9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2013 (11) TMI 1313 - AT - Income TaxWhen the conditions prescribed u/s 72A(2) are not satisfied by the amalgamated company for set-off of losses and depreciation Set-off of losses of the amalgamating company in the hands of amalgamated company u/s 72A(1) of the Income Tax Act Held that - In a case where any of the conditions laid down in sub-section (2) are not complied with, the set off of loss or allowance of depreciation made in any previous year in the hands of the amalgamated company shall be deemed to be income of the amalgamated company chargeable to tax for the year in which such conditions are not complied with Section 72A(3) of the income tax act gives logical meaning to consequences flowing from the failure to comply with the requirements with in the specified number of years as set out in sub-section (2) after having availed the benefit of set off and carry forward of accumulated loss of the amalgamating company as per sub-section (1) of section 72A. It transpires on a conjoint reading of sub-sections (2) and (3) of section 72A that the amalgamated company is entitled to set off and carry forward the brought forward business losses and unabsorbed depreciation of the amalgamating company from the very first year of the amalgamation. If, however, the conditions given in clause (b) of section 72A(2) are not fulfilled with in the prescribed time, then the set off as allowed in the earlier year(s) shall be deemed to be the income of the amalgamated company of the last year stipulated for compliance of such conditions Set- off of losses allowed Decided in favor of Assessee. Classification of heads of income on sale of shares of Bayer (India) Ltd. as income under the head Capital gain of Income from business and profession Held that - No material has been considered or referred to verify as to whether such shares were held as Investment or Stock in trade Matter is restored to the file of A.O for verification - If such verification divulges that the shares were held as investment, then the income from their transfer should be considered under the head Capital gains otherwise Business income . The relevant year of transfer(sale) of Harmer & Reimmer (H&R) Business - H&R Business was transferred to Symrise Ltd. on 30.9.2002. The sale of the business was effected pursuant to the decision of Bayer Group in Germany to hive off this business globally. Pending certain legal formalities, the assessee agreed to carry out the business on behalf of the buyer i.e. Symrise Ltd., as their custodian in India with the clear understanding that any loss/profit arising out of the operations would belong to the buyer Held that - Assessee can blowing hot and cold in the same breath Non reconcilable contention is made by the assessee. On one hand it is claiming to have transferred the business on 30.09.2002 and thereafter carried it as custodian of Symrise Ltd. and on the other it is claiming that the transfer of business took place on 31.03.2004 - The assessee cannot be considered simultaneously as agent of the buyer and also the owner of the business between 1.10.2002 to 31.30.2004. It is vivid that when the assessee conducted the H&R business during this period for and on behalf of Symrise Ltd. and also transferred income from such operations to them, then it cannot turn around and claim itself as owner of the business after 30.09.2002 Confirmed the view of Commissioner(A) that the transaction of sale took place in the relevant A/Y 2003-04. Quantum of gain/ loss Computation of market value of stock - Held that - Actual price of the stock realized, that is, ₹ 1.18 crore will be considered as market value of the stock on that date Revenue authorities no where held that such value of stock actually realized by the assessee is concocted or in any manner does not represent its true market price. There was evidence to show that the market price of the stock was more than that recorded in its books - Assessee recording higher market value in its books by showing certain profit on revaluation of stock but choosing to claim it as not taxable In fact, there is no such material available in the facts of the instant case to show that the market value of stock was more than what was actually realized from the buyer of the H&R business - It was for the Revenue to show that the market value of the stock was more than the one which was actually realized from the buyer pursuant to the agreement - Both the transferor and transferee companies are unrelated to each other. It is not a case of the AO that there was some colorable arrangement between two independent parties to the agreement as the genuineness of the agreement has not been questioned. In such circumstances, the only conclusion which can be logically drawn is that the assessee transferred its stock at the market value recorded in the agreement at ₹ 1.18 crore. When the transferee company has paid total sale consideration of ₹ 7.12 crore, which includes a sum of ₹ 1.18 crore towards the value of inventories, then it is beyond our comprehension as to how the Assessing Officer can presume the market value of such inventories at ₹ 4.43 crore without any cogent reason Decided in favor of Assessee. Classification of head of Income on sale of HR business Held that - AO took item wise value of assets (both fixed and current) of the H&R business. He considered all other assets of H&R business as having been transferred by the assessee at book value - No chargeable income arose from the transfer of other assets. Thereafter, A.O. computed income from the transfer of stock in trade by assigning some market value to it. The resultant profit was held to be chargeable to tax as capital gain.
Issues Involved:
1. Disallowance of brought forward loss under Section 72A of the Income Tax Act. 2. Classification of income from the sale of shares as 'Business income' vs. 'Capital gains'. 3. Treatment of loss on the transfer of the H&R business as a business loss vs. inclusion in total income for the previous assessment year. Issue-Wise Detailed Analysis: 1. Disallowance of Brought Forward Loss under Section 72A: The first issue pertains to the disallowance of the brought forward loss of Bayer TPU Pvt. Ltd. (BTPU) amounting to Rs. 7,73,00,414/- under Section 72A of the Income Tax Act. The Assessing Officer (AO) disallowed the set-off of such loss due to non-compliance with certain conditions under Section 72A(2) of the Act. Specifically, the AO noted that the assessee-company did not hold at least three-fourths of the book value of the fixed assets of BTPU for a minimum of five years post-amalgamation, did not substantiate that the amalgamation aimed to revive the business of BTPU, and failed to achieve the required production levels as stipulated in Rule 9C of the Income Tax Rules, 1962. Additionally, the assessee did not furnish the necessary certificate in Form No. 62. However, upon review, it was found that the AO had erroneously included the disposal of assets from another amalgamating company, Bayer Specialty Products Pvt. Ltd. (BSPPL), in his calculations. The Tribunal concluded that the assessee had not disposed of more than 25% of BTPU's assets and thus complied with the conditions under Section 72A. Furthermore, the Tribunal held that the requirement to achieve production levels and furnish Form No. 62 was premature as the stipulated period had not yet expired. Therefore, the disallowance was overturned, and the assessee was allowed to set off the brought forward loss. 2. Classification of Income from Sale of Shares: The second issue involves the classification of income from the sale of shares of Bayer (India) Ltd. The assessee claimed this income as 'Capital gains,' but the AO classified it as 'Business income.' The Tribunal noted that the assessee had offered the profit from the sale of shares twice-once as business income and once as long-term capital gains. The AO accepted the assessee's claim to withdraw the long-term capital gain but retained the amount as business income. The Tribunal found that there was no material considered by the AO to verify whether the shares were held as 'Investment' or 'Stock in trade.' Therefore, the Tribunal remanded the matter back to the AO to determine the nature of the shares and classify the income accordingly. 3. Treatment of Loss on Transfer of H&R Business: The third issue concerns the treatment of loss on the transfer of the H&R business. The assessee initially claimed a long-term capital loss of Rs. 2,10,26,593/- on the sale of the H&R business, which was transferred to Symrise Ltd. The AO, however, determined that the transaction was not a slump sale and calculated a profit of Rs. 3,28,81,141/- based on the market value of the inventory. The AO included this amount in the total income for the previous assessment year (A.Y. 2003-04) by reopening the assessment. The Tribunal upheld the AO's determination that the transaction took place in the previous year relevant to A.Y. 2003-04 but found the computation of the profit to be incorrect. The Tribunal noted that the AO had incorrectly applied the gross profit rate of a subsequent year to value the inventory and had not considered the actual sale price realized. The Tribunal ruled that the stock should be valued at the actual price realized, which was Rs. 1.18 crore, and not at the hypothetical market value computed by the AO. Consequently, the Tribunal overturned the AO's computation and accepted the assessee's claim of a business loss of Rs. 2.10 crore for the transfer of the H&R business. Conclusion: In conclusion, the Tribunal allowed the set-off of brought forward loss under Section 72A, remanded the classification of income from the sale of shares back to the AO for proper determination, and accepted the assessee's claim of a business loss on the transfer of the H&R business, thus providing relief to the assessee on all three issues.
|
