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2021 (5) TMI 685 - AT - Income TaxTaxability of capital gain on transfer of shares - income on sale of share accrued before amalgamation / slump sale - HELD THAT - In the instant case, since it is an undisputed fact that income on sale of share accrued before amalgamation / slump sale, therefore, this income has to be taxable in the hands of ITI Limited (old) only. So far as S. 170(2) is concerned, this section will apply when the predecessor cannot be found. But in this case ITI Limited (old) very much exists even as on today as per the records of the various government authorities. Hence the contention of the AO does not make any sense. The entire confusion emanated from misunderstanding, as admitted by the AO himself in the remand report that ITI Limited (old) amalgamated with HFCL Infotel Limited due to which the AO invoked succession theory under the impression that ITI Limited (old) no more exist while the fact is other way round. It is HFCL Infotel Limited which merged with ITI Limited (old) which is amalgamated company today and HFCL Infotel Limited was amalgamating company. Therefore, on this count also the finding of the AO is incorrect. We are of the considered view that capital gain arising out of sale of shares of Kothari Pioneer AMC Limited by ITI Limited (old) is taxable only in the hands of ITI Limited (old) now renamed as HFCL Infotel Limited (new). Although, the ld. AO of ITI Limited (old) now renamed as HFCL Infotel Limited (new) assessed the income on protective basis, but the ld. CIT(A), Chandigarh after considering relevant facts has rightly assessed capital gain arising out of sale of shares on substantive basis in the hands of ITI Limited (old). Similarly, although the ld. AO of Rajam Finance and Investment (India) Limited now renamed as ITI Limited (New) assessed capital gain on sale of shares in the hands of ITI Limited (new), but the ld. CIT(A), after considering relevant facts has rightly held that capital gain on sale of shares is taxable only in the hands of ITI Limited (old), but not in the hands of ITI Limited (new). We are inclined to uphold findings of ld. CIT(A) s and reject grounds taken by the Revenue on this issue in both appeals. Provisions for premium on Redemption of Debentures - HELD THAT - At the time of hearing, ld. AR for the assessee submitted that the issue is squarely covered in favour of the assessee by the decision of ITAT, Chennai bench in assessee own case for Asst. year 2008-09,for which the ld. Sr. standing counsel has agreed. Following the decision of Hon ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd vs. CIT 1997 (4) TMI 5 - SUPREME COURT , held that premium payable on redemption of debentures has to be spread over the period and further, amount pertains to relevant period is deductible u/s 37 of the Income Tax Act, 1961, even though same is paid on redemption. Facts remain unchanged. The revenue fails to bring on record any contrary decisions against the decision of Hon ble Supreme court to support its arguments. Therefore, we are of the considered view that there is no error in the findings of the ld. CIT(A) to delete additions made towards disallowance of provision made for premium payable on redemption of debentures and hence, we are inclined to uphold findings of the ld. CIT(A) and reject grounds taken by the revenue. Addition towards provision for premium on redemption of debentures to book profit u/s 115JB - HELD THAT - AO has made addition to book profit towards premium on redemption of debentures on the ground that it is an unascertained liability. The ld. CIT(A) by following the decision in case of Madras Industrial Investment Corporation Ltd 1997 (4) TMI 5 - SUPREME COURT held that it is ascertained liability and further deductible u/s 37 of the Act. The ld. CIT(A) further held that it cannot be added back to book profit computed u/s 115JB(2)(c) of the Act. Facts remain unchanged. The revenue has failed to counter findings of facts recorded by ld. CIT(A) with any contrary decision. Therefore, we are of the considered view that provision created for premium payable on redemption of debentures is ascertained liability and hence, it cannot be added to book profit u/s 115JB of the Income Tax Act, 1961. The CIT (A) has rightly deleted addition to book profit and hence, we are inclined to uphold findings of the ld. CIT(A) and reject ground taken by the revenue. Addition made towards amount received from Escrow account - HELD THAT - As for as interest income is concerned, both parties have accepted findings of the ld. CIT(A) and hence, it is final. As regards amount received from Escrow account, the revenue has challenged findings of the ld. CIT(A) on the ground that it is taxable in the hands of the assessee, i.e. ITI Limited (new). We have carefully considered facts and arguments of both sides and find that full consideration received on account of sale of shares of Kothari Pioneer AMC Limited is taxed in the hands of ITI Limited (old) and hence, amount received from Escrow account being part of sale consideration which is already suffered tax in the hands of ITI Limited (old) cannot be once again taxed in the hands of the assessee, i.e. ITI Limited (New). The ld. CIT(A) after considering relevant facts has rightly deleted addition made by the AO. Hence, we are inclined to uphold findings of the ld. CIT(A) and reject grounds taken by the revenue. Disallowance u/s 14A r.w.r 8D - HELD THAT - We find that the AO has erred in computing disallowances of interest u/r 8D(2)(ii), because for the impugned year the assessee has not incurred any interest on loans, except bank charges which is not at all related to exempt income. Therefore, we are of the considered view that no disallowance could be made u/r 8D(2)(ii) and hence, we direct the AO to delete disallowances made towards interest u/r 8D(ii) of Income Tax Rules, 1962. As regards other expenses u/r 8D(2)(iii), it is a well settled principles of law that only those investments which earned exempt income needs to be considered for computing average value of investments, as held by ITAT, Special Bench Delhi, in the case of ACIT vs. Vireet Investments Pvt Ltd. 2017 (6) TMI 1124 - ITAT DELHI We, are therefore of the opinion that the AO is erred in considering those investments which does not earned any exempt income for the year. Hence, we direct the AO to consider only those investments which earned exempt income for the year for computing disallowances of other expenses @0.5% of average value of investments. Premium payable on redemption of debentures has to be spread over the period and further, amount pertains to relevant period is deductible u/s 37 of the Income Tax Act, 1961, even though same is paid on redemption.
Issues Involved:
1. Computation of capital gain on sale of shares. 2. Provision for premium on redemption of debentures. 3. Addition towards provision for premium on redemption of debentures to book profit u/s 115JB. 4. Disallowance u/s 14A r.w.r 8D of Income Tax Rules, 1962. Issue-wise Detailed Analysis: 1. Computation of Capital Gain on Sale of Shares: The primary issue was whether the capital gain arising from the sale of shares of Kothari Pioneer AMC Ltd should be taxed in the hands of ITI Limited (old) or Rajam Finance and Investment India Limited (now ITI Limited (new)). The Tribunal noted that ITI Limited (old) had sold the shares before the NBFC business was hived off to Rajam Finance. The shares were sold in July 2002, and the capital gain was included in ITI Limited (old)'s return for AY 2003-04. The CIT(A) Chandigarh had assessed the capital gain on a substantive basis in the hands of ITI Limited (old), and this was upheld by the Tribunal. The Tribunal rejected the Revenue's argument that the amalgamation and slump sale were colorable devices to avoid tax, noting that the transactions were approved by the relevant High Courts and were genuine corporate exercises. The Tribunal concluded that the capital gain was rightly taxable in the hands of ITI Limited (old), now renamed as HFCL Infotel Limited (new). 2. Provision for Premium on Redemption of Debentures: The Tribunal addressed the issue of whether the provision for premium on redemption of debentures should be allowed as a deductible expense. The assessee had issued debentures with a premium payable on redemption and claimed the premium attributable to the relevant period as a deductible expense. The CIT(A) allowed the deduction, following the Supreme Court's decision in Madras Industrial Investment Corporation Ltd. vs. CIT, which held that such premium should be spread over the period of the debentures. The Tribunal upheld the CIT(A)'s decision, noting that the facts remained unchanged and the Revenue had not provided any contrary decisions. 3. Addition towards Provision for Premium on Redemption of Debentures to Book Profit u/s 115JB: The AO had added the provision for premium on redemption of debentures to the book profit, treating it as an unascertained liability. The CIT(A) held that the provision was an ascertained liability and should not be added to the book profit. The Tribunal agreed with the CIT(A), stating that the provision was an ascertained liability and could not be added to the book profit under section 115JB. 4. Disallowance u/s 14A r.w.r 8D of Income Tax Rules, 1962: The AO had disallowed expenses under section 14A read with Rule 8D, related to exempt income. The Tribunal found that the AO had erred in computing the disallowance of interest since the assessee had not incurred any interest on loans. The Tribunal directed the AO to delete the disallowance of interest and to consider only those investments that earned exempt income for computing the disallowance of other expenses under Rule 8D(2)(iii). Conclusion: The Tribunal dismissed the Revenue's appeals for AYs 2003-04, 2004-05, and 2005-06, upholding the CIT(A)'s decisions on the computation of capital gain and provision for premium on redemption of debentures. The Tribunal partly allowed the assessee's appeal for AY 2009-10, directing the AO to delete the disallowance of interest under Rule 8D and to reconsider the disallowance of other expenses. The Tribunal's decision was pronounced in the open court on 17th May 2021.
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