9911796707
TMI Blog2025 (4) TMI 582X X X X Extracts X X X X X X X X Extracts X X X X ..... enue craves leave to add/alter/armed and/or substitute any or all of the grounds of appeal." 3. Succinctly, the factual panorama of the case is that assessee before us is a Public Limited Company and has filed its Revised Return of income on 07.05.2015, declaring a returned total income of Rs. 4,74,48,046/-, under normal provisions of Income Tax Act, 1961, after claiming a deduction of Rs. 35,500/- under Chapter VI-A and a book profit of Rs. 5,20,68,396/ -. The assessee- company, is a public limited company, engaged in the business of manufacturing of plastic extrusion machinery and other engineering goods. During the year under consideration, the company has derived income from business & profession and income from other sources. The return of income was processed u/s 143(1) by CPC Bangalore. Later on, the assessee's case was selected for Limited Scrutiny under CASS, and accordingly notice u/s 143(2) of Act, was issued on 08.04.2016, and duly served upon the assessee, on 13.04.2016, informing the assessee that its case has been selected for scrutiny. A letter was issued on 25.07.2016 calling for a paper book containing the audit report in Form No.3CD, 3CB, etc., financial sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amating companies (Hitesh Engineers Pvt. Ltd., Shruti Engineers Pvt. Ltd., and Vishwakarma Fabricators Pvt. Ltd.) and to decide swap ratio for exchange of equity shares. It is pertinent to state that Rajoo Engineers is a public limited company traded widely on Bombay Stock Exchange (BSE Scrip ID: 522257).A look at data clearly shows that it is a fairly liquid stock and wherein minority share- holders either hold or trade on a regular basis, as noted by the assessing officer. 5. Therefore, assessing officer observed that there was a true, market based, unbiased parameter available to value the shares of the assessee, public limited company, which was ignored in order to create a swap ratio which was unfavorable to the assessee- company and was favorable to the related parties of persons having controlling share in the assessee public limited company. The assessee, vide show cause dated 26.12.2016 was asked to show cause as to why the swap ratio should not be evaluated on the basis of market value (as on the day of allotment) of the public limited company and the book value of the amalgamating private limited companies and why the value differential should be added back in hands of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year of the beneficiary- related parties, in view of provisions of 56(2)(vic)(ii) of the Income Tax Act, 1961. Therefore, on protective basis, the assessing officer made addition in the hands of the assessee- company, to the tune of Rs. 18,74,73,500/ -. 7. Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has deleted the addition made by the assessing officer. The ld CIT(A) observed that assessee has furnished the copy of appellate order in the case of one of the beneficiaries who had been allotted the shares, passed by the Id. CIT(A), National Faceless Appeal Centre (NFAC), New Delhi vide order appeal no. CIT(A), Rajkot-2/10291/2019-20 dated 21.03.2024. In the said appellate order, the Id. CIT(A), National Faceless Appeal Centre (NFAC), New Delhi has deleted the addition made by the assessing officer. The relevant para of the decision is as under: 6.2 The addition made by the Assessing Officer and the submissions of the appellant have been perused. The submitted that there is no inadequate consideration which is less than fair market value of property (shares), sec. 56(2)(vii) does not come into play at all. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The provisions of Section 56(2) would not be applicable to the issue of new shares which is also submitted by the explanatory notice to the Finance Bill, 2010, wherein, it is clarified that Section 56(2) (vi) (c) of the Act ought to be applied only in the case of transfer of shares, it is trite law that allotment of new shares cannot be regarded as transfer of shares." 9. The ld CIT(A) also relied on the decision of the Hon'ble Ahmedabad ITAT in the case of DCIT Vs. M/s Ozone India Ltd. (ITA No. 2081/Ahd/2018), where Hon'ble ITAT has held as under. "It may be possibly argued that section 56(2)(vib) does not oust its applicability in the event of shares issued pursuant to amalgamation. The amalgamation isa compromise or arrangement between the parties, which inter alia includes the amalgamated company issuing the shares and the shareholders of the amalgamating company, which is supervised by the Court, in terms of the Companies Act. In other words, there is an agreement or arrangement between the amalgamated company. The clause contemplates the issue of shares and the receipt of consideration from am resident person and it is fulfilled on amalgamation. This perspective se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harged, is acceptable. However, the real income should be taxable in the hands of the assessee -company. 12. On the other hand, the Ld. Counsel submitted that Section 56(2)(vii)(c)(ii) of the Act, applies to only to individual and HUF and that is also for a particular period, 01.10.2009 to 01.04.2017. During the appellate proceedings, the Ld. CIT(A) has called the remand report and adjudicated the issue after taking the remand report. The Ld. Counsel also submitted that as per Clause (vii) of Section 47 of the Act, when shares are allotted in case of amalgamation scheme, then there is no "transfer" at all, therefore, no tax should be imposed in the hands of the assessee. Therefore, provision of section 56(2)(vii)(c)(ii) does not apply in the case of Public limited- company, it is only applicable to individual and HUF assessees. The new shares allotment by amalgamated company does not give rise to a transfer of shares and hence also section 56(2)(vii) (c) has no application. The Proviso exclude the transfer from rigor of deeming provision, which reads as under: "(h) by way of transaction, not regarded as transfer under clause (vicb) or clause (vid) or claue (vii) of section 47" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5000 512113 2472887 26336250 Total 18,74,73,500/- In view of the provisions of section 56(2)(viic)(ii) of the Act, the said excess value transferred to beneficiary related parties was added to the returned income of the assessee- public limited company, on a protective addition by the assessing officer while passing the assessment order. 14. The ld CIT(A) noticed that it is an undisputed fact that the assessee - company had issued shares to shareholders of all three amalgamating companies under the sanctioned scheme of amalgamation. It means that the assessee- company had not received any shares or any amount from any person. It was submitted by the assessee, before ld CIT (A) that the provision of Section 56(2)(vii)(c)(ii) does not apply in the case of the present applicant Public Ltd Company. The said provision is only applicable to the Individual and HUF-assessee. Hence, the assessing officer, should not have made the Protective Assessment. Before ld. CIT(A), it was argued by the assessee that the new shares were allotted as per the Amalgamation Scheme approved by the Hon'ble Gujarat High Court, and assessee submitted copy of the Hon'ble Gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adequate consideration which is less than fair market value of property (shares), sec. 56(2)(vii) does not come into play at all. It is seen that the shares were allotted under a statutorily approved scheme of amalgamation under the governing regulatory statute, namely the Companies Act, 1956, after hearing all stakeholders including the government and the contents of the scheme having become final, the assessee filed the same with authorities including SEBI and Bombay Stock Exchange. It is to note that the allotment of shares by a company does not give rise to a transfer of shares and provisions of Section 56(2) has no applicability there being no transfer of a property in law." 16. The ld CIT(A) noticed that during the course of appellate proceedings, the assessing officer has submitted that assessment order u/s 143(3) of the Act was passed on 30.12.2016, in the case of assessee, namely, M/s. Rajoo Engineers Limited, by making protective addition of Rs. 18,74,73,500/- (on the excess value of share transferred). Further, the list of following beneficiaries who had been allotted the shares, are as under: Sr. No. Name of the beneficiary PAN 1. Kruti Rajeshbhai Doshi AKLPD9653 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to be applied only in the case of transfer of shares. It is trite law that allotment of new shares cannot be regarded as transfer of shares. Therefore, in order to apply the provisions of sec.56(2)(vii)(c), there must be an existence of property before receiving it. As per advanced Law Lexicon Dictionary, the tern "receive" has been defined as " To receive means to get by a transfer, as to receive a gift, to receive a letter or to receive money and involves an actual receipt." Issue of new shares by company as a right shares is creation of property and merely receiving such shares cannot be considered as a transfer under sec.56(2)(vii)(c) and accordingly, such provision would not be applicable on the issuance of shared by the Company in the hands of the allottee." 6.2.1 The decision of Hon'ble ITAT, A Bench, Ahmedabad in the case of DCIT Circle3(1)(2), Ahmedabad vs. M/s. Ozone India Ltd in ITA No.2081/Ahd/2018 dated 13.04.2021 held as under :- 17.Further, ld CIT(A) relied on the decision of the Hon'ble Jurisdictional High Court of Gujarat in the case of PCIT Vs Jigar Jashwantlal Shah (Tax Appeal No. 80 & 96 of 2023), wherein the Hon'ble High Court has held as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court of Gujarat. The copy of scheme of Amalgamation as approved by High Court of Gujarat is submitted by the assessee before the Bench. Therefore, 10 Equity Shares each having paid-up value Rs. 10 per share of Transferor Company No. 1 (Hitesh Engineers Pvt. Ltd.) is exchanged for 304 Equity Shares each having paid-up value Re.1 per share of Transferee Company (Rajoo Engineers Ltd.) on amalgamation. Similarly, 10 Equity Shares each having paid-up value Rs. 10 per share of Transferor Company No. 2 (Shruti Engineers Pvt. Ltd.) is exchanged for 411 Equity Shares each having paid-up value Re.1 per share of Transferee Company (Rajoo Engineers Ltd.) on amalgamation. However, the Assessing Officer has valued the share of Transferor Company No.1 (Hitesh Engineers Pvt. Ltd.) at Rs. 55.39 and Transferor Company No.2 (Shruti Engineers Pvt. Ltd) at Rs. 74.86 and the value of the share of Transferee Company (Rajoo Engineers Ltd.) at Rs. 10.65 having paid-up value Rs. 1/- per share. 13. As per ld Counsel, the shares of Transferee Company are not issued at discount as explained in the following tabular presentation, before the assessing officer: Sr. No. Particulars Rajoo engineers Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to our analysis), which is reproduced below: "Where an individual or a Hindu Undivided Family receives, in any previous year, from any person or persons on or after the 1" day of October, 2009: Clause-C-Any property, other than immovable property, (i) Without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property. (ii) For consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration" We find that the shareholders of Hitesh Engineers Pvt. Ltd. and Shruti Engineers Pvt. Ltd. have not received consideration, (as per the scheme approved by the hon 'ble High Court,) which is less than aggregate fair market value of their shares and therefore, provisions of Sec. 56(2)(vii) (c) are not attracted. Similarly for rationalization of section 56 the Income Tax Act, 1961 and with a view to bring uniformity in tax treatment, the Finance Act, 2016, proposed to amend the Act, so as to provide that any shares received by Individual or HUF, as a con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration is not a "transfer", therefore, capital gain does not attract. The Finance Act, 2016, also for rationalization of tax treatment introduced clause "h" under 2nd Proviso under sub-clause (c) of clause (vii) under sub- section 2 of section 56 of the Income Tax Act, to exclude the transactions covered under clause(vii) of section 47 of the Act, and being an object to rationalize provisions of section 56 of the Act, with a view to bring uniformity in tax treatments, the said amendment is clarificatory in nature and hence, have retrospective effect and therefore, applicable for A.Y. 2014-15, also. 16.Conclusion We note that provision of Section 56(2)(vii)(c)(ii) of the Act, does not get attracted in the case of shares received on amalgamation. Under the amalgamation, a shareholder of amalgamating company in effect receives the same value of shares of the amalgamated company as he/she original held in the erstwhile company. In case of shares received upon amalgamation, there are no two parties to a transfer of a property. One receives shares in lieu of shares already held. New shares allotment by amalgamated company does not give rise to a "transfer" of shares and hence also, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
