2016 (6) TMI 328 - AT - Income Tax

Capital gain - Transactions not regarded as transfer - succession of company - cost of acquisition of the company - indexation on the cost of acquisition - converting the Short Term Capital Loss into Long Term Capital Gain and taxing the same - Held that - The firm is succeeded by the company, therefore, the cost of acquisition of the company would be as that of acquisition of the firm. The valuation of land and assets of firm though valued by the valuer will not change or alter the cost of acquisition of the firm despite valuation of assets of the firm and would remain the same, and therefore the cost of acquisition of the company would be cost of acquisition of the firm. The firm is being succeeded by the company and the company is not buying or purchasing the assets of the firm. The element of sale and purchase of the assets of the firm were not involved in the case of succession of the firm to the company. In view thereof, we decide the issue against the assessee and held that the cost of acquisition of the company (assessee) would be the cost of acquisition of the firm (M/s. Sarju Cold Storage). Therefore, the assessee would only be entitled to the indexation on the cost of acquisition of the firm on the amount of ₹ 2,50,000/-. The argument of the assessee that the AO has wrongly calculated the cost of acquisition of the assessee u/s 49(1)(iii)(a), in our view, is not correct as both the AO and ld. CIT (A) have applied the cost of acquisition on the basis of principles stated herein above i.e. cost of acquisition of the firm. The assessee, in our view, has wrongly got confused with the principles laid down under section 47 which talks about the transaction which are not regarded as transfer, with that of principles for determining of cost of acquisition under section 49. Section 49(1)(iii)(e) was introduced by the Finance Act, 2012 with effect from 1.4.1999. The said section, in our view, is only clarificatory in nature and has specifically provided the cost of acquisition in case of succession of firm to the company. However, the said cost of acquisition was already in existence under section 49(1)(iii)(a) of the IT Act. Therefore, in our view no fresh charge has been created on account of succession of a firm to the company. It has only clarified the existing basis of calculating the cost of acquisition in case of succession of the firm to the company. - Decided against assesssee Levy of interest under section 234B - Held that - Since we have dismissed the ground of the assessee relating to cost of acquisition on the basis of principles stated herein above i.e. cost of acquisition of the firm, therefore, levy of interest u/s 234B is rightly confirmed by the ld. CIT (A). - Decided against assesssee

Summary

Issues Involved:
1. Whether the amendment in section 49(iii)(e) inserting clause (xiii) of section 47 is of clarificatory nature.
2. Conversion of Short Term Capital Loss into Long Term Capital Gain.
3. Levy of interest under section 234B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Clarificatory Nature of Amendment in Section 49(iii)(e):
The assessee argued that the amendment in section 49(iii)(e) inserting clause (xiii) of section 47 was not clarificatory but substantive, and hence, it should not apply retrospectively. The appellate tribunal held that section 47 deals with transactions not regarded as transfers, while section 49 deals with the cost of acquisition in specific modes. It was clarified that section 49(1)(iii)(e) introduced by the Finance Act, 2012, with effect from 1.4.1999, was merely clarificatory and not substantive. The tribunal concluded that the cost of acquisition in the hands of the company (assessee) should be the same as that of the firm (M/s. Sarju Cold Storage), i.e., ?2,50,000/-, and any revaluation of assets by the firm does not alter this cost. Therefore, the amendment was correctly applied retrospectively.

2. Conversion of Short Term Capital Loss into Long Term Capital Gain:
The assessee contended that the AO erred in converting the Short Term Capital Loss into Long Term Capital Gain based on the revaluation of assets. The AO determined that the revaluation of land from ?2,50,000/- to ?3,70,00,000/- was done to evade Long Term Capital Gain tax by claiming a loss. The tribunal upheld the AO's view, stating that the cost of acquisition for the assessee company should be the same as that of the firm, regardless of any revaluation. The tribunal found no merit in the assessee's argument and confirmed that the cost of acquisition should be ?2,50,000/-, leading to the correct calculation of capital gains.

3. Levy of Interest under Section 234B:
The assessee argued against the levy of interest under section 234B, claiming that the amendment being retrospective should not attract interest for non-payment of advance tax. The tribunal dismissed this argument, stating that since the primary ground regarding the cost of acquisition was dismissed, the levy of interest under section 234B was correctly confirmed by the CIT (A). The tribunal found no infirmity in the order of the CIT (A) and upheld the levy of interest.

Conclusion:
The appellate tribunal dismissed the appeal of the assessee, confirming the order of the CIT (A). The tribunal held that the amendment in section 49(iii)(e) was clarificatory and applicable retrospectively, upheld the conversion of Short Term Capital Loss into Long Term Capital Gain based on the original cost of acquisition, and confirmed the levy of interest under section 234B. The appeal was pronounced dismissed in the open court on 27/05/2016.