TaxTMI 
TaxTMI 
2024 (9) TMI 521
X X X X Extracts X X X X
X X X X Extracts X X X X
.... which represented the amount credited to Capital Reserves on account of allotment of shares allotted by the amalgamated company. M/s Kemcos Land Developers Pvt Ltd, with respect to the shares held in the amalgamating company, M/s Transcar India Pvt Ltd, by the assessee 3 The Id. CIT(A) erred in holding that the allotment of shares to the assessee is not a voluntary transaction without appreciating that one of the business activities of the assessee is investment trading and the provisions of section 28(iv) in clearly attracted in the assessee's case 4 For these grounds and any other ground including amendment of grounds that may be caused during the course of the appeal proceedings, the order of ld. CIT(A) thus sue may be set aside and the addition made by the Assessing Officer be restored''. 03. Brief case of the case are that the assessee Company filed its Return of Income on 14.10.2010 for the A.Y.2010-11 disclosing an income of Rs. 99,73,917/-. The assessment u/s 143(3) of the Act was completed on 11.2.2013. The assessment for A.Y.2010-11 was reopened u/s 147 of the Act as there was a reason to believe that income to the extent of Rs. 1,75,00,000/- had esc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....any was converted into shares in the amalgamated company and the increase in value of shares is only notional which does not represent any income. The assessee further submitted that there was no transfer of shares by the assessee in the scheme of amalgamation and therefore, there is no accrual of income. The assessee also relied on the decision on the Kolkata ITAT in the case of Kyal Developers P Ltd., in ITA No.627/2012 dated 13.3.2017 for AY 2008-09, in which an identical issue was considered and held that as per the scheme of amalgamation, there is no material to indicate that the benefit, even if accruing to the assessee, on account of amalgamation by way of merger, as not in nature of revenue and there is no occasion to invoke sec.28(iv) and the transaction was in the capital field and therefore, no addition could be made. As per the ld. CIT(A) the increase in the capital reserve is only on capital field and sec.28(iv) is not applicable. Only the existing shares in the amalgamating company are converted into the shares of amalgamated company based on the swap ratio of 10:16 approved by the Hon'ble Madras High Court. In the process, the assessee did not gain anything and i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... any other benefit or perquisite, whether convertible into money or not, is also chargeable to tax under this head of income. A plain reading of this provision shows two conditions precedents for such taxability i.e. (i) that there should be benefits or perquisites and, (ii) that such benefits or perquisites should arise from the business or exercise of the profession. The expression 'arising from the business' essentially implies that the benefit or perquisite must be in the nature of a business receipt or revenue receipt. No matter how wide be the scope of Section 28(iv) of the Act, the difference between a capital receipt and revenue receipt cannot be overlooked. In the case of Mahindra & Mahindra Limited Vs. CIT (261 ITR 501), Hon'ble Bombay High Court has, in the context of this significant distinction between revenue and capital receipts, held that waiver of principal amount in respect of imports of plant and machinery could, by no stretch of logic, be treated as 'business income', and, therefore, as an income taxable under section 28(iv) of the Act. One must bear in mind the fact that section 28 of the Act only refers to the term "income" which can be cha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....when a receipt is referable to fixed capital, it is not taxable,, and it is taxable as a revenue receipt when it is referable to circulating capital or stock in trade". 8. To sum up, unless it is a revenue receipt, it cannot be in the nature of income [except in a situations in which capital receipts are specifically included in the definition of income such as under section 2(24)(vi)], and unless it is in nature of income, it cannot be considered for taxation under section 28(iv). The reference to benefit which can be brought to tax under section 28(iv) for benefits 'arising from the business' also indicates that such benefit must be a business or revenue receipt in nature. To find out whether or not the benefit, even if that be so, is on capital account or revenue account, it is necessary to understand the nature of transaction which has resulted in, what the Assessing Officer, perceives as 'benefit to the assessee'. This was a case of amalgamation in the nature of merger, and an amalgamation in the nature of merger, in corporate parlance, is the process of blending of two or more companies into one of these blending companies, the shareholders of each bl....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Seshasayee Brothers (supra), also, we find that the benefit is referable to the capital, and is thus not of an income nature. Even if, as the Assessing Officer observes, "is benefited in a myriad ways by way of amalgamation", it does not lead to the conclusion that the benefit is in revenue field which alone can be treated as income and thus be considered for taxability under section 28(iv) of the Act. The onus is on the Assessing Officer to demonstrate that the receipt is of the revenue nature. 9. In the present case there is o material whatsoever before us to indicate that the benefit, even if accruing to the assessee, on account of amalgamation by way of merger as not in revenue field, and not of an income nature. Accordingly, there was no occasion to invoke Section 28(iv) of the Act. According to us, CIT(A) was quite justified in his observations that "the amalgamation is not an adventure in the nature of trade" and that "this transaction is clearly a capital account transaction" and he was justified in deleting the addition. We uphold his order and dismiss the appeal of revenue. 6. The ITAT, Mumbai bench in the case of Rupee Finance & Management (P) Ltd., vs. A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e." The contention of the Ld. D.R, thus, cannot be accepted that for applicability of provisions of Section 28(iv), it is not necessary that the benefit or perquisite must arise from the business or the exercise of profession carried on by the recipient. The ITAT, Kolkata Bench in the case of ITO vs Shreyans Investments Private Limited 141 ITD 672 (Kolkata-Tribunal) relying on the decision of the Honourable Bombay High Court in the case of Mahindra and Mahindra 261 ITR 501 (Bom.) had taken a view that reserve arising out of amalgamation cannot be treated as income under section 28(iv) of the Income-Tax Act, 1961. The decision of the Honourable Bombay High Court in the case of Mahindra and Mahindra (supra), has been upheld by the Honourable Supreme Court reported in 404 ITR 1. Learned Counsel for the Assessee also relied upon decision of the Chennai Bench of the Tribunal in the case of Spencers and Company Limited vs., ACIT 137 ITD 141 (T.M.) (Madras-Tribunal). In this case, the surplus arising out of the amalgamation was transferred to a general reserve which were treated by the Assessing officer as an income chargeable to tax under section 28(iv) of the Income Tax Act, 19....