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TMI Blog2018 (9) TMI 1027X X X X Extracts X X X X X X X X Extracts X X X X ..... suggested by the Assessee. (1) Whether on the facts and in the circumstances of the case, the Honourable Tribunal is right in law in stating that the condition under section 47(xiii)(b) should be satisfied only at the time of succession and not at any time thereafter? (2) Whether on the facts and in the circumstances of the case, the Honourable Tribunal is right in law in stating that the Respondent has failed to satisfy the condition under section 47(xiii)(b) although the shares in the successor company have been allotted in the ratio of capital accounts as stood in the books of the firm on the date of succession? 4. We reformulate the following substantial question of law to be arising in the present cross appeals in the following manner: "Whether, in the absence of any specified time limit prescribed in Section 47(xiii) Clause (b) upon transfer of capital asset or intangible asset by a firm to a company as a result of succession of the firm by a Company in the business carried on by the firm, the allotment of shares to the erstwhile partners of the firm in the proportion to their capital accounts in the books of the firm has to be made at the time of the succession of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal gains of Rs. 1,33,43,710/- to the extent of Rs. 51,37,329/- and with interest under Sections 234A and 234B of the Act, a total demand of Rs. 93,17,550/-was raised against the Assessee-firm. 7. The First Appellate Authority viz., CIT(A) partly allowed the appeal of the Assessee and upheld the levy of capital gains tax on the partnership firm. 8. The Assessee firm preferred the second appeal before the Income Tax Appellate Tribunal which held that not the partnership firm, but, the successor company M/s Prakash Electric Company Private Limited would be liable to pay such capital gains tax by virtue of Section 47A(3) of the Act inserted by Finance Act, 1998 with effect from 01.04.1999. The relevant observations of the Income Tax Appellate Tribunal in this regard are quoted below for ready reference: "45. Now, before we discuss as to whether the capital gain should be charged in the hands of the firm or in the hands of the company, for this, we have to ascertain the implication of non-compliance of clause-(b) of proviso to section 47(xiii). 46. We will take the next ground of appeal raised by the Assessee. The Assessee has stated that if there was non-compliance of the condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny'. It has been contended that the word 'a' means 'any' which in turn means 'many' or 'more than one'. This appears to be partially true. As per various dictionary meanings, it also includes 'one' or 'one out of many'. According to Law Lexicon, the word 'any' may have several meanings according to the circumstances. It may mean 'all' 'each', 'some' or 'one or more out of several'. It further says that it is not confined to a plural sense. According to illustrated Oxford Dictionary as well as Webster's Encyclopedic Unabridged dictionary also, the word 'any' has various meanings including 'one'. This clearly shows that the word 'any' does not always mean more than one. It may also be used to denote 'one'. So, both the words 'a' as well as 'any' are ambiguous and, therefore, the meaning of these words has to be seen with reference to the context in which these words are used". 49. If one is required to be harmoniously interpret section 47(xiii) and 47A(3), it is to be inferred that if all the conditions mentioned in proviso to section 47(x ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s :- ..... Clause (xiii) of Section 47 which is relevant is quoted below for ready reference: 47 Clauses (xiii) to (xv) inserted by the Finance (No. 2) Act, 1998 w.e.f. 1-4-1999. [(xiii) 48 Substituted for the portion beginning with the words "where a firm is succeeded" and ending with the words "intangible asset to the company" by the Finance Act, 2001, w.e.f. 1-4-2002. Prior to its substitution, the quoted protion read as under: "where a firm is succeeded by a company in the business carried on by it as a result of which the firm sells or otherwise transfers any capital asset or intangible asset to the Company" (any transfer of a capital asset or intangible asset by a firm to a company as a result of succession of the firm by a company in the business carried on by the firm, or any transfer of a capital asset to a company in the course of 49 Inserted by the Finance Act, 2003, w.e.f. 1-4-2002. [(demutualization or) corporatisation of a recognized stock exchange in India as a result of which an association of persons or body of individuals is succeeded by such company:] Provided that - (a) all the assets and liabilities of the firm 50 Inserted by the Finance Act, 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any time, before the expiry of a period of three years from the date of the transfer of a capital asset referred to in clause (xi) of section 47, any of the shares allotted to the transferor in exchange of a membership in a recognized stock exchange are transferred, the amount of profits and gains not charged under section 45 by virtue of the provisions contained in clause (xi) of section 47 shall, notwithstanding anything contained in the said clause, be deemed to be the income chargeable under the head "Capital gains" of the previous year in which such shares are transferred.) (3) Where any of the conditions laid down in the proviso to clause (xiii) or the proviso to clause (xiv) of section 47 are not complied with, the amount of profits or gains arising from the transfer of such capital asset or intangible asset not charged under section 45 by virtue of conditions laid down in the proviso to clause (xiii) or the proviso to clause (xiv) of section 47 shall be deemed to be the profits and gains chargeable to tax of the successor company for the previous year in which the requirements of the proviso to clause (xiii) or the proviso to clause (xiv), as the case may be, are not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. He also submitted that upon initiation of the reassessment proceedings on the Assessee-company by the assessing authority under Section 147/148 of the Act, the said Company has filed another Writ petition challenging such reassessment proceedings in this Court viz., W.P.No.6627/2008 which is also pending in this Court and it is being disposed of by a separate order by us today itself. 14. Learned counsel for the Assessee also submitted that where no specific time limit is prescribed for such compliance with the conditions in proviso (b) of Section 47(xiii) of the Act, a reasonable time period should be allowed to the Assessee to complete with the said process of allotment of shares by the successor-company to the erstwhile partners of the partnership firm, whose business has been succeeded to by the Company. He submitted that even the period of 3 to 4 years, as it has happened in the present case could constitute a reasonable period for such compliance with the conditions of clause (b) aforesaid and therefore, he prayed that the Assessee's appeal deserves to be allowed by answering the aforesaid substantial question of law, the levy of capital gains tax on the firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the partnership firm upon the finalization of the books of accounts of the partnership firm may take sometime and therefore, the allotment of shares at the face value or at a premium as the company may decide by passing appropriate resolutions may also take time and therefore, the condition imposed in clause (b) aforesaid has advisedly not prescribed the fixed time limit for the allotment of equity shares in favour of the partners of the erstwhile firm, whose business is succeeded by the Company. 18. It is not disputed before us that all the other conditions, five in number, in the said Proviso to Clause (xiii) of Section 47 except the issue raised with regard to the point of time for allotment of shares, stood satisfied in the present case, and not only all the 5 partners were allotted shares in the new company, which succeeded to the business of the partnership firm but their shareholding also never fell below 50% and the minimum holding period of 5 years was also maintained from the date of succession on 01.05.1999 and no other consideration except in the form of allotment of shares in the company was paid by the company to the erstwhile partners of the partnership firm. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 01.05.1999, they would have become entitled to receive the Dividends for the financial year ending on 31.03.2000, but since in the present case last allotment of shares to larger extent was made by the Company only on 11.03.2003, they were deprived of such an opportunity for 3 years in a row. 23. Had it been a case of other shareholders or outside shareholders also joining the said company and the allotment process of shares could have been legally delayed for 3 years for such other persons also, in a hypothetical case, even such other shareholders would have been deprived of such Dividends from the company, if the reasons assigned by the Company that Authorized Share Capital of the company was not suitably increased was to be taken as a valid excuse, for that purpose. 24. Therefore, we are satisfied that on a reasonable and harmonious construction of the relevant provisions of the Act quoted above, the Company in the present case was rightly held liable for the capital gains tax liability by virtue of Section 47(A)(3) of the Act read with Section 47(xiii)(b) of the Act. We are of the opinion therefore that the learned Tribunal was justified in holding that the Assessee-company ..... X X X X Extracts X X X X X X X X Extracts X X X X
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