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TMI Blog2010 (7) TMI 765X X X X Extracts X X X X X X X X Extracts X X X X ..... s not exceed the difference between the actual cost and the written down value. This is taxed as income arising from business or profession of the assessee in the previous year in which the asset is sold. The said charge is termed as balancing charge. This represents the depreciation allowance which is allowed in the previous years from the profits earned by the assessee in those years and where subsequently the capital asset has been sold for excess value, then the difference between the original cost and the written down value is treated as income under section 41(2) of the Act by way of balancing charge.Thus following Chandra Katha Industries’ case [1982 (4) TMI 49 - ALLAHABAD High Court] transfer of assets at written down value for shares of higher value amounts to transfer and attract tax under section 41(2) of the Act. View taken by the Tribunal, thus, cannot be upheld. - 111 of 1995 - - - Dated:- 12-7-2010 - ADARSH KUMAR GOEL, AJAY KUMAR MITTAL, JJ. JUDGMENT Adarsh Kumar Goel J.- 1. The Income-tax Appellate Tribunal, Chandigarh, has referred the following question of law for opinion of this court, arising out of its orders dated September 22, 1992, in I. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it was only reduction of the share capital. Reliance was placed on the judgment of the hon'ble Supreme Court in CIT v. R. M. Amin [1977] 106 ITR 368 (SC) to hold that reduction in the subscribed capital of the company did not amount to sale or transfer. In that process, no profit was made to attract section 41(2) of the Act. However, no finding on the issue regarding valuation of shares was recorded, as it was held to be not taxable. The Tribunal upheld the view of the Commissioner of Income-tax (Appeals). 3. We have heard learned counsel for the parties and perused the record. 4. Learned counsel for the Revenue submitted that from the facts it is clear that the assessee had availed of the benefit of depreciation under section 32 in respect of the land, building and machinery which were transferred for consideration higher than the written down value and, therefore, the assessee had made profit which was covered under section 41(2) of the Act. Reliance has been placed on the judgment of the hon'ble Supreme Court in Kartikeya V. Sarabhai v. CIT [1997] 228 ITR 163 (SC), distinguishing the earlier judgment in R. M. Amin's case [1977] 106 ITR 368 (SC), holding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lotment/exchange of shares for higher consideration than the written down value of the assets would attract the provisions of section 41(2) of the Act ? 8. Adverting to the first question, it would be advantageous to refer to section 2(47) of the Act, which defines 'transfer' at the relevant time. The same reads as under : 2.(47) 'transfer', in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law ; 9. According to the aforesaid provision, this clause introduces an artificial extended meaning to the expression transfer . The said term includes transaction of sale and exchange , which even in ordinary parlance, would be transfers, but it also takes within its ambit relinquishment or extinguishment of rights , which may otherwise be not included in the said term. 10. The hon'ble Supreme Court in Kartikeya V. Sarabhai v. CIT [1997] 228 ITR 163 (SC), while considering the scope of transfer within the meaning of section 2(47) of the Act, where the company had sought to reduce the share capital by reducing the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l asset would clearly amount to a transfer within the meaning of that expression in section 2(47) of the Act. The decision in R. M. Amin's case [1977] 106 ITR 368 (SC) can be of no help to the appellant. In that case, the company had gone into voluntary liquidation and the assessee had received a sum in cash of the amount which he had paid for the share. It was held that when a shareholder receives money representing his share on the distribution of the net assets of a company in liquidation, he receives that money in satisfaction of the right which belongs to him by virtue of his holding the share and not by any operation of any transaction which amounted to sale, exchange, relinquishment, transfer of a capital asset or extinguishment of any right in capital assets. The payment received by the contributories on the liquidation of the company would not amount to a transfer and it is for this reason that R. M. Amin's case [1977] 106 ITR 368 (SC) was distinguished by this court in Anarkali's case [1997] 224 ITR 422 (SC). 11. In view of the above, the answer to the first question that assets given at the written down value in exchange of shares would amount to & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of this sub-section shall apply as if the business or profession is in existence in that previous year. 13. The aforesaid provision applies wherever the sale proceeds of the capital asset of an assessee exceeds the written down value. The amount that is chargeable to tax under this section is so much of the excess as does not exceed the difference between the actual cost and the written down value. This is taxed as income arising from business or profession of the assessee in the previous year in which the asset is sold. The said charge is termed as balancing charge. This represents the depreciation allowance which is allowed in the previous years from the profits earned by the assessee in those years and where subsequently the capital asset has been sold for excess value, then the difference between the original cost and the written down value is treated as income under section 41(2) of the Act by way of balancing charge. 14. The Allahabad High Court in Chandra Katha Industries' case [1982] 138 ITR 168 (All), while considering the scope of section 41(2) of the Act, has observed as under (page 173) : The principle underlying this provision is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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