Ambalal Sarabhai Enterprises Ltd v. Asstt. Commissioner Of Income Tax....opponent(S)======================================

O/TAXAP/655/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 655 of 2006 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI Sd/- andHONOURABLE MR.JUSTICE K.J.THAKERSd/- ====================================== 1 Whether Reporters of Local Papers may be allowed to see the Nojudgment ?judgment ? 2 To be referred to the Reporter or not ?No 3 Whether their Lordships wish to see the fair copy of the Nojudgment ?judgment ? 4 Whether this case involves a substantial question of law as to Nothe interpretation of the Constitution of India, 1950 or any order made thereunder ?the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ?No ====================================== AMBALAL SARABHAI ENTERPRISES LTD.....Appellant(s) Versus ASSTT. COMMISSIONER OF INCOME TAX....Opponent(s)====================================== Appearance: MR RK PATEL, ADVOCATE for the Appellant(s) No. 1MR KM PARIKH, ADVOCATE for the Opponent(s) No. 1 ====================================== CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 09/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1.By way of this appeal, the appellant has challenged the judgment order dated 24[th] June 2005 passed by Income Tax Appellate Tribunal, Ahmedabad, in ITA No.199/AHD/2001, whereby the tribunal has confirmed the order of Commissioner of Income Tax (Appeals). 2.The brief facts leading to the filing of the present appeal are as follows: 2.1The appellant is a public limited company engaged in the business of manufacture and marketing of various pharmaceutical preparations, life saving drugs, bulk drugs and formulations and scientific and electronic instruments/equipments. Appellant was assessed by the Assistant Commissioner of Income Tax, Circle 1, Baroda. For the Assessment Year under appeal 1987-88, appellants had filed return of income under Section 139 (1) of the Income Tax Act declaring loss of Rs.10,68,17,294/-. A regular assessment under Section 143 (3) was made by the Assessing Officer vide order dated 30.3.1990 determining total income at a positive amount of Rs.8,49,43,731/-. The appellant challenged said assessment order before the Commissioner of Income Tax (Appeals)-I, Baroda, who vide order dated 26.12.1990 partly allowed the appeal and remanded the matter to Assessing Officer. After remand, the Assessing Officer passed order dated 19.3.1993 disallowing appellant's claim of long term capital loss on transfer of electronic undertaking and assessed long term capital gain of Rs.50,56,240/-. 2.2Aggrieved by the said order, the appellant filed an appeal before the Commissioner of Income Tax (Appeals), who vide order dated 17.11.1993 confirmed the rejection of appellant's claim of long term capital loss on transfer of their electronic undertaking and also confirmed assessment of long term capital gain of Rs.50,56,240/-. The appellant challenged such decision before Income Tax Appellate Tribunal. However, the tribunal also upheld the order of CIT (A). Being aggrieved by said order, the appellant has preferred present appeal. 3.While admitting this appeal on 15.1.2008, this Court has framed the following question of law. “Whether in the facts and circumstances of the case the Tribunal has erred in law in holding that the appellant is liable to Capital Gains of Rs.50,58,240/- instead of Long Term Capital Loss of Rs.3,07,69,120/-?” capital loss on transfer of their electronic undertaking and also confirmed assessment of long term capital gain of Rs.50,56,240/-. The appellant challenged such decision before Income Tax Appellate Tribunal. However, the tribunal also upheld the order of CIT (A). Being aggrieved by said order, the appellant has preferred present appeal. 3.While admitting this appeal on 15.1.2008, this Court has framed the following question of law. “Whether in the facts and circumstances of the case the Tribunal has erred in law in holding that the appellant is liable to Capital Gains of Rs.50,58,240/- instead of Long Term Capital Loss of Rs.3,07,69,120/-?” 4.Heard learned advocates appearing on both the sides. Counsel for the appellant tried to convince us that this is pursuant to the scheme of arrangement which was approved by the court of competent jurisdiction. He submitted that the appellant is entitled to and have received consideration of Rs.3,73,74,640/- and not Rs.7,32,00,000/- as held by the lower authorities. He also submitted that considering the consideration received by the appellant there is a long term capital loss of Rs.3,07,69,120/- (Rs.6,81,43,760/- Cost of Undertaking minus Rs.3,73,74,640/- consideration received) and there is no long term capital gain of Rs.50,56,240/- as assessed by the authorities. 4.On the other hand, counsel for the respondent supported the impugned order and submitted that there is no error committed by the tribunal. Therefore, this Honourable Court may not interfere with the impugned order and prayed to dismiss the present appeal. 5.Considering the submissions made by the learned advocates and considering the record, we find that pursuant to the Scheme as sanctioned by the High Court, the Electronic Undertaking has vested in SEL (Sarabhai Electronics Limited) for a sum of Rs.7,32,00,000/-. Therefore, the fact remains that the undertaking has ceased to be an asset of the appellant and it is not correct to state that the face value of the shares issued by SEL to the shareholders of the appellant company in terms of the scheme should be excluded. We are of the view that both the authorities while considering the question involved in the matter has rightly considered the actual cost, which is shown by the assessee to be Rs.6,81,43,760/-, and the same was not considered as a loss. Therefore, we are of the view that the authorities have rightly taken into consideration the amount of Rs.50,56,240/- (Rs.7,32,00,000/- minus Rs.6,81,43,760/-) as capital gain because it is immaterial that part of the sale consideration was received by the appellant and part was given to the shareholders by way of allotment of shares. Therefore, the issue is answered against the assessee and in favour of the department. 6.In view of above discussion, we are in complete agreement with the view taken by the Commissioner of Income Tax (Appeals) as well as the Income Tax Appellate Tribunal. Therefore, the question of law raised in this appeal is answered in favour of the revenue and against the assessee. Accordingly, this appeal is dismissed. Sd/-(K.S.JHAVERI, J.) *malek Sd/-(K.J.THAKER, J)