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TMI Blog2020 (7) TMI 221X X X X Extracts X X X X X X X X Extracts X X X X ..... converted into free hold rights w.e.f. 26.11.2010 by payment of ₹2.39 crores as cost of conversion has to be taken into consideration and hence the entire gain cannot be held as long term capital gain for the purpose of indexation. For this the ld. Counsel for the assessee submitted that no indexation has been clained by the assessee on this amount of ₹2.39 crores paid towards cost of conversion of leasehold property into free hold property. In the result, ground No. 1 of the assessee is allowed. Addition on account of house rent - Income from house property - HELD THAT:- This issue is covered in favour of the assessee and against the Revenue by order of the Hon'ble Calcutta High Court in the case of CIT vs. Kishanlal and Sons [ 2002 (10) TMI 62 - CALCUTTA HIGH COURT] rental is the rental received by the assessee from 1962 onwards, and also during the assessment years in question, as the genuine return on the assessee's property, as a genuine deed of lease entered into by the parties at arms length - Also in OBEROI HOTELS PVT. LTD. [ 2016 (1) TMI 169 - ITAT KOLKATA] even as per the deeming provision of Section 23(l)(a), in the case of let out property, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. [ 1997 (4) TMI 5 - SUPREME COURT] laid down the principle that, deduction should be allowed on pro-rata basis over the terms of the bond. Employees contribution to PF ESIC to be decided in favour of assessee. - I.T.A. No. 84/Kol/2019, I.T.A. No. 2389/Kol/2018 - - - Dated:- 8-7-2020 - Shri J. Sudhakar Reddy, Accountant Member Shri S.S. Godara, Judicial Member For the Assessee : Ms. Kinjal Buaria, ACA. For the Revenue : Sh. Vijay Shankar, CIT, Sh. A.K. Gupta, FCA ORDER PER J. SUDHAKAR REDDY, AM: These are cross appeals directed against the order of the Commissioner of Income Tax (Appeals)-4, Kolkata [ CIT(A) for short] dated 19.09.2018 u/s 250 of the Income Tax Act, 1961 ( the Act for short) for AY 2011-12. 2. Facts as brought out by the ld. CIT(A) are extracted for ready reference: 1.0. The appellant is a Public Limited Company and is a member of Thapar Group engaged in the business of manufacturing and selling of Textiles, Yarns, Nylon and Polyester Filament yarn, Polyester Chips, Nylon Chips, Readymade Garments etc. and exports of these products. During t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in taking into consideration of Regional Director s Comment regarding merger and tax avoidance vide Circular No - 1/2014 dtd. 15/01/2014 which was not in existence in this assessment year. (v) That on the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) - 4, Kolkata erred in applying the effect of General Anti Avoidance Rule (GAAR) in two High Court s approved amalgamation scheme and raised the doubt of Court s decision of amalgamation although GAAR was not in existence in this assessment year. (vi) That on the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) - 4, Kolkata was unjustified in invoking the test of piercing the corporate veil (vii) That on the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) - 4, Kolkata had enhanced the income ignoring all the materials, documents and evidences on record and without judiciously considering the explanation furnished and denied the set off of Capital Gains with unabsorbed depreciation which is perverse and such enhancement is liable to be deleted. 2. (i) That on the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 of ₹ 5.45 lakhs. In pursuant to government decision the said land converted into freehold property on 26.11.2010 by payment of conversion charge of ₹ 2,39,05,168/- M/s. Gupta Syal Limited sold the said property on 14.03.2011 to Ms. Savitri Devi Singh for a consideration of ₹ 120 crs. and computed long term capital gain of ₹ 107,98,39,652/-. However, post amalgamation with the appellant company the entire gain on sale of above land was set off against the brought forward unabsorbed depreciation of the appellant company. In computing book profit u/s 115JB also the gain on sale of above land substantially set off against the brought forward loss/depreciation as per books. The detail of Capital Gain computation as returned by the appellant company is presented as under: Sl. No. Particulars Amount 1. Description of the asset with measurement Bunglow on Plot No. 8, Block - 11, Municipal N13, Aurangzeb Road, New Delhi measuring 7245 Sq. Yards. (Leasehold Property) 2. Date of Acquisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t company. Apart from above, the AO has not disputed any other element of the capital gain computation. Short Term Capital Gain Sale Consideration 1,200,000,000 Less: Expenditure in connection with transfer 545,100 Cost of Transfer 23,905,168 24,450,268 1,175,549,732 2.3. During the course of proceedings, the Ld. AR of the appellant company submitted that for the purpose of computing capital gain u/s 45 of the Act, the nature of capital assets needs to be determined based on Sec. 2(42A) of the Act. In terms of said sec., for determining holding period of the capital asset, what is relevant is the date from which said asset is held by the assessee. The date from which the assessee becomes the owner of said asset is not relevant factor. In support of its contention the AR has placed reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual Fund-Growth of ₹ 2.70 lakhs. The detail of land in question is also given as below: The land is located at 13, Aurangzeb Road, New Delhi. The Property was spread over 1.497 acres and had building constructed on it. M/s. Gupta Syal Ltd. had acquired the perpetual the lease-hold rights of this property from Mr. S. Mokham Singh Sandhu vide Sale deed dt. 15.01.1966 of ₹ 5.45 lakhs. Mr. Mohkam Singh Sandhu acquired this property from his father Mr. Basakha Singh by a Gift Deed dt.30.10.1952 who had taken the same as perpetual lease under a lease agreement dt. 21.10.1941 w.e.f. 08.04.1933 from the Governor General, Govt, of India. 8-10-2010 cheque of ₹ 40 crores received in favour of Gupta and Sayal Ltd. for sale of property from the buyer.(stated by AR vide order sheet noting dated 24-07-2018). In pursuant to government decision the said land converted into free-hold property on 26.11.2010 by payment of conversion charge of ₹ 2,39,05,168/- M/s. Gupta Syal Limited sold the said property on 14.03.2011 to Ms. Savitri Devi Singh for a consideration of ₹ 120crs. On 19.10.2010 the Board of Directors pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17.83 c) In terms of scheme of amalgamation no shares of the transferee company have been issued to the shareholders of the transferor company being wholly owned subsidiary of the transferee company. 9. The Hon'ble High Court in its order u/s 394 of the Companies Act, 1956 dated 10.05.2011 in part 2 ordered as follows: 2. That with effect from Is1 April, 2010, the Business Enterprises of Transferor Company with all its assets as on 1st April, 2010 including land, buildings, plant machinery, tools, implements and fire arms, furniture, fixtures, office equipments, vehicles, capital work-inprogress together with all permits, quotas, rights, industrial and other licenses, offices, depots, trade marks, privileges and benefits of all contracts, agreements, inventories, sundry debtors, cash and bank balances, loans and advances and other current assets, investments and work in process including liabilities towards sundry creditors, acceptances, advances, security deposits, interest, accrued but' not due, advance from customers and other liabilities and all reserves and surplus together with services of al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sferor Company are party subsisting or having effect, shall remain in full force and effect against or in favour of JCT Limited / the Transferee Company and may be enforced as fully and effectually as if instead of Transferor Company, JCT Limited / the Transferee Company had been a party thereto. 9. That the vesting of Business Enterprises of Transferor Company in JCT Limiited / the Transferee Company shall not affect, any transaction or proceedings already concluded or taken by Transferor Company on and after April, 2010 to the end and intent that JCT Limited / the Transferee Company accepts on behalf of itself all acts, deeds, and .things done and executed by Transferor Company. As from 1st April, 2010 Transferor Company shall be deemed to have been possessed of all its properties and shall be deemed to have carried on and to be carrying on its business for and on behalf of and in trust for JCT Limited / the Transferee Company until such time as this Scheme becomes effective. All income or profit accruing to Transferor Company and all costs, charges and expenses incurred by Transferor Company, after 1st April, 2010 shall for all purposes be treated as the income, profits, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was set up, who were its promoters, who were controlling it, what object was sought to be achieved through creation of the transferor company and why it was being dissolved by merging it with another company, That is the colour and content of the expression public interest as used in the second proviso to section 394(1) of the Act which have to be enquired into. If the only purpose appears to be to acquire certain capital asset through the intermediary of the transferor-company created for that very purpose to meet the requirement of law, and in the process to defeat tax liability which would otherwise arise, it could not be said that the affairs of the transferor-company sought to be amalgamated, created for the sole purpose of facilitating transfer of capital asset through its medium, have not been carried on in a manner prejudicial to public interest. Public interest looms large in this background and the machinery of judicial process is sought to be utilized for defeating public interest and the court would not lend its assistance to defeat public interest. The court would, therefore, not sanction the scheme of amalgamation. Hence it could be safely inferred that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidently makes the purpose clear that if the revenue wants to object to the proposed scheme of amalgamation, it has to do so in the course of proceedings before the High Court but before the final order is passed. Whenever such objections have been raised, these have been considered on merits by the concerned High Court and also incorporated the condition for safeguarding the interest of revenue in the very scheme. As a matter of public policy, once a scheme of amalgamation is approved by Hon ble High Court no authority should be allowed to tinker with the scheme. In the present case of the assessee, neither the official liquidator nor the Regional Director nor Central Government raised any objection to the scheme of amalgamation. In such circumstances , we are of the view that the revenue has nothing to say at the time of approval of the scheme by Hon ble High Court in the present case. 4.5. We find that the Hon ble Madras High Court in the case of Pentamedia Graphics Ltd vs ITO reported in 236 CTR 204 (Mad) had categorically held that once the scheme had been sanctioned with effect from a particular date by the Court, it is binding on everyone including the statutory author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Varde and Others vs State of Maharashtra reported in 247 ITR 609 (Bom) wherein it was held that : Once a scheme becomes sanctioned by the court, it ceases to operate as a mere agreement between the parties and becomes binding on the company, the creditors and the shareholders and has statutory operation by virtue of the provisions of section 391 of the Companies Act. The said judgement of Hon ble Bombay High Court further provided that an appeal, if any, against the order of amalgamation lies u/s 391(7) of the Companies Act, 1956 and the same cannot be agitated in any collateral proceeding. The relevant extract of the same is reproduced hereunder for the sake of ready reference:- We are of the view that the amalgamation, which has become final and binding, cannot be permitted to be challenged by the petitioners, without locus standi, in a collateral proceeding in the present writ petition. An amalgamation order can only be challenged under the Companies Act by an appeal under section 291(7) by any one of the parties, but no such appeal was ever filed. In the instant case before us, the ld AR informed that the Income Tax Department , which is part of Union ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sent by the assessee to the income tax department in January 2011 (copies of letters enclosed in pages 33 to 37 of paper book). The same was acted upon by the assessee assuming acceptance from the income tax department since no appeal against the said judgement of the Hon ble High Court was filed before the Hon ble Supreme Court. Thus, at this juncture, if the revenue is allowed to challenge the same u/s 391(7) of the Companies Act, 1956, then it would be clearly barred by the doctrine of acquiescence and estoppel. In law, acquiescence occurs when a person knowingly stands by without raising any objection to the infringement of his or her rights, while someone else unknowingly and without malice aforethought acs in a manner inconsistent with their rights. As a result of acquiescence, the person whose rights are infringed may lose the ability to make a legal claim against the infringer, or may be unable to obtain an injunction against continued infringement. The doctrine infers a form of permission that results from silence or passiveness over an extended period of time. Applying this principle to the instant case before us, the assessee probably paid a consideration for the set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to clause in para 10(iii) of the scheme of amalgamation which was approved by the Hon ble Calcutta High Court vide order dated 6.10.2010. Since the losses belonged to the amalgamated company i.e the assessee herein, the provisions of section 72 and section 74 of the Act would come into play with respect to set off of the same against the respective incomes of the assessee . In view of this, the provisions of non-compliance of section 72A of the Act as narrated by the ld CITA does not hold any water. Accordingly, the Grounds 1 2 raised by the assessee are allowed. 12. Applying the propositions of the law laid down in the case law cited above to the facts of the case we have to necessarily hold that the conclusion of the ld. CIT(A) that the merger in question, approved by the Hon'ble High Court is a colourful device, is illegal and without any factual or legal base. Invoking GAAR provisions, when they are not applicable for the impugned assessment year is also bad in law. The dichotomy in the order of the ld. CIT(A) is clear from the fact, that he chooses to tax capital gains in question, in the hands of the assessee company, though he holds that the merger is a sham tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gupta Syal Ltd., a wholly owned subsidiary of the appellant company during the year from Mr. Samir Thapar. The very said property sold out for ₹ 120 Crs. As per the documents produced by the appellant company, the rateable value of the property has been computed at ₹ 30,800 only and accordingly municipal tax of ₹ 6,160/- has been assessed. The AO did not accept the appellant computation of Gross Annual Value and stated that Gross Annual Value of the property should be 15 times of the actual rent of ₹ 2,500 presently received from director. Therefore, the AO computed Gross Annual value at ₹ 4,50,000/- [2500 x 15 x 12] and made a net addition of ₹ 2,94,000/-to the total income of the appellant company. 16. This issue is covered in favour of the assessee and against the Revenue by order of the Hon'ble Calcutta High Court in the case of CIT vs. Kishanlal and Sons (Udyog) Pvt. Ltd. [2003] 260 ITR 481 (Cal) at para 13 page 6 held as follows: 13. We proceed to answer the second question as formulated above, therefore, on the basis that the annual rental is the rental received by the assessee from 1962 onwards, and also during the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A) erred in calculating capital gain tax as long term capital gain tax rather short term capital gain tax. 2. The CIT(A), Kolkata had not justified in deleting the disallowance of ₹ 26,88,303/- u/s 14A. 3. Expenditure relating to Premium payable on redemption of FCCB for ₹ 4,41,08,784/- had not been charged to P/L account as revenue expenditure. Hence claim of the assessee is not allowable and decision of Ld. CIT(A) is not accepted. 4. As per the Tax Audit report the assessee had not furnished employees contribution to the concerned authority within due date. Therefore, Ld. CIT(A) decision is not accepted. 5. The Ld. CIT(A) had erred in giving benefit of set off of unabsorbed depreciation for the A.Y. 1996-97 and A.Y. 1997-98 to the assessee. 6. That the appellant craves for leave to add, alter or modify any of the grounds of appeal before or at the time of hearing. 22. On the issue of ground no. 1, the ld. CIT(A) at page 6 para 2.4.1 held as follows: 2.4.1. I have perused the order of the AO and submission of the appellant and gone through the same. Capital gain from transfer of capital asset is chargeable to tax u/s 45 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of the proceeding, The AR of the appellant company also submitted Balance Sheet and investment schedule. On perusal of the balance sheet, it is evident that the appellant company s surplus fund far exceeds the investment amount which indicates that investment was not made out of borrowed fund. Further, the interest expenses relate to the borrowings which are directly related to business of the appellant company. Therefore, I am of the view that no interest expenses can be attributed while working out disallowance u/s 14A 'r.w.r 8D of Income Tax Rules. 4.2.2 Further, I also found that disallowance under clause (iii) of Rule 8D has been rightly worked out by the AO and the amount derived of ₹ 3,65,110/-also appears to be reasonable. Therefore, considering the all facts and circumstances, the disallowance made under clause (ii) of rule 8D is hereby deleted and therefore, disallowance is restricted to ₹ 3,65,110/-. The appeal is party allowed in favor of the appellant company. 25. This decision is in line with the proposition of law laid down by the Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. [2014] 49 taxmann.com 335 (Bombay) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds are convertible and hence no deduction is allowed. During the course of remand proceedings, the Assessing Officer raised another point regarding tax deduction at source. On appeal the Id. First Appellate Authority held that the liability to pay premium on FCCBs is not a contingent one. He further held that, the actual payment need to be done on the redemption of these FCCBs and entries need not be made every year. He applied the decision of the Hon ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. v. Commissioner of Income-tax 225 ITR 802 SC and upheld the claim of the assessee. He pointed out that tax has been deducted at source in the year of redemption of bonds and hence was of the view that no tax need be deducted every year. He held that the assessee was entitled to deduction of the premium on yearly basis by relying on the order of the Bangalore Bench of the Tribunal in the case of Crane Softwares Internation Ltd. vs. DCIT (supra) and the decision in the case of Mahindra Mahindra Ltd. vs. DCIT (supra). He held that the assessee was entitled to deduction of the premium, subject to disallowance made u/s 43A of the Act. The issues are the same ..... X X X X Extracts X X X X X X X X Extracts X X X X
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