Industries Ltd v. Union Bank Of India Which Has Not Yetbeen Finally Decided By The Apex Court?

Form No.(J2) ORDER SHEETIN THE HIGH COURT AT CALCUTTACivil Appellate JurisdictionORIGINAL SIDE Present : The Hon'ble JUSTICE T. S. SIVAGNANAM And The Hon’ble JUSTICE HIRANMAY BHATTACHARYYA ITAT/39/2020 IA NO.GA/2/2020 (Old No.GA/1153/2020) PRINCIPAL COMMISSIONER OF INCOME TAX-3, KOLKATAVSM/S. EIH LTD. Heard on : 17.01.2022 Judgment on : 17.01.2022 Appearance:Mr. S.N. Dutta,Mr. Soumen Bhattacharjee, Advs.…for the appellant. Mr. J.P. Khaitan, Sr. Adv.,Mr.Soham Sen, Adv.,for the respondent. T.S. SIVAGNANAMM J. : This appeal of the revenue filedunder Section 260A of the Income Tax Act (the ‘Act’ in brevity) isdirected against the composite order dated 5[th] April, 2017 passed by the Income Tax Appellate Tribunal, A-Bench, Kolkata (the‘Tribunal’) in ITA No.1557/Kol/2011 and ITA No.1431/Kol/2011 forthe assessment year 2007-08. The revenue has raised the following substantial questions of law for consideration: (i)Whether on the facts and in the circumstances of thecase, the Learned Tribunal erred in law in deciding theappeal in favour of the assessee that surplus amount ofRs.31,33,05,072/- is covered an exchange under section2(47) of the Income Tax Act as against long term capitalgains under section 50B and section 2(42C) of the IncomeTax Act? (ii)Whether on the facts and in the circumstances of thecase, the Learned Tribunal erred in law in deleting thedisallowance of Rs.2,84,00,909/- being 60% of theaggregate expenditure incurred on running andmaintenance of aircrafts without considering that theaircrafts were also used for personal purpose of thedirectors? (iii)Whether on the facts and in the circumstances of thecase, the Learned Tribunal erred in law in deleting thedisallowance of Rs.2,59,33,450/- under section 40(a)(i) onaccount of professional and consultancy charges to non residence by ignoring the fact that such fees are subjectto tax in India under section 9(1) read with section 195 ofthe act? (iv)Whether on the facts and in the circumstances of thecase, the Learned Tribunal erred in law in deleting thedisallowance of Rs.84,57,149/- under section 40(a)(i) onaccount of advertisement publicity and sales promotion tonon resident by ignoring the fact that such expenses aresubject to tax in India under section 9(1) read withsection 195 of the act? (v) Whether on the facts and in the circumstances of thecase, the Learned Tribunal erred in law deleting thedisallowance of Rs.84,57,149/- under section 40(a)(i) onaccount of advertisement publicity and sales which wasreasonable considering the fact that the documents insupport of such expenses were not produced by the assesseebefore the assessing officer? (vi) Whether on the facts and in the circumstances of thecase, the Learned Tribunal erred in law in not deciding theissue relating to leave encashment on merits andmechanically remanded the matter back to the file of theassessing officer for reconsideration to base its decisionon the finding of the Supreme Court in the case of Exide Industries Ltd. Vs. Union Bank of India which has not yetbeen finally decided by the apex court? (vii)Whether on the facts and in the circumstances of the case, the Learned Tribunal erred in law in deleting thedisallowance of expenditure in respect of earning dividendincome & tax free interest on US 64 tax free bonds withoutappreciating the finding of the assessing officer whodisallowed 0.5% of average investment by applying rule 8Dof income tax rules and made disallowance of expenses undersection 14A? (viii)Whether on the facts and in the circumstances of thecase, the Learned Tribunal erred in law in deleting theaddition on account of interest amounting toRs.3,80,69,705/- being 12% of interest free advances givento subsidiary companies for non business purpose based onthe presumption that those advances were made by theassessee out of its own funds and not out of the borrowedfunds bearing interest? (vii)Whether on the facts and in the circumstances of the case, the Learned Tribunal erred in law in deleting thedisallowance of expenditure in respect of earning dividendincome & tax free interest on US 64 tax free bonds withoutappreciating the finding of the assessing officer whodisallowed 0.5% of average investment by applying rule 8Dof income tax rules and made disallowance of expenses undersection 14A? (viii)Whether on the facts and in the circumstances of thecase, the Learned Tribunal erred in law in deleting theaddition on account of interest amounting toRs.3,80,69,705/- being 12% of interest free advances givento subsidiary companies for non business purpose based onthe presumption that those advances were made by theassessee out of its own funds and not out of the borrowedfunds bearing interest? (ix)Whether on the facts and in the circumstances of thecase, the Learned Tribunal erred in law in deleting thedisallowance under section 40(a)(ia) of Rs. 13,68,50,370/-paid as commission to and sitting fees to directors of the company without deducting tax at source under section 194Hof the Income Tax Act? (x) Whether on the facts and in the circumstances of thecase, the Learned Tribunal erred in law in deleting thedisallowance under section 40(a)(i) of Rs.3,06,20,256/-paid as commission to non-resident by ignoring the factthat such commission are subject to tax in India undersection 9(1) read with section 195 of the Income Tax Act? (xi)Whether on the facts and in the circumstances of thecase, the Learned Tribunal erred in law in deleting thedisallowance under section 40(a)(i) of Rs.3,06,20,256/-paid as commission to non-resident by considering the factspertaining to such expenses were not produced by theassessee before the assessing officer? We have heard Mr. S.N. Dutta, learned standing counselassisted by Mr. Soumen Bhattacharjee, learned Counsel appearingfor the appellant/revenue and Mr. J.P. Khaitan, learned SeniorCounsel, assisted by Mr. Soham Sen, learned Counsel appearing forthe respondent/assessee. It is not disputed before us that the substantialquestions of law no.(ii), (iii), (iv), (v), (viii), (ix), (x) and(xi) have been answered against the revenue in the revenue’sappeal in the assessee’s own case for the assessment year 2008-09 in ITAT No.34 of 2020 dated 16[th] December, 2021. Thus, followingthe said decision, the said questions of law are answered againstthe revenue.So far as the substantial question of law no.(vi) isconcerned, we find that the Tribunal has remanded the matter for afresh decision after taking note of the decision of the Hon’bleSupreme Court. Thus, we find that there is no question of lawarising for consideration on the said issue and hence, the saidquestion of law no.(vi) is rejected. So far as the substantialquestion of law no.(vii) is concerned, we have carefully perusedthe findings recorded by the Tribunal in paragraph 7.2.1 and 7.2.2of its order. We find that after analysing the factual position,relief has been granted to the assessee. Thus, we find that noquestion of law much less the substantial question of law assuggested would arise for consideration in so far as the questionof law no.(vi) is concerned and the same stands rejected. Thisleaves us only with substantial question of law no.(i). Thediscussion on this issue in the order passed by the Tribunalcommences from paragraph 2.2 of the impugned order. The Tribunalafter considering the factual position noted that the factualsituation which is not in dispute is that the transfer of capitalassets is within the meaning of Section 2(47) in the form oftransfer of two undertakings, the consideration is a lumpsumpayment, the consideration is not attributable to any identifiable assets of the undertaking transferred by assigning individualvalues and the consideration is settled to the assessee byissuance of preference shares and debentures in EIH AssociatedLimited. After noting these facts, the Tribunal has considered thedefinition of slump sale as defined under Section 2(42C) of theAct as it stood then. The Tribunal then took note of the decisionof the Hon’ble Supreme Court in the case of CIT Vs. R.R.Ramakrishna Pillai, reported in (1967) 66 ITR 725 (SC).Thereafter, it took into consideration the definition of thetransfer as defined under Section 2(47) of the Act and noted thatin the assessee’s case transfer is by way of exchange, that is, byissuance of preference shares and debentures in EIH AssociatedLimited.The Tribunal took note of the argument of the assesseewith regard to computation of capital gains and found that therecannot be any controversy that each of the specified hotels is anundertaking and, therefore, constituted a long term capital asset.Further, the Tribunal took note that it is not in dispute that thetransfer of the business undertaking as a going concernconstitutes transfer of capital asset. Reliance was placed on thedecision of the Hon’ble Supreme Court in the case of CIT vs. B.C.Srinivasa Setty, reported in (1981) 128 ITR 294 (SC) and on factsfound that the two specified hotels which were transferred asgoing concerns by way of exchange of shares and debentures, the cost of acquisition of the undertaking and the date of suchacquisition cannot be ascertained and in such a case, such atransfer cannot be brought within the purview of Section 45 of theAct. The Tribunal proceeded to take note of the decision of theHigh Court of Bombay in the case of CIT Vs. Bharat Bijlee Limited,reported in (2014) 365 ITR 258 (Bom) and granted relief to theassessee by observing that two specified hotels of the assesseewere transferred to EIH Associated Limited for consideration ofRs.78,99,26,100/- to be settled by issuance of preference sharesand debentures were a transfer of capital by way of exchange and,therefore, the provisions of Section 50B of the Act cannot be madeapplicable to the facts of the case on hand. We find that thefinding recorded by the Tribunal to be perfectly right. In fact,the Tribunal rightly took note of the decision in the case of R.R.Ramakrishna Pillai (supra) where it has been held as follows : “A transaction by which a person carrying on businesstransfers the assets of that business to another assessableentity may take different forms and may have different legaleffect. The assets of a business may be sold at a fixed priceto a company promoted by a person who carried on thebusiness! if the price paid for or attributable to an assetexceeds the written down the value of the asset, proviso 2 tosection 10(2)(vii) would ex facie be attracted. Where theperson carrying on the business transfers the assets to acompany in consideration of allotment of shares, it would bea case of exchange and not of sale, and the true nature ofthe transaction will not be altered, because for the purpose of stamp duty or other reasons the value of assetstransferred is shown as equivalent to the face value of theshares allotted. A person carrying on business may agree witha company floated by him that the assets belonging to himshall be transferred to the company for a certain moneyconsideration and that in satisfaction of the liability topay that money consideration, shares of a certain face valueshall be allotted to the transferor. In that case there arein truth two transactions – one a transaction of sale and theother a contract under which shares are accepted insatisfaction of the liability to pay the price”. of stamp duty or other reasons the value of assetstransferred is shown as equivalent to the face value of theshares allotted. A person carrying on business may agree witha company floated by him that the assets belonging to himshall be transferred to the company for a certain moneyconsideration and that in satisfaction of the liability topay that money consideration, shares of a certain face valueshall be allotted to the transferor. In that case there arein truth two transactions – one a transaction of sale and theother a contract under which shares are accepted insatisfaction of the liability to pay the price”. That apart, we took note of the submissions of thelearned Senior Counsel for the respondent/assessee that thedefinition of slump sale as defined under Section 2(42C) wasamended with effect from 1[st] April, 2021. The unamended provisiondefined slump sale to mean transfer of one or more undertaking asa result of sale. By Finance Act, 2021 the amendment made was bydefining slump sale to mean the transfer of one or moreundertaking by any means. This significant change by way ofamendment would also aid the case of the assessee and wouldconvince us to uphold the finding of the Tribunal. For the above reasons, the substantial question of lawno.(i) is answered against the revenue. In the result, thesubstantial question of law nos. (ii), (iii), (iv), (v), (viii),(ix), (x) and (xi) are answered against the revenue following thedecision in ITAT No.34 of 2020 dated 16[th] December, 2021 in the assessee’s own case for the assessment year 2008-09. Thesubstantial question of law no.(vi) is concerned, this is not aquestion of law since the matter has been remanded to theassessing officer to decide the matter afresh. So far as thesubstantial question of law no.(vii) is concerned, we affirm thefinding of the Tribunal on facts and, accordingly, the saidquestion stands decided against the revenue. For the reasons assigned in the preceding paragraphs, thesubstantial question of law no.(i) is answered against therevenue. In the light of the above, the appeal (ITAT 39/2020)fails and is hereby dismissed. With the dismissal of the appeal, the stay application(GA/2/2020) stand closed. (T. S. SIVAGNANAM, J.) I agree. (HIRANMAY BHATTACHARYYA, J.) S.Das/S. Ghosh