ACIT, CHENNAI V. M/s. Sanmar Electronics Corpn. Ltd., CHENNAI

ITA 1132/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4810 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-06-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 12-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P B SEKARAN
• Keywords: Capital asset; Share purchase agreement; Cost of acquisition; Difference of opinion; Change of opinion; Reassessment proceedings

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI BEFORE SHRI ABRAHAM P.GEORGE, ACCOUNTANT MEMBER AND GEORGE MATHAN JUDICIAL MEMBER .. ITA NO.1132/MDS./2010 ASSESSMENT YEAR: 2004-2005 THE ASSISTANT COMMISSIONER OF INCOME TAX , COMPANY CIRCLE VI(1), AAYAKAR BHAVAN, NEW BLOCK 121,M.G.ROAD, 7 TH FLOOR, CHENNAI 600 034. VS. M/S.SANMAR ELECTRONICS CORPORATION LIMITED, 9,CATHEDRAL ROAD, CHENNAI 600 086. PAN AABCS 0201 P (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI P.B.SEKARAN ASSESSEE BY : SHRI VIKRAM VIJAYARAGHAVAN O R D E R PER ABRAHAM P.GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, ITS FIRST GRIEVANCE IS THAT COMMISSIONER OF INCOME TAX(A) ALLOWED THE C LAIM OF LOSS OF RS.8,88,47,994/- ON SALE OF SHARES OF ONE M /S.INDCHEM COMMUNICATIONS LTD. (IN SHORT ICL ) BY THE ASSESSEE TO ONE M/S.SANMAR HOLDING LTD. (IN SHORT SHL). AS PER THE REVENUE, M/S.SHL WAS THE HOLDING COMPANY OF M/S.SANMAR SPECI ALTY CHEMICALS LTD. (IN SHORT SSCL) AND M/S.SSCL WAS THE HOLDING COMPANY OF THE ASSESSEE COMPANY, AND HENCE SECTION 47(V) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT ) A PPLIED. AS PER PAGE OF 6 ITA. 1132/MDS/10 M/S.SANMAR ELECTRONICS CORPN. 2 THE REVENUE, COLOURABLE DEVICES USED BY THE ASSESSE E FOR CLAIMING LONG TERM CAPITAL LOSS OUGHT NOT HAVE BEEN ACCEPTED BY THE COMMISSIONER OF INCOME TAX(A). 2. SECOND GRIEVANCE OF THE REVENUE IS THAT THE COMMISSIONER OF INCOME TAX(A) HELD REOPENING TO BE NOT VALID. 3. SHORT FACTS, APROPOS ARE THAT ASSESSEE HAD DURING T HE RELEVANT PREVIOUS YEAR CLAIMED SHORT TERM CAPITAL L OSS OF RS.8,88,47,994/- ON SALE OF 51,05,000 SHARES OF IC L HELD BY IT. INDEXED COST OF ACQUISITION WAS WORKED OUT RS.8,88,47,995/- AND FROM THAT SALE VALUE OF RS.1/ - DEDUCTED FOR ARRIVING AT THE LONG TERM CAPITAL LOSS. AS PE R THE ASSESSING OFFICER, THE SALE WAS EFFECTED BY THE ASS ESSEE COMPANY TO M/S.SHL AND SHL WAS THE HOLDING COMPANY OF ONE M/S.SSCL AND THE ASSESSEE WAS SUBSIDIARY OF M/S.SSC L. HENCE, AS PER THE ASSESSING OFFICER, SECTION 47(IV) & (V) OF THE ACT, WAS ATTRACTED AND THE TRANSACTION COULD N OT BE REGARDED AS TRANSFER FOR THE PURPOSE OF SEC.45 OF THE ACT. HE ,THEREFORE, DISALLOWED THE CLAIM OF LONG TERM LO SS OF RS.8,88,47,994/-. 4. BEFORE THE COMMISSIONER OF INCOME TAX(A), ARGUM ENT OF THE ASSESSEE WAS THAT FOR APPLICATION OF SEC.47(V), A CAPITAL ASSET HAD TO BE TRANSFERRED BY A SUBSIDIARY COMPANY TO HOLDING COMPANY AND THE WHOLE OF THE SHARE CAPITAL OF THE SUBSIDIARY COMPANY WAS TO BE HELD BY SUCH HOLDING COMPANY. AS PER THE ASSESSEE, THIS CONDITION WAS NOT SATISFIED. ASSESS EE HAD PAGE OF 6 ITA. 1132/MDS/10 M/S.SANMAR ELECTRONICS CORPN. 3 TRANSFERRED SHARES OF ICL TO SHL AND SHL WAS NOT HO LDING THE WHOLE OF THE SHARE CAPITAL OF THE ASSESSEE COMPANY. AS PER THE ASSESSEE, ITS SHARE CAPITAL WAS HELD BY M/S.SS CL AND NOT M/S.SHL. EVEN THOUGH M/S.SSCL WAS A SUBSIDIARY OF M/S.SHL, IT WAS ARGUED BY THE ASSESSEE THAT DEFINIT ION OF HOLDING COMPANY GIVEN IN SECTION 4 (1) OF COMPANIES ACT, 1956 COULD NOT BE APPLIED FOR THE PURPOSE OF INTERP RETING PROVISIONS OF SEC.47(V) OF THE ACT. ASSESSEE ALSO R ELIED ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF KALANDI INVESTMENTS (P) LTD. VS. COMMISSIONER OF INCOME TAX IN 256 ITR 713. COMMISSIONER OF INCOME TAX(A) WAS APPRECI ATIVE OF THESE CONTENTIONS. ACCORDING TO HIM, THE SALE OF S HARES OF ICL WAS NOT BETWEEN THE ASSESSEE AND ITS HOLDING COMPAN Y AND THE DEFINITION OF HOLDING COMPANY AS GIVEN IN THE C OMPANIES ACT, 1956 COULD NOT BE TRANSPORTED TO THE INCOME TA X ACT, 1961. 5. ASSESSEE HAD ALSO ASSAILED THE REOPENING OF THE ASSESSMENT BEFORE THE COMMISSIONER OF INCOME TAX(A) . AS PER THE ASSESSEE, THE NATURE OF HOLDING OF ITS SHAR E CAPITAL WAS AVAILABLE WITH THE ASSESSING OFFICER IN THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS AND THE ASSESSING OFFICER HA D CALLED FOR THE SHARE CERTIFICATES OF M/S.ICL FOR VERIFICAT ION. THEREFORE, SUBMISSION OF THE ASSESSEE WAS THAT REOPENING WAS R ESORTED TO BE ON A MERE CHANGE OF OPINION. LD. COMMISSIONER OF INCOME TAX(A) WAS APPRECIATIVE OF THIS CONTENTION A LSO. HE HELD THE REOPENING BAD. PAGE OF 6 ITA. 1132/MDS/10 M/S.SANMAR ELECTRONICS CORPN. 4 6. NOW BEFORE US LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT ASSESSEE HAD EMPLOYED COLOURABLE DE VICES. ASSESSEE HAD INSTEAD OF TRANSFERRING THE SHARES DIR ECTLY TO M/S.SSCL HAD TRANSFERRED THE SHARES TO SHL AND M/S. SHL BEING HOLDING COMPANY OF M/S.SSCL, IT WAS EQUIVALEN T TO TRANSFER FROM SUBSIDIARY TO A HOLDING COMPANY AS EN VISAGED U/S.47(V) OF THE ACT. ACCORDING TO HIM, DEFINITIO N OF HOLDING COMPANY GIVEN IN THE COMPANIES ACT COULD BE CONSID ERED AND IT WAS CLEAR THEREFROM THAT A SUBSIDIARY OF A S UBSIDIARY COMPANY CAN ALSO BE CONSIDERED SUBSIDIARY OF THE HO LDING COMPANY. PER CONTRA, THE LD. AUTHORIZED REPRESENTA TIVE SUPPORTED THE ORDER OF THE LD.CIT(A). 7. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES B ELOW AND HEARD THE RIVAL CONTENTIONS. CASE OF THE REVENUE I S THAT TRANSFER OF SHARES HELD BY THE ASSESSEE AS A CAPITA L ASSET TO M/S.SHL COULD BE CONSIDERED AS TRANSFER DONE BY A S UBSIDIARY TO ITS HOLDING COMPANY. BUT HERE HOLDING COMPANY OF THE ASSESSEE IS M/S.SSCL AND NOT M/S.SHL. NO DOUBT M/S .SHL IS THE HOLDING COMPANY OF M/S.SSCL AND IF WE APPLY THE DEFINITION GIVEN IN SECTION 4(1) OF THE COMPANIES A CT, 1956, SUBSIDIARY OF A SUBSIDIARY CAN BE DEEMED AS A DIREC T SUBSIDIARY OF THE HOLDING COMPANY. BUT HONBLE GUJA RAT HIGH COURT HAS HELD IN THE CASE OF KALANDI INVESTMENTS (P) LTD.(SUPRA) IN A SIMILAR FACT SITUATION THAT WIDER DEFINITION OF HOLDING COMPANY IN COMPANIES ACT WHICH BRINGS WITH IN ITS FOLD SUBSIDIARY OF A SUBSIDIARY ALSO, CANNOT BE INVOKED FOR THE PURPOSE OF INTERPRETING CLAUSES (IV) AND (V) OF SEC TION 47 OF THE INCOME TAX ACT. WE ALSO FIND THAT THE ASSESSING OF FICER HAD PAGE OF 6 ITA. 1132/MDS/10 M/S.SANMAR ELECTRONICS CORPN. 5 DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDING S OBTAINED FROM THE ASSESSEE DETAILS REGARDING TRANSFER OF ICL SHARES DONE BY IT AND EVEN CALLED FOR THE SHARE CERTIFICAT ES OF ICL. THUS, IT COMES OUT THE ASSESSING OFFICER HAD CONSI DERED THE ASPECT OF THE TAXABILITY OF THE TRANSACTION AT THE TIME OF ORIGINAL PROCEEDINGS. REOPENING THEREFORE, WAS BASED ON CH ANGE OF OPINION ONLY. REOPENING DONE ON A CHANGE OF OPINI ON, WHERE THE ORIGINAL ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT HAS BEEN FROWNED UPON BY HONBLE APEX COURT IN THE CASE OF KELVINATOR INDIA LTD. IN 256 ITR 1. THEREFORE, WE ARE OF THE OPINION THAT THE COMMISSIONER OF INCOME TAX(A) WAS WELL JUSTIFIED IN OVER-RULING THE ASSESSING OFFICER WITH REGARD TO THE ASSESSEES CLAIM OF LONG TERM CAPITAL GAINS AND ALS O IN HOLDING THAT THE REASSESSMENT PROCEEDINGS WERE NOT VALIDLY INITIATED. 8. IN RESULT, APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED ON 24 TH JUNE, 2011. SD/- SD/- ( GEORGE MATHAN ) ( ABRAHAM P. GEORGE ) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 24 TH JUNE, 2011. K S SUNDARAM COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE PAGE OF 6 ITA. 1132/MDS/10 M/S.SANMAR ELECTRONICS CORPN. 6 DATE INITIALS 1. DRAFT DICTATED ON 21.06.11 2. DRAFT PLACED BEFORE AUTHORITY 21.06.11 3. DRAFT PLACED BEFORE THE 22.06.11 SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S. 6. KEEP FOR PRONOUNCEMENT ON 7. FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE 9. DATE OF DISPATCH OF ORDER