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TMI Blog2021 (5) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... d due to which the AO invoked succession theory under the impression that ITI Limited (old) no more exist while the fact is other way round. It is HFCL Infotel Limited which merged with ITI Limited (old) which is amalgamated company today and HFCL Infotel Limited was amalgamating company. Therefore, on this count also the finding of the AO is incorrect. We are of the considered view that capital gain arising out of sale of shares of Kothari Pioneer AMC Limited by ITI Limited (old) is taxable only in the hands of ITI Limited (old) now renamed as HFCL Infotel Limited (new). Although, the ld. AO of ITI Limited (old) now renamed as HFCL Infotel Limited (new) assessed the income on protective basis, but the ld. CIT(A), Chandigarh after considering relevant facts has rightly assessed capital gain arising out of sale of shares on substantive basis in the hands of ITI Limited (old). Similarly, although the ld. AO of Rajam Finance and Investment (India) Limited now renamed as ITI Limited (New) assessed capital gain on sale of shares in the hands of ITI Limited (new), but the ld. CIT(A), after considering relevant facts has rightly held that capital gain on sale of shares is taxable only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) and reject ground taken by the revenue. Addition made towards amount received from Escrow account - HELD THAT:- As for as interest income is concerned, both parties have accepted findings of the ld. CIT(A) and hence, it is final. As regards amount received from Escrow account, the revenue has challenged findings of the ld. CIT(A) on the ground that it is taxable in the hands of the assessee, i.e. ITI Limited (new). We have carefully considered facts and arguments of both sides and find that full consideration received on account of sale of shares of Kothari Pioneer AMC Limited is taxed in the hands of ITI Limited (old) and hence, amount received from Escrow account being part of sale consideration which is already suffered tax in the hands of ITI Limited (old) cannot be once again taxed in the hands of the assessee, i.e. ITI Limited (New). The ld. CIT(A) after considering relevant facts has rightly deleted addition made by the AO. Hence, we are inclined to uphold findings of the ld. CIT(A) and reject grounds taken by the revenue. Disallowance u/s 14A r.w.r 8D - HELD THAT:- We find that the AO has erred in computing disallowances of interest u/r 8D(2)(ii), because f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed common grounds of appeal in both appeals. Therefore, for sake of brevity, grounds of appeal filed in ITA No. 80/Mds/2008 are reproduced as under:- 1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case. 2.1 The learned CIT(A) erred in holding that the income arising out of the sale of shares of Pioneer ITI AMC Ltd cannot be assessed in the hands of the assessee company. 2.2. The learned CIT(A) failed to note that the assessee adopted colourable device to avoid payment of tax on the gains arising out of sale of shares of Pioneer ITI AMC Ltd in the guise of amalgamation and slump sale. 2.3. The learned CIT(A), missed the woods for the trees and erred in considering the legality and merit of each event in isolation and failed to appreciate the larger picture and the motive behind the transactions. The learned CIT(A) ought to have appreciated that notwithstanding the alleged merger, in fact the ITI(Old) and HFCL Infotel continued to carry on their respective businesses of finance cum leasing and Telecommunication services respectively in their new identities viz., JTI(New) and HFCL and the avowed purpose of amalgamat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... premium payable on debentures. 3.1 The learned CIT(Appeals) ought to have appreciated that the allotment of debentures was nothing but a device to transfer the profit on sale Pioneer AMC Units earned by ITI(Old) to ITI(New). There was no other business consideration for purchase of debentures by ITI(Old)/(HFCL) in ITI(New) as the avowed purpose of amalgamation was utilization of excess funds of ITI(Old) in the business of HFCL Infotel, the amalgamating company. The allotment of debentures only exposes the true purpose of amalgamation which is avoidance of tax on sale of shares. The debentures were allotted in consideration of the slump sale which itself was not genuine. The allotment of debentures for additional value only goes to show that the stated consideration for slump sale was not the actual one. 3.2. The learned CIT(Appeals) ought to have appreciated the genuine intention behind the slump sale and allotment of debenture and therefore erred in allowing the provision for premium as a deduction especially as the same was not claimed in the original return. In any event the premium cannot be said to have accrued for two months on debentures issued on 15th Februar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Investment Trust of India Limited (ITI old) changed its name to M/s HFCL Infotel Limited (Infotel New) with effect from April 2003. 3. M/s Rajam Finance and Investment India Limited is a wholly owned subsidiary of M/s Investment Trust of India Limited (ITI old). As per the scheme of amalgamation, ITI (Old) had to hive off its NBFC business w.e.f. 01.09.2002 to Rajam Finance and Investment India Ltd., who is the appellant right now and since it has changed its name from Rajam Finance and Investment India Ltd. to The Investment Trust of India Ltd., hereinafter it will be referred to as (ITI New). As a result, HFCL Infotel Limited (old) merged into ITI Limited (old) w.e.f 1.9.2002 and ceased to exist thereafter. At the same time, ITI Limited (old) wants to concentrate on their newly chosen Telecom business, exited from Finance Business (a non-infrastructure business U/s 10(23)(G) and hived off the assets liabilities of the NBFC business to its 100% subsidiary company namely Rajam Finance Investment (I) Limited. w.e.f 1.9.2002. This business rearrangement was also part and parcel of the Scheme as approved by the two Hon ble High Courts. The Scheme was duly implemented and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a consideration of ₹ 104,07,05,229/-. As there were certain contingent liabilities of the AMC Company, an Escrow Agreement was executed on 23rd July 2002 and a sum of ₹ 22,08,62,634/- was kept with M/s. Wadia Ghandy Co who were appointed as Escrow Agents. The Escrow Agents were to get the Accounts audited and settle all liabilities out of this amount of ₹ 22,08,62,634/-. The balance amount, if any, was to be paid by the Escrow Agents to ITI Limited (old) as additional Sale consideration on sale of shares of Kothari Pioneer AMC Ltd. Accordingly, ITI Limited (old) received ₹ 104,07,05,229/- less expenses of ₹ 6,64,50,207/- from Templeton in July 2002. M/s ITI Limited (old) computed capital gain from sale of shares after deducting indexed cost of acquisition of Rs 7,19,89,859/- and declared capital gain of ₹ 90,35,34,689/-. Since, profit from sale of shares was earned in July 2002, which was in the previous year relevant to assessment year 2003-2004, ITI Limited (old) included these profits in its return of income for assessment year 2003-04 which was filed in Chandigarh. Further, the Escrow Agents settled all the liabilities and released ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raising out of sale of shares in the hands of ITI Limited (new) 8. M/s ITI Limited (New) being aggrieved by the assessment order preferred an appeal before the ld. CIT(A). The ld. CIT(A), III Chennai vide his appellate order dated 29-10-2007 for detailed reasons held that capital gain from sale of shares of Kothari Poineer AMC Ltd by ITI Limited (Old), i.e. the holding company of the assessee is not taxable in the hands of the assessee. The ld. CIT(A) has discussed the issue in light of amalgamation of HFCL Infotel Limited (old) with ITI Limited (old) and had also discussed various reasons given by the AO to treat amalgamation as sham transaction in light of the decision of Hon ble Supreme Court in the case of McDowell Co Limited vs CTO (1985) 154 ITR 148 and held that the ld. AO, instead of concentrating on the aspect as to why and how income of holding company can be taxed in the hands of subsidiary company, tried to establish amalgamation of two companies with the approval of two respective jurisdictional High Courts is a tool to avoid taxes and further it is a colorable devise. The ld. CIT(A) has also discussed the issue in light of the decision of Hon ble Supreme Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion including balance receivable from escrow account on sale of shares was ploughed back by ITI Limited (Old) to ITI Limited (New) in the guise of optionally fully convertible debentures (OFCD) and other assets. The ld. Sr. standing counsel further referring to dates and events submitted that if you go through date of amalgamation of ITI Limited (old) and HFCL Infotel Limited (old) and slump sale of entire finance and investment business of ITI (old) to Rajam finance and Investment India Limited, it is very clear that so called slump sale of NBFC business was not genuine, because M/s Rajam became subsidiary of ITI Limited only a week before the alleged slump sale and further, the business including all assets were transferred at values much lower their then market values. This fact clearly shows effectively there is no change of ownership even after slump sale. 11. The ld. Sr. standing counsel Shri. M Swaminathan further referring to business transfer agreement between ITI Limited and Rajam Finance and Investment India Limited submits that as per clause (b) of para 6 of slump sale agreement, the transferor will continue to carry on the business on behalf of the transferee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law, the tax authorities are authorized to go into real purpose of such transactions by lifting the corporate veil. In this case, the AO has brought out various reasons to hold entire transactions as a colourable devise, but the ld. CIT(A) only on the ground that said amalgamation was approved by respective High courts has negated observations of the AO without appreciating the facts in right perspective. Therefore, the order of the ld. CIT(A) should be reversed and the assessment order should be upheld. 12. The ld. AR for the assessee Shri. R Vijayaraghavan, Advocate strongly supporting order of the ld. CIT(A) submitted that the ld. CIT(A) after considering relevant facts has rightly held that income of holding company cannot be taxed in the hands of subsidiary company, because the transaction of sale of shares was happened before the NBFC business was hived off to M/s Rajam Finance and Investments India Limited and hence, capital gain is rightly taxable in the hands of ITI Limited (Old) new renamed as HFCL Infotel Limited (new). He, further submit that M/s ITI Limited (old) was the owner of shares and said shares had been sold in July 2002, much before the date of slump sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very tax planning cannot be tested under the principles of colourable devise, because everyone is having right to arrange its affairs to best suit their requirements, but such planning should not be a tool for evading taxes payable to Government. In this case, the scheme of amalgamation was approved by all concerned including two High Courts and further the purpose and intent of the scheme was put in place. Therefore, it is highly incorrect on part of the ld. AO to hold that the scheme of amalgamation was arranged to avoid payment of taxes on capital gain arising out of sale of shares. He, further submits that ITI Limited (old) sold shares on 23-7-2002. The NBFC business was hived off on 1-9-2002. Amalgamation was with effect from 1-9-2002 and further, the scheme was also had reference to slump sale of NBFC business. Further, the assets transferred as part of slump sale did not include shares held by ITI Limited (old) in Kothari Pioneer AMC Limited. The sale consideration was received by ITI Limited (Old). Under these facts, how and under what provisions of Income Tax Act, 1961, the AO can bring into tax income of holding company in the hands of subsidiary company by holding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mited, now renamed as ITI Limited(new) is on the wrong assumption that the ITI Limited had amalgamated with HFCL Ltd and not vice versa. The Assessing Officer has accepted that while framing the original assessment, he had erred in presuming that ITI Limited (old) had amalgamated with HFCL Infotel Limited (old). He has further admitted that even the authorities in Chandigarh had also committed the same error. Therefore, when the AO had not even understood as to who had amalgamated with whom, the consequent Assessment Order would have been passed on wrong assumptions and without application of mind. This error is extremely fundamental to the issue because while framing the assessment the Assessing Officer felt all along that he was assessing ITI Limited (Old) whereas, in actual fact, the AO was assessing RAJAM Finance Investment India Ltd, which was renamed as ITI Limited (new). As a matter of fact, HFCL Infotel Limited (old) had merged with ITI Limited (old) w.e.f. 1. 9-2002 and subsequently, ITI Limited (old) had renamed itself as HFCL Infotel Limited (new) and had shifted its registered office to Chandigarh after obtaining all the approvals from all the concerned authorities in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as HFCL Infotel Limited (new) and was assessed in the hands of ITI Limited(old) now renamed as HFCL Infotel Limited (new) on substantive basis. Similarly, on account of not understanding as to who had merged with whom, the ld AO at Chennai, presumed that he was assessing ITI Limited (old). Hence, while framing the assessment of RAJAM, later renamed as ITI Limited (new), he tried to assess the income from sale of shares of Kothari Pioneer AMC in the hands of ITI Limited (new) on substantive basis. It is an established fact that same income cannot be taxed at two places in the hands of two different persons. Hence, once said income has been taxed in the hands of ITI Limited (old) now renamed as HFCL Infotel Limited (new) at Chandigarh, the same income cannot be taxed once again in the hands of RAJAM, now renamed as ITI Limited (new) at Chennai. 17. The sole reason for the AO to conclude the scheme of amalgamation was an afterthought to circumvent tax liability arising out of sale of shares of Kothari Pioneer AMC Ltd, held by ITI Limited (old). The AO held that the assessee has arranged a scheme of amalgamation and slump sale, whereby avoided payment of taxes on capital gain a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was held that Courts have no such constitutional authority to impose such an overlay upon the tax legislation nor had the House of Lord attempted to do so. In India also, the Courts had taken such a view even after considering Mc Dowell (supra). For example, in Valliappan Vs ITO (170 ITR 238) the Hon ble Madras High Court itself had opined that Mc. Dowell Co Ltd vs CTO (supra) does not hit tax planning. Further, in the case of Union of India vs. Azadi Bachao Andolan (263 ITR 706) the Supreme Court observed as under: We may in this connection usefully refer to the judgment of the Madras High Court in M.V. Valliappan v. ITO (1988) 170 ITR 238, which has rightly concluded that the decision in McDowell (1985) 154 ITR 148 (SC) cannot be read as laying down that every attempt at tax planning is illegitimate and must be ignored, or that every transaction or arrangement which is perfectly permissible under law, which has the effect of reducing the tax burden of the assessee, must be looked upon with disfavour. Though the Madras High Court had occasion to refer to the judgment of the Privy Council in RC v. Challenge Corporation Ltd. (1987) 2 WLR 24, and did not have the benefit of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interests, as perceived by the respondents. In a nutshell, Azadi Bachao Andolan case puts the McDowell case in a proper perspective and dispels the confusions and misunderstanding surrounding it. 21. Now in the instant case also, more or less similar situation has arisen, in the sense that both the amalgamation of HFCL lnfotel Limited into ITI Limited (Old) as well as the hiving off of financial business of ITI Limited (Old) to Rajam Finance and Investment Ltd., i.e., ITI Limited (new) are part of the same scheme of amalgamation sanctioned by Hon ble Madras High Court as well as Hon ble Punjab and Haryana High Court. The scheme presented for amalgamation has mentioned this fact of the sale of share in July, 2002 as well as the sale of hire purchase, leasing and securities trading business as, a going concern to Rajam Finance and Investment (India) Ltd. i.e. ITI Limited (new) and after reading the affidavit of Regional Director Southern Region, Department of Company Affairs dt. 19.03.2003 filed before the Hon ble Madras High Court on 20.03.2003 wherein the Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blication in newspapers. Due process of law was fully followed and nothing was done in a hush-hush manner. The ld. AO has failed to notice that the petition for amalgamation were filed before the Hon ble High Court at Chennai on 23.01.2003 and before the Punjab Haryana High Court on 28.01.2003 and it was to be effective from 1.9.2002, subject to approvals from all authorities. In the light of this fact how can the ld. AO allege that the entire scheme was an afterthought? Moreover, HFCL Infotel Limited (old) had merged into ITI Limited (old), but, RAJAM did not merged into any Company and nor did any Company merged into RAJAM. Therefore, we are of the considered view that the AO is completely erred in holding that the scheme of amalgamation is an afterthought. 23. The observation of the ld. AO regarding alleged non-certification of assets and liabilities of ITI Limited (old) as on 31.8.2002 is also entirely uncalled for. Moreover, the ld. AO should have at least taken the trouble of quoting some provisions of some law which is in force in our country that requires such certification. Nonetheless, it may be on record that the Auditors of ITI Limited (old), now rename ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt assessment. The ld AO has alleged that the Profit Loss Account of HFCL Infotel Limited (new) for the period 1.4.2002 to 31.3.2003 includes only one item pertaining to ITI Limited (old) namely profit on sale of investment of ₹ 93,30,15,689/-. This allegation is factually incorrect. The said Profit Loss Account includes all items of Income and Expenditure of ITI Limited (old) for the period 1.4.2002 till 31.8.2002, i.e. till the date of hiving-off of finance and investment business to RAJAM. The allegations about ITI Limited (old) and HFCL Infotel Limited making balancing acts without there being any evidence of any funds of ITI Limited (old) being used in the business of HFCL Infotel Limited are also factually incorrect and uncalled for due to reasons explained above. 25. The AO has made yet another observation that the purchaser of shares Templeton India Pvt. Ltd never paid any money to HFCL India Ltd or the amalgamated company, but all payments were made to ITI Limited (old) even after the alleged amalgamation. Firstly, HFCL India Ltd is an independent co. that was the holding company of HFCL Infotel Ltd (old). When HFCL India Ltd and HFCL Infotel Ltd (old) had n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no amalgamation took place between two companies and even if there is amalgamation, but it is sham transaction or colourable devise to avoid payment of taxes on capital gain arising out of sale of shares. The ld. AO has alleged that there is no evidence that the merger actually took place on 1.9.2002. The ld. AO has further alleged that, on the other hand, there is enormous evidence which shows that the merger was retrospective. In support of his contention, the ld. AO has put forth several reasons. We have gone through reasons given by the AO to hold amalgamation as a colourable devise and find that there is no substance in the reasons, because, Annual Report (prepared on 31.7.2002), Auditor s Report (dated2.9.2002) and the Income Tax return (filed on 29.10.2002) for year ending 31.3.2002 were not required to contain any reference to the merger as they pertain to the period 01.04.2001 to 31.3.2002. Further, the CIT (Appeals), Chandigarh, vide his appellate order passed in the appeal of ITI Limited (old), later renamed as HFCL Infotel Limited (new) dated 28.2.2007 has categorically held that the merger was perfectly legal and valid. He has further held that the merger was not a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld) and after hiving-off it was being owned and run by RAJAM, now renamed as ITI Limited (new). He has also conveniently forgotten that ITI Limited (old) carried on the NBFC business till the time it was hived off to RAJAM w.e.f. 1.9.2002. In the year under assessment, ITI Limited (old) owned and ran the NBFC business from 1.4.2002 till 31.8.2002. These Shares were transferred on 26.7.2002, which is well within the period in which the NBFC business was owned and ran by ITI Limited (Old). We fail to appreciate the logic by which this amount can be taxed in the hands of RAJAM later renamed as ITI Limited (new) who acquired the NBFC business w.e.f. 1.9.2002 when these Shares had already been sold by ITI Limited (old) on 26.7.2002 and ITI Limited (old) had also received almost ninety percent of payment. How RAJAM can be asked to pay taxes on a transaction that had taken place even before their date of acquisition of business. As regards, remaining portion of ₹ 17 crores of sale proceeds, received by Rajam now renamed as ITI Limited (New), we find that the total sale consideration was about ₹ 114 crores. Out of this, about ₹ 97 crores was received by ITI Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on sale of shares of Kothari Pioneer AMC Ltd. By citing the above remarks, the ld. AO has helped the appellant to prove two things. Firstly, ITI Limited (old) had decided to exit from NBFC business as early as 1.7.2001. Thus, hiving-off of finance and investment business by ITI Limited (old) to RAJAM w.e.f 1.9.2002 cannot be considered as an afterthought. Secondly, the management of ITI Limited (old) had disclosed their intention of embarking on new business activities as early as 31.7.2002. This fact completely demolishes the allegation of ld. AO that merger w.e.f.1.9.2002 was an afterthought. This fore warning by the management came true by their later actions when ITI Limited (old) entered into telecommunication business by taking the merger route. Hence, allegation of ld. AO is baseless and incorrect. 30. The ld. AO has alleged that the slump sale or hiving-off of business was not genuine. Assuming, though not admitting, Slump-sale was not genuine, then the logical course of action would be ignore the Slump-sale and revert to the original position as if no Slump sale had taken place. Even then the taxability of income from sale of Shares of Kothari Pioneer AMC limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and what were they doing, has no relevance or bearing on the Slump-sale. The ld. AO has made a very serious allegation here alleging that there is absolutely no record of sale of shares by the shareholders of Rajam Finance and Investments India Limited to ITI Limited (old). The said allegation is completely falls. Firstly, the said record is available with the company in the form of Register of Members and Share Transfer Register. We would like to know whether the ld. AO called for any of these records and, if so, did the assessee refuse or fail to produce the same, or the assessee produced these records and the ld. AO found that there was no record of transfer of shares of RAJAM in these statutory registers. The fact of the matter is that the complete records were available with the company and the ld. AO never called for any of these records let alone examine the same. We presume that the ld. AO would be aware that the record of transfer of shares is available at places other than the company also. For instance, every company is required to disclose the position of its shareholders as on the date of each Annual General Meeting as well as all the changes that have taken plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the remand report, the ld. AO further stated that the amalgamating company, in terms of Sec.72A of the Act, should have carried on the business for period of 2 years prior to amalgamation and amalgamating company did not fulfill this condition. In this regard, we find that this condition was not applicable for assessment year 3003-04. Further, sub-section (2) of Sec.72A as applicable for assessment year, 2003-04 reads as under:- (2)Notwithstanding anything contained in sub-section (1), the accumulated loss shall not be set off or carried forward and the unabsorbed depreciation shall not be allowed in the assessment of the amalgamated company unless the amalgamated company - holds continuously for a minimum period of five years from the date of amalgamation at least three-fourths in the book value of fixed-assts of amalgamating company acquired in a scheme of amalgamation; Continues the business of amalgamating company for a minimum period of five years from the date of amalgamation; Fulfils such other conditions as may be prescribed to ensure the revival of the business of the amalgamating company or to ensure that the amalgamation is for genuine business purpose. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rry on the business of hire purchase and leasing. This was the rational to make the sale of business effective from the same date of 1st September 2002 on which date the merger came into operation. Therefore, it is incorrect to say that amalgamated company had transferred its business as a going concern even before the merger. It is very clearly written in clause 5 and 6(a) of the agreement dated 28.3.2003 that sale will be effective on and from 1st September 2002 and subject to the merger being approved by the respective High Courts. What is relevant is the date of transfer of the business and that was 1stSeptember 2002 only. It is also mentioned in the remand report that there was no change in the activities of the amalgamated company. This statement is not correct. Before merger, the company was engaged in the business of hire purchase and leasing but after merger it was wholly engaged in the business of telecommunication. Perhaps, the Ld. AO is equating the business of subsidiary company with that of holding company. However, both cannot be equated. Both are separate legal entities under the Companies Act and are separate assessee s under the Income Tax Act, 1961. Hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amalgamating company and further, they had given their approval for amalgamation. Hence, observation of the AO is fails on this count as well. 36. The ld. AO, in remand report has taken support from the Bombay High Court decision in a recent case where it was held by relying on the decision of the Hon ble Supreme Court in the case of Mihir H Maftlal v/s. Maftlal Industries Ltd. that amalgamation can be rejected on grounds of tax evasion and that Court can verify whether amalgamation was a genuine corporate exercise or a device to evade taxes due to the government. He, further, commented that the Supreme Court in the case of Marhsal Sons 223 ITR 809 has clearly stated that they have not expressed any opinion on the plea of the learned Counsel for Revenue that the amalgamation itself is a device design to evade the taxes legitimately payable by the subsidiary company. The Income Tax Authorities, if they so think that they are entitled to raise this question in the proceedings under the Income Tax Act, 1961, it is open to them to do so by way of a separate proceeding according to law. We have gone through observations of ld. AO and find that the Hon ble Bombay High Court is sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtue of the demerger, otherwise than as a result of the acquisition of the property or assets of the demerged company or any undertaking thereof by the resulting company. (f) the transfer of the undertaking is on a going concern basis. (g) the demerger is in accordance with the conditions, if any, notified under sub-section (5) of Sec.72A by the Central Government in this behalf. Similarly, Slump sale has also not been defined in the Companies Act, but it has been defined in clause (42C) of Sec.2 of the Income Tax Act, 1961. Slump sale under this clause 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. Choice is with the companies to decide as to whether they want to transfer the undertaking by way of demerger or by way of slump sale. In case of demerger, as mentioned above, the companies have to draw the scheme of arrangement within the meaning of Sec.392. 394 of the Companies Act, 1956 where there is a long drawn process viz, approval of shareholders by 3/4 majority, approval of the creditors, report of the ROC, report of the Regional Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the provisions of this Act shall so far as may be, apply accordingly. Even if S. 170(1) is invoked in respect of the income up to the date of succession, the predecessor only shall be liable to be taxed. Now, in the instant case, since it is an undisputed fact that income on sale of share accrued before amalgamation / slump sale, therefore, this income has to be taxable in the hands of ITI Limited (old) only. So far as S. 170(2) is concerned, this section will apply when the predecessor cannot be found. But in this case ITI Limited (old) very much exists even as on today as per the records of the various government authorities. Hence the contention of the AO does not make any sense. In fact, the entire confusion emanated from misunderstanding, as admitted by the AO himself in the remand report that ITI Limited (old) amalgamated with HFCL Infotel Limited due to which the AO invoked succession theory under the impression that ITI Limited (old) no more exist while the fact is other way round. It is HFCL Infotel Limited which merged with ITI Limited (old) which is amalgamated company today and HFCL Infotel Limited was amalgamating company. Therefore, on this count also the findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 120 60 2 45,50,000 31.03.03 24,46,709 120 60 1 12,23,355 69,96,709 57,73,355 The assessee did not claimed deduction of provisions for Redemption of Debentures in original return of income filed for the year. However, realizing that it has not claimed the above mentioned premium payable as deduction, it has filed a revised return wherein it claimed the above mentioned premium as deductible. The AO disallowed provision for premium on redemption of debentures on the ground that this is only a provision which was accordingly disallowed by the assessee company itself in the statement filed along with the return of income. On appeal before ld. CIT(A), the ld. CIT(A), by following the decision of Hon ble Supreme Court in case of Madras Industrial Investment Corporation Ltd. vs. CIT,(225 ITR 802) and CIT vs. SM. Holding and Finance Pvt. Ltd, (264 ITR 370 ), deleted addition by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03-04. The reasons given by us in preceding paragraph no 40 of this order shall mutatis mutandis apply to this appeal as well. Therefore, for similar reasons we are inclined to uphold findings of the ld. CIT(A) and reject ground taken by the revenue. 44. The next issue that came up for our consideration is addition towards provision for premium on redemption of debentures to book profit u/s 115JB of the Income Tax Act, 1961. The ld. AO has made addition to book profit towards premium on redemption of debentures on the ground that it is an unascertained liability. The ld. CIT(A) ha by following the decision in case of Madras Industrial Investment Corporation Ltd vs. CIT (225 ITR 802), held that it is ascertained liability and further deductible u/s 37 of the Act. The ld. CIT(A) further held that it cannot be added back to book profit computed u/s 115JB(2)(c) of the Act. Facts remain unchanged. The revenue has failed to counter findings of facts recorded by ld. CIT(A) with any contrary decision. Therefore, we are of the considered view that provision created for premium payable on redemption of debentures is ascertained liability and hence, it cannot be added to book profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of tax deducted by the bank on the said interest. This interest income pertains to the period from Sept. 2002 to June 2004. It has been the contention of the appellant that until the escrow period was over and until all the expenses and potential liabilities were met from the escrow account it was not known whether and to what extent the amount would be received from the escrow agent. Thus, it has been contended by the appellant that till June 2004 right to receive the interest income had not crystalized, and hence, the appellant offered the entire interest income of ₹ 2,02,16,102 to tax for assessment year 2005-06. Against this, the AO has assessed the above mentioned net interest income of ₹ 1,81,55,311 as income of the appellant for the assessment year 2003-04 under the head income from other sources. As regards, balance sale consideration of sale of shares and kept in escrow account, the AO has made addition on the ground that capital gain is taxable in the hands of the assessee for Asst. year 2005-06. 47. On first appeal, the ld. CIT(A), deleted addition made towards amount received from escrow account by holding that said income is taxable only in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... again taxed in the hands of the assessee, i.e. ITI Limited (New). The ld. CIT(A) after considering relevant facts has rightly deleted addition made by the AO. Hence, we are inclined to uphold findings of the ld. CIT(A) and reject grounds taken by the revenue. 49. The next issue that came up for our consideration is provision for premium on Redemption of Debentures. We find that an identical issue has been considered by us in assessee own case in ITA. No. 80/Mds/2008 for Asst. year 2003-04, where, we, by following the decision of Hon ble Supreme Court decision in case of Madras Industrial Investment Corporation Ltd vs. CIT (225 ITR 802), held that premium payable on redemption of debentures has to be spread over the period and further, amount pertains to relevant period is deductible u/s 37 of the Income Tax Act, 1961, even though same is paid on redemption. The facts in the present case are identical to facts which we have considered in ITA. No. 80/Mds/2008 for Asst. year 2003-04. The reasons given by us in preceding paragraph no 40 of this order shall mutatis mutandis apply to this appeal as well. Therefore, for similar reasons we are inclined to uphold findings of the ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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