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TMI Blog2012 (4) TMI 319X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, extends to events and transactions which may not otherwise be “transfer” according to its ordinary, popular and natural sense. The Act i.e. Income Tax Act, 1961 was enacted to tax the income or gains made by an assessee. The Companies Act, 1956, on the other hand serves, and is intended to serve a different purpose and, therefore, when a scheme under Sections 391-394 of the Companies Act, 1956 is sanctioned by the Court, it is treated as a binding statutory scheme because the scheme has to be implemented and enforced. This cannot, or is not, a ground to escape tax on ‘transfer’ of a capital asset under and as per provisions of the Act. - Writ Petition (Civil) No. 1592/2012 - - - Dated:- 30-3-2012 - MR. JUSTICE SANJIV KHANNA, MR. JUSTICE R.V. EASWAR, JJ. For Appellant: Mr. Vikas Singh, Sr. Advocate with Mr.Sashi Tulsiyan Ms. Amrita Narayan, Advocates. For Respondent: Mr. Himanshu Bajaj, Advocate for Respondent SANJIV KHANNA, J. The petitioner, SREI Infrastructure Finance Ltd. is a public limited company engaged in project financing through term loans and leasing in specified sectors. For the assessment year 2009-10, the petitioner had di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction was under the Scheme of Arrangement and the same is not a slump sale as contemplated under Section 2(42C) of the Act. The petitioner claims that Section 2(42C) deals with limited category/type of transactions i.e. sales, which are construed as a slump sale and the broader and wider definition of the term transfer as defined under Section 2(46) is not applicable to slump sales . 7. During the course of the hearing, the petitioner had relied upon Madhu Intra Limited and Anr., VAT Automation Pvt. Ltd. and Stuti Developers Pvt. Ltd. and Ors. Vs. Registrar of Companies and Ors., [2006] 130 Comp. Cases 510 (Cal.), Sadanand S. Varde and Ors. vs. State of Maharashtra and Ors., (2001) 247 ITR 609 (Bom) and J.K. (Bombay) (P) Ltd. vs. New Kaiser-I-Hind Spinning and Weaving Co. Ltd., (1970) 40 Comp. Cases 689 (SC). 8. In order to appreciate the contentions, we deem it appropriate to reproduce Sections 2(47), 2(42C) and Section 50 B of the Act which read :- 2(42C) slump sale means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales : Explan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or division transferred by way of such sale, the net worth of the undertaking or the division, as the case may be, shall be deemed to be the cost of acquisition and the cost of improvement for the purposes of sections 48 and 49 and no regard shall be given to the provisions contained in the second proviso to section 48. (3) Every assessee, in the case of slump sale, shall furnish in the prescribed form along with the return of income, a report of an accountant as defined in the Explanation below sub-section (2) of section 288 indicating the computation of the net worth of the undertaking or division, as the case may be, and certifying that the net worth of the undertaking or division, as the case may be, has been correctly arrived at in accordance with the provisions of this section. Explanation 1. For the purposes of this section, net worth shall be the aggregate value of total assets of the undertaking or division as reduced by the value of liabilities of such undertaking or division as appearing in its books of account : Provided that any change in the value of assets on account of revaluation of assets shall be ignored for the purposes of computing the net worth. Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the word transfer as used in Section 2(47) of the Act. The intention of the legislature was to plug in the gap and tax slump sales and not to leave them out of the tax net. The term slump sale has been used in the enactment to describe a particular and specific type of transfers called slump sales. Use of word sale in the term slump sale does not and is not intended to narrow down the concept of transfer as defined and understood in Section 2(47) of the Act. All transfers in nature of sales i.e. slum sales are covered by the definition clause 2 (42C) of the Act. The word transfer as defined and understood in Section 2(47) of the Act is wide. It is an inclusive definition of wide import. It includes sale, exchange or relinquishment, extinguishment of any right in an asset, compulsory acquisition under the law etc. We may note and record here that the learned Senior Advocate appearing for the petitioner did not contest and submit that the transaction in question is not covered by the word transfer as defined in Section 2(47) and the contention raised was that Section 50B read with Section 2(42C) is only applicable to sale in a narrow sense and not to transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction to which Section 47(vii) applied and, consequently, the cost to the assessees of the acquisition of the shares of the amalgamated company had to be determined in accordance with the provisions of Section 49(2), that is to say, the cost was deemed to be the cost of the acquisition by the assessees of their shares in the amalgamating company. 14. In the said case, the assessee had received equity shares in the amalgamated company for shares of the amalgamating company. The amalgamating company ceased to function and its business, assets and liabilities were taken over by the amalgamated company. The shares received of the amalgamated company under the Scheme of Arrangement were subsequently sold by the assessee at ₹ 107.50 against the face value of ₹ 100/-. The Assessing Officer took the cost of acquisition as the cost paid to acquire the shares in the amalgamating company by applying Section 49(2) read with Section 47(vii) of the Act. The contention of the assessee, however, was that no capital gain tax was leviable because what was sold where the shares in the amalgamated company and it was submitted that there was no provision under the Act to determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case (supra) was in a public interest writ petition and a question had arisen whether provisions of Chapter XX C of the of the Act were applicable when a scheme of amalgamation was sanctioned by a Company Court. The High Court observed that the amalgamation order passed by the High Court cannot be challenged in a collateral proceedings. The High Court considered the scheme of Chapter XX-C and the term transfer which was specifically defined for the purpose of said Chapter in clause (f) to Section 269UA. It was held that the said chapter was enacted for compulsory purchase, when a property was sold by making significant undervaluation with the intention of evading tax. It was held that the definition clause i.e. Section 269UA(f) would apply to only contractual agreements and not statutory transfers. Possibly it can be submitted that statutory transfers do not have an element of understatement of sale consideration. We are not required to examine and go into the said question/ issue in the present case and express no opinion. We are not required to interpret and apply Section 269UA(f) in the present case. 16. The judgment of the Calcutta High Court in Madhu Intra Ltd. (supra) d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the court binds all its creditors, members and shareholders including even those who were opposed to the scheme being sanctioned. It binds the company as well. While exercising its power in sanctioning the scheme of amalgamation, the court is to satisfy itself that the provisions of statute have been complied with. That the class was fairly represented by those who attended the meeting and that the statutory majority was acting bona fide and not in an oppressive manner. That the arrangement is such as which a prudent, intelligent or honest man or a member of the class concerned and acting in respect of the interest might reasonably take. While examining as to whether the majority was acting bona fide, the court would satisfy itself to the effect that the affairs of the company were not being conducted in a manner prejudicial to the interest of its members or to public interest. The basic principle underlying such a situation is none other than the broad and general principle inherent in any compromise or settlement entered into between the parties, the same being that it should not be unfair, contrary to public policy and unconscionable or against the law. xxx 30. A document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fall within the definition of Section 2(1) of the Bombay Stamp Act which includes every document by which any right or liability is transferred. The State Legislature would have the jurisdiction to levy stamp duty under Entry 44 List III of the Seventh Schedule of the Constitution of India and prescribe rates of stamp duty under Entry 63 List II. 18. Decision of the Supreme Court in J.K. (Bombay) (P) Ltd. (supra) is on the general proposition as to the statutory nature of the scheme which is sanctioned under Sections 391-394 of the Companies Act, 1956. The said decision is hardly relevant for interpreting the term transfer as defined in Section 2(47) of the Act, which as noted above, is applicable. There is another reason why this decision should not be applied. The Act i.e. Income Tax Act, 1961 was enacted to tax the income or gains made by an assessee. The Companies Act, 1956, on the other hand serves, and is intended to serve a different purpose and, therefore, when a scheme under Sections 391-394 of the Companies Act, 1956 is sanctioned by the Court, it is treated as a binding statutory scheme because the scheme has to be implemented and enforced. This cannot, or is not, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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