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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 ..... ion, the assessee filed return declaring a loss of Rs. 25,50,380 which was subsequently revised on March 31, 1986, declaring loss of Rs. 23,41,950. During the course of assessment proceedings, the Assessing Officer found that certain assets pertaining to the textile unit of the assessee were transferred to the shareholders at written down value of Rs. 3,01,700 in exchange of 3017 shares held by the shareholders which were surrendered to the company. The value of 3017 shares at Rs. 522 per share was Rs. 15,74,874. This transaction was shown by one of the shareholders to fall under the capital gains tax. However, the Assessing Officer sought explanation from the assessee as to why the transaction be not charged under capital gain tax in its case as well, whereupon it was pointed out that as the assets were transferred by the company to its shareholders and, therefore, no liability to capital gain tax would arise. The Assessing Officer invoked section 41(2) of the Income-tax Act, 1961 (for short, "the Act"), in respect of the transferred assets in lieu of excess value of the shares over the written down value of the assets and made an addition of Rs. 12,73,174. On appeal, it was conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be equated to transfer and since no transfer was involved therein, so as to attract section 41(2) of the Act. 6. The findings of the Commissioner of Income-tax (Appeals) recorded in para. 3.9 which had been affirmed by the Tribunal, while adjudicating the issue, are to the following effect : "3.9 As regards the observation of the Income-tax Officer in his order, the Income-tax Officer mentioned in his order that the word 'transferred' back to the company has been mentioned and the basis of that word 'transferred' be held that there is a transfer. Hence, the transfer is involved in these transactions. As the transfer of the asset to the company, i.e., there is a transfer of the shares of the company and back to the company. It means to the extent of 3017 shares the corresponding assets have been distributed to the outgoing shareholders and the capital stand reduced to that extent. Had it been the transfer to third party then the appellant itself, the interpretation of the Income-tax Officer about the word 'transfer' was justified. In the instant case, the word 'transfer' cannot be used and section 41(2) cannot be applied in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant stands reduced from Rs. 500 to Rs. 50 per share. A sum of Rs. 450 per share has been paid by the company to the appellant on account of the extinguishment of his right to the aforesaid extent. Yet another right which is apparently effected as a consequence of this reduction is with regard to the voting right. According to section 87(2)(a) of the Companies Act, a holder of a preference share has a right to vote only on resolution placed before the company which directly affect the rights attached to his preference shares. In the case of cumulative preference share, if dividend remains unpaid for not less than two years preceding the date of commencement of the meeting, then even a preference shareholder, by virtue of section 87(2)(b) of the Companies Act, gets a right to vote on every resolution placed before the company at any meeting like a member holding equity shares. What is important for our purposes is the provisions of section 87(2)(c) which, inter alia, provides : 'Where the holder of any preference share has a right to vote on any resolution in accordance with the provisions of this sub-section, his voting right on a poll, as the holder of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he actual cost and the written down value shall be chargeable to income-tax as income of the business or profession of the previous year in which the moneys payable for the building, machinery, plant or furniture became due : Provided that where the building sold, discarded, demolished or destroyed is a building to which Explanation 5 to section 43 applies, and the moneys payable in respect of such building, together with the amount of scrap value, if any, exceed the actual cost as determined under that Explanation, so much of the excess as does not exceed the difference between the actual cost so determined and the written down value shall be chargeable to income-tax as income of the business or profession of such previous year : Provided further that where an asset representing expenditure of a capital nature on scientific research within the meaning of clause (c) of sub-section (2B) of section 35, read with clause (4) of section 43 owned by the assessee which was or has been used for the purposes of business after it ceased to be used for the purpose of scientific research related to the business is sold, discarded, demolished or destroyed, the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance in the earlier years. Thus, to attract this provision, there must be sale, discarding, demolition or destruction ; such sale, discarding, demolition or destruction should be of a building, machinery, plant or furniture. Such asset should be owned by the assessee and the moneys payable in respect of such asset together with the amount of scrap value, if any, should exceed the total of the depreciation granted on such asset in the past. If it is so, the excess to the extent of the total of depreciation allowances granted in the past is deemed to be income liable to tax. For our purposes what is required to be seen is the scope of the expressions 'sold' 'moneys payable' and the 'asset sold'. The word 'sold' which occurs in this sub-section includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force and the expression 'money payable' includes the sale price or insurance, salvage or compensation moneys as provided in clause (iii) of sub-section (1) of section 32 read with the Explanation. In our opinion, an analysis of these provisions furnish a clear answer to the two contentions urged on b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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