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TMI Blog2007 (1) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in its appeals for three years are as under : AY 1997-98 : The ld. CIT(A) erred in holding that the qualifying amount of paid up share capital, in the context of computing the deduction under section 33AC of the IT Act, should be reduced by an amount of Rs. 2,20,36,014, being the reserves of erstwhile amalgamating companies. AY 1998-99 : The ld. CIT(A) erred in holding that the qualifying amount of paid up share capital, in the context of computing the deduction under section 33AC of the IT Act, should be reduced by an amount of Rs. 2,20,36,014, being the reserves of erstwhile amalgamating companies. AY 1999-2000 : The ld. CIT(A) erred in upholding the action of the Assessing Officer in denying the relief under section 33AC of the IT Act, 1961 claimed in the amount of Rs. 90,71,135. 3. Briefly stated facts of the case are that the assessee is a Public Limited company and owned several ships and mainly engaged in tug operations for long-term basis. During the assessment proceedings, the Assessing Officer noticed that the assessee claimed deduction under section 33AC for creating reserve for acquisition of ships subsequently. The two companies i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been ordered by the High Court pending relinquishment of equity shares holding of different shareholders of the amalgamating companies. The Assessing Officer further noticed that the assessee has claimed deduction under section 33AC on other income other than the income from shipping business. The Assessing Officer was of the view that section 33AC has been amended with effect from 1996-97 by Finance Act, 1995. By the amendment the income other than income from shipping operations for the purpose of benefit under section 33AC with effect from assessment year 1996-97 by Finance Act, 1995 has been excluded. Accordingly, the Assessing Officer held that the amount of Rs. 33,60,643 out of the total deduction claimed under section 33AC at Rs. 1,00,97,260 is not eligible for deduction under section 33AC. He was of the view that only the share capital would be eligible for the purpose of deduction. The Assessing Officer noticed that the paid up capital of the assessee-company was only Rs. 7,000 and after amalgamation of the two companies i.e. GTSCPL UWSCPL, the share capital of the assessee-company increased to Rs. 8,76,15,500. In the scheme of amalgamation the assets are revalued a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33AC. The CIT(A) while deciding the appeals for assessment years 1997-98 and 1998-99 partly allowed the ground of the assessee. However, the CIT(A) while deciding the appeal of the assessee for assessment year 1999-2000 disallowed the total claim of the assessee under section 33AC. 3.4 For the sake of clarification, the appeal for assessment year 1999-2000 was decided before the appeals for assessment years 1997-98 and 1998-99. While deciding the appeals for assessment years 1997-98 and 1998-99, the ld. CIT(A) has taken into consideration the appellate order for assessment year 1999-2000. 3.5 The ld. CIT(A), who dismissed the entire claim of the assessee while deciding the appeal for assessment year 1999-2000 noticed that the Assessing Officer has analyzed the issue in detail. For claiming deduction, the assessee created Ship Acquisition Reserve at Rs. 1,10,00,000. The said Ship Acquisition Reserve has been indicated in the Schedule B of the balance sheet of the assessee. The details are as under : Ship Acquisition Reserve As per last balance sheets Rs. 1,30,00,000 Add: transferred from P L A/c. Rs. 1,10,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly Rs. 7,000 whereas the share acquisition reserve created is substantially higher. Accordingly, the Assessing Officer rejected the claim made by the assessee for deduction of Rs. 90,71,135. The contentions raised before the Assessing Officer were reiterated before the CIT(A) and it was explained that the amalgamation has already been taken with effect from 1-10-1994 and the assessee have purchased the assets and liabilities of these amalgamating companies and the Hon ble High Court has approved the amalgamation. Therefore, the share capital shown by the assessee include- ing the capital reserve on account of two amalgamating companies has to be taken into consideration. However, the CIT(A) was not satisfied with the contentions of the ld. AR and he was of the view that the Assessing Officer was correct in allowing the deduction only on account of paid up shares at Rs. 7,000 in cash and in result of that, deduction can be allowed only on Rs. 14,000 as the twice paid up share capital in cash. Accordingly, he confirmed the order of the Assessing Officer. 4. However, the ld. CIT(A), who decided the appeals for assessment years 1997-98 and 1998-99 was of the different view. The ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to accept the Assessing Officer s finding that the qualifying amount of share capital should be restricted to Rs. 7,000 being the cash paid shares without taking into consideration the shares issued to the shareholders of erstwhile amalgamating companies which were represented by the assets that became vested in the appellant company from the amalgamating companies. The Board Circulars referred to by the Assessing Officer do not contain any mention or direction, whatsoever, that the qualifying amount of share capital should be restricted to cash paid shares. Indeed, the very fact that the proviso requires the exclusion of capitalized reserves, is eloquently indicative of the intention that the qualifying amount of share capital should not be restricted to cash paid shares. This means that the legislative mandate is to take the starting point as the amount of share capital as reflected in the accounts whether issued for cash consideration or for consideration otherwise than in cash and, exclude therefrom, only such component which is represented by capitalization of reserves. The real issue, therefore, in this case is whether the share capital includes such prohibited component. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer in regard to deduction under section 33AC. 4.3 Lengthy arguments were put forth by the ld. counsel of the assessee. Attention of the Bench was drawn on various documents placed in the compilation. The relevant portions of the order of the Hon ble High Court approving the amalgamation scheme was also invited by the ld. AR. The attention of the Bench also was drawn on the computation of income for assessment year 1995-96 and the order for assessment year 1995-96. It was further submitted that the two companies were amalgamated during assessment year 1995-96 and the assessee-company claimed deduction under section 33AC first time for assessment year 1995-96 and the department has allowed the claim of the assessee. The facts are similar in subsequent years therefore, in view of the consistency, the deduction cannot be denied in subsequent year. The reliance was placed on the decision of the Hon ble Bombay High Court in the case of CIT v. Paul Bros. [1995] 216 ITR 548. It was further submitted that out of reserve account on account of amalgamating companies neither the shares were allocating from the reserve account nor its reserve was capitalized. It was further submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer and ld. CIT(A), who decided the appeal for assessment year 1999-2000 could not understood the provisions of section 33AC and the Board Circular No. 554, dated 13-2-1990 and Circular No. 717, dated 14-8-1995 in right perspective. The Board Circulars do not bar the assessee to claim deduction, where the shares are not purchased through cash. In these circulars, some conditions were laid down and the assessee-company has fulfilled the conditions laid down. 4.4 The ld. D.R. who appeared on behalf of the department strongly placed reliance on the order of Assessing Officer for all these three years and order of the ld. CIT(A), who decided the appeal for assessment year 1999-2000. The relevant portion of the order of the ld. CIT(A) for assessment year 1999-2000 was also read by the ld. D.R. 5. We have heard the rival submission and considered them carefully. We have also taken into consideration the relevant material on which our attention were drawn along with various case laws relied upon by ld. A.R. After considering the rival submission and perusing the material on record, we are of the view that the assessee deserves to succeed on the issue raised for the three y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee-company is a limited company where public are substantially interested. The reserve for acquisition of ships had created and the deduction does not exceed the amount of twice of the paid up share capital of the assessee-company. There is no provision in the law that deduction is eligible only paid up share capital in cash. The assessee-company has cleared the assets and liabilities on account of purchase of erstwhile two amalgamating companies and there the assessee has become owner of the assets and liabilities of the erstwhile two companies. The Hon ble Bombay High Court has approved amalgamation scheme and had allowed the two erstwhile companies to be amalgamated in the assessee-company. Therefore, in our considered view, the assessee is entitled for the deduction on the basis of profit on account of ships, i.e., business of the company. Therefore, the order of the CIT(A) for assessment year 1999-2000 is reversed on this issue and the Assessing Officer is directed to allow the deduction under section 33AC on the Act. 6. Regarding the order of CIT(A) for assessment years 1997-98 and 1998-99 is modified and the direction of the CIT(A) that while reworking the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee as well as the department above. We have allowed the ground of the assessee for all these three years. Therefore, these grounds of the department are dismissed. 12. There is no other ground for the appeal of assessment year 1998-99. 13. Ground No. 2 in appeal of the department is against holding that the other income credited in the P/L Account amounting to Rs. 20.74 lakhs on account of amounts returned back on account of exchange fluctuation and on account of miscellaneous income derived from shipping and hence eligible for deduction under section 33AC. 14. Ld. D.R. placed reliance on the order of Assessing Officer and on the other hand the ld. A.R. placed reliance on the order of CIT(A) on account of ground No. 2. 15. After considering the orders of the authorities below, we do not find any infirmity in the findings of the CIT(A) in this regard. The findings of the CIT(A) are given in para 2.5 which are as under : "I have carefully considered the facts of the case both, as per the impugned assessment order and the submissions made by the ld. A.R. of the appellant. In short, the appellant has disputed the basic sustainability of the disallowance on the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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