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TMI Blog2024 (9) TMI 521X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit accrued to the assessee as per section 28(iv) - Assessee appeal allowed. - Hon ble Shri Manoj Kumar Aggarwal, AM And Hon ble Shri Manu Kumar Giri, JM For the Appellant : Shri. G. Baskar, Advocate For the Respondent : Shri ARV Srinivasan, IRS, Addl CIT. ORDER PER MANU KUMAR GIRI (JUDICIAL MEMBER) This appeal by the Department is arising out of the order of the Commissioner of Income Tax (Appeals)-18, Chennai in order No.ITBA/APL/S/250/2023-24/1058556563 (1) dated 07.12.2023. The assessment was framed by the DCIT, Corporate Circle-I(2), Chennai for the assessment year 2009-10 u/s. 143(3) r.w.s 147 of the Income Tax Act, 1961 (hereinafter the Act ), vide order dated 16.03.2016. 02. The assessee has raised following grounds of appeal:- 1. The order of the Id. Commissioner of LT. (Appeals) is opposed to law and facts of the case 2 The id. CIT(A) erred in deleting the addition of Rs. 1,75,27,500/- made u/s 28(iv) of the Income Tax Act, 1961, which represented the amount credited to Capital Reserves on account of allotment of shares allotted by the amalgamated company. M/s Kemcos Land Developers Pvt Ltd, with respect to the shares held in the amalgamating company, M/s Transcar Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res of Kemcos Land Developers P. Ltd. for every 10 shares in Transcar India P. Ltd. as per the scheme of amalgamation approved by the Hon'ble High Court of Madras vide order dt. 22.7.2010. The assessee passed journal entry in the books of account to give effect to the value of shares allotted to the assessee as below: Particulars of Account Debit (Rs.) Credit (Rs.) Investment shares in Kemcos Land Developers P. Ltd. 4,67,40,000 To investment in shares Transcar India P. Ltd. 2,92,12,500 Capital Reserve 1,75,27,500 Total 4,67,40,000 4,67,40,000 The AO added the above capital reserve of Rs. 1,75,27,500 u/s 28 (iv) of the Act as benefit accruing to the assessee and the same is disputed before the ld. CIT(A). Before the ld. CIT(A), the assessee contended that sec.28(iv) is not applicable as only the existing shares in the amalgamating company was converted into shares in the amalgamated company and the increase in value of shares is only notional which does not represent any income. The assessee further submitted that there was no transfer of shares by the assessee in the scheme of amalgamation and therefore, there is no accrual of income. The assessee also relied on the decision on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill of the assessee-company by increasing reserves and surplus. Whether the reserve and surplus of the amalgamated company can be treated as benefits accruing from business of the assessee in term of provisions of Section 28(iv) of the Act or not? 6. Now, we have to go through the clause (iv) of Section 28 which lays down as under: Section 28 sets out the incomes which are chargeable to income-tax under the head 'Profit and Gains of Business and Profession', and clause (iv) thereto refers to the value of any benefit or perquisite, whether convertible into money or not, arising from the business or exercise of a profession . It is clear from the above provision that besides the profits and gains from business and profession carried on by the assessee at any time during the previous year or any other benefit or perquisite, whether convertible into money or not, is also chargeable to tax under this head of income. A plain reading of this provision shows two conditions precedents for such taxability i.e. (i) that there should be benefits or perquisites and, (ii) that such benefits or perquisites should arise from the business or exercise of the profession. The expression 'a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue to establish that the receipt is of a revenue nature though once a receipt is found to be of revenue character, whether it comes under exemption or not, it is for the revenue to establish . It is thus clear that capital receipts are inherently outside the scope of an income which can be taxed under section 28(iv), and Hon'ble Bombay High Court, in the case of Mahindra Mahindra (supra) also holds so. As to what constitutes capital receipt, we find guidance from Hon'ble Madras High Court's judgment in the case of CIT Vs Seshasayee Brothers Pvt Ltd. (222 ITR 818) wherein Their Lordships, after elaborately surveying the legal precedents on this issue, concluded that, Thus, a combined reading of the above said judicial pronouncements would go to show that when a receipt is referable to fixed capital, it is not taxable,, and it is taxable as a revenue receipt when it is referable to circulating capital or stock in trade . 8. To sum up, unless it is a revenue receipt, it cannot be in the nature of income [except in a situations in which capital receipts are specifically included in the definition of income such as under section 2(24)(vi)], and unless it is in natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital structure of the assessee company and the manner in which business is consolidated. As the Assessing Officer himself observes, ..... this exercise of amalgamation is also aimed at bolstering the capability of the assessee to conduct business more dynamically and earn more profit. So, the enhancement of its capital reserve, as a result of this amalgamation can only be construed as a benefit accrued to the assessee ... , but then it is not even the case of the Assessing Officer that the benefit is in the revenue field, and unless the Assessing Officer is to discharge the onus of demonstrating that the benefit is in the revenue field, there cannot be any occasion to invoke Section 28(iv). Applying the test laid down by Hon'ble Madras High Court, in the case of Seshasayee Brothers (supra), also, we find that the benefit is referable to the capital, and is thus not of an income nature. Even if, as the Assessing Officer observes, is benefited in a myriad ways by way of amalgamation , it does not lead to the conclusion that the benefit is in revenue field which alone can be treated as income and thus be considered for taxability under section 28(iv) of the Act. The onus is on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares by way of investment cannot be considered as business of the company though the objects of the company enable it to invest as well as deal in shares. As already stated there is no event which can be said to have resulted in accrual of income to the assessee. Thus on this factual matrix, mere purchase of shares, as an investment, with the lock-in-period of holding, for a consideration which is less than the market value, cannot be brought to tax, as a benefit or perquisite under s. 28(iv) of the Act. The assessee has not in this case, secured any benefit or perquisite in consideration of a business transaction undertaken with the sellers of the shares. Thus, this issue is decided in favour of the Revenue and against the assessee. The contention of the Ld. D.R, thus, cannot be accepted that for applicability of provisions of Section 28(iv), it is not necessary that the benefit or perquisite must arise from the business or the exercise of profession carried on by the recipient. The ITAT, Kolkata Bench in the case of ITO vs Shreyans Investments Private Limited 141 ITD 672 (Kolkata-Tribunal) relying on the decision of the Honourable Bombay High Court in the case of Mahindra and Mah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to the amalgamated company, there was no element of gain or loss when the assessee re-arranged its capital base. In his concurring judgment, Justice C. K. Banerji observed as under: The shares held by the assessee in the transferor-companies represented the capital invested by the assessee in the said companies and by the said amalgamations the assessee became the sole owner of the entire capital of the transferor-companies. By virtue of the said amalgamations the assessee as the transferee-company became the sole repository of all the rights which flowed from or were imbedded in the shares held by the assessee in the transferor-companies. 7. In the case of CIT Vs. NALWA INVESTMENTS LTD (Delhi High Court) [2020] 118 taxmann.com 278 (Delhi) / (2020) 427 ITR 229 (Del), the Hon ble Court in sum substance opined that: Receipt of shares of amalgamated company by the shareholders of amalgamating company in lieu of their shareholding in amalgamating company is transfer within the meaning of section 2(47) and 45 of Income Tax Act, 1961. If on the date of amalgamation, the shareholders of amalgamating company held those shares as capital asset, such transfer would be exempt from capit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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