Https://Hcservices.ecourts.gov.in/Hcservices v. Aggrieved By The Said Order Of The Commissioner Of Income Tax(Appeals), The Revenue Pursued The Matter Before The Tribunal. Thetribunal, By A Brief Order, Confi

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 11.03.2015 Coram The Honourable Mr.Justice R.SUDHAKARandThe Honourable Mr.Justice R.KARUPPIAH Tax Case (Appeal) No.118 of 2015 Commissioner of Income TaxChennai. .... Appellant/Appellant-vs- M/s. STADS Ltd.No.74, Shop No.4/1, Basement,Penna Plaza, Arcot Road,Kodambakkam,Chennai - 600 024.PAN: ...Respondent/Respondent APPEAL filed under Section 260 A of the Income Tax Act againstthe order dated 03.09.2014 made in I.T.A.No.1694/Mds/2014 on the fileof the Income Tax Appellate Tribunal, Chennai "A" Bench for theassessment year 2003-04. against the Order of the Commissioner of Income Tax(Appeals)-VI,Chennai - 34 dated 28.02.2014 and made in ITA No.1217/13-14/A-VI forthe Assessment Year 2003-04 against the Order of the AssistantCommissioner of Income Tax, Company Circle VI(4) Chennai -34 dated31.12.2010 and made in PAN/GIR NO. for the Assessment Year2003-04. For Appellant : Mr.T.RavikumarStanding CounselJ U D G M E N T(Delivered by R.SUDHAKAR, J.) This Tax Case (Appeal) is filed by the Revenue as against theorder of the Income Tax Appellate Tribunal raising the followingsubstantial question of law: https://hcservices.ecourts.gov.in/hcservices/ "Whether in the facts and circumstances of the case,the Tribunal was right in holding that the amountstransferred by the assessee company to the General Reserveon amalgamation is not in the nature of any benefit orperquisite and thus not taxable under Section 28(iv) of theIncome Tax Act, 1961?" 2. The brief facts of the case are as follows: The assessee is engaged in the business of software developmentand sale of developed software packages. During the financial year2002-03, four companies, viz., M/s.I-Triger Technologies Ltd.,M/s.Web-net Technologies Ltd., M/s.Linus and M/s.Himachal FuturisticCommunications Ltd., had amalgamated with the assessee company and asum of Rs.2,16,88,220/- had been reflected as reserves and surplus inthe balance sheet. The assessee company filed its return of incomefor the assessment year 2003-04 on 01.12.2003. Since the assesseedid not respond to the notice issued under Section 148 of the IncomeTax Act, field enquiries were conducted and based on the reportreceived from the Inspector of Income Tax, the Assessing Officercompleted the assessment under Section 144 of the Income Tax Act videorder dated 31.12.2010 bringing a sum of Rs.2,16,88,220/- to tax interms of Section 28(iv) of the Income Tax Act. 3. Aggrieved by the said order, the assessee preferred an appealbefore the Commissioner of Income Tax (Appeals), who allowed theappeal, after calling for a remand report from the Assessing Officer,holding as follows: "5.5. I have considered the findings of the AO, theremand report and also the submissions made by the AR of theappellant and also the judicial pronouncements cited by theAR of the appellant on this issue. I have also perused theorder of the High Court of Madras dated 10.3.2003 approvingthe scheme of amalgamation of the three transferor companiesviz., M/s. I.Trigger Technologies (P) Ltd., M/s.WebTechnologies (P) Ltd., Linus Solutions (P) Ltd. withtransferee comapny viz., M/s.System Telecom and DataServices (P) Ltd. (the Stad Ltd.) and also the details ofcombined share capital of the four companies prior toamalgamation and post amalgamation. As per the detailsprovided by the appellant, the combined share capital of thefour companies before the amalgamation was Rs.3,04,48,600/-and equity share capital of the company post amalgamationwas Rs.87,60,380/- and the difference was Rs.2,16,88,220/-.It was explained by the AR of the appellant that thedifference of Rs.2,16,88,220/- was the amalgamation reserve.From the above facts and circumstances of the case, I findthat the nature of the receipt ie., amalgamation reserve is not on account of any normal business transaction or revenuetransactions. The nature of the receipt is a capitalreceipt which arose on account of the amalgamation of thecompanies. The ratio of the decision rendered by ITAT,Calcutta Bench, cited by the AR of the appellant in the caseof ITO v. Shreyans Investments (P) Ltd. in IT Appeal No.1485(Kol)/2011 dated 6.3.2013 is fully applicable to the factsof the present case. The capital receipt is also nottaxable under the head Capital Gains in view of the section47(iv) of the I.T.Act. Under the facts and circumstances ofthe case and legal position I am of the view that theaddition made by the AO requires to be deleted. Hence theAO is directed to delete an amount of Rs.2,16,88,220/-." 4. Aggrieved by the said order of the Commissioner of Income Tax(Appeals), the Revenue pursued the matter before the Tribunal. TheTribunal, by a brief order, confirmed the order of the Commissionerof Income Tax (Appeals). 5. As against the said order of the Tribunal, the Revenue onceagain pursued the matter before this Court by filing the presentappeal. 6. Heard Mr.T.Ravikumar, learned Standing Counsel appearing forthe appellant and perused the materials placed before this Court. 7. It is seen that by order dated 10.3.2003, this Court approvedthe scheme of amalgamation of three transferor companies, viz., M/s.I.Trigger Technologies (P) Ltd., M/s.Web Technologies (P) Ltd., LinusSolutions (P) Ltd. with transferee company viz., M/s.System Telecomand Data Services (P) Ltd. (the Stad Ltd.), who is theassessee/respondent herein. In the scheme of amalgamation, thedetails of the combined share capital of the four companies prior tothe amalgamation and post amalgamation was explicitly given. Basedon the same, the assessee claimed that the combined share capital ofthe four companies before amalgamation was Rs.3,04,48,600/- andequity share capital of the company post amalgamation wasRs.87,60,380/- and the difference was Rs.2,16,88,220/-. The assesseeshowed the said difference under the category "reserves and surplus"in the balance sheet. 8. The Department took a view that it is a profit and gains orprofession, more particularly it is a value of benefit or perquisitearising from business or exercise of profession. But theCommissioner of Income Tax (Appeals), set aside the view of theDepartment, which the Tribunal has confirmed by a one line order.Probably, that prompted the Revenue to pursue the matter before thisCourt forcing us to write more explicitly and detailed order on the https://hcservices.ecourts.gov.in/hcservices/ interpretation of Section 28(iv), which Sri.T.Ravikumar, learnedStanding Counsel wants us to interpret in the present case. 9. The short point that arise for consideration in this appealis whether the amalgamation reserve consequent to the merger of fourcompanies would fall within the ambit of profits and gains ofbusiness or profession, more particularly under Section 28(iv) of theIncome Tax Act. 10. Since the issue revolves around Section 28(iv) of the IncomeTax Act, it is necessary to extract the same herein for betterclarity. "Profits and gains of business or profession.28. The following income shall be chargeable to income-taxunder the head “Profits and gains of business orprofession”,—(i).....(ii)....(iii)....(iv) the value of any benefit or perquisite, whetherconvertible into money or not, arising from business orthe exercise of a profession ;" 9. The short point that arise for consideration in this appealis whether the amalgamation reserve consequent to the merger of fourcompanies would fall within the ambit of profits and gains ofbusiness or profession, more particularly under Section 28(iv) of theIncome Tax Act. 10. Since the issue revolves around Section 28(iv) of the IncomeTax Act, it is necessary to extract the same herein for betterclarity. "Profits and gains of business or profession.28. The following income shall be chargeable to income-taxunder the head “Profits and gains of business orprofession”,—(i).....(ii)....(iii)....(iv) the value of any benefit or perquisite, whetherconvertible into money or not, arising from business orthe exercise of a profession ;" 11. A plain reading of the above-said provision makes it clearthat the amount reflected in the balance sheet of the assessee underthe head 'reserves and surplus' cannot be treated as a benefit orperquisite arising from business or exercise of profession. Thedifference amount post amalgamation was the amalgamation reserve andit could not be said that it is out of normal transaction of thebusiness. The present transaction is capital in nature arose onaccount of amalgamation of four companies. Hence, we have nohesitation to hold that the manner in which the Revenue wants totreat this amount is not in consonance with Section 28(iv) of theIncome Tax Act. 12. In the result, the order of the Tribunal stands confirmedand this Tax Case (Appeal) stands dismissed. No costs. Sd/- Assistant Registrar To 1. The Income Tax Appellate Tribunal, Chennai "A" Bench 2. The Commissioner of Income Tax (Appeals), VI, Chennai. 3. The Assistant Commissioner of Income Tax, Company Circle VI(4), Chennai. Chennai. 1 cc to Mr. T.Ravikumar,Advocate, SR.No.13562 T.C.(A) No.118 of 2015 jsv(co)pmk.10.4.2015