2022 (12) TMI 223 - AT - Income Tax

Long term capital loss on sale of equity shares - Approved Amalgamation Scheme - merged entity to have the benefit of carry forward of loss - HELD THAT - it is not in dispute that assessee had sold the shares @ Rs.200/- per share being the purchase cost. The sale price of Rs.200 per share has not been disputed by the Revenue at all. In fact, the market price as per the Bombay Stock Exchange on the date of sale was only Rs.58/- per share whereas the assessee has sold the shares at much higher price of Rs.200/- per share. Merely because this transaction had resulted in long term capital loss which had also admittedly arose only due to the benefit of indexation which is statutorily available to the assessee, the Revenue in the instant case is trying to treat the entire transaction as a colourable device and making the assessee act as a conduit to enable the merged entity to have the benefit of carry forward of loss. All these allegations are made by the Ld.AO absolutely without any basis. This is a classic case where the Ld.AO had denied the benefit which is statutorily available to the assessee as per the Act. In any case, the scheme of merger had already contemplated these transactions of loss on shares by including the same in the scheme and had also considered the loss incurred by the transferor company getting vested with the transferee company pursuant to the scheme of amalgamation. This scheme of amalgamation has been approved by the Hon ble Bombay High Court vide its order dated 5/3/2013 with effective date of 7/7/2011. Now once the scheme of amalgamation has been approved by the Hon ble High Court, all the assets and liabilities of the transferor company including the losses would get automatically vested with the transferee company. The same cannot be disturbed or disputed by the Ld.AO at the time of implementation of the scheme of amalgamation. Hon ble Jurisdictional High Court in the case of Sadanand S Varde Ors vs State of Maharashtra Ors 2000 (6) TMI 16 - BOMBAY HIGH COURT had categorically held that order of the Company Court sanctioning the scheme of amalgamation would be binding and the same cannot be permitted to be challenged in a collateral proceeding. We do not find any infirmity in the order of Ld.CIT(A) allowing the claim of long term capital loss in the hands of the assessee company. Accordingly, grounds raised by the Revenue are dismissed.

Summary

Issues:
1. Validity of allowing the claim of long term capital loss on the sale of equity shares.
2. Validity of the notice issued under section 148 of the Income Tax Act.
3. Treatment of long term capital loss in the context of amalgamation and scheme of merger.

Issue 1:
The main issue in the appeal was whether the Commissioner was justified in allowing the claim of long term capital loss on the sale of equity shares. The Revenue contended that the transaction was a colorable device to claim fictitious losses. The Assessing Officer disallowed the claim of long term capital loss based on the grounds of the transaction being a colorable device. However, the Tribunal found that the sale was genuine and the long term capital loss was incurred due to the benefit of indexation available to the assessee. The Tribunal highlighted that the scheme of amalgamation had been duly approved by the Bombay High Court, and the Revenue's allegations were baseless. The Tribunal upheld the Commissioner's decision to allow the claim of long term capital loss.

Issue 2:
Regarding the validity of the notice issued under section 148 of the Income Tax Act, it was argued that the notice was not valid as it was issued to a company that had ceased to exist due to amalgamation. The Assessing Officer had disposed of the objections raised by the assessee regarding the notice, and subsequently, a fresh objection was raised. The Tribunal observed that the scheme of amalgamation had been approved by the High Court, and the notice issued prior to the amalgamation was valid. The Tribunal did not find any infirmity in the order of the Commissioner in this regard.

Issue 3:
The Tribunal delved into the treatment of long term capital loss in the context of amalgamation and scheme of merger. It noted that the amalgamation had been approved by the High Court, and all assets and liabilities, including losses, automatically vested with the transferee company. The Tribunal cited a similar case from the Kolkata Tribunal to support its decision. Additionally, referencing a judgment from the Jurisdictional High Court, the Tribunal emphasized that the order of the Company Court sanctioning the scheme of amalgamation is binding and cannot be challenged in a collateral proceeding. Consequently, the Tribunal dismissed the appeal of the Revenue and the Cross Objection of the assessee was dismissed as infructuous.

In conclusion, the Tribunal upheld the Commissioner's decision to allow the claim of long term capital loss, validated the notice issued under section 148, and affirmed the treatment of long term capital loss in the context of amalgamation and scheme of merger.