DDIT (IT) 3(1), MUMBAI V. H & R JOHNSON ( OVERSEAS ) LTD, MUMBAI

ITA 1314/MUM/2013

• Counselvise Citation: 131419914 RSA 2013
• Duration Of Justice: 1 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 09-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 15-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR BORA
• Assessee Lawyers: NITESH JOSHI
• Keywords: Cost of acquisition; Fair market value
• Section: 143(3)

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - H BENCH , !' !' !' !' ## ## ## ## , !' !' !' !' BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & S HRI SANJAY GARG, JUDICIAL MEMBER /. ITA NO.1314/MUM/2013, $ $ $ $ % % % % / ASSESSMENT YEAR-2009-10 DDIT- 3(1), R.NO.136, 1ST FLOOR, SCINDIA HOUSE, N.M. ROAD, BALLARD ESTATE, MUMBAI-400038 $ VS. H & R JOHNSON (OVERSEAS) LTD. C/O GM KAPADIA AND CO. 1001, RAHEJA CHAMBERS, 213, NARIMAN POINT,MUMBAI-400021 PAN:AACCH2680N ( &' / APPELLANT) ( ()&' / RESPONDENT) ' * + / REVENUE BY :SHRI VIJAY KUMAR BORA $ ,- $ ,- $ ,- $ ,- + + + + / ASSESSEE BY :SHRI NITESH JOSHI $ $ $ $ * ** * -. -. -. -. / DATE OF HEARING :09 -12-2014 /0% * -. / DATE OF PRONOUNCEMENT :09 -12-2014 $ $ $ $ , 1961 * ** * 254(1) -#- -#- -#- -#- !1 !1 !1 !1 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. !' $ : CHALLENGING THE ORDER DATED 29.11.2012 OF THE CIT(A )-10, MUMBAI, ASSESSING OFFICER (AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(APPEALS) ERRED IN HOLDING THAT THE BENEFIT OF TAKING FMV PROVIDED IN SECTION 55(2)(B)(I) IS SPECIFICALLY EXTENDED BY THE LEGISLATURE TO THE CASE COVERED BY SECTION 55(2)(AA )(IIIA) WITHOUT CONSIDERING THE FACTS THAT IN RELAT ION TO FINANCIAL ASSET ALLOTTED TO ASSESSEE WITHOUT ANY PAYMENTS AND ON THE BASIS OF HOLDING OF ANY OTHER FINANCIAL ASSET SHALL BE TAKEN TO BE NIL IN CASE OF SUCH ASSESSEE. 2.THE APPELLANT PRAYS THAT THE ORDER OF THE LD.CIT( APPEALS) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3.THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2 .ASSESSEE-COMPANY IS AN INVESTMENT HOLDING COMPANY.IT FILED ITS RETUR N OF INCOME ON 14.10. 2009 DECLARING NIL INCOME.THE AO COMPLETED THE ASSE SSMENT ON 23.12.2012 U/S. 144C(3) R.W.S. 143(3) OF THE ACT , DETERMINING ITS INCOME AT RS. 1,38,25,80/-. 3. DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THA T ASSESSEE HAD SHOWN INCOME IN NATURE OF LONG TERM CAPITAL GAIN (LTCG) OF RS. 9.22 LAKHS ON BY-BACK OF SHARES OF AN INDIAN COMPANY, THAT TAX HAD BEEN DEDUCTED AT SOURCE OF THE INDIAN COMPANY OF A SUM OF RS. 1.55 CRORES, THAT THE ASSESSEE HAD CLAIMED A REFUND OF RS. 1.53 CRORES. H E DIRECTED THE ASSESSEE TO FURNISH THE DETAILS IN RESPECT OF THE CAPITAL GAINS ALONG WITH THE SUPPORT ING DOCUMENTS FOR PURCHASE OF SHARES. IT WAS FOUND BY THE AO THAT ASSESSEE HAD PURCHASED SHARES PRIOR TO 01.04.1981.HE DIRECTED THE ASSESSEE TO EXPLAIN THE BASIS OF DETERMINATION OF THE FAIR M ARKET VALUE (FMV) OF THE SHARES AS ON THAT DAY.HE ALSO ASKED THE ASSESSEE AS TO WHY THE COST O F ACQUISITION OF 6860 BONUS SHARES RECEIVED PRIOR TO 01.04.1981 SHOULD NOT BE TAKEN AS NIL.THE ASSESSEE,VIDE ITS LETTER DATED 05.12.2011,MADE SUBMISSIONS ABOUT FMV OF THE ASSETS AS ON 01.04.198 1 AS WELL AS COST OF ACQUISITION OF BONUS SHARES.REFERRING TO THE PROVISIONS OF SECTION 55(2) (IIIA) OF THE ACT,THE ASSESSEE STATED THAT THE COST OF ACQUISITION OF THE ASSET WOULD BE THE FMV AS ON 01.04.1981 OR THE COST OF ACQUISITION AT THE 2 ITA NO. 1314/MUM/2013 H&R JOHNSON (OVERSEAS) LTD. OPTION OF THE ASSESSEE.AFTER CONSIDERING THE SUBMIS SION MADE BY IT,THE AO HELD THAT LAST FMV OF THE ASSESSEE WORKED OUT TO RS. 412.93 PER SHARE UND ER RULE 1D OF WEALTH TAX RULES, 1957. HE ADOPTED THE SAID VALUE AS FMV AS ON 01.04.1981 FOR WORKING OUT THE COST OF ACQUISITION OF SHARES ACQUIRED PRIOR TO 01.04.1981. HE FURTHER HELD THAT THE BONUS SHARES WERE RECEIVED BY THE ASSESSEE FREE OF COST, THAT THEY DID NOT HAVE ANY COST OF AC QUISITION, THAT NO COST WOULD BE ATTRIBUTED TO THE ACQUISITION OF BONUS SHARES, THAT PROVISIONS OF SEC TION 55(2)(AA)(IIIA) SPECIFICALLY DEALT WITH THE COST OF ACQUISITION OF BONUS SHARES, THAT THE CONTE NTION OF THE ASSESSEE THAT ITS CAST FAIL U/S. 55(2)(B) WAS ERRONEOUS. ACCORDINGLY, HE REJECTED TH E CLAIM MADE BY THE ASSESSEE AND THE COST OF ACQUISITION OF THE 6860 SHARES TAKEN AS NIL. 4. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HER THE ASSESSEE RELIED UPON VARIOUS DECISION INCLUDING THE RULINGS OF AAR PRONOUNCED IN THE CASES OF KEIRN LIEBERS INTERN ATIONAL GMBH(301 ITR 178)AND FOUR STAR OIL AND GAS CO.(312 ITR 104).IT WAS STATED THAT PRO VISION OF SECTION 55(2)WERE NOT ANALYSED BY THE AO IN PROPER PERSPECTIVE.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER,THE FAA HELD THAT EVENTUALLY THERE WAS ONLY ONE ISSUE INVOLVED IN THE CASE UNDER APPEAL AND THAT WAS WHETHER IN RESPECT OF BON US SHARES ACQUIRED PRIOR TO 1.4.1981 THE FMV COULD BE TAKEN AS THE COST OF ACQUISITION OR NOT,TH AT THE OPTION TO TAKE THE FMV AS THE COST OF ACQUISITION IN THE CASE OF BONUS SHARES ACQUIRED PR IOR TO 1.4.1981 WAS AVAILABLE TO AN ASSESSEE,THAT THE PROVISIONS OF SEC.55(2)(A)(A),DEALING WITH COST OF ACQUISITION OF BONUS SHARES [IN SUB CLAUSE (IIIA)],WERE VERY CLEAR AND UNAMBIGUOUS,THAT THE PR OVISION WAS SUBJECT TO SEC. 55 (2)(B)(I)&(II),THAT THE BENEFIT OF TAKING FMV PROVI DED IN SEC.55(2)(B)(I) AND 55(2)(B)(II)WAS SPECIFICALLY EXTENDED BY THE LEGISLATURE TO THE CAS E COVERED BY SEC.55(2)(AA)(IIIA).SHE REFERRED TO THE ORDERS OF THE MUMBAI TRIBUNAL DELIVERED IN THE CASES OF HEINRICH DE FRIES GMBH(281 ITR- AT-18) AND ALCAN INC. (110ITD 15)AND ALLOWED THE AP PEAL FILED BY THE ASSESSEE. 5.BEFORE US,THE DEPARTMENTAL REPRESENTATIVE SUPPORT ED THE ORDER OF THE AO.AUTHORISED REPRESEN -TATIVE(AR)STATED THAT PROVISIONS OF SECTION 55(2)C LEARLY GAVE OPTION TO THE ASSESSEE FOR ADOPTING FMV OF SHARES IN PARTICULAR MANNER.WE HAVE HEARD TH E RIVAL SUBMISSIONS.WE FIND THAT SIMILAR ISSUE HAD ARISEN IN THE CASE OF HEINRICH DE FRIES G MBH(SUPRA).IN THAT MATTER THE TRIBUNAL HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND LAI D DOWN FOLLOWING PRINCIPLE: THE SCOPE OF SECTION 55(2)(AA) OF THE INCOME-TAX A CT, 1961, EXTENDS TO, INTER ALIA, BONUS SHARES AS WELL, AS THE SAME ARE ALLOTTED WITHOUT ANY PAYMENT AND ON THE BASIS OF HOLDING OF ANY OTHER FINANCIAL ASSET AND ARE SPECIFICALLY COVERED BY SEC TION 55(2)(AA)(IIIA). THE PROVISIONS OF THE STATUTE ARE UNAMBIGUOUS. ACCORDINGLY, TO THE EXTENT BONUS S HARES WERE ISSUED TO THE ASSESSEE PRIOR TO 01.04.1981, THE OPTION IS WITH THE ASSESSEE TO TAKE THEIR COST OF ACQUISITION AS THEIR FAIR MARKET VALUE AS ON 01.04.1981. EVEN OTHERWISE, IT MAKES NO SENSE TO DECLINE THE OPTION OF THE FAIR MARKET VALUE AS ON 01.04.1981,TO BONUS SHARES AND RESTRICT THIS OPTION ONLY TO ORIGINAL SHARES.WHEN BONUS SHARES ARE ISSUED THERE IS A CORRESPONDING FALL IN THE MARKET VALUE OF SHARES BECAUSE THE SAME VALUATION OF THE COMPANY IS SPREAD OVER A LARGER NU MBER OF UNITS OF SHARES. IN SUCH A SITUATION, ON THE ONE HAND, THE ASSESSEE GETS THE LOWER FAIR MARK ET VALUE AS ON 01.04.1981, FOR THE ORIGINAL SHARES AND THE FAIR MARKET VALUE AS ON 01.04.1981, IS DECLINED IN RESPECT OF BONUS SHARES. THIS WOULD BE INCONGRUOUS. WE FIND THAT IN THE CASE OF ALCAN INC.(SUPRA)THERE TRIBUNAL HAD DEALT WITH THE IDENTICAL ISSUE.THE FACTS OF THE CASE WERE THAT THE ASSESSEE HAD,OVER A PERIOD OF TIME, ACQUIRED 3,88,44,324 SHARES IN AN INDIAN COMPANY OF THE FOLLOWING CATEGORIES :(I) SHARES ACQUIRED BETWEEN 1938 AND 1968 IN CANADIAN DOLLARS ; (II) SHARES ACQUIRED IN AUGUST, 1998, IN AMERICAN DOLLARS ; AND (III) BONUS SHARES ALLOTTED BETWEEN 1944 AND 1996.DURING THE AY .2001-02,IT SOLD THE ENTIRE SHARES TO ANOTHER COMPANY AT AN AGREED PRICE OF RS. 190 PER SHARE. TH E LTCG ARISING OUT OF THE ABOVE TRANSACTION WAS REPORTED BY IT IN THE RETURN OF INCOME FILED FO R THE AY.2001-02.IN THE CASE OF SHARES ACQUIRED BETWEEN 1938 AND 1968, THE CAPITAL GAINS WERE COMPU TED ADOPTING THE FAIR MARKET VALUE OF THE SHARES AS ON APRIL 01.04.1981,UNDER SECTION 55(2)(B )(I) OF THE ACT.IN THE CASE OF THE BONUS SHARES 3 ITA NO. 1314/MUM/2013 H&R JOHNSON (OVERSEAS) LTD. THE COST OF ACQUISITION WAS WORKED OUT ON THE BASI S OF THE FMV AS ON 01. 04.1981 IN RESPECT OF SHARES ALLOTTED BEFORE THAT DATE.THE COST OF ACQUIS ITION WAS TAKEN AT NIL IN RESPECT OF BONUS SHARES ALLOTTED AFTER 01.04. 1981, IN TERMS OF SECTION 55( 2)(AA)(IIIA). WHILE ASSESSING THE CAPITAL GAINS, TH E ASSESSING OFFICER HELD THAT IN THE CASE OF SHARES A CQUIRED BY THE ASSESSEE PRIOR TO 01.04.1981, THE ASSESSEE COULD NOT TAKE THE BENEFIT OF THE FAIR MAR KET VALUE AS ON 01.04.1981,AS PROVIDED IN SECTION 55(2)(B)(I) OF THE ACT.FAA UPHELD THE ORDER OF THE AO. REVERSING THE ORDER OF THE FAA,THE TRIBUNAL HELD THE ASSESSEE WAS ENTITLED TO THE BENEFIT OF THE OPTION AVAILABLE UNDER SECTION 55(2)(B)(I) OF THE ACT, THAT THE AO HAD TO COMPUTE THE CAPITAL GAINS ATTRIBUTABLE TO THE SHARES ACQUIRED BY THE ASSESSEE-COMPANY BEFORE APRI L 1,1981, AFTER GIVING THE BENEFIT OF THE FAIR MARKET VALUE AS ON 01.04. 198,THAT IN THE CASE OF B ONUS SHARES ACQUIRED BY THE ASSESSEE PRIOR TO 01.04.1981 THE ASSESSEE WAS ENTITLED TO ADOPT THE F AIR MARKET VALUE AS ON 01.04.1981AS THE COST OF ACQUISITION, THAT IN THE CASE OF BONUS SHARES ACQUI RED AFTER 01.04.1981 THE COST OF ACQUISITION WOULD BE NIL. CONSIDERING THE ABOVE DISCUSSION,WE ARE OF THE OPIN ION THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY.THEREFORE,CONFI RMING HER ORDER,WE DECIDE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT, AP PEAL FILED BY THE AO STANDS DISMISSED. 3-4 $ ,- . 5 !6 * # $7 * - 89 . ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH ,DECEMBER,2014. !1 * /0% : ;!$ 9 ;! ;! ;! ;!, ,, , 2014 0 * # @ SD/- SD/- ( ## / SANJAY GARG) ( / RAJENDRA) !' / JUDICIAL MEMBER !' !' !' !' / ACCOUNTANT MEMBER / MUMBAI, ;!$ /DATE: 09.12.2014 SK !1 !1 !1 !1 * ** * (-A (-A (-A (-A BA%- BA%- BA%- BA%- / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / &' 2. RESPONDENT / ()&' 3. THE CONCERNED CIT(A)/ C D , 4. THE CONCERNED CIT / C D 5. DR H BENCH, ITAT, MUMBAI / AE# (-$ ,P ,P ,P ,P , . . . 6. GUARD FILE/ # 3 )A- (- //TRUE COPY// !1$ / BY ORDER, F / 8 DY./ASST. REGISTRAR , /ITAT, MUMBAI