TaxTMI 
TaxTMI 
2021 (7) TMI 96
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....earned High Court of Bombay. The wholly owned subsidiary company 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 b....
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....as further stated that the share market value of the shares issued for park 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 sam....
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....sset if transferred by a parent company (100% shareholder of subsidiary company) to its subsidiary company, 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 ....
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.... High Court and what would be important is the valuation of the shares on the date when they are issued to the assessee 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 an....
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....smissed. 5. Against the above order assessee is in appeal before us. We have heard both the parties and perused the records. 6. The 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 all....
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....assets and liabilities between the balance sheet date and the valuation date. In this connection, the AO has mentioned in the assessment order at page 2 para 4 as to why the share valuation was done on 15.11.2013 taking the data of balance sheet 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 ....
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....ny to a firm or a company, instead of an individual or an HUF, without consideration or at a price lower than the fair market value was not attracted by the anti-abuse provision In order to prevent the practice of transferring unlisted shares at prices much below their fair market value, section 56 was amended to also 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....
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.... vs. Income tax officer ITA no. 823jp/2013 iv) Honest group of hotels (p) Ltd vs, CIT 177 CTR (j& k) 232 v) ACIT v. Harpreet hotels (p) Ltd. ITA no. 1156-1160/pune/2000 vi) M/s. Low limited vs. ITO ITA no.267/ kol/2013 vii) ACIT v. Suvarna rekha ITA No.743/hyd/2009 8. Upon careful consideration, we find that the issue in dispute is addition made u/s 56(2)(vii)(b) of the difference 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 o....