Sicagen India Ltd., CHENNAI V. The Addl. CIT, CHENNAI

ITA 1923/CHNY/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9093 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 04-11-2013
• Court: TRIBUNAL
• Department Lawyers: MSVM PRASAD
• Assessee Lawyers: S SRIDHAR
• Keywords: Capital asset; Cost of acquisition

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , . ! , ' # $ [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ] ./ I.T.A.NO. 1923/MDS/2013 / ASSESSMENT YEAR : 2009-10 M/S SICAGEN INDIA LTD 4 TH FLOOR, SPIC HOUSE 88, MOUNT ROAD GUINDY, CHENNAI 600 032 VS. THE ADDL. COM MISSIONER OF INCOME-TAX COMPANY CIRCLE VI CHENNAI [PAN AAKCS 5770 J ] ( %& / APPELLANT) ( '(%& /RESPONDENT) / APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE /RESPONDENT BY : SHRI MSVM PRASAD, CIT / DATE OF HEARING : 29 - 0 4 - 2016 ! / DATE OF PRONOUNCEMENT : 01 - 0 6 - 2016 / O R D E R PER N.R.S.GANESAN, JUDICIAL MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-VI, CHENN AI, DATED 30.9.2013 AND PERTAINS TO ASSESSMENT YEAR 2009-10. 2. SHRI S. SRIDHAR, LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE ONLY ISSUE ARISES FOR CONSIDERATION IS COMPUTAT ION OF CAPITAL GAINS. ITA NO. 1923/13 :- 2 -: 3. THE ASSESSEE SOLD A PROPERTY AT TS NO.3/5 AND 4/4 BLOCK NO.7, ADYAR VILLAGE, CHENNAI. THE ASSESSEE CLAIME D LONG TERM CAPITAL GAINS ON THE GROUND THAT THE PROPERTY WAS HELD FOR MORE THAN 36 MONTHS. THE ASSESSING OFFICER, HOWEVER, FOUND THAT THE PROPERTY WAS GIVEN TO THE ASSESSEE-COMPANY DUE TO DEMERGER, THE REFORE, HOLDING OF THE ASSET BY THE PARENT COMPANY/DEMERGED COMPANY VI., M/S SICAL LOGISTICS, HAS TO BE TAKEN INTO CONSIDERATION. IF THE HOLDING PERIOD OF THE DEMERGED COMPANY WAS CONSIDERED THEN THE HOLDIN G PERIOD WOULD BE MORE THAN 36 MONTHS, THE CAPITAL GAINS IS LONG TERM CAPITAL GAINS. HOWEVER, THE ASSESSING OFFICER BY TAKING THE DATE O F DEMERGER AS DATE OF ACQUISITION OF PROPERTY, COMPUTED SHORT TERM CAP ITAL GAINS ON THE REASON THAT THE ASSESSEE WAS HOLDING THE PROPERTY FOR LESS THAN 36 MONTHS. ACCORDING TO THE LD. COUNSEL, THE CAPITAL GAINS, IF ANY, HAS TO BE CONSIDERED AS LONG TERM CAPITAL GAINS, HENCE, TH E ASSESSING OFFICER IS NOT JUSTIFIED IN TREATING THE SAME AS SHORT TERM CAPITAL GAINS. 4. REFERRING TO THE ORDER OF THE CIT(A), THE LD. COUNS EL FOR THE ASSESSEE SUBMITTED THAT THE DEMERGER CANNOT BE CONS TRUED AS TRANSFER FOR THE PURPOSE OF SEC. 45 OF THE ACT. THE ASSESSEE-COMPANY WAS DEMERGED FROM M/S SICAL LOGISTICS LTD. AND THE PROPERTY WAS IN FACT ALLOTTED TO THE ASSESSEE-COMPANY IN THE DEMERG ER PROCEEDINGS. THEREFORE, THE ASSET SOLD BY THE ASSESSEE CANNOT B E CONSTRUED AS A TRANSFER U/S 45 R.W.S 47(B) OF THE ACT. IF THE DEMERGER AND ITA NO. 1923/13 :- 3 -: CONSEQUENT ALLOTMENT OF THE LAND TO THE ASSESSEE C ANNOT BE CONSTRUED AS TRANSFER THEN THE ACQUISITION OF THE PROPERTY BY M/S SICAL LOGISTICS LTD. HAS TO BE CONSIDERED AS DATE OF ACQUISITION, T HEREFORE, ACCORDING TO THE LD. COUNSEL, THE ASSET WAS HELD FOR MORE THA N 36 MONTHS. REFERRING TO SEC. 49(1)(IIIA) OF THE ACT, THE LD. C OUNSEL SUBMITTED THAT AT THE BEST, THE TRANSACTION CAN BE COVERED BY SUCC ESSION OR INHERITANCE, THEREFORE, THE CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER. 5. ON THE CONTRARY, SHRI MSVM PRASAD, LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT SEC. 49(1)(III)(E) W AS AMENDED WITH EFFECT FROM ASSESSMENT YEAR 2016-17. UNDER THE EXI STING PROVISION OF THE INCOME-TAX ACT, 1961, THERE IS NO EXPRESS PROVI SION TO SHOW THAT DEMERGER IS A TRANSFER. THEREFORE, TO BRING EXPR ESS PROVISION IN THE INCOME-TAX ACT, 1961 BY TREATING THE ALLOTMENT OF L AND UNDER DEMERGER IS ALSO A TRANSFER, SEC. 49(1)(III)(E) O F THE ACT WAS AMENDED. ACCORDINGLY, THE COST OF ACQUISITION OF THE ASSET A CQUIRED BY THE RESULTING COMPANY SHALL BE THE COST FOR WHICH THE D EMERGED COMPANY ACQUIRED THE CAPITAL ASSET AS INCREASED BY THE COST OF IMPROVEMENT INCURRED BY THE DEMERGED COMPANY. IN VIEW OF THE F INANCE ACT, 2015, WITH EFFECT FROM ASSESSMENT YEAR 2016-17, ACCORDING TO THE LD. DR, THE ACQUISITION OF PROPERTY BY DEMERGER ALSO HAS TO BE TREATED AS TRANSFER. THEREFORE, HE CIT(A) HAS RIGHTLY CONFIRMED THE ORDE R OF THE CIT(A). ITA NO. 1923/13 :- 4 -: 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADM ITTEDLY, THE ASSESSEE HAS TRANSFERRED THE PROPERTY DURING THE YE AR UNDER CONSIDERATION. THE ISSUE ARISES FOR CONSIDERATION IS WHAT IS THE DATE OF ACQUISITION OF THE PROPERTY BY THE ASSESSEE FOR TH E PURPOSE OF COMPUTING THE CAPITAL GAINS? IF THE DATE OF ACQUIS ITION IS TAKEN AS DATE OF DEMERGER THEN THE HOLDING PERIOD WOULD BE LESS T HAN 36 MONTHS, THEREFORE, THE CAPITAL GAINS HAS TO BE ASSESSED AS SHORT TERM CAPITAL GAINS. IF THE DEMERGER IS CONSIDERED TO BE NOT A T RANSFER AND DATE OF DEMERGER IS NOT THE DATE OF ACQUISITION, THEN THE HOLDING PERIOD OF THE PROPERTY EXCEEDS MORE THAN 36 MONTHS, THEREFORE, TH E CAPITAL GAINS, IF ANY, HAS TO BE ASSESSED AS LONG TERM CAPITAL GAINS. 7. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SE C. 47 OF THE ACT. SEC. 47(VIB) CLEARLY SAYS THAT ANY TRANSF ER, IN A DEMERGER, OF A CAPITAL ASSET BY THE DEMERGED COMPANY TO THE RESU LTING COMPANY CANNOT BE CONSTRUED AS TRANSFER FOR THE PURPOSE O F COMPUTING THE CAPITAL GAINS. SEC. 47(VIB) WAS INSERTED BY FINANC E ACT, 1999 WITH EFFECT FROM 1.4.2000. THE ASSESSMENT YEAR UNDER CO NSIDERATION IS 2009-10. THEREFORE, SEC. 47(VIB) IS VERY MUCH APPL ICABLE DURING THE YEAR UNDER CONSIDERATION. THE CIT(A) FOUND THAT TH E TRANSACTION SUCH AS DEMERGER OF A CAPITAL ASSET BY THE DEMERGED COMP ANY TO THE RESULTING COMPANY CANNOT BE INCLUDED IN SEC. 49(1)( E) OF THE ACT. ITA NO. 1923/13 :- 5 -: 8. WE HAVE GONE THROUGH THE PROVISIONS OF SEC. 49 OF THE ACT. NO DOUBT, SEC. 49(1)(E) DOES NOT REFER TO SEC. 47(V IB) OF THE ACT. HOWEVER, AS RIGHTLY SUBMITTED BY THE LD. COUNSEL FO R THE ASSESSEE, FORMATION OF A RESULTING COMPANY VIZ., THE ASSESSEE -COMPANY BY DEMERGER IS NOTHING BUT A SUCCESSION UNDER THE PROV ISIONS OF THE COMPANIES ACT. THE ASSET OF THE DEMERGED COMPANY V IZ. M/S SICAL LOGISTICS LTD. WAS SUCCEEDED BY A RESULTING COMPANY VIZ., THE ASSESSEE-COMPANY, THEREFORE, THIS TRIBUNAL IS OF T HE CONSIDERED OPINION THAT THE PROCEDURE OF DEMERGER WOULD BE GOV ERNED BY SEC. 49(1)(III)(A) OF THE ACT. IF THE TRANSACTION IS C ONSIDERED AS SUCCESSION THEN THE COST OF ACQUISITION OF THE PROPERTY SHALL BE DEEMED TO BE THE COST FOR WHICH THE PREVIOUS OWNER VIZ. DEMERGED COM PANY ACQUIRED IT. THEREFORE, THE HOLDING PERIOD HAS TO BE CONSTRUED F ROM THE DATE ON WHICH THE DEMERGED COMPANY ACQUIRED THE PROPERTY. 9. WE HAVE ALSO GONE THROUGH THE FINANCE ACT, 2015, BY WHICH SEC. 49(1)(III)(E) WAS AMENDED. THE PARLIAMENT IN THEIR WISDOM FOUND THAT THERE WAS NO EXPRESSION PROVISION IN THE INCO ME-TAX ACT, 1961 TO TREAT THE TRANSACTION OF DEMERGER AS TRANSFER. ACC ORDINGLY, THE PROVISIONS OF 49(1)(III)(E) WAS AMENDED WITH EFFECT FROM ASSESSMENT YEAR 2016-17. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE AMENDMENT INCLUDED IN SEC. 49(1)(III)(E) B Y FINANCE ACT, 2015 ITA NO. 1923/13 :- 6 -: IS NOT APPLICABLE DURING THE YEAR UNDER CONSIDERATI ON. IN VIEW OF THE ABOVE DISCUSSION, THIS TRIBUNAL IS OF THE CONSIDER ED OPINION THAT THE DATE OF ACQUISITION OF PROPERTY BY THE ASSESSEE-COM PANY SHALL BE CONSTRUED AS THE DATE OF ACQUISITION BY THE DEMERGE D COMPANY VIZ. SICAL LOGISTIC LTD. HENCE, THE HOLDING PERIOD OF THE PROPERTY BY THE ASSESSEE-COMPANY IS MORE THAN 36 MONTHS. THEREFORE , THE ASSESSEE HAS RIGHTLY TREATED THE GAINS AS LONG TERM CAPITAL GAINS. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE A ND THE ASSESSING OFFICER IS DIRECTED TO COMPUTE LONG TERM CAPITAL GA INS AS CLAIMED BY THE ASSESSEE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST JUNE, 2016, AT CHENNAI. SD/- SD/- ( . ! ) (A. MOHAN ALANKAMONY) ' / ACCOUNTANT MEMBER ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER #$ / CHENNAI %& / DATED: 1 ST JUNE, 2016 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF