence claim of the assessee is not allowable and decision of Ld. CIT(A) is not accepted. 4. As per the Tax Audit report the assessee had not furnished employees contribution to the concerned authority within due date. Therefore, Ld. CIT(A) decision is not accepted. 5. The Ld. CIT(A) had erred in giving benefit of set off of unabsorbed depreciation for the A.Y. 1996-97 and A.Y. 1997-98 to the assessee. 6. T....
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....awal 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 course of the proceeding, The AR of the appellant company also submitted Balance Sheet and investment schedule. On perusal of the balance sheet, it is evident that the appellant company's surplus fund far exceeds the investment amount which indicates that investment was not made out of borrowed fund. Further, the interest expenses relate to the borrowings which are directly related to business of the appellant company. Therefore, I am of the view that no interest expenses can be attributed while working out disallowance u/s 14A 'r.w.r 8D of Income Tax Rules. 4.2.2 Further, I also found that disallowance under clause (iii) of Rule 8D has been rightly worked out by the AO and the amount derived of Rs. 3,65,110/-also appears to be reasonable. Therefore, considering the all facts and circumstances, the disallowan....
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....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. c) And that the bonds are convertible and hence no deduction is allowed. During the course of remand proceedings, the Assessing Officer raised another point regarding tax deduction at source. On appeal the Id. First Appellate Authority held that the liability to pay premium on FCCBs is not a contingent one. He further held that, the actual payment need to be done on the redemption of these FCCBs and entries need not be made every year. He applied the decision of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. v. Commissioner of Income-tax 225 ITR 802 SC and upheld the claim of the assessee. He pointed out that tax has been deducted at source in the year of redemption of bonds and hence was of the view that no tax need be deducted every year. He held that the assessee was entitled to deduction of the premium on yearly basis by relying ....