2023 (5) TMI 224 - HC - Income Tax

Reopening of assessment u/s 147 - Capital gain - Petitioner has sought exemption in respect of the entirety of the amount, capital gain arising out of transfer of shares received by it and has not offered the interest thereupon to tax - HELD THAT - In the impugned order Assessing authority has rightly concluded that there is no capital gains that arises from the transaction since the entire transaction was a buyout of shares by virtue of order of the Apex Court. The officer, in this regard refers to the statement of the Apex Court that the transaction 'does not amount to shares being transferred inter vivos, nor can the payment for the shares be treated as deemed dividend' . Thus the clear inference that the officer has arrived at, is that there can be no instance of capital gain tax nor any levy u/s 2 (22) (e) of the Act dealing with deemed dividend. On the liability to interest on the sum of Rs.18.62 Crores, it is a timing difference, and the officer prima facie believes that the interest must be taxed in AY 2019-20 relatable to the year when the order was passed by the Apex Court on the ground of accrual. The petitioner would suggest that the receipt had been delayed and it only after a few years that the amounts had been received, such submission involves the appreciation of facts and are best considered by the authorities. Argument of petitioner to the effect that the taxability of the receipt has not been put to it in the show-cause notice is also devoid of merit, since the assessing authority has raised these issues specifically in the penultimate paragraph of the Annexure to notice u/s 148A(b). A notice u/s 148A(b) is not expected to be as detailed as order of assessment and it would suffice that the issue on the basis of which the re-assessment is proposed is outlined broadly therein. It is for the assessee/petitioner to respond on all aspects of the matter and seek clarifications, where it so requires.

Summary

Issues:
The judgment involves challenging notices under Section 148A(b) of the Income-Tax Act, 1961, an order under Section 148(A)(d), and a notice under Section 148 of the Income-Tax Act. The main grounds of challenge include tax liability on a buyout of shares, offering interest to tax in a specific assessment year, and lack of specific issues in the notice.

Tax Liability on Buyout of Shares:
The petitioner, a private limited company, was involved in litigation with five other entities regarding share buyout, as directed by the Apex Court. The petitioner received a significant sum as part of the buyout, and the taxability of this amount is in question. The petitioner intends to offer interest income from the amount for a specific assessment year, and advance tax has been paid accordingly.

Interpretation of Tax Provisions:
The assessing authority alleged income escapement for a previous assessment year due to the petitioner's exemption claim on the received amount and failure to offer interest income to tax. The authority highlighted that the Supreme Court's order did not suggest treating the receipt as exempt income under the Income Tax Act. The petitioner argued that the received amount, involving shares as consideration, should not attract the statutory provision under Section 56(2)(x).

Capital Gains and Deemed Dividend:
The assessing authority concluded that no capital gains arose from the transaction as it was a buyout of shares directed by the Apex Court. The officer referenced the Apex Court's statement that the transaction should not be treated as deemed dividend or shares transferred inter vivos. The officer believed there was no instance of capital gains tax or levy under Section 2(22)(e) of the Act.

Liability to Interest and Assessment Year:
Regarding interest on the received sum, the officer believed it should be taxed in the assessment year when the order was passed due to accrual. The petitioner argued that the receipt was delayed, and the taxability should be in a later assessment year. The officer's view was that such timing differences need detailed consideration by the authorities.

Notice Specificity and Dismissal:
The petitioner's argument that taxability issues were not adequately outlined in the notice under Section 148A(b) was dismissed. The court held that the notice sufficiently raised the issues for re-assessment, and it was the petitioner's responsibility to respond comprehensively. The writ petition was dismissed with no costs, and connected miscellaneous petitions were closed.