Itxa/1866/2017 Of Pr. Commissioner Of Income Tax-14 v. Aditya Birla Telecom Ltd

PURTIPRASADPARAB Digitally signed byPURTI PRASAD PARABDate: 2022.03.1017:45:25 +0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 1866 OF 2017 Principle Commissioner of Income Tax – 14 V/s.Aditya Birla Telecom Ltd. ….Appellant …Respondent ---- Mr. Suresh Kumar for Appellant.Mr. J.D. Mistri, Senior Advocate a/w Mr. Madhur Agrawal i/b Mr. Atul K. Jasani for Respondent. ---- CORAM : K.R. SHRIRAM & N. J. JAMADAR, JJ. DATED : 3[rd] MARCH, 2022 P.C. : 1.Appellant has proposed following substantial questions of law QUESTION OF LAW 1.Whether on the facts and circumstances of the case and inlaw, the ITAT was correct in holding that a sum ofRs.5621,28,25,486/- is not liable to capital gains tax as ashort term capital gain. 2.Whether on the facts and circumstances of the case and inlaw, the ITAT was correct in holding that a demerger of theappellants telecom undertaking to Idea Cellular Ltd. (ICL) itsholding company, no liability arose under the Income Tax Act,1961. 3.Any other question may be added by the AO. 2. Assessee was a wholly owned subsidiary of Idea Cellular Limited (ICL) with effect from 28[th] February, 2007. Assessee had obtained a Unified Access Services License in November, 2006 for providing telecom services in Bihar (including Jharkhand) service area. During the subject F.Y.assessee filed a Scheme of Arrangement under Section 391 to 394 of theCompanies Act, 1956 in the Bombay High Court as well as Gujarat HighCourt for demerging to ICL. Under the said scheme, assessee hadtransferred all the assets and liabilities under the telecom undertaking toICL without any consideration. The said scheme of arrangement wasapproved by the High Court on 2[nd] December, 2009 and 22[nd] January, 2010and the effective date was declared as 1[st] March, 2010. In terms of scheme,assessee also revalued its investment in Indus, an asset separate fromdemerged undertaking and business restructuring reserve was created.During the course of assessment proceedings, the Assessing Officer issuednotice asking to show cause why the demerger under the said scheme shouldnot be treated as a transfer for the purposes of Section 45 of the Income TaxAct, 1961 (the Act) and be taxed as capital gains. 3.Assessee gave its submissions and in short submitted that underthe Scheme of Arrangement, assessee transferred all the assets and liabilitiesof the telecom undertaking to ICL without any consideration and whenthere is no consideration there can be no capital gains. Without going intofurther details the Assessing Officer come to a conclusion that revaluation ofassets of assessee in Indus should be the assets and liabilities of the telecomundertaking to ICL and capital gains to paid thereof. 4.This order of CIT(A) was upheld and assessee preferred anappeal before the ITAT. The ITAT set aside the order of the CIT(A) andcome to a conclusion that one of the ingredients for computation for capitalgains is consideration and since no consideration has been paid or receivedby assessee no capital gains would be proposed to be of assessee. 5.We cannot find error with the conclusion of the ITAT that sincethere is no consideration for transfer of a capital asset, the capital gainscomputation mechanism fails and thus no capital gains tax can be levied onsuch transfer. 6.In the case of transfer of capital asset, what can be taxed in thehands of the seller under the Act is real or actual gain that accrues/arisesfrom transfer of the assets and hence, in absence of any sale consideration(resultant profit from such transfer) no notional gain can be imputed in thehands of the seller to tax such transfer. 5.We cannot find error with the conclusion of the ITAT that sincethere is no consideration for transfer of a capital asset, the capital gainscomputation mechanism fails and thus no capital gains tax can be levied onsuch transfer. 6.In the case of transfer of capital asset, what can be taxed in thehands of the seller under the Act is real or actual gain that accrues/arisesfrom transfer of the assets and hence, in absence of any sale consideration(resultant profit from such transfer) no notional gain can be imputed in thehands of the seller to tax such transfer. 7.Even the Assessing Officer taking the revaluation of assets inIndus as valuation for transfer of undertaking is incorrect. The AssessingOfficer has failed to understand that carrying out such revaluation andpassing accounting entry by assessee in its books of account does notrepresent any consideration whatsoever received from ICL or any thirdperson towards transfer taken by ICL. 8.We have to also note that Section 50D of the Act which providesfor fair market value deemed to be full value of consideration in certaincases has been inserted by the Finance Act, 2012. For the Assessment Year2013-14 Section 50D provides for consideration where the considerationreceived or accruing as a result of the transfer of a capital asset by anassessee is not ascertainable or cannot be determined. Even that cannot beapplied because in the subject case it relates to assessment year 2010-11. 9.In our view, the Tribunal has not committed any perversity orapplied incorrect principles to the given facts and when the facts andcircumstances are properly analysed and correct test is applied to decide theissue at hand, then, we do not think that question as pressed raises anysubstantial question of law. The appeal is devoid of merits and dismissed with no order asto costs. (N. J. JAMADAR, J.) (K.R. SHRIRAM, J.)