M/s. Viper Estates & Investment P. Ltd.(since merged with Celica Developers Pvt. Ltd.), Kolkata V. CIT, Central - I, Kolkata, Kolkata

ITA 890/KOL/2010

• Counselvise Citation: 89023514 RSA 2010
• Duration Of Justice: 1 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2011
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 09-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 05-05-2010
• Court: TRIBUNAL
• Department Lawyers: MEENA
• Assessee Lawyers: S K TULSIYAN
• Keywords: Capital asset; Business income; Scheme of amalgamation; Capital receipt
• Section: 143(3)

Judgement Text

1 , B , , IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH- B, KOL KATA [ , . .. . ! ! ! !. .. . , , , , '# ] BEFORE SRI N.VIJAYAKUMARAN, JUDICIAL MEMBER & SRI C.D. RAO, AC COUNTANT MEMBER $ $ $ $ / ITA NO. 890 (KOL) OF 2010 %& '( / ASSESSMENT YEAR 2005-06 VIPER ESTATES & INVESTMENT (P) LTD., (SINCE MERGED WITH CELICA DEVELOPERS PVT. LTD., (PAN-AABCM7318M) COMMISSIONER OF INCOME-TAX, CENTRAL-I, KOLKATA. (+, / APPELLANT ) - - - VERSUS - (/0+,/ RESPONDENT ) +, 1 2 '/ FOR THE APPELLANT: / SRI S.K.TULSIYAN /0+, 1 2 ' / FOR THE RESPONDENT: / SRI M.S. MEENA 3 1 !# / DATE OF HEARING : 26/12/2011 4' 1 !# / DATE OF PRONOUNCEMENT : 29/12/2011 '5 / ORDER ( ), (N. VIJAYAKUMARAN), JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER, CENTRAL-I, KOLKATA PASSED U/S.263 OF THE I.T. ACT, 1961. THE ORDER IS DATED 05/03/2010 AND THE ASSESSMENT YEAR INVOLVED IS 2005-06. 2. ON PERUSAL OF THE ASSESSMENT ORDER, THE LD. COM MISSIONER FOUND THAT THE NAME OF THE ASSESSEE-COMPANY WAS CHANGED DUE TO SCHEME OF A RRANGEMENTS APPROVED BY THE HONBLE HIGH COURT AND AS A RESULT OF SUCH ARRANGEM ENTS, THE ASSESSEE-COMPANY HAS GOT A BENEFIT OF RS.1,13,20,637/- AND THE SAME HAS BEEN S HOWN UNDER THE HEAD GENERAL RESERVE IN THE BALANCE SHEET AS AT 31/3/2005. SIN CE THE ASSESSEE-COMPANY HAS GOT THE BENEFIT, THE SAME WAS REQUIRED TO BE ASSESSED AS TA XABLE INCOME U/S. 28(IV) OF THE ACT, BUT IN THE ASSESSMENT ORDER DATED 11/12/2007, THE A .O. HAS NOT TAKEN INTO CONSIDERATION THE SAID BENEFIT AND ALSO HAS NOT BEEN ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THEREFORE, THE LD. COMMISSIONER FOUND THAT THE REGU LAR ASSESSMENT ORDER DATED 11/12/2007 IS ERRONEOUS AND PREJUDICIAL TO THE INTE REST OF THE REVENUE. 3. THE LD. COMMISSIONER ISSUED NOTICE U/S. 263 OF THE ACT DATED 26/3/2009. IN RESPONSE TO THE NOTICE, THE ASSESSEE VIDE LETTER DA TED 15/2/2010 AGREED THAT THE 2 RECEIPT WAS NOT ON ACCOUNT OF BUSINESS ACTIVITY SO AS TO ATTRACT SEC. 28(IV) OF THE ACT, BUT WAS RATHER A CAPITAL RECEIPT ARISING FROM THE T RANSFER OF A CAPITAL ASSET, AS STATED IN SEC. 45(1) OF THE ACT, BUT IT IS EXEMPTED FROM TAX IN VIEW OF THE SPECIFIC EXEMPTION PROVIDED U/S. 47(VI) OF THE ACT. THE ASSESSEE FURT HER CONTENDED THAT IT WAS NOT TRANSFER OF CAPITAL ASSET THAT LED TO THE GAIN, RAT HER OF BOTH CAPITAL ASSETS AS WELL AS LIABILITIES AND, THEREFORE, SEC. 45(1) WILL NOT APP LY. HOWEVER, THE LD. COMMISSIONER WAS OF THE VIEW THAT THE ASSESSEE GOT THE BENEFIT ARISING FROM THE BUSINESS AND HENCE TAXABLE U/S. 28(IV) OF THE ACT. 4. WHILE EXERCISING POWER U/S. 263 OF THE ACT, THE LD. COMMISSIONER FURTHER FOUND THAT THE SUM OF RS.8,000/-, WHICH WAS STATED TO BE THE FILING FEES PAID IN CONNECTION WITH THE RIGHTS ISSUE OF THE COMPANY, HAD NOT BEEN DISAL LOWED BY THE A.O. AND THIS OBSERVATION BY THE LD. COMMISSIONER EXTENDING THE 263 POWER BEY OND REASONS MENTIONED IN THE NOTICE HAS BEEN OBJECTED TO BY THE LEARNED COUNSEL BEFORE US BY STATING THAT IT IS NOT PERMISSIBLE ON THE PART OF THE LD. COMMISSIONER TO TRAVEL BEYOND THE REASONS MENTIONED IN THE NOTICE FOR ASSUMPTION OF JURISDICTION U/S. 2 63 OF THE ACT. FOR THIS PROPOSITION, THE LEARNED COUNSEL RELIED ON THE DECISION OF I.T.A.T., CHENNAI BENCH IN THE CASE OF S.S.I. LTD. VS. DCIT, REPORTED IN (2004) 85 TTJ (CHENNAI) 1049. THE LEARNED COUNSEL, THEREFORE, SUBMITTED THAT THE AFORESAID DECISION OF THE TRIBUN AL IS DIRECTLY APPLICABLE TO THE CASE OF THE ASSESSEE AND THE LD. COMMISSIONER CANNOT TRA VEL BEYOND THE REASONS MENTIONED IN THE NOTICE. HE FURTHER SUBMITTED THAT AS THIS IS A DISCRETIONARY POWER, THE SAME HAS TO BE EXERCISED WITH GREAT CAUTION AND IN SUPPORT THE LEARNED COUNSEL RELIED ON THE FOLLOWING DECISIONS :- G.K. KABARA (AP) 211 ITR 336 AT PAGES 339-341 GENERAL TRADE AGENCIES (CAL) [(1973) TAX L.R. 138 3] SHYAM BIRI WORKS (P) LTD. [84 ITD 124 (ALL)] 5. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESE NTATIVE JUSTIFIED THE ACTION OF THE LD. COMMISSIONER AND CONTENDED THAT ONCE THE AS SESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, THEN AC TION U/S. 263 IS THE ONLY REMEDY WHICH HAS TO BE EXERCISED. HE FURTHER SUBMITTED THAT WHE N THE LD. COMMISSIONER FOUND FROM THE RECORDS THAT THERE WAS ERRONEOUS FINDING BY THE A.O., IT IS JUSTIFIED ON BEHALF OF THE LD. COMMISSIONER TO EXTEND AND TRAVEL BEYOND THE RE ASONS MENTIONED IN THE 263 NOTICE. 3 IN SUPPORT, THE LD. DEPARTMENTAL REPRESENTATIVE REL IED ON THE DECISION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. EMERY S TONE MFG. CO. [213 ITR 843 (RAJ)]. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON THE ISSUE OF FILING FEES PAID IN CONNECTION WITH THE RIGHTS ISSUE OF THE COMPANY. T HE DECISION RELIED ON BY THE LEARNED COUNSEL IS DIRECTLY APPLICABLE AND THERE IS UMPTEEN NUMBER OF DECISIONS WHICH PROHIBITS THE LD. COMMISSIONER FROM TRAVELING BEYOND THE REAS ONS MENTIONED IN THE NOTICE FOR ASSUMPTION OF THE DISCRETIONARY POWER U/S. 263 OF T HE ACT. THE COPY OF THE NOTICE DATED 26/3/2009 IS AVAILABLE IN THE ASSESSEES PAPER BOOK PAGE- 18. WE HAVE PERUSED THE COPY OF THE NOTICE, WHEREIN THERE IS NO MENTION OF THIS SUM OF RS.8,000/- STATED TO HAVE BEEN PAID ON THE RIGHTS ISSUE OF THE COMPANY. WHEN THER E IS NO MENTION OF THE REASONS IN THE NOTICE, THEN THE LD. COMMISSIONER CANNOT TRAVEL BEY OND THE ACCEPTED PRINCIPLE. HENCE WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL TH AT THE LD. COMMISSIONER CANNOT DIRECT THE A.O. TO REVISE THE ASSESSMENT ORDER IN RESPECT OF THE FEES PAID IN CONNECTION WITH THE RIGHTS ISSUE OF THE COMPANY, AS IT IS BEYOND HI S JURISDICTION AND WHICH IS NOT MENTIONED IN THE NOTICE ISSUED U/S. 263 OF THE ACT. 7. COMING TO THE TAXABILITY OF THE SUM OF RS.1,13, 20,637/- U/S. 28(IV) OF THE ACT, THIS IS THE ONLY REASON GIVEN IN THE NOTICE OF REVISION U/S. 263 OF THE ACT. ON THIS ISSUE, WE HAVE HEARD THE LEARNED COUNSEL FOR THE ASSESSEE AND THE LD.DEPARTMENTAL REPRESENTATIVE. THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSMENT O RDER SHOULD BE BOTH ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THEN ONLY THE LD. COMMISSIONER CAN EXERCISE HIS JURISDICTION U/S. 263 OF THE ACT, AS L AID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CITD [243 ITR 83 (SC)]. THEREFORE, FOR ASSUMPTION OF JURISDICTION U/S. 263 OF THE ACT, THE ORDER SHOULD BE BOTH ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE NA ME OF THE ASSESSEE-COMPANY WAS CHANGED FROM MAGMA INDFIN LTD. TO VIPER ESTATES & I NVESTMENTS LTD. ON 28/12/1998. THE SCHEME OF ARRANGEMENT IN THE NATURE OF AMALGAMA TION OF M/S. MAGMA SECURITIES LTD. WITH THE ASSESSEE-COMPANY WAS EVEN MUCH LATER AND T HE SAID SCHEME WAS APPROVED BY THE HONBLE CALCUTTA HIGH COURT ON 15/01/2005 AND WAS E FFECTIVE FROM 01/04/2004. THUS THE CHANGE OF NAME OF THE ASSESSEE-COMPANY DID NOT HAVE ANYTHING TO DO WITH THE SCHEME OF AMALGAMATION. COMING TO THE TAXABILITY O F THE AMOUNT AS BUSINESS INCOME U/S. 28(IV) OF THE ACT, THE LEARNED COUNSEL SUBMITTED TH AT IN ORDER TO TAX THE SAME AS 4 BUSINESS OR PROFESSIONAL INCOME, THE ITEM WILL HAVE TO ARISE FROM BUSINESS OR EXERCISE OF A PROFESSION. IN SUPPORT, THE LEARNED COUNSEL RELI ED ON THE DECISIONS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF PROTOS ENGINEER CO. P. LT D. VS. CIT [211 ITR 919 (BOM)] AND HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. B HAVNAGAR BONE & FERTILIZER CO. LTD. [166 ITR 316 (GUJ). THE LEARNED COUNSEL FURTHER EX PLAINED THAT THERE MUST BE NEXUS BETWEEN THE BUSINESS OF THE ASSESSEE AND THE BENEFI T WHICH THE ASSESSEE DERIVED. IN THE CASE BEFORE US, THE AMOUNT HAS COME AS A CREDIT ITEM IN THE BOOKS OF THE ASSESSEE- COMPANY MERELY ON ACCOUNT OF AMALGAMATION OF THE CO MPANY M/S. MAGMA SECURITIES LTD. WITH THE ASSESSEE-COMPANY AND NOT DURING THE COURSE OF BUSINESS OPERATION OF THE ASSESSEE-COMPANY. AMALGAMATION OF ANOTHER COMPANY WITH THE ASSESSEE-COMPANY IS NOT A PART OF A REGULAR BUSINESS AFFAIR OF THE ASSESSEE-C OMPANY. THE CREDIT ENTRY HAS ARISEN BY WAY OF INCLUSION OF ALL THE ASSETS AND LIABILITI ES OF THE AMALGAMATING COMPANY IN THE ACCOUNTS OF THE ASSESSEE-COMPANY ON AMALGAMATION. HENCE THERE IS A DISTINCTION BETWEEN BUSINESS OF THE ASSESSEE AND THE BENEFIT WHICH THE ASSESSEE HAS DERIVED AS THERE IS NO NEXUS AT ALL AND BY NO STRETCH OF IMAGINATION THE A MOUNT OF RS.1,13,20,637/- CANNOT BE CONSIDERED AS BENEFIT OR PERQUISITE ARISING OUT OF BUSINESS OF THE ASSESSEE, AS ARGUED BY THE LEARNED COUNSEL. COMING TO THE TRANSFER ISSUE, THE LEARNED COUNSEL SUBMITTED THAT ACTUALLY NO INCOME OR EVEN CAPITAL GAINS HAS ARISEN DUE TO AMALGAMATION OF THE TDWO COMPANIES AND ONLY THE EXCESS OF ASSETS OVER LIABIL ITIES IN THE BOOKS OF THE AMALGAMATING COMPANY HAS BEEN TAKEN TO GENERAL RESERVE IN THE BOOKS OF THE AMALGAMATED COMPANY AFTER THE AMALGAMATION. IF THAT BEING THE CASE, THE AMOUNT UNDER CONSIDERATION REPRESENTED A CAPITAL RECEIPT IN THE HANDS OF THE A SSESSEE-COMPANY U/S. 45(1) OF THE ACT. HOWEVER, IT IS NOT SUBJECTED TO CAPITAL GAIN TAX BY VIRTUE OF PROHIBITION U/S. 47(VI) OF THE ACT. THE LD. COMMISSIONER FIRSTLY FELT THAT THERE WAS NO SCHEME OF AMALGAMATION, BUT IT IS ONLY A SCHEME OF ARRANGEMENT. THIS IS TOTALLY A GAINST THE APPROVAL GIVEN BY THE HONBLE CALCUTTA HIGH COURT TO THE SCHEME OF ARRANGEMENT IN THE NATURE OF AMALGAMATION OF M/S. MAGMA SECURITIES LTD. WITH THE ASSESSEE-COMPANY. F URTHER, ONE COMPANY MERGES WITH ANOTHER COMPANY AND AS A RESULT, BOTH ASSETS AS WEL L AS LIABILITIES WILL MERGE. THE LIABILITY IS NOTHING BUT A NEGATIVE ASSET. HENCE, ONCE ASSET S AND LIABILITIES WERE TRANSFERRED, THE SE. 47(VI) OF THE ACT WILL APPLY AND THE ASSESSEE C AN TAKE SHELTER UNDER THAT AND IN SUPPORT, THE LEARNED RELIED ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE 5 CASE OF SHAW WALLACE & CO. VS. CIT [119 ITR 399 (SC )]. HENCE THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEES CASE WILL COVER BY SE C. 47(VI) OF THE ACT AND THERE CANNOT BE ANY CAPITAL GAIN OR LOSS ARISING FROM SUCH TRANS FER AS SEC. 45 DOES NOT APPLY TO SUCH TRANSFER AS THERE IS SPECIFIC EXCLUSION BY SEC. 47( VI) OF THE ACT. HE, THEREFORE, SUBMITTED THAT THE ORDER OF THE A.O. IS NOT ERRONEO US AND MAY BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. HOWEVER, IF TWIN CONDITIO NS ARE NOT SATISFIED, SEC. 263 OF THE ACT CANNOT BE INVOKED. 8. FOR INVOKING SEC. 28(IV) OF THE ACT, IT HAS TO BE PROVED THAT IT IS THE BENEFIT DERIVED OUT OF PROFESSION OR BUSINESS. SUCH VALUE OF ANY BENEFIT OR PERQUISITE ARISING FROM BUSINESS OR THE EXERCISE OF THE PROFESSION, WH ETHER CONVERTIBLE INTO MONEY OR NOT, ALONE WOULD BE CHARGEABLE TO TAX U/S. 28(IV) OF THE ACT. HERE IN THIS CASE, THERE IS NO NEXUS TO ESTABLISH THAT THIS AMOUNT, WHICH THE ASSE SSEE-COMPANY GOT AS A BENEFIT, HAS ANY NEXUS WITH THE BUSINESS INCOME WHICH IS TAXABLE AS BUSINESS INCOME. THE SCHEME OF ARRANGEMENT IN THE NATURE OF AMALGAMATION, AS APPRO VED BY THE HONBLE JURISDICTIONAL HIGH COURT ON 15/01/2005 AND WAS EFFECTIVE FROM 01/ 4/2004, WILL CLEARLY GO TO SHOW THAT IT IS A CASE OF SCHEME OF AMALGAMATION. WHEN THAT IS A CASE OF AMALGAMATION, PROVISIONS OF SEC. 47(VI) OF THE ACT WILL TAKE CARE AND THE ASSESSEE CLAIMS SHELTER UNDER IT. HENCE WE FIND SUBSTANTIAL FORCE IN THE ARGUMEN T OF THE LEARNED COUNSEL THAT EVEN IF THIS AMOUNT IS CONSIDERED AS A CAPITAL RECEIPT, STI LL IT WILL NOT BE TAXABLE IN VIEW OF THE PROHIBITION CONTAINED IN SEC. 47(VI) OF THE ACT. W HEN THAT VIEW IS POSSIBLE AND IT IS CLEAR THAT THIS AMOUNT COULD NOT BE BROUGHT UNDER BENEFIT OR PERQUISITE ARISING FROM BUSINESS OR IN THE EXERCISE OF THE PROFESSION, THE LD. COMMI SSIONERS VIEW IS NOT TENABLE IN THE EYE OF LAW SO AS TO EXERCISE JURISDICTION U/S. 263 OF T HE AT. APPLYING THE RATIO OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F MALABAR INDUSTRIAL CO. LTD. VS. CIT (SUPRA), WE ARE OF THE VIEW THAT THE LD. COMMISSION ER HAS NO POWER TO ASSUME JURISDICTION U/S. 263 OF THE ACT AS THE ASSESSMENT ORDER DATED 1 1/12/2007 MADE U/S. 143(3) OF THE ACT FOR THE ASSESSMENT YEAR UNDER APPEAL, I.E. A.Y. 2005-06, CANNOT BE TAKEN AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. HENCE, WE HAVE NO HESITATION IN ACCEPTING THE CONTENTION OF THE LEARNED COUNSEL THA T ASSUMPTION OF JURISDICTION U/S. 263 OF THE ACT BY THE LD. COMMISSIONER IS NOT JUSTIFIED IN THIS CASE. HENCE, WE HAVE NO 6 HESITATION IN QUASHING THE IMPUGNED ORDER OF THE LD . COMMISSIONER PASSED U/S. 263 OF THE ACT. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. 6 '5 #' 7 8 69 THIS ORDER IS PRONOUNCED IN THE COURT ON 29.12.11 SD/- SD/- ( . .. . ! ! ! !. .. . ) '# ( ) (C.D. RAO), ACCOUNTANT MEMBER (N.VIJAYAKUMARAN) JUDICIAL MEMBER ( (( (!# !# !# !#) )) ) DATE: 29-12-2011 '5 1 /%% :'';- COPY OF THE ORDER FORWARDED TO: 1. +, / THE APPELLANT : VIPER ESTATES & INVESTMENT P. LTD. (SINCE MERGED WITH CELICA DEVEL OPERS P. LTD.), 24, PARK ST., KOL-700016 2 /0+, / THE RESPONDENT : THE C.I.T., CENTRAL-I, KOLKATA 3. >%8 /% / DR, ITAT, KOLKATA BENCHES, KOLKATA 4 GUARD FILE . 0 /%/ TRUE COPY, '5/ BY ORDER, (DKP) ASSTT. REGISTRAR .