TaxTMI 
TaxTMI 
2023 (5) TMI 834
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....rovisions of sec.56 (2) (viia) are not applicable to the transactions defined u/s.47(vi), even though the proviso to section 56(2)(viia) does not specify the transactions defined u/s.47(vi) as exception to section 56(2)(viiia) 4. The Ld.CIT (Appeals) erred in holding that the shares purchased by the assessee company for a price lower than the FMV of the shares, does not attract provisions of section 56(2)(viia) and accordingly deleting the addition of Rs.5, 14,80,879/-. 5. Any other ground that may be urged at the time of hearing." 2. The brief facts of the case are that assessee is a public company registered under the Companies Act, 1956 and engaged in investment business. The assessee filed return of income for the AY 2014-15 on 29.09.2014, declaring income of Rs. 20,64,350/-. The case was selected for scrutiny by issuing notice u/s. 143(2) dated 28.02.2015. Subsequently, notice u/s. 142(1) and letters were issued on various dates. In response, AR appeared and furnished the details called for. After examination of the details so furnished by the assessee, the Assessing Officer had made the disallowance of expenditure u/s 14A of the Act for an amount of Rs.82....
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....refore, the disallowance u/s. 14A to the extent of the amount confirmed above of Rs. 14,00,000/- has to be added back to the computation of book profit u/s. 115JB therefore, the ground no. 1 (ii) is dismissed accordingly to the extent of quantification above. The ground no. 4 relates to the claim of the appellant that the income tax refund should have been reduced while computing the book profit u/ s. 115JB. The section 115JB does not leave any room for discretion or interpretation and the items mentioned in clause (i) to (viii) to the explanation to section 115JB can only be reduce from only book profit. The income tax refund so credited does not fall in the said clause and therefore no deduction can be given as income tax refund is not either deferred tax as mentioned in clause (viii) or falling under any of the clauses. Therefore, the ground no. 4 is dismissed accordingly." 4. With respect to the addition of Rs.5,59,249,590/- and addition of Rs.5,14,80,879/- under section 56(2)(viia) of the Act, the ld.CIT(A) had held at pages 58 to 65 as under : The facts of the case are that 11 companies amalgamated with the appellant vide the order of High Court dated 10.....
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.... property or assets as specified in the clause (i) of the definition u/s. 2(18) is now with the new entity and such transfer is not considered as transfer as specified u/s. 47 of the Income Tax Act. The relevant sub clause (vi) of section 47 is reproduced as under: (vi) any transfer in the scheme of amalgamation of capital asset by the amalgamating company to the amalgamated company, if that amalgamated company is an Indian company. The plain reading of the above implies that all capital assets which includes shares, property, movable assets, immovable assets etc., of the amalgamating companies becoming the property of amalgamated company is not considered a transfer within the meaning of Income Tax Act. So, as the same is not considered as a transfer, therefore neither the capital gain will arise nor any deeming charge u/s. 56 of the receipt of property / assets / shares etc., can be attributed for improper consideration. The appellant presents a scheme to the High Court along with the valuation and the method in which the same is done and once the same is approved, the amalgamation order is passed accordingly, the same has been order u....
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....the transfer of property in the appellant entity by the amalgamating companies is completely wrong and out of jurisdiction, therefore, the protective addition made by the AO in the assessment order is hereby deleted on the basic reasons that there is no case for a protective addition for the year under consideration at all. Further, as already discussed above that as per provisions of section 47(vi), the amalgamation as defined u/s. 2(IB) of the Income Tax Act would not be considered a transfer [or the purpose of taxation. The definition of capital asset is as per section 2(14) of the Income Tax Act which includes any property of any kind held by the appellant, whether or not connected with his business or profession. The shares whether quoted or unquoted, equity or preference or capital assets without any ambiguity. Therefore, as section 47(vi) does not consider the transfer of capital asset on account of amalgamation, therefore the provisions of transfer cannot be attracted in such case. The AO has invoked section 56(2)(viia) [or the purpose o[ taxation. The section 56(2)(viia) reads as under: [(viia) Where a firm or a company not being a company in whi....
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....ived pursuant to amalgamation. Therefore, the ground no. 2(i) is allowed accordingly. Further, as 47(vi) exempts the amalgamation from the purview of transfer, therefore section 56(2)(viia) cannot be invoked, as this is not a case of receipt of shares in isolation but the merger of all property irrespective of shares and also 56(2)(viia) is not applicable for such amalgamation, therefore the invocation of the said section in the case of appellant is incorrect and therefore, the ground no. 2(ii) is allowed accordingly. The ground no.2(iii) pertaining to invocation of Rule 11 VA becomes academic as the relief has already been granted on ground no. 2(i) and 2(ii) therefore there is no need of adjudication to ground no. 2 (iii) accordingly. Further, the ground no. 3(i) and 3(ii) also becomes academic and therefore needs no adjudication in view of the relief already granted. Therefore, the addition made of Rs. 55,92,49,590/- with respect to the addition made in paragraph 3 of the assessment order and addition of Rs. 5,14,80,6791- in para 4 of the assessment order is hereby deleted accordingly. The ground no. 5 pertains to grant of TDS credit, the AO i....
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....d Vs. DCIT - (2016) 72 taxmann.com 288 (High Court of Gujarat) 4. Dalmia Power Limited Vs. ACIT - (2019) 112 taxmann.com 252 (SC). 9. We have heard the rival contentions of the parties and perused the material available on record. Admittedly, the total expenditure incurred by the assessee which wad debited to the Profit and Loss account was Rs.68,26,342/- and out of the said amount, the assessee had suo motu disallowed the amount of Rs. 49,94,540/- and further disallowed an amount of Rs.4,30,245/-. Now the dispute before us is whether the ld.CIT(A) was right in restricting the disallowance to an amount of Rs.14,01,557/- or it should be restricted to the difference of Rs.82,72,958/- (-) Rs. 49,94,540/- (-) Rs.4,30,245/- which is equivalent to Rs.28,48,173/-. In this regard, the contention of both the parties were examined by us and we are of the opinion that the disallowance made by the revenue authority cannot be more than the expenditure incurred by the assessee for earning the exempt income. For the above said purposes, we may fruitfully rely upon the decision of the Special Bench in the case of ACIT Vs. Vireet Investment P. Ltd., reported in (2017) [165 ITD 27] (Delh....
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..... 726/- from Fixed Deposit Receipts and profit on sale of fixed assets of Rs. 16,52,225/-. As against this, the respondent assessee had claimed administrative and miscellaneous expenditure written off amounting to Rs. 8.75 Crores. For the Assessment Year 2008-09, the assessee had filed return declaring loss of Rs. 6.60 Crores approximately. The assessee had declared revenue receipts in the form of foreign currency fluctuation difference gain of Rs. 12,46,595/-. It had claimed expenses amounting to Rs. 7.02 Crores as personal expenses, operating and other expenses, depreciation and financial expenses. 11.9 In both the assessment orders, the Assessing Officer held that the respondent-assessee had not commenced business activities as they had not undertaken any manufacturing activity or made downstream investments. It was observed that the respondent- assessee, after receiving approval of Foreign Investment Promotion Soard (FIPS) dated 20.12.2000 acquired shares capital of Ambuja Cement India Ltd. This, the Assessing Officer felt, was not sufficient to indicate or hold that the respondent-assessee had started their business. He, accordingly, disallowed the entire expenditure ....
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....reasons or the grounds given by the CIT(A) to make the said addition. Possibly, the CIT(A), though it is not argued before us, had taken the stand that the respondent-assessee had made investment and expenditure was incurred to protect those investments and this expenditure cannot be allowed under Section 14A." 11.13 Thus, Hon'ble Delhi High Court primarily decided the issue regarding applicability of section 14A even if no dividend income was earned. The Hon'ble High court in paras 14 to 16 of its decision observed as under: '14. On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section 14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No contrary decision of a High Court has been shown to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad v. M/s. Lakhani Marketing Incl, ITA No. 970/2008, decided on 02.04.2014, made reference to two ' earlier decisions of the same Court in CIT v. Hero Cycles Limited, [2010] 323 ITR 518 an....
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....lder has no control and cannot insist on payment of dividend. When declared, it is subjected to dividend distribution tax. 16. what is also noticeable is that the entire or whole expenditure has been disallowed as if there was no expenditure incurred by the respondent-assessee for conducting business. The CIT(A) has positively held that the business was set up and had commenced. The said finding is accepted. The respondent-assessee, therefore, had to incur expenditure for the business in the form of investment in shares of cement companies and to further expand and consolidate their business. Expenditure had to be also incurred to protect the investment made. The genuineness of the said expenditure and the fact that it was incurred for business activities was not doubted by the Assessing Officer and has also not been doubted by the CIT(A).' 11.14 Now the position of law as stands is that the decision of Hon'ble Jurisdiction High Court is directly on the point in dispute whereas the decision of Hon'ble Supreme court in the case of Rajendra Prasad Moody (supra) has been rendered in the context of section 57(iii), the applicability of which has been ruled....
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....the Act has held that invoking of section 154 would be untenable when there is no mistake apparent on the face of the record i.e., when the matter requires adjudication upon the issue which is a debatable issue. 12. In the light of these judgments, the finding given by the Tribunal on the points inasmuch as invoking of section 154 and Explanation 1 (f) to section 115JB being squarely covered, the same cannot be found fault with. We are of the considered view that the Miscellaneous Petition filed by the revenue under section 254(2) of the Act was wholly misconstrued. The Tribunal has distinguished the case of Sobha Developers (supra) relied upon by the revenue with VireetInvestment (P.) Ltd. (supra) and has rightly come to the conclusion that the judgment of the VireetInvestment (P.) Ltd. (supra) rendered by the Special Bench consisting of three Hon'ble Members prevail over the Regular Bench consisting of two Hon'ble Members. Moreover, this view considered in the VireetInvestment (P.) Ltd. (supra) was the subject matter before this Court in the judgments referred to supra. Hence, no exception can be found with the orders impugned. 10.1 In the light of the above, ....
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.... was the contention that if on account of amalgamation of the company / companies, a company or a firm receives any property being the share of a company for a consideration which is less than the aggregate fair market value of the shares then such income shall deemed to be chargeable to Income Tax under the head 'Income from other sources' under section 56(2)(viia) of the Act. 13.1. Further it was submitted that the finding recorded by the ld.CIT(A) that no addition can be made in the hands of the assessee for the year under consideration on protective basis was incorrect. It was submitted that as per the case of the assessee, that as on August, 19, 2015, the Vertex Projects Limited was converted into a limited liability partnership (LLP) under the name and style "Vertex Projects LLP". It was also the contention of the ld. DR that in the assessment year 2012-13, M/s. Vertex Projects LLP did not exist and therefore, the additions cannot be made in the hands of Vertex Projects LLP in the A.Y. 2012-13. He has drawn our attention to VII of Page 6 of the Written Submissions filed by the assessee wherein it was mentioned as under : "vii. The Respondent would like to submit t....
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....o the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :- ........................................... ................................ [(viia) where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010, any property, being shares of a company not being a company in which the public are substantially interested,- (i)without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (ii)for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration : Provided that this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of se....
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....') (Refer to Pg 366 of Paper book). The beneficial/ultimate percentage of shareholding held by each of such Group in such companies were identical [i.e. Group 1 held 34 percent stake; Group 2 held 33 percent stake; and Group 3 held 33 percent stake]. Considering the same, no separate valuation was obtained for determining the swap ratio for amalgamation of the amalgamating companies into Vertex Projects Limited. One Equity Share of Vertex Projects Limited were allotted to the respective shareholders for every one share held by them in amalgamating companies, on the rationale that the ultimate group-wise shareholdings in all the amalgamating companies vis-a-vis the shareholding in the amalgamated company would remain the same (Refer Pg 36- of Paperbook], iv. The Ld. AO contended that the Assessee (i.e. amalgamated company) received such investment in such closely held companies for inadequate consideration and the same is taxable under section 56(2)(viia) of the Act for AY 2012-13 which is the AY relevant to the date of transfer being April 01, 2011. Further the Ld. AO contended that since the order of High Court is delivered during FY 2013-14, the deemed gift is brough....
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....enables the tax officer to make a protective assessment/addition. In this regard, reliance can be placed on the decision of the Hon 'ble Mumbai Tribunal in the case of M.P. Ramachandran» [S.No.7 - Pg. 51 of the Case Law Compilation]: "22 .... We have noted above about the validity and presumption of the protective assessment in general. Protective assessment cannot be independent of substantive assessment. Thus protective assessment is always successive to the substantive assessment. There may be a substantive assessment without any protective assessment, but there cannot be any protective assessment without there being a substantive assessment. In simple words there has to be some substantive assessment/addition first which enables the Assessing Officer to make a protective assessment/addition." (Emphasis Supplied) iv. The mere reason that the Ld. AD provided is that, since the Hon'ble He order approving the merger is received in the FY relevant to the impugned AY, additions has been made on protective basis in the impugned AY. The Ld. AD himself did not have any doubt that the addition of the same amount should be done in AY 2012-13 and no....
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....hich was treated as 'protective' in the impugned AY 2014-15, would also not survive. Without prejudice to our argument in regard to maintainability of the additions made under protective assessment. the Respondent would like to submit that the provisions of section 56(2)(viia) of the Act is not applicable in the instant case: b) Merger transactions are outside the purview of section 56(2)(viia) of the Act i. The purpose / context for which this provision was introduced can be understood by reference to the Explanatory Memorandum to Finance Bill 2010. The relevant extracts are reproduced below: " ... A. These are anti-abuse provisions which are currently applicable only if an individual or an HUF is the recipient. Therefore. transfer of shares of a company 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 does not attract the anti-abuse provision In order to prevent the practice of transferring unlisted shares at prices much below their fair market value, it is proposed to amend section 56 to also include within its ambit transactions undertaken in shar....
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....nnot be said that there is a transfer of shares as there is only statutory vesting of the assets by virtue of the Scheme. Section 56(2)(viia) is applicable only if assessee being a Company receives shares of a Company either without consideration or for a consideration which is less than the aggregate fair market value. In the instant case, due to Composite Scheme of Arrangement and Amalgamation, it cannot be said that there is no consideration or inadequate consideration .... 110 .... We, therefore, hold that provisions of Section 56(2)(viia) cannot be applied in respect of this transaction as it is a case where the transfer in the case of assessee falls under section 47(vii) of the Income- Tax Act. We, accordingly, delete the addition under Section 56(2)(viia) also." (emphasis supplied) v. Reliance is also placed on the decision of the Hon'ble Ahmedabad Tribunal in the case of Ozone India Ltd: [S.NO.12 - Pg. 83 of the Case Law Compilation], which although passed in the context of section 56(2)(viib) of the Act, has upheld the view that issue of shares at face value by an amalgamated company to shareholders of the amalgamating company in pursuance to a sch....
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....nefit of any deposits, assets, properties or other Interests, financial assets including investments made by way of equity by the Transferor & Transferee Companies in other Body Corporates which are not party to this scheme, all kinds of funds belonging to or utilized for the Transferor Companies, bank accounts, privileges, all other rights and benefits including any tax, direct or indirect including advance tax paid or any tax deducted in respect of any Income received, exemptions, tenancies in relation to office and/ or residential properties for the employees, memberships, lease rights, powers and facilities of every kind, nature and description whatsoever, rights to use and avail of telephones, Internet servers, facsimile connections and installations, utilities, electricity, and other services, provisions, funds, benefits of all agreements, contracts and arrangements, letters of Intent, memoranda of understanding, expressions of interest whether under agreement or otherwise and all other Interests in connection with or relating to the Transferor Companies shall, under the provisions of Sections 391 to 394 of the Act. and pursuant to the orders of the High Court or any other ap....
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....lation], wherein it was held that section 56(2)(vii) would not be applicable in the cases where there is neither increase or decrease in the wealth of the shareholder. iv. The section 56(2)(viia) of the Act was introduced to avoid transactions resulting in change of property in the group's hands and the avoidance of tax during the change of transfer of ownership within the group. In the instant case there is no intentional avoidance of tax but the transaction is incidental as a result of amalgamation of various companies with the amalgamated company which is undertaken to avoid running costs of 11 companies and to obtain operational synergies and the same is approved by the Hon'ble High Court vide order dated October 10, 2013 read with amended order dated December 31, 2013, section 56(2)(viia) cannot be applied in the given case. e) The underlying investment held by Amalgamating company. Zinger Investments Pvt Ltd. was the preference shares of GVK Projects & Technical Services Limited and not equity shares i. The underlying investment held by amalgamating company, Zinger Investments Pvt Ltd, was 0.001% non-convertible redeemable preference shares ....
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....e- 3 to this written submission): (1)Metro Architects & Contractors (P.) Limited, had the following underlying investments (refer pg. 247 of paperbook) -(ii equity shares of Vertex Infratech Private Limited which is also an amalgamating company and (ii) quoted shares of GVK Power & Infrastructure Ltd. (2) Trinity Advisors Private Limited had the following underlying investments (refer pg. 256 of paper book) -(i) equity shares of Vertex Infratech Private Limited and (ii) equity shares of GVK Energy Holdings Pvt Ltd, both of which are amalgamating companies (3) Vertex Infratech Private Limited, had the following underlying investments (refer pg. 267 of paperbook) -(i) equity shares of GVK Energy Holdings Pvt Ltd - which is also an amalgamating company and (ii) quoted shares of GVK Power & Infrastructure Ltd. ii. AO in its order stated that the Amalgamated company i.e. the Assessee received shares of such companies pursuant to merger, without, appreciating the fact such companies got amalgamated with the amalgamated company resulting in cancellation of shares. Further the provisions of section 56(2)(viia) is not applicable to quoted shares. Based on....
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.... the Act in the hands of the recipient. The Assessee submits that the said section is applicable only in the case of receipt of shares pursuant to 'transfer' and not in the case of receipt of shares pursuant to "allotment of shares" to recipient of shares by an investee company. The investee company is never the owner of the shares it creates on allotment. Therefore, there can never be a 'transfer' of shares from the company to an allottee on allotment. ii. The Assessee submits that one would need to ascertain the real meaning of this term while keeping the "context" of section 56(2)(viia) in mind. Generally, the term "receive" indicates 'to acquire' or 'come into possession of or 'to get.' iii. The Assessee submits that the said provision applies when a firm or a company receives shares of another closely-held company. The act of 'receiving' implies that there is an act of 'giving' on the other side. In short, there must be a transaction in which there is a 'giver' and a 'receiver' involved. The 'giving' and 'taking' further implies that there must a 'passage' of the prope....
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.... price lower than the fair market value does not attract the anti-abusive provision. In order to prevent the practice of transferring unlisted shares at price which is below their fair market value, it is proposed to amend section 56 to also include within its ambit transaction undertaken in shares of a company (not being a company in which the 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 the public are substantially interested)" vi. Reliance can also be placed on the CBDT Circular NO.1 of 2011, explaining the provisions of Finance Act 2010. At para 13.2, the Circular explicitly refers to the term "transfer" while explaining the scope of s. 56(2)(viia). The relevant extracts from the Circular are reproduced below: "13.2. These are anti-abuse provisions which were applicable only if an individual or an HUF is the recipient. Therefore, transfer of shares of a company 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....
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....cates that the same should be in existence and not something which is created afresh. iii. If the word "property" is read in totality along with the terms, receives, being, etc., then property should be "existing" property and not something which comes into existence. The Hon'ble Apex Court in the case of R. Cawasjee Cooperv has clarified that shares are not property in the hands of the issuing company. iv. Further, the Hon'ble Apex Court in the case of R D Goyal -vs.- Reliance Industries Limited has held that shares before their allotment are not goods. Thus, shares are not goods for the allotting! issuing company and by analogy, they are not "property" for the purposes of section 56(2)(viia). v. In this connection, the Assessee would like to also refer to the following extracts from the Hon'ble Apex Court decision in the case of Khoday Distilleries Ltd. '3: "There is a vital difference between "creation" and "transfer' of shares. As stated hereinabove, the words "allotment of shares" have been used to indicate the creation of shares by appropriation out of the unappropriated share capital to a particular person. A share is a....
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.... on the valuation date. Further, this strengthens the argument that what is intended to be covered is a share which is capable of being sold and not a share which is not in existence prior to its allotment and hence not capable being sold. Further, the word 'sold' suggests that it has to be seen from the "donor's" perspective. Hence, if the share is such that the donor (transferor) cannot sell it, the provision may not be applicable. d) Without prejudice to the above. FMV of preference shares has to be computed as per Rule 11 UA(l)(c)(c). i. In this regard, the Respondent would like to submit that the valuation of unquoted preference shares has to be made in accordance with Rule 11UA(l)(C)(C) of the Rules which provides that: "the fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange shall be estimated to be price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report from a merchant banker or an accountant in respect of such valuation." ii. However, while computing the fair market value of such prefe....
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.... it is open to the Court to modify the said date and prescribe such date of amalgamation/transfer as it thinks appropriate in the facts and circumstances of the case. If the Court so specifies a date, there is little doubt that such date would be the date of amalgamation/date of transfer. But where the Court does not prescribe any specific date but merely sanctions the scheme presented to it as has happened in this case - it should follow that the date of amalgamation/date of transfer is the date specified in the scheme as 'the transfer date'. It cannot be otherwise. It must be remembered that before applying to the Court under section 391(1), a scheme has to be framed and such scheme has to contain a date of amalgamation/transfer. The proceedings before the Court may take some time; indeed, they are bound to take some time because several steps provided by sections 391 to 394A and the relevant Rules have to be followed and complied with. During the period, the proceedings are pending before the Court, both the amalgamating units, i.e., the transferor company and transferee company may carry on business, as has happened in this case but normally provision is made for this a....
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.... be transferred, for and on account of and in trust for the transferee company, including but not limited to, operating and marketing activities, advance tax instalments of income tax, sales tax, excise and other statutory levies etc. b) All profits or income accruing to transferor companies or losses or expenditure (including payment of penalty, damages, or such litigations) arising or incurred by them shall, for all purposes, be treated as the profits or income or losses or expenditure as the case may be of the transferee company." v. Reliance is also placed on the decision of the Hon'ble Bombay High Court in the case of M N Chhaya v. PHS Mani17 (refer Annexure-4), wherein the Hon'ble Court held that scheme of amalgamation will be effective from the appointed date and not from the date of sanction of the scheme by the High Court. The relevant extracts are reproduced below: "11. Insofar as the second issue is concerned, I am of the opinion that the scheme must come into effect not from the date when the scheme is sanctioned by the Court but from the appointed date which is prescribed under the scheme itself and I am also fortified in my aforesaid....
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....India Ltd. [2019]107 taxmann.com 375/265 Taxman 515/416 ITR 613. 4.8 Every scheme of arrangement and amalgamation must provide for an Appointed Date. The Appointed Date is the date on which the assets and liabilities of the transferor company vest in, and stand transferred to the transferee company. The Schemes come into effect from the Appointed Date, unless modified by the Court." (Emphasis Supplied) ix. There is a statutory vesting of all the assets and liabilities of the transferor company as a consequence of the scheme of merger being approved by the Hon'ble High Court. This view was upheld by the Hon'ble Delhi Tribunal in the case of Aamby Valley Ltd21, where on an identical fact pattern, the Hon'ble Tribunal held that section 56(2)(viia) does not apply to underlying investments received by the amalgamated entity on account of merger. The relevant extracts are reproduced below: "In our view, the said Section can be applied if there is a transfer of shares in favour of a Firm or a Company. For the transfer of shares, we agree with the assessee that there must be a transferor and transferee and transferred assets i.e., shares. In the ca....
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....ry or protective assessment, and Mr. Nambiar's case is that this concept of a precautionary or protective assessment is not recognized by the Act and as such any attempt to levy such assessment would be illegal. In support of this argument Mr. Nambiar strongly relied on the finding recorded against the appellant's brother, Lalji, in the ex parte assessment order which had originally been passed against him. It is no doubt true that the said ex parte order had held that Lalji was liable to pay the tax on the amount of income in question ; but the said order has been subsequently set aside, and, as we have already seen, fresh proceedings against Lalji have been commenced at Jamnagar. Mr. Nambiar also relied on the admission made by the respondent in his statement of the case before this court, and he contended that the respondent himself seems to concede that the assessment proposed to be made against the appellant is no more than precautionary. It is true that paragraph 3 of the statement avers that " steps are being taken against the appellant for taxation of income in his hands only as a precautionary measure against the eventuality of its being finally held that the incom....
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....edings taken against Lalji the Income-tax Officer should make an exhaustive enquiry and determine the question as to whether Lalji is liable to pay the tax on the income in question. All objections which Lalji may have to raise against his alleged liability would undoubtedly have to be considered in the said proceedings. Proceedings against Chhotalal may also be taken by the Income-tax Officer and continued and concluded, but until the proceedings against Lalji are finally determined no assessment order should be passed in the proceedings taken against Chhotalal. If in the proceedings taken against Lalji it is finally decided that it is Lalji who is responsible to pay tax for the income in question it may not become necessary to make any order against Chhotalal. If, however, in the said proceedings Lalji is not held to be liable to pay tax or it is found that Lalji is liable to pay tax along with Chhotalal it may become necessary to pass appropriate orders against Chhotalal. When we suggested to the learned counsel that we propose to make an order on these lines they all agreed that this would be a fair and reasonable order to make in the present proceedings. 15.2 In our conside....
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.... any protective assessment without there being a substantive assessment. In simple words there has to be some substantive assessment/ addition first which enables the Assessing Officer to make a protective assessment/addition. Substantive addition/ assessment is made in the hands of the person in whose hands the Assessing Officer prima facie holds the opinion that the income is rightly taxable. Having done so and with a view to protect the interest of the revenue, if the Assessing Officer is not sure that the person in whose hands he had made the substantive addition rightly, he embarks upon the protective assessment. Thus the protective assessment is basically based on the doubt of the Assessing Officer as distinct from his belief which is there is the substantive assessment. Obviously there is no place for 'doubt' in the scheme of reassessment, as it has to be belief of the Assessing Officer about the escapement of income, which is the foundation for assessment or reassessment under section 147. Even if for a moment we agree with the ld. DR that the protective addition is different from substantive addition and hence the reassessment proceedings be upheld, we find that ultimately....
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.... return the assessee requested for a copy of the reasons recorded for the reopening of the assessment and the same was provided to the assessee. The assessee objected to the initiation of reassessment vide its letter dated 7-11-2003 stating that all the relevant information and documents were filed with the Assessing Officer during the course of original assessment proceedings in which an addition of Rs. 10,84,523 was made. It was claimed that there was no failure on the part of the assessee to disclose all the relevant facts and hence the reassessment be not made. Considering the provisions of section 147 and other relevant sections, the Assessing Officer came to the conclusion that his action was valid. One of the issues which weighed heavily with the Assessing Officer for issuing notice under section 148 was that the assessee had claimed expenditure on advertisement and publicity to the tune of Rs. 99.46 lakhs and as per the agreement entered into between the assessee and Jyothy Laboratories Limited (hereinafter referred to as "JLL"), the assessee was entitled to the reimbursement of the advertisement expenses incurred by it from the company. It was noted from the analysis of th....
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....tion was found to have been claimed on the composite cost including the land, which was not permissible. During the assessment proceedings, the assessee was called upon to file the bifurcation of the land cost and building cost which was not furnished. The assessee placed reliance on the judgment of the Hon'ble Supreme Court in the case of CIT v. Alps Theatre [1967] 65 ITR 377 as per which the assessee was entitled to depreciation on building and land appurtenant to it. The Assessing Officer noted that the assessee had not furnished the area of land which was purchased in 1990 and the area on which building was constructed. He, therefore, estimated the depreciation claimed on the excess land held by the assessee at 50 per cent of the regular rate of depreciation of 10 per cent. Disallowance of Rs. 2,650 was made on this count and added to the total income. Another reason recorded by the Assessing Officer for reassessment, was that a sum of Rs. 5,057 was the amount of interest on refund received by the assessee from the Income-tax department on 21-6-1996, which was not offered for taxation in the return filed by the assessee. The Assessing Officer made addition for this sum also wit....
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....f amalgamation and therefore, in Para 3.8 of his order, the Assessing Officer had mentioned as under : "3.8 However, as the order of the Hon'ble High Court is delivered during the relevant year, the deemed gift on transfer of unquoted shares by the above companies to the assessee company is brought to tax in the relevant year on protective basis. The assessment for A.Y. 2012-13 will be reopened and the income u/s 56(2)(viia) will be brought to tax on substantive basis separately." 20.1. As mentioned hereinabove, the year of chargeability would be the year in which the assessee received the properties i.e., the assessment year under consideration and therefore, the Assessing Officer had rightly charged the income under section 56(2)(viia) of the Act. 21. The contention of the ld.AR that there has to be substantive addition then only the protective addition can take place. In this regard, we are of the opinion that the above said principle is not universally applicable and is required to be applied with caution and on case to case basis. In the present case, the Assessing Officer was wrongly harboring the view that the additions were required to be made on substantive ....
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....see before us , for the Assessment Year 2012-13 as it was not in existence in that assessment year. Moreover if the contention of the assessee is accepted that the substantive additions were dropped for the assessment year 2012-13, then the protective addition made in the assessment year 2014-15 are required to be converted into substantive addition. 22. The other submission made by the assessee is that there is no transfer on account of amalgamation and therefore, it will not attract the rigours of section 56(2)(viia) of the Act. In this regard, the ld.CIT(A), had referred to the definition of amalgamation mentioned in section 2(IB) of the Act. It was the finding of the ld.CIT(A) that because the share holding and shareholders were identical prior to and post amalgamation i.e., in the same ratio, and further, the transfer of property / assets as defined in clause (i) of the definition u/s 2(IB) of the Act to the new entity, the same would not be a transfer within the meaning of section 47(vi) of the Act. At this stage, it is relevant to reproduce section 47(vi) of the Act which provides as under : [(vi) any transfer, in a scheme of amalgamation, of a capital asset by t....
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....any not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii);] 24.1 Section 56(2) is an exception to section 56(1) of the Act and it has provided, in particular certain income to be charged as income under the head 'income from other sources'. 24.2 The Act has included the income mentioned in clause (viia) of section 56 as an income chargeable under income from other sources. The proviso to section 56(2)(viia) has provided an exception to its applicability. It had only excluded such properties received by way of transaction not regarded as transfer which are mentioned in clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47 of the Act. 24.3 On the basis of the plain reading of the above mentioned provisions, we can safely conclude that the transfer as contemplated under section 47(vi) will be forming part of section 56(2) of the Act and therefore, transfer / receive of shares of a company in which public are not substantially interested will be chargeable as income from other sources in the hands of recipient. 24.4 It may be mentioned that section ....
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....t 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 substantially 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. ( emphasis supplied by us) 13.3 Applicability -This amendment has been made effective from 1st June, 2010 and accordingly, apply in relation to the assessment year 2011-12 and subsequent years. 13.4 The provisions of section 56(2)(vii) were introduced as a counter evasion mechanism to prevent laundering of unaccounted income. The provisions were intended to extend the tax net to such transactions in kind. The intent is not to tax the transactions entered into in the normal course of business or trade, the profits of which are taxable under specific head of income. Therefore, the definition of prop....
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....7(vi) of the Act which was inserted in the Finance Act w.e.f 01.04.1967. The law is fairly settled that when the specific charging provision deals with the income of the assessee, then the general provision shall not be applicable and will give way to the specific provision. As mentioned hereinabove, the transfer on account of amalgamation, demerger or business organization or transfer by shareholder in a scheme of amalgamation which are mentioned in clauses of (via) or (vic) or (vicb) or (vid) or (vii) of section 47 of the Act are excluded from the purview of section 56 of the Income Tax Act. In all these clauses of (via) or (vic) or (vicb) or (vid) or (vii) of section 47 of the Act, there is a transfer either by way of amalgamation or merger. However, the statute had only excluded these transfers and had retained the other transfers on account of amalgamation, within the purview of section 56(2)(viia) of the Act. In the present case, the scheme of amalgamation was approved by the Board of Directors of each transferor company and the transferee company in their meeting on 06.11.2012 and the said scheme of amalgamation was approved by the Hon'ble High Court. Under the scheme of ama....
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....f the Hon'ble Supreme Court in the case of Marshal and sons (supra), Delhi Tribunal in the case of Aamby Vally Ltd (supra) and also on the decision of Ahmedabad Tribunal in the case of Ozone India Limited. 30. Before we deal with these decisions cited by the ld.AR, it is essential to briefly give the details of the scheme of amalgamation which is placed on page 116 of the paper book. In the said scheme of amalgamation under provisions of sections 391 to 394 of the Companies Act, 1956, it is provided for transfers and mergers of the 11 companies namely, M/s. Blue Streak Consultants Pvt. Ltd and others with M/s. Vertex Projects Limited. The "Transferor Company" has been defined in clause 1.17 of the Scheme of Amalgamation, which provides as under : 1.17 "Transferor Companies" means and include collectively "Blue Streak", "Caspian". "Casuarina", "GVK Energy", "GVK Hyder", "Marvel", "Metro", "Plateau", "Trinity", "Vertex Infra", "Zinger". 31. The share capital of all the 11 companies as per the Scheme of Amalgamation is as under : The present Share Capital of blue Streak / 1st Transferor company is as under:- Particulars Amount in Rupees Authorized ....
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....are Capital of Trinity / 9th Transferor company is as under:- Particulars Amount in Rupees Authorized 1,00,000 Equity Shares of Rs. 10/- each 10,00,000 1,90,000 preference shares of Rs.100/- each 1,90,00,000 Total 2,00,00,000 Issued, Subscribed and paid-up 10,000 Equity shares of Rs.10/- each fully paid-up 1,00,000 The present Share Capital of Vertex Infra / 10th Transferor company is as under:- Particulars Amount in Rupees Authorized 3,30,00,000 Equity Shares of Rs. 10/- each 33,00,00,000 2,00,000 preference shares of Rs.100/- each 2,00,00,000 Total 35,00,00,000 Issued, Subscribed and paid-up 3,04,00,000 Equity shares of Rs.10/- each fully paid-up 30,40,00,000 The present Share Capital of Zinger / 11th Transferor company is as under:- Particulars Amount in Rupees Authorized 65,00,000 Equity Shares of Rs. 10/- each 6,50,00,000 Issued, Subscribed and paid-up 62,80,750 Equity Shares of Rs. 10/- each fully paid-up 6,28,07,500 The present Share Capital of VPL / Transferor company is as under:- Particula....
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....erwise and all other interests in connection with or relating to the Transferor Companies shall, under the provisions of sections 391 to 394 of the Act, and pursuant to the orders of the High Court or any other appropriate authority sanctioning this Scheme and without further act, Instrument or deed, but subject to the charges affecting the same as on the effective Date, be transferred and/or deemed to be transferred to and vested in the Transferee company so as to become the properties and assets of the Transferee Company. 4.2 All the movable assets of the Transferor companies or assets otherwise capable of transfer by manual delivery or by endorsement and delivery, including cash in hand, shall be physically handed over by manual delivery or by endorsement and delivery, to the Transferee Company to the end and intent that the property therein passes to the Transferee company on such manual delivery or endorsement and delivery without requiring any deed or Instrument of conveyance for the same and shall become the property of the Transferee Company accordingly. 4.3 With effect from the Appointed Date, all debts, liabilities, contingent liabilities, duties and obl....
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....ity shares of Rs.10/- each fully paid up in proportion to the shares held by the members Casuarina/3rd Transferor company) M/s. Vertex Projects Limited shall allot 288800 equity shares of Rs.10/- each fully paid up in proportion to the shares held by the members in Casuarina/3rd Transferor company) GVK Energy/4th Transferor company). M/s. Vertex Projects Limited shall allot 10000 equity shares of Rs.10/- each fully paid up in proportion to the shares held by the members GVK Hydel/5th Transferor Company). M/s. Vertex Projects Limited shall allot 10000 equity shares of Rs.10/- each fully paid up in proportion to the shares held by the members in GVK Hydel/5th Transferor Company). Marwell/5th Transferor company M/s. Vertex Projects Limited shall allot 10000 equity shares of Rs.10/- each fully paid up in proportion to the shares held by the members in Marwell/5th Transferor company Metro/7th Transferor company M/s. Vertex Projects Limited shall allot 10000 equity shares of Rs.10/- each fully paid up in proportion to the shares held by the members in Metro/7th Transferor company Plateau/8th Transferor company M/s. Vertex Projects Limited shall allot 1....
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....for this purpose the stamp duty and fees paid on the authorised capital of Transferor Companies shall be utilised and applied to the increased authorised share capital of Transferee company and there would be no requirement for any other further payment of stamp duty and/or fee by Transferee Company for increase in the authorized share capital to that extent. Pursuant to the Scheme becoming effective and consequent upon the amalgamation of Transferor Companies into Transferee Company, the authorised share capital of Transferee Company will be as under:- AUTHORISED SHARE CAPITAL (Amount in Rs.) 7,46,70,000 Equity shares of Rs.10/- each 74,67,00,000 33. Shares held by various companies of which FMV was calculated by Assessing Officer as mentioned by the Assessing Officer in the order was to the following effect:- 3.9 The fair market value of shares should be determined in accordance with such method as may be prescribed. Rule 11UA prescribed the procedure for valuation of shares. The relevant portion of the Rule is reproduced as under:- [(b) the fair market value of unquoted equity shares shall be the value, on the valuation date, of such unquoted equ....
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.... Name of the company FMV of shares (A-L)/PEXPV No. Amount Value Difference in value Difference in amount 1 Accura Constructions(P) Ltd. 48.95 74,000 8,88,000 12.00 36.95 27,34,331 2 Accura Estates(P.) Ltd. 46.85 70,000 8,92,500 12.75 34.10 23,87,313 3 Allied Estates(P.) Ltd. 42.96 70,000 8,92,500 12.75 30.21 21,15,023 4 Amtran Constructions(P) Ltd. 46.00 74,000 8,88,000 12.00 34.00 25,16,076 5 Anchor Estates(p) Ltd. 34.29 85,000 10,92,250 12.85 21.44 18,22,548 6 Bonanza Real Estates(P) Ltd 23.02 84,000 10,79,400 12.85 10.17 8,54,517 7 Classic Land Holdings(P) Ltd. 42.97 85,000 10,92,250 12.85 30.12 25,60,176 8 Consolidated Real Estates(P) Ltd. 67.00 40,000 5,10,000 12.75 54.25 21,70,104 9 Eagle Land Holdings(P) Ltd. 31.57 68,000 8,67,000 12.75 18.82 12,79,450 10 Fair Value Holdings(P) Ltd. 55.83 35,000 4,37,500 12.50 43.33 15,16,716 11 Fortune Real Estates(P) Ltd. 46.04 85,000 10,83,750 12.75 33.29 28,2....
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....es excl capital/reserves/provision/contingent liabilities(L) 9979,97,227 5070,78,075 1324766909- (304000000+22769682) 513843899-(5000000+1765824) Total amount of paid up equity shares(PE) 3040,00,000 50,00,000 Paid up value of shares(PV) 10.00 10.00 FMV of shares=(A+L/PE X PV 10.75 13.53 Share price fixed No. 138,82,500 2,35,000 Amount 1388,25,000 23,50,000 Value 10.00 10.00 Difference in value 0.75 3.53 Difference in amount 103,92,813 8,29,937 Amount to be considered 103,92,813 8,29,937 Total 112,22,750 3.13 The fair market value of un-quoted shares held by Vertex Infratech(P) Ltd., is as under:- Name of the company GVK Energy Holdings Ltd. As on 31-03-2013 Book Value of assets in the balance sheet reduced by TDS/tax paid(A) 5138,43,899 5138,43,899 Book value of liabilities excl capital/reserves/provision/contingent liabilities(L) 5070,78,075 513843899-(5000000+1765824) Total amount of paid up equity shares(PE) 50,00,000 Paid up value of shares(PV) 10.00 FMV of ....
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.... the scheme of amalgamation, the assessee received the shares of 11 amalgamating companies along with underline properties including the shares of various companies and in consideration thereof, had allotted the number of shares at face value of Rs.10/- to various shareholders of the said 11 amalgamating companies. In this way / practice, not only, the transfer of 11 amalgamating companies have taken place but also the transfer of unlisted / listed shares / preferential shares below the market rate have taken place. The argument of the ld.AR is that there is no transfer of shares in the eyes of law, as there is absence of transferor and transferee and there is no receive of shares, whatever transfer of receive of shares happened that was in pursuance to the statutory approved scheme of amalgamation done by the Hon'ble High Court can not be accepted and is rejected for the reasons mentioned hereinabove and also for the reasons mentioned hereinbelow. 36. Under the scheme of section 56(2)(viia) of the Act, the requirement of law is that a) there must be a company in which the public are not substantially interested; b) the said company had received any property, b....
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....ven post amalgamation, the holders were the same and the shareholding was in the same ratio. The ld.CIT(A) has lost his sight to the provision of section 56(2)(vii) which contemplates that the receipt of any property being shares of an unlisted company in which public are not substantially interested by a company in which public are not substantially interested. It has nothing to do with the shareholding patterns by the shareholding companies and amalgamated companies. The ld.CIT(A) should have examined the applicability of section 56(2)(viia), in the light of the criteria laid down therein. In the present case, the assessee received the property being the shares of the "amalgamating companies" along with the shares held by these amalgamating companies. As mentioned hereinabove, the assessee company had received the property being the shares of amalgamating companies in which the public are not substantially interested, without consideration or a consideration which is less than the fair market value of such shares. In view of the above, the conclusion drawn by the ld.CIT(A) was without any basis. 42. The ld.AR for the assessee had relied upon the decision of Delhi Tribunal in t....
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....peal is allowed. GROUND NOS.3 AND 4 43. Having held that the Assessing Officer was right in invoking the provision of Section 56(2)(viia), we have to determine whether the amount charged by the Assessing Officer on account of receive of shares, was in accordance with law or not ? In this regard, the ld.DR had submitted that the ld.CIT(A) had granted the relief to the assessee on the technical grounds and has not given any finding as to the basis for making the deduction of Rs.55,92,49,590/- and Rs.5,14,80,679/- as the ld.CIT(A) refrained from deciding ground Nos.2(i), 2(ii), 3(i) and 3(ii) of the assessee's grounds of appeal before him. It was submitted that the ld.CIT(A) was duty bound to decide the grounds raised by the assessee. 44. Per contra, the ld.AR had drawn our attention to the written submissions filed before us which were reproduced elsewhere and it was submitted that the Assessing Officer had wrongly invoked the provisions of Rule 11UA(i)(c)(c) of the Rules. 45. We have heard the rival contentions of the parties and perused the material available on record. Admittedly, the ld.CIT(A) has not decided the grounds of the assessee on merit and had granted the re....