2023 (12) TMI 1047 - HC - Income Tax

Income from business u/s 28(iv) - Valuation of shares on scheme of amalgamation - actual market and/or valuation of the Shares of the transferee company being more than face value, the differential valuation of such shares issued representing the value of the net identifiable assets accruing to the transferee constitutes a profit and/or taxable benefit accruing to the transferee company within the meaning of Section 28(iv) - HELD THAT - To invoke Section 28(iv) of the Act 1961, the necessary requirement is that firstly there should be a benefit and secondly the benefit should arise from business. In the present set of facts, there was neither any benefit nor any benefit arising from business to attract Section 28(iv) of the Act 1961. Under the circumstances, Section 28(iv) of the Act 1961 has no application at all, on the present set of facts. The findings recorded by the Tribunal are findings of fact based on consideration of relevant evidences on record. The findings recorded by the Tribunal do not suffer from any illegality or perversity. No merit in this appeal. The substantial question of law answered against the revenue and in favour of the assessee.

Summary

Issues involved:
The judgment involves the interpretation of Section 28(iv) of the Income Tax Act, 1961 in the context of a scheme for amalgamation and the valuation of shares issued by a transferee company.

Interpretation of Section 28(iv) of the Income Tax Act, 1961:
The judgment discusses the provision of Section 28(iv) of the Act, which states that any benefit or perquisite arising from business shall be chargeable to income tax. The assessing officer attempted to invoke this provision despite the scheme of amalgamation approved by the High Court and the creation of an amalgamation reserve in the assessee's books.

Appeal and Tribunal Proceedings:
The CIT (A) allowed the appeal of the assessee, but the revenue filed an appeal before the Income Tax Appellate Tribunal. The Tribunal dismissed the appeal of the revenue, leading to the present appeal before the High Court.

Discussion on Accounting Treatment:
The Tribunal analyzed the factual aspects of the case and the provisions of Section 28(iv) of the Act. It was argued that the creation of an amalgamation reserve did not constitute a benefit or perquisite arising from the business of the assessee. The Tribunal held that the accounting treatment of the amalgamation reserve was merely a book entry to balance the accounts and did not represent real income or a benefit from business activity.

Decision and Conclusion:
The High Court upheld the Tribunal's decision, stating that there was no benefit arising from business to attract Section 28(iv) of the Act in this case. The Court found no merit in the revenue's appeal and dismissed it, answering the substantial question of law against the revenue and in favor of the assessee. The findings of the Tribunal were deemed to be based on relevant evidence and free from any illegality or perversity.