TaxTMI 
TaxTMI 
2021 (7) TMI 96
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....mpany has issued shares for the net value of the assets and liabilities so transferred, the total values of shares issued is same as of the net value of assets and liabilities of the division so transferred. The issue price per share also meet the criteria of books value of share as prescribed under the Rule 11UA of the Income Tax Rules. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in confirming the action of the Ld. Assessing Officer of taking a different date that the appointed date of the Scheme of Arrangement under which the shares are issued and further erred in reducing the Deferred Tax Liability from the Total Assets while calculating the book value of shares. It may be noted that the Deferred Tax Liability is not an ascertained liability but only a notational amount shown in accounts to comply with the prescribed Accounting Standards. 3. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in confirming the action of the Ld. Assessing Officer in making an addition u/s 56(2)(viib) of the Act where the difference between the issue price of shares and that book value computed by the lear....
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.... division comes to Rs. 200/- being the same valuation at which the shares were issued for transfer of amusement park division by the assessee company to its holding company and the valuation of shares issued for transfer of amusement park division would always be the net asset value (book value) of the assets and liabilities as on the appointed date of the amusement park division, further, justification was given that since the appointed date of demerger was 01.04.2013, pending the approval of Hon'ble High Court, the assessee company had already incorporated the assets, liabilities and activities of the amusement park and created an equity capital suspense account in its audited accounts for the year ended 31.03.2014. However, after considering the submission of the assessee, the AO did not agree with the same. According to the AO, assessee could not put forward proper justification as to why the share valuation was done on 15.11.2013, when the actual share was issued to M/s.VDL in F.Y.2014-15. i.e. after one year. He observed that as per the normal practice, the valuation of shares should be done on the same day when the shares are issued. The assessee had computed the value of sh....
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....y, then the transaction is not a transfer. This section is not relevant with the assessee company as in this case the parent company, M/s.VDL was not 100% shareholder of the subsidiary company, M/s.VEHPL (assessee). Hence, the share transaction has to be treated as a transfer. In view of the above, the AO observed * that it waa clear that the assessee had not followed the proper valuation method for its equity shares. In this regard, A.O. referred to the provisions of Section 56(2) The AO observed that in this case, the assessee company is a company in which the public are not substantially interested and has received premium for issue of shares from a resident. In view of the aforesaid discussion and provisions of Explanation to Section 56(2)(viib), the AO concluded that the method so as to determine the fair market value is calculated as per the Net book value of asset method. Hence, provisions of section 56(2)(viib) are henceforth applicable. The AO further observed that the fair market value of shares can be computed from net asset value as per books. The Net asset value as on 31.03.2014 is (Book value of assets - Book value of liabilities) = Rs. 20,78,89,003/-. The no. of sha....
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....e based on the parameters and financials available and relevant for valuation as on the date of the issue of shares. Accordingly, the contention of the appellant either regarding valuation date or consideration of their balance-sheet as on 31.03.2013 or subsequently half-yearly balance-sheet till 30.09.2013 is not found to be acceptable and is rejected. The appellant has further contended that the transaction cannot be regarded as transfer within the meaning of section 47(iv) of the Act. In respect of such contention of the appellant, it is stated that here the question is not about charging capital gains consequent to transfer of capital asset by the holding company to the assessee. Whether or not the questioned transaction is a transfer, is not relevant in the facts of this case. There is no issue relating to charging of any capital gain consequent to the transaction involved, rather there is an issue relating to determination of fair market value of shares issued by the appellant to its holding company. Further, the transfer of assets is at book value and therefore, question of chargeability of capital gain does not arise. Accordingly, and in the given facts and circumstances ....
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....e Ld. Counsel of the assessee has summarized his submission as under:- 1. The appellant M/s. Vardhman Entertainment & Hospitality Pvt. Ltd. is a wholly owned subsidiary of M / s. Vardhman Developers Ltd (Holding Company). 2. M/s. Vardhman Developers Ltd. had set up an amusement park known as Vardhman Fantasy Park. 3. According to a Scheme of Arrangement under section 391 to 394 of the Companies Act, 1956/2013 with effect from 1st April, 2013, the amusement Park a division of M/s. Vardhman Developers Ltd was demerged to M/s. Vardhman Entertainment & Hospitality Pvt. Ltd. the resulting company and the consequent issue of shares by resulting company to the demerged company. 4. The Demerged Company and Resulting Company are group companies of Vardhman group. 5. The Assets and Liabilities of Amusement park division were transferred at book value from the appointed date i.e. 01.04.2013 as per the list (Paper Book Pg. No. 96) for a consideration of Rs. 2110.41/- lakhs which was proposed to be paid by way of allotment of 10,55,205 equity shares of Face value Rs. 10/-each and at a premium of Rs. 190/- per share. 6. The Valuation report for fair share swap ratio was done by a qua....
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....as on 31.03.2013. And while passing the order, the AO has .mentioned that the Appellant should have done the valuation in FY 2014-15 wherein the Appellant has issued shares to VDL In this regard, the Appellant would like to bring to Your Honours attention the meaning of 'valuation date' as given under Rule 11U which is reproduced as under: "Valuation date" means the date on which the property or consideration, as the case may be, is received by the assessee Accordingly, since the Appellant has received the assets and liabilities with effect From 1.04.2013, valuation as on said date is to be considered which is in compliance with Rule 11U. The contention of the AO that valuation was to be done in FY 2014-15 is not as per the provisions of the Act. During the FY 2014-15, only approval which was pending from High Court had been received. B. AUDITED FINANCIALS Rule 11U of the ITA states that for the purpose of valuation under rule 11UA, the balance sheet used for the FMV computation should be audited. However, in real, the valuer had come across situation wherein the financials were still not audited. The Valuer should seek audited financials from the management of th....
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....o include within its ambit transactions undertaken in shares of a company (not being a company in which public are substantially interested) either for inadequate consideration or without consideration where the recipient is a firm or a company (not being a company in which public are substajjJtially interested). It is also provided to exclude the transactions undertaken for business reorganization, amalgamation and demerger which are not regarded as transfer under clauses (via), (vic), (vicb), (vid) and (vii) of section 47 of the Act. thus, considering the above explanations and circular it is evident that the transfer of share is exempted under section 47(iv) of the Income Tax Act and since Appellant has not received any money but issued shares in consideration of the amusement park division to its holding company, there ought to be no tax implication on the Appellant and addition under section 56(2)(viib) of Income Tax Act, 1961 is unwarranted. Without prejudice to above, The AO has also erred while computing the Fair Market Value by reducing the Deferred Tax Liability from the Total Assets. In this regard, since Deferred Tax Liability is not an ascertained liability but onl....
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....ifference in the value of shares transferred by the assessee company to its holding company, pursuant to a scheme approved by the Hon'ble Jurisdicational High Court. Although assessee has challenged the order on various grounds, firstly, we adjudicate the challenge on the basis that the date of valuation taken by the AO is not accordance with the scheme and the appointed date duly approved by the Hon'ble High Court. In this regard, it is noted that the scheme was approved by the Hon'ble High Curt on 01/08/2014 without any variance in the appointed date. The appointed date as per the scheme approved by the Hon'ble High Court was 01/04/2013 or such other date as the Hon'ble High Court may direct or approve. The Hon'ble High Court order while approving the scheme did not direct otherwise regarding the appointed date. Hence, the appointed date of the scheme approved by the High Court is 01/04/2013. This submission regarding appointed date has been rejected by the authorities below, on the premise that the Hon'ble High Court order is dated 01/08/2014. Ld. CIT(A) has rejected this contention on the premise that shares have been issued only subsequent to the approval of the Hon'ble High C....