Umicore Autocat India Private Limited ( Original appellant Umicore Anandeya (India) Private Limited), Zuarinagar, Goa V. Income Tax Officer, Ward - 2, Margao

ITA 119/PAN/2019

AI Insights

The case involves Umicore Autocat India Private Limited, which appealed against the assessment orders for the years 2009-10 and 2010-11 concerning the taxability of capital gains and disallowance of depreciation following the conversion of a partnership firm into a private limited company. The primary legal issue was whether the conversion and subsequent acquisition of shares by a non-resident company resulted in a taxable event under the Income Tax Act. The Tribunal considered the rulings of the Authority for Advance Ruling (AAR) and the Bombay High Court, which had previously determined that no capital gains tax was applicable under the circumstances presented.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 136950 (ITAT-PANAJI)
• Duration Of Justice: 4 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: WT(D)
• Next Hearing Date: 31-12-0000
• Assessment Year: 2010-2011
• Appeal Filed On: 26-03-2019
• Laws Referred To: Companies Act, 1956, Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI (AT e-Court, PUNE) BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / ITA Nos.118 & 119/PAN/2019 नधा रण वष / Assessment Years : 2009-10 & 2010-11 Umicore Autocat India Private Limited (Original appellant Umicore Anandeya India Private Limited), 429, G-Wing, 4 th Floor, Kanakia Zillion LBS Marg, Kurla (West), Mumbai Maharashtra 400 070 PAN : AABCU0407H Vs. ITO, Ward-2, Margao ACIT, Circle-2, Margao Appellant Respondent आदेश / ORDER PER R.S.SYAL, VP : These two appeals by the assessee relate to the assessment years 2009-10 & 2010-11. Since a common issue is raised in these appeals, we are, therefore, proceeding to dispose them off by this consolidated order for the sake of convenience. Assessee by Shri R.K. Pikale Revenue by Shri N. Shrikanth Date of hearing 04-10-2023 Date of pronouncement 05-10-2023 ITA Nos.118 & 119/PAN/2019 Umicore Autocat India Private Limited 2 A.Y.2009-10 : 2. The assessee has raised an additional ground to the effect that the Assessing Officer wrongly assessed short term capital gain of Rs.2.96 crore and odd on conversion of partnership firm into a Private Limited Company under Part IX of the Companies Act, 1956. This being a legal ground, going to the root of the matter, is admitted for disposal on merits. 3. Briefly stated, the facts of the case are that there was a partnership firm with the name and style of M/s. Anandeya Zinc Oxides Pvt. Ltd., which set up its plant for manufacture of high purity while seal zinc oxide in 1994 and commenced production in 1995. The partnership firm continued to claim depreciation. Later on, M/s. Anandeya Zinc Oxides Pvt. Ltd. was incorporated succeeding the erstwhile firm M/s. Anandeya Zinc Oxides. The conversion of firm into a Private Limited company was effected on 13-09-2005 under Part IX of Indian Companies Act. Thereafter, M/s.Umicore Finance Luxembourg, a non-resident company, firstly purchased 99.96% of the shares of the Indian company, namely, M/s. Anandeya Zinc Oxides Pvt. Ltd. and later on the remaining shares as well. Control and Management of M/s.Umicore Finance Luxembourg is outside India. M/s. Anandeya Zinc Oxides Pvt. Ltd. ITA Nos.118 & 119/PAN/2019 Umicore Autocat India Private Limited 3 is a wholly owned subsidiary company of M/s.Umicore Finance Luxembourg. The conversion of partnership firm into M/s. Anandeya Zinc Oxides Pvt. Ltd. was not regarded as a transfer within the meaning of section 2(47) of the Act and no capital gain was charged to tax in the A.Y. 2006-07. The AO opined that, by acquisition of the entire share capital of M/s. Anandeya Zinc Oxides Pvt. Ltd. by M/s.Umicore Finance Luxembourg, it violated the mandate of proviso to clause (d) of section 47 (xiii) of the Act and hence, exemption from capital gain enjoyed by the assessee firm upon conversion into company became chargeable to tax. M/s.Umicore Finance Luxembourg, being, a non resident company approached the Authority for Advance Ruling (AAR) on the taxability of such capital gain. The Authority held that no capital gain accrued or arose at the time of conversion of partnership firm into Private Limited company and the position did not change in terms of non-compliance of section 47(xiii) by reason of the premature transfer of shares. The Revenue preferred writ petition against the ruling of the AAR. During the pendency of the writ petition, the AO held that there was such short term capital gain of Rs.2.00 crore to the assesssee and as such depreciation of Rs.68,79,894/- was not allowed. The ld. CIT(A) affirmed the view ITA Nos.118 & 119/PAN/2019 Umicore Autocat India Private Limited 4 point of the AO, against which the assessee has approached the Tribunal. 4. After considering the rival submissions and perusing the relevant material on record, it is found as an admitted position that the AAR ruled in favour of the assessee that no liability towards the capital gain was attracted on the assessee acquiring the full share capital of the company. This was done through its order dated 12-03-2010. The Revenue’s writ petition before the Hon’ble Bombay High Court came to be dismissed on 25-11-2016, thereby, affirming the view point of the AAR. The effect of the affirmation of the ruling by the Hon’ble High Court is that no liability is attracted towards the capital gain - whether short term or long term. Resultantly, the depreciation allowed has to be withdrawn. In view of this, Ground No.1 of the assesses’ appeal against the disallowance of depreciation on the transfer value of the asset to the extent of Rs.68,79,894/- is dismissed and Ground No.2 against the gain on transfer of technical know-how being treated as short term capital gain to the extent of Rs.2.00 crore, as against the without prejudice claim of the assessee of the same being long term capital gain, is also dismissed as having become infructuous. The ITA Nos.118 & 119/PAN/2019 Umicore Autocat India Private Limited 5 assessee’s additional ground about no liability towards capital gain is allowed. A.Y. 2010-11 : 5. The only issue raised in this appeal is against not allowing depreciation on the transfer value of the asset to the tune of Rs.55,51,642/-. The ld. AR fairly admitted that in view of the judgment of Hon’ble Bombay High Court affirming the AAR ruling, this ground is to be decided against the assessee. We order accordingly. 6. In the result, the appeal for the A.Y. 2009-10 is partly allowed and that of A.Y. 2010-11 is dismissed. Order pronounced in the Open Court on 05 th October, 2023. Sd/- Sd/- ( S.S.VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 05 th October, 2023 सतीश आदेश की ितिलिप अ ेिषत/Copy of the Order is forwarded to: 1. अपीलाथ / The Appellant; 2. थ / The respondent 3. The Pr.CIT , Panaji 4. DR, ITAT, Panaji Bench, Panaji 5. गाड फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune ITA Nos.118 & 119/PAN/2019 Umicore Autocat India Private Limited 6 Date 1. Draft dictated on 04-10-2023 Sr.PS 2. Draft placed before author 04-10-2023 Sr.PS 3. Draft proposed & placed before the second member JM 4. Draft discussed/approved by Second Member. JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *