Commissioner of Income-tax, Kolkata-IV
Coats of India Ltd.
PINAKI CHANDRA GHOsE
AND SANKAR PRASAD MITRA, JJ.
IT APPEAL NO. 119 OF 2005
SEPTEMBER 8, 2008
Section 47 of the Income-tax Act, 1961 - Capital gains - Transactions not regarded as transfer - Assessment year 1998-99 - Under an approved scheme of arrangement, assessee-company transferred its entire packing coating unit to its wholly subsidiary company - For such transfer, consideration was not determined with reference to individual asset but with reference to capitalized value of said business - Whether transfer of undertaking was squarely covered by provisions of section 47(iv) and, therefore, no income under head ‘Capital gain’ was assessable in respect of said transaction - Held, yes
Under an approved scheme of arrangement (demerger), the assessee-company transferred its entire packing coating unit to its wholly subsidiary company ‘C’. In the process of such transfer, a surplus amount was credited to the account of the assessee over and above the book value of the assets actually transferred to ‘C’. The assessee claimed that in view of section 47(iv), the surplus amount was not taxable as capital gain as the unit had been transferred to its wholly subsidiary company with all its assets and liabilities and, therefore, value of each of the items could not be determined separately. The Assessing Officer disallowed the assessee’s contention, holding that section 47(iv) was not applicable to it case as the transfer of business undertaking included transfer of stock-in-trade and the proviso to section 47(iv) excludes the operation of section 47(iv) in case capital asset is transferred as stock-in-trade. The Assessing Officer, accordingly, considered the surplus amount as capital gain on account of transfer of goodwill, since ‘C’ in its accounts had treated the same as goodwill. On appeal, the Commissioner (Appeals), while accepting the assessee’s contention, observed that no portion of the price could be attributed to stock-in-trade and held that the proviso to section 47(iv) had no application. The Commissioner (Appeals) further held that even assuming that the amount was on account of transfer of goodwill, the same could not be brought to tax as the transaction enjoyed exemption under section 47(iv). On the revenue’s appeal, the Tribunal upheld the order of the Commissioner (Appeals).
On revenue’s appeal to the High Court :
The Tribunal observed that for transfer of the said capital asset, consideration was not determined with reference to individual asset, but with reference to capitalized value of said business. It held that proviso to section 47(iv) and (v) is applicable only if in the hands of the ‘transferee’, the capital asset on its transfer constitutes ‘stock-in-trade’ and nothing had been brought on record by the revenue authorities at any stage to substantiate that such packaging coating business, on its transfer, had been accounted for in the books of ‘C’ as ‘stock-in-trade’. The Tribunal, therefore, held that since the entire paid-up capital of ‘C’ was held by the assessee, the transfer of the undertaking was squarely covered by the provisions of section 47(iv) and, therefore, no income under the head ‘Capital gains’ was assessable. There was no illegibility or irregularity in the order so passed by the Tribunal. Therefore, same was to be upheld. [Paras 7 and 8]