2023 (4) TMI 1003 - HC - Income Tax

Transactions not regarded as transfer - exemption of income arising on account of transfer of Trunk Infrastructure Asset to its 100% subsidiary - CIT(A) concluded that the surplus generated by the respondent/assessee on transfer of what was, essentially, capital work-in-progress would be chargeable to tax, as it was an asset employed in the business - HELD THAT - Trunk Infrastructure , which includes roads etc., were, admittedly, transferred by the respondent/assessee to its 100% subsidiary. Transfer of Trunk Infrastructure , concededly, led to generation of surplus. The record shows that the respondent/assessee had included this surplus in its return of income albeit, with a note which explained as to how the surplus arose. Tribunal, in reversing the view of the CIT(A), has, in our view, rightly, concluded that an assessee employees both capital assets and trading assets in his business; the fact that a capital asset (i.e., Trunk Infrastructure), which was, as noted above, a capital work-in-progress, on transfer, generated surplus, could not be treated as income, in view of the provisions of Section 47(iv) of the Act. There is no dispute raised before us that the prerequisites provided in Section 47(iv) of the Act stand fulfilled i.e., the transfer of the Trunk Infrastructure/capital work-in-progress was made by the respondent/assessee to its 100% subsidiary and the subsidiary was an Indian company. Whether Tribunal could not have gone beyond the assessment order, given the fact that the respondent/assessee itself had included the surplus as income chargeable to tax in its return of income? - This argument misses the point (something which the Tribunal has noted) which is that the assessee had entered a caveat in the return of income. It is not disputed that a note was incorporated in the return wherein it was explained as to how the surplus arose in the instant case on transfer of Trunk Infrastructure/capital work-in-progress. In our view, it is more than well-established that merely because the assessee inadvertently offers a receipt for levy of tax, tax cannot be levied by the revenue if it is not otherwise constitute income of the assessee. Every receipt is not an income chargeable to tax under the provisions of the Act. Decided against revenue.

Summary

Issues involved:
The issues in this case involve condonation of delay in filing an appeal, interpretation of Section 47(iv) of the Income Tax Act, 1961, and whether the surplus generated from the transfer of "Trunk Infrastructure Asset" to a subsidiary company is exempt from income tax.

Condonation of Delay:
- The appellant/revenue sought condonation of a 200-day delay in filing the appeal.
- The delay was condoned based on the reasons provided in the application.

Interpretation of Section 47(iv) of the Income Tax Act:
- The appeal concerned the Assessment Year 2012-13 and sought to challenge the order of the Income Tax Appellate Tribunal regarding the exemption of income arising from the transfer of "Trunk Infrastructure Asset" to a subsidiary.
- Section 47(iv) of the Act states that a transfer of a capital asset by a company to its subsidiary may be exempt from capital gains tax under certain conditions.
- The Tribunal concluded that the surplus generated from the transfer of the capital asset could not be treated as income, citing Section 47(iv) of the Act.
- It was found that the prerequisites of Section 47(iv) were fulfilled in this case, as the transfer was made to a 100% subsidiary that was an Indian company.

Exemption of Surplus from Income Tax:
- The Commissioner of Income Tax (Appeals) initially ruled against the respondent/assessee, stating that the surplus generated from the transfer should be taxable as it was an asset employed in the business.
- However, the Tribunal overturned this decision, emphasizing that the surplus from the transfer of the capital asset could not be considered income under Section 47(iv) of the Act.
- The Tribunal noted that the respondent/assessee had included the surplus in its return of income but had explained how it arose, indicating that not all receipts are necessarily taxable income.
- The Court upheld the Tribunal's decision, stating that no substantial question of law arose for consideration, and closed the appeal accordingly.