Tax Case Appeal v. The Commissioner Of Incometax, Nehru Inner Ring Road, Annanagar Western Extension, Chennai-101

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR. JUSTICE T.S.SIVAGNANAMANDTHE HONOURABLE MRS. JUSTICE PUSHPA SATHYANARAYANA TAX CASE APPEAL NO.673 OF 2018(heard through video conferencing) M/s.Areva T & D India Ltd.,Now known as M/s.GE T & D IndiaLtd., rep.by its Authorized Signatory Mr.S.SivaramakrishnanChennai (cause title accepted vide order of court dated17.7.2018 made in CMP.No.11866 of 2018 inTCA.SR.No.29825 of 2018 By IBCJ & PTAJ) ...Appellant Vs The Commissioner of IncomeTax, Nehru Inner Ring Road, AnnaNagar Western Extension, Chennai-101. ...Respondent APPEAL under Section 260A of the Income Tax Act, 1961against the order dated 27.11.2017 made in ITA.No.668/Mds/ 2011on the file of the Income Tax Appellate Tribunal, Chennai ‘B’Bench for the assessment year 2006-07, as against the order ofthe Commissioner of Income Tax(Appeals), Large Tax Payer Unit,Chennai in ITA.No.79/09-20/LTU(A) dated 31/01/2011 as againstthe order of the Deputy Commissioner of Income Tax Large TaxPayer Unit, Chennai in GIR No/PAN No. dated 29/12/2009for the Assessment year 2006-07. This appeal by the assessee filed under Section 260A ofthe Income Tax Act, 1961 (for short, the Act) is directedagainst the order dated 27.11.2017 made in ITA.No.668/Mds/2011 Page numbers https://hcservices.ecourts.gov.in/hcservices/ on the file of the Income Tax Appellate Tribunal, Chennai ‘B’Bench (for brevity, the Tribunal) for the assessment year 2006-07. 2. The appeal has been admitted on 20.11.2018 on thefollowing substantial questions of law : “i. Whether the Tribunal wascorrect in holding that the transfer ofappellant’snontransmissionanddistribution business valued at Rs.41.3Crores in exchange of issuance andallotment of equity shares under a schemeof arrangement approved by the CalcuttaHigh Court under Sections 391 and 393 ofthe Companies Act, 1956 is a slump sale andexigible to capital gain tax under Section50B of the Income Tax Act, 1961 ? andii. Whether, in the facts andcircumstances of the present case, thefinding of the Tribunal is clearly in teethwith law declared by the Bombay High Courtin CIT Vs. Bharat Bijlee Ltd. [reported in(2014) 365 ITR 258]? ” 3. We have elaborately heard Mr.Tushar Jarwal, learnedcounsel appearing on behalf of Mr.Karthik Sundaram, learnedcounsel appearing for the appellant – assessee andMrs.R.Hemalatha, learned Senior Standing Counsel appearing forthe respondent – Revenue. 4. The assessee filed its return of income for theassessment year under consideration namely 2006-07 on 29.11.2006declaring a total income of Rs.100,84,51,266/-. Subsequently,the assessee filed a revised return of income on 31.3.2008declaring a total income of Rs.100,35,99,280/-. The returns wereprocessed as per the provisions of Sub-Section (1) of Section143 of the Act. The case was selected for scrutiny and a noticeunder Section 143(2) of the Act was issued on 05.10.2007. Thecase was transferred to the Large Taxpayer Unit (LTU) and anopportunity of being heard was provided to the assessee byissuance of a notice under Sections 143(2) and 142(1) of the Actand subsequently on 28.7.2008. 5. Though there were several issues, which were thesubject matter of assessment, in this appeal, we are concernedwith the disallowance under Section 54EC of the Act. 6. During the course of scrutiny assessment, aquestionnaire was issued to the assessee calling for certain Page numbers https://hcservices.ecourts.gov.in/hcservices/ 5. Though there were several issues, which were thesubject matter of assessment, in this appeal, we are concernedwith the disallowance under Section 54EC of the Act. 6. During the course of scrutiny assessment, aquestionnaire was issued to the assessee calling for certain Page numbers https://hcservices.ecourts.gov.in/hcservices/ clarifications. The assessee, by their letter dated 23.7.2009,stated that they had transferred their non Transmission andDistribution business (non T & D business) to their subsidiarycompany namely M/s.Alstom Industrial Products Limited and thatthe entire non T & D business was transferred for a totalconsideration of Rs.413 million being the fair value of the nonT & D business as determined by the valuers by their jointreport dated 05.1.2006. The assessee further stated that the networth of the undertaking worked out to Rs.29,33,04,531/-, thatthe capital gains arising out of the transfer worked out toRs.11,96,95,469/-, that after setting off the long term capitalloss of the earlier years amounting to Rs.1,78,27,854/-, thetaxable capital gains for the assessment year worked out toRs.10,18,67,615/- and that the assessee did not pay any capitalgains tax since the entire capital gains were to be invested inTax Savings Bonds as notified under Section 54EC of the Act. 7. Without prejudice to the above mentioned submissions,with regard to exemption from capital gains tax under theprovisions of Section 54EC of the Act, the assessee stated thatthe transfer should not suffer any capital gains tax at all,referred to Section 50B of the Act and relied upon the decisionof the Mumbai Bench of the Tribunal in the case of Avaya GlobalConnect Ltd. Vs. ACIT, Mumbai [reported in 2008-TIOL-415-ITAT-MUM]. 8. The assessee further stated that in their case also,the transfer of non T & D business was by way of a scheme ofarrangement under Sections 391 and 394 of the Companies Act andcould not be considered as a ‘sale of business’ and that anytransfer of an undertaking otherwise than as a result of salewill not qualify as a slump sale and thus, the provisions ofSection 50B of the Act could not be applied to their case. 9. The Assessing Officer considered the said submissionsand held that the assessee had agreed that the transfer of thenon T & D business to its subsidiary was a transfer as per theprovisions of Section 50B of the Act, that the assesseeapproached the relevant Bond Issuing Authorities for the purposeof Section 54EC of the Act in order to claim deduction on thesame and that since the bond required by the assessee was notallocated to the assessee as per the amendment to Section 54ECof the Act, the assessee had not invested the said amount duringthe current year. It has been further stated that challengingthe Notification of the Government dated 22.12.2006, before thisCourt, the assessee filed a writ petition, which was dismissedand the special leave petition filed before the Hon’ble SupremeCourt was also dismissed on 04.5.2009 vide SLP.No.9694 of 2009. Page numbers Page numbers 10. Thus, the Assessing Officer concluded that the assesseethemselves having agreed that the transfer fell under theprovisions of Section 50B of the Act, the claim of the assesseethat the same should not be regarded as transfer as per the saiddecision of the Mumbai Bench of the Tribunal in the case ofAvaya Global Connect Ltd., could not be accepted. The AssessingOfficer stated that the assessee had not claimed the same duringthe original return as well as in their revised return, that interms of the decision of the Hon’ble Supreme Court in the caseof M/s.Goetze India Ltd. Vs. CIT [reported in (2006) 284 ITR323], the claim should be made by filing the return of income orby filing revised return of income, that since the assessee hadnot claimed the same by way of return of income, the submissionof the assessee could not be accepted. Accordingly, theAssessing Officer taxed the assessee on the long term capitalgains by way of slump sale of its non T & D business as per theprovisions of Section 50B of the Act and the assessment wascompleted by order dated 29.12.2009. 11. Aggrieved by the said order of assessment, the assesseepreferred an appeal before the Commissioner of Income Tax(Appeals), LTU, Chennai-101 [hereinafter called the CIT(A)] andit was dismissed by order dated 31.1.2011 virtually on the samelines as done by the Assessing Officer, in effect, holding thatthe assessee was stopped from now raising the plea that thetransfer of non T & D business was not a transfer by way ofslump sale and that the argument that the provisions of Section50B of the Act would have no application could not be accepted. 12. As against the said order passed by the CIT(A), theassessee preferred further appeal before the Tribunal and it wasalso dismissed by the impugned order. The Tribunal opined thatthe transfer of the non T & D business to the assessee’ssubsidiary company was a transfer under Section 50B of the Actas claimed by the assessee themselves; that the assessee madethis claim neither in the return nor in the revised return; thatthe scheme of arrangement showed that the value of the netassets of the non T & D business had been determined at Rs.31.3Crores, that the consideration of the transfer had beenspecified in the said scheme at Rs.41.3 Crores and that therewas a difference of Rs.10 Crores, which had not been explainedby the assessee. The Tribunal further held that though theassessee mentioned that the valuation was as per the valuationdone by the accountants, still the valuation arrived at by theaccountants was to an extent of Rs.41.70 Crores and even thatwas not the consideration for the transfer because as per thescheme, the consideration of the transfer was shown as Rs.41.30Crores. The Tribunal also held that a perusal of the scheme of Page numbers arrangement showed that the term used was ‘consideration for thetransfer’ and the word ‘exchange’ was not used and that therewas no error in the finding of the Assessing Officer or even theCIT(A). 13. The issue, which falls for consideration, is as towhether the transfer of the non T & D business of the assesseeto its subsidiary by a scheme of arrangement as approved by theHigh Court of Calcutta in C.P.No.164 of 2006 dated 22.3.2006could be brought under Section 50B of the Act. This provision isa special provision for computation of capital gains in case ofslump sale. The assessee was non-suited primarily on the groundthat they had accepted the transfer to be a sale falling withinthe provisions of Section 50B of the Act, as the assesseeapproached the Bond Issuing Authorities for investment incertain bonds in terms of Section 54EC of the Act to avoidpayment of capital gains tax. 13. The issue, which falls for consideration, is as towhether the transfer of the non T & D business of the assesseeto its subsidiary by a scheme of arrangement as approved by theHigh Court of Calcutta in C.P.No.164 of 2006 dated 22.3.2006could be brought under Section 50B of the Act. This provision isa special provision for computation of capital gains in case ofslump sale. The assessee was non-suited primarily on the groundthat they had accepted the transfer to be a sale falling withinthe provisions of Section 50B of the Act, as the assesseeapproached the Bond Issuing Authorities for investment incertain bonds in terms of Section 54EC of the Act to avoidpayment of capital gains tax. 14. The first aspect, which we need to consider, is as towhether the assessee was estopped from raising the contention byway of an alternate plea. The fundamental legal principle isthat there is no estoppel in Taxation Law. It is beneficial torefer to the decision of the Division Bench of the Delhi HighCourt in the case of CIT Vs. Bharath General Reinsurance Co.Ltd. [reported in (1971) 81 ITR 303]. The relevant portion ofthe decision of the Delhi High Court reads thus:“It is true that the assessed itselfhad included that dividend income in itsreturn for the year in question but there isno estoppel in theIncome-tax Actand theassessed having itself challenged thevalidity of taxing the dividend during theyear of assessment in question, it must betaken that it had resoled from the positionwhich it had wrongly taken while filing thereturn. Quite apart from it, it is incumbenton the income-tax department to find outwhether a particular income was assessablein the particular year or not. Merelybecause the assessed wrongly included theincome in its return for a particular year,it cannot confer jurisdiction on thedepartment to tax that income in that yeareven though legally such income did notpertain to that year. We are, therefore, ofthe view that the income from dividend wasnot assessable during the assessment year1958-59 but it was assessable in the Page numbers assessment year 1953-54. It cannot,therefore, be taxed in the assessment year1958-59.” 15. Therefore, in our considered view the AssessingOfficer, the CIT(A) and the Tribunal committed a fundamentalerror in shutting out the contention raised by the assesseesolely on the ground that the assessee approached the BondIssuing Authorities for availing the benefit under Section 54ECof the Act. A careful reading of the submissions made by theassessee before the Assessing Officer would make things furtherclear. The first contention raised by the assessee was that theyhad transferred the non T & D business to its subsidiary andthat the total consideration of Rs.413 million was the fairvalue of the non T & D business, which was determined by a jointvaluation report prepared by M/s.Bansi S.Mehta & Co. andM/s.N.M.Raiji & Co., dated 05.1.2006. 15. Therefore, in our considered view the AssessingOfficer, the CIT(A) and the Tribunal committed a fundamentalerror in shutting out the contention raised by the assesseesolely on the ground that the assessee approached the BondIssuing Authorities for availing the benefit under Section 54ECof the Act. A careful reading of the submissions made by theassessee before the Assessing Officer would make things furtherclear. The first contention raised by the assessee was that theyhad transferred the non T & D business to its subsidiary andthat the total consideration of Rs.413 million was the fairvalue of the non T & D business, which was determined by a jointvaluation report prepared by M/s.Bansi S.Mehta & Co. andM/s.N.M.Raiji & Co., dated 05.1.2006. 16. Further, on a reading of the statement filed underSection 393 of the Companies Act, 1956 in C.P.No164 of 2006,there was a reference to the valuation of Rs.413 million inparagraph 4(f). In that, paragraph 4(d) stated that with effectfrom the appointed date, the non T & D business of the assesseeincluding all properties, assets, rights and powers and alldebts, liabilities, duties and obligations of the assesseecomprised therein and/or relating thereto, should be transferredto the transferee company as a going concern in accordance withand subject to the modalities for transfer and vestingstipulated in the scheme. Paragraph 4(l) would be relevant forthis appeal, which reads as follows : “Upon the scheme becoming effective andin consideration of transfer of the non T &D business, AIPL shall, without furtherapplication, issue and allot to ATDIL39,00,000 equity shares of Rs.10/- each inAIPL, at a premium of Rs.96/- per share,credited as fully paid up. Such new equityshares issued and allotted by AIPL to ATDILunder the scheme shall rank pari passu inall respects with the existing equity sharesof AIPL.” 17. In terms of the above clause, the consideration oftransfer was to issue and allot to the assessee 39,00,000 equityshares of Rs.10/- each in the transferee company at a premium ofRs.96/- per share. The value of the share worked out to Rs.106/-multiplied by 39,00,000 equity shares, which, in turn, againworked out to Rs.413 million (Rs.41.3 crores). Clause 8 of the Page numbers statement filed under Section 393 of the Companies Act furtherstated that in terms of the scheme, the non T & D business wouldbe transferred to the transferee company for a totalconsideration of Rs.413 million to be discharged by thetransferee company by issue and allotment of equity sharescredited as fully paid up as mentioned in the statement and thesaid consideration for the arrangement had been fixed on a fairand reasonable basis and on the basis of the joint valuationreport of M/s.N.M.Raiji & Co. and M/s. Bansi S.Mehta & Co.,Chartered Accountants with regard to the fair value of the non T& D business and the report of M/s.Muku Associates, CharteredAccountants on the issue of shares and capital structure of thetransferee company. 18. Schedule 1 of the scheme of arrangement contains thestatement of assets and liabilities (audited) of the non T & Dbusiness as on 31.12.2005, which shows the total net assets asRs.313 million. The scheme was approved by the High Court ofCalcutta by order dated 22.3.2006. Paragraph 7 of the order ofthe Calcutta High Court deals with issue of shares by thetransferee company and Paragraph 7.1 would be relevant, whichreads as follows : “Upontheschemebecomingeffective and in consideration of transferof the non T & D business, AIPL shall,without further application, issue and allotto ATDIL 39,00,000 equity shares of Rs.10/-each in AIPL, at a premium of Rs.96/- pershare, credited as fully paid up. Such newequity shares issued and allotted by AIPL toATDIL under this scheme shall rank paripassu in all respects with the existingequity shares of AIPL.” 19. With the above submissions, the assessee stated thatthe taxable capital gains for the assessment year in questionworked out to Rs.10,18,67,615/-, but they did not pay anycapital gains tax since the entire capital gains were to beinvested in tax saving bonds as notified under Section 54EC ofthe Act. 20. Though such a stand was taken, there was a road blockfor the assessee as a Proviso was inserted in Section 54EC ofthe Act by the Finance Act, 2007 with effect from 01.4.2007fixing the outer limit for investment as Rs.50 lakhs. Thisnecessitated the assessee to approach this Court by filing awrit petition, which was dismissed and the special leavepetition filed before the Hon’ble Supreme Court against that was Page numbers https://hcservices.ecourts.gov.in/hcservices/ also dismissed. In fact, the dismissal of the writ petition canhave no impact on the present assessment. This is so because theassessee took a stand that they did not pay capital gains taxbecause they were to invest the same in the tax saving bonds asnotified under Section 54EC of the Act. However, on account ofthe monetary restrictions, the assessee was not issued with therequisite bonds. Further, in the submissions before theAssessing Officer, the assessee took an alternate plea. We haveheld that such an alternate plea can be raised and it can beeven a plea, which is mutually contradictory to the earlierplea, as it is a question of law, which requires to beconsidered. 21. It appears that an alternate submission was raised bythe assessee during the course of assessment proceedings largelyinfluenced by the decision of the Mumbai Bench of the Tribunalin the case of Avaya Global Connect Ltd. They have contendedthat the transfer of non T & D business was by way of a schemeof arrangement approved by the High Court of Calcutta underSections 391 and 394 of the Companies Act and therefore, itcould not be considered as a sale of business and would notqualify as a slump sale because what were issued were equityshares and no monetary consideration was paid. 22. Unfortunately, the Assessing Officer, the CIT(A) andthe Tribunal did not adjudicate this issue on the ground thatthe assessee was estopped from raising such a contention. Wehave held that the assessee could not be held to be estoppedfrom raising such a legal contention and the Authorities belowas well as the Tribunal fell in error in not adjudicating theissue. Therefore, we are required to consider as to whether thesubmission of the assessee raised as an alternate plea meritsconsideration. 23. Section 50B of the Act is a special provision forcomputation of capital gains in case of slump sale. Sub-Section(1) of Section 50B of the Act reads as follows :“Any profits or gains arising from theslump sale effected in the previous yearshall be chargeable to income-tax as capitalgains arising from the transfer of long-termcapital assets and shall be deemed to be theincome of the previous year in which thetransfer took place.” 24. In terms of the above provision, any profits or gainsarising from slump sale shall be chargeable to income tax ascapital gains arising from the transfer of long term capital Page numbers assets and shall be deemed to be the income of the previous yearin which the transfer took place. 25. Section 2(42C) of the Act defines the expression ‘slumpsale’ to mean the transfer of one or more undertakings as aresult of the sale for a lump sum consideration without valuesbeing assigned to the individual assets and liabilities in suchsales. 26. Section 2(47) of the Act defines the term ‘transfer’ inrelation to capital assets and it is an inclusive definition,which includes i. sale, exchange or relinquishment of an asset; ii.extinguishment of any rights; iii.compulsory acquisition; Page numbers assets and shall be deemed to be the income of the previous yearin which the transfer took place. 25. Section 2(42C) of the Act defines the expression ‘slumpsale’ to mean the transfer of one or more undertakings as aresult of the sale for a lump sum consideration without valuesbeing assigned to the individual assets and liabilities in suchsales. 26. Section 2(47) of the Act defines the term ‘transfer’ inrelation to capital assets and it is an inclusive definition,which includes i. sale, exchange or relinquishment of an asset; ii.extinguishment of any rights; iii.compulsory acquisition; iv.conversion of asset as stock in trade of a business; v.maturity or redemption of zero coupon bonds; vi. any transaction involving the allowing of the possessionof any immovable property to be taken or retained in partperformance of a contract of the nature referred to in section53A of the Transfer of Property Act, 1882; vii. any transaction, which has the effect of transferringor enabling the enjoyment of any immovable property. 27. The argument of the Revenue before us is that plea ofthe assessee that the transaction was not a slump sale, but anexchange would also be covered within the definition of theexpression ‘transfer of capital asset’ because it is aninclusive definition and transfer includes exchange. Therefore,it is submitted that it will fall within the definition of theexpression ‘slump sale’ as defined under Section 2(42C) of theAct and consequently, Section 50B of the Act would standattracted. 28. Admittedly, the word ‘sale’ is not defined under theAct. Therefore, necessarily one has to rely upon the definitionsin the other Statutes, which define the word ‘sale’. 29. Section 54 of the Transfer of Property Act, 1882defines the word ‘sale’ to mean a transfer of ownership inexchange for a price paid or promised or part paid and partpromised. The word ‘price’ is not defined either under theIncome Tax Act, 1961 or under the Transfer of Property Act,1882, but is defined under Section 2(10) of the Sale of GoodsAct, 1930 to mean money consideration for thesale of goods. 30. Therefore, to bring the transaction within thedefinition of Section 2(42C) of the Act as a slump sale, there Page numbers https://hcservices.ecourts.gov.in/hcservices/ should be a transfer of an undertaking as a result of the salefor lump sum consideration. Therefore, necessarily the saleshould be by way of transfer of ownership in exchange of a pricepaid or promised or part paid and part promised and the priceshould be a money consideration. If there is no monetaryconsideration involved in the transaction, then it would be notpossible for the Revenue to bring the transaction done by theassessee within the definition of the term ‘slump sale’ asdefined under Section 2(42C) of the Act. 31. Section 118 of the Transfer of Property Act, 1882defines the term ‘exchange’ by stating that when two personsmutually transfer the ownership of one thing for the ownershipof another, neither thing nor both things being money only, thetransaction is called an exchange. 31. Section 118 of the Transfer of Property Act, 1882defines the term ‘exchange’ by stating that when two personsmutually transfer the ownership of one thing for the ownershipof another, neither thing nor both things being money only, thetransaction is called an exchange. 32. The legal issue, which arises for consideration beforeus, was considered by the Bombay High Court in the case of CITVs. Bharat Bijlee Ltd. [reported in (2014) 365 ITR 258]. In thesaid case, there was a transfer of lift division and theassessee claimed it to be an exchange and not a sale. TheAssessing Officer held that the transaction would squarely fallwithin the definition of the expression ‘slump sale’ underSection 2(42C) of the Act. This order was confirmed by the CIT(A), which was reversed by the Tribunal. Challenging the same,the Revenue was on appeal before the Bombay High Court. TheRevenue relied upon the decision of the Delhi High Court in thecase of SREI Infrastructure Finance Ltd. Vs. Income TaxSettlement Commission [reported in (2014) 2 ITR-OL 274]. It wascontended by the Revenue that merely because the transfer hasbeen brought about by filing a petition before the Court,getting an order of sanctioning the scheme of arrangement oftransfer did not mean that it was a slump sale. The assesseecontended that for a slump sale, the transfer has to be by wayof sale and the lift division of the assessee has beentransferred to another company and in consideration of the same,the other company issued preference shares to the assessee.There was no price in money, which was paid and received. It wasfurther contended that once the scheme was sanctioned by theCourt and the lift division was transferred not by way of sale,then the Tribunal’s view could not be said to be erroneous inlaw nor could it be termed as perverse. The Court, after notingthe factual position and the decision of the Hon’ble SupremeCourt in the case of CIT Vs. Motors and General Stores (P.) Ltd.[reported in (1967) 66 ITR 692] and in the case of Commissionersof Inland Revenue Vs. Wesleyan and General Assurance Society[reported in (1948) 16 ITR (Supp) 101 (HL)], held as follows : “16. In answering this Page numbers Page numbers question, the hon'ble Supreme Court heldthat, it is only if there is a sale of thecinema house and the other assets that thetaxable profits and gains are to be computedunder section 10(2)(vii) as the amount bywhich the written down value exceeds theamount for which the assets are actuallysold. The Supreme Court held that the word"sale" or "sold" have not been defined inthe Indian Income-tax Act, 1922. Thesewords, therefore, have to be construed byreference to other enactments. The SupremeCourt then referred to the definition of theterm "sale" as appearing in the Transfer ofProperty Act, 1882, and the Sale of GoodsAct, 1930. The hon'ble Supreme Court thenreferred to the definition of the term"exchange" as appearing in the Transfer ofProperty Act, 1882. It then rejected thecontention of the Revenue that thetransaction of February 20, 1956, was asale. The hon'ble Supreme Court held that itwas a transfer but by way of exchange. Thehon'ble Supreme Court then held thus (page699) :"We pass on to consider the argument ofMr. Narasaraju that in revenue matters itwas the substance of the transaction whichmust be looked at and not the form in whichthe parties have chosen to clothe thetransaction. It was contended that, in thepresent case, there was in substance a saleof Sree Rama talkies by the assessee-company for a money consideration ofRs.1,20,000 though the mode of payment wasby transfer of shares and the resolution ofthe board of directors dated September 9,1955, clearly indicated that the inten tionof the assessee company was to sell SreeRama talkies along with its equipmentconcernedforaconsiderationofRs.1,20,000. In the present case, however,there is no suggestion behalf of theappellant of bad faith on the part of theassessee company nor is it alleged that theparticular form of the transaction wasadopted as a cloak to conceal a differenttransaction. It is not disputed that the Page numbers Page numbers Page numbers Page numbers document in question was intended to beacted upon and there is no suggestion ofmala fides or that the document was neverintended to have any legal effect. In theabsence of any suggestion of bad faith orfraud the true principle is that the taxingstatute has to be applied in accordance withthe legal rights of the parties to thetransaction. When the trans action isembodied in a document the liability to taxdepends upon the meaning and content of thelanguage used in accordance with theordinary rules of construction. In Bank ofChettinad Ltd. v. CIT [1940] 8 ITR 522 (PC)it was pointed out by the Judicial Committeethat the doctrine that in revenue cases the'substance of the matter' may be regarded asdistinguished from the strict legalposition, is erroneous. If a person soughtto be taxed comes within the letter of thelaw he must be taxed, however great thehardship may appear to the judicial mind tobe. On the other hand, if the Crown seekingto recover the tax cannot bring the subjectwithin the letter of the law, the subject isfree, however, apparently within the spiritof the law the case might otherwise appearto be. In Duke of Westminster's case [1935]19 TC 490 (HL) deeds of covenant had beenexecuted by the Duke in favour of theemployees in such amounts that thecovenantees, if remaining in the Duke'sservice, would receive respectively sumsequivalent to their wages and salaries. Ifthey left the service of the Duke the payments would still have been due, but it wasin nearly all instances explained to theemployee that so long as the servicecontinued, while the deed did not preventhis claiming ordinary wages in addition, itwas expected that he would not do so. It wasargued for the Crown that though in form agrant of an annuity, the transaction was insubstance merely one whereby the annuitantwas to continue to serve the Duke at hisexisting salary, so that the annuity must betreated as salary. Neither the Court ofAppeal nor the House of Lords agreed with Page numbers this contention. To regard the paymentsunder the deed as in effect payments ofsalary would be to treat a transaction ofone legal character as if it were atransaction of a different legal character.With regard to the supposed contrast betweenthe form and substance of the arrangement,Lord Russell of Killowen stated at page 524as follows :'If all that is meant by the doctrineis that having once ascertained the legalrights of the parties you may disregard merenomenclature and decide the question oftaxability or non-taxability in accordancewith the legal rights, well and good. Thatis what this House did in the case ofSecretary of State in Council of India v.Scoble [1903] AC 299; 4 TC 618 (HL) ; thatand no more. If, on the other hand, thedoctrine means that you may brush asidedeeds, disregard the legal rights andliabilities arising under a contract betweenparties, and decide the question oftaxability or non-taxability upon thefooting or the right and liabilities of theparties being different from what in lawthey are, then I entirely dissent from sucha doctrine.' In a later case—Commissioners of InlandRevenue v. Wesleyan and General AssuranceSociety [1948] 16 ITR (Suppl.) 101 (HL)—Viscount Simon expressed the principle asfollows (page 103) : In a later case—Commissioners of InlandRevenue v. Wesleyan and General AssuranceSociety [1948] 16 ITR (Suppl.) 101 (HL)—Viscount Simon expressed the principle asfollows (page 103) : 'It may be well to repeat twopropositions which are well established inthe application of the law relating toincome tax. First, the name given to atransaction by the parties concerned doesnot necessarily decide the nature of thetransaction. To call a payment a loan if itis really an annuity does not assist thetaxpayer, any more than to call an item acapital payment would prevent it from beingregarded as an income payment if that is itstrue nature. The question always is what isthe real character of the payment, not whatthe parties call it. Secondly, atransaction, which on its true construction is of a kind that would escape tax, is nottaxable on the ground that the same resultcould be brought about by a transaction inanother form which would attract tax.' " 17. In the light of theprinciples laid down in the above referreddecision, the Tribunal concluded inparagraph 40 that the scheme of arrangementapproved by this court in the present case,cannot be said to be a sale of the liftdivision or undertaking by the assessee. TheTribunal referred to clause 3.1 of thescheme. It then referred to clause 1.36 inits entirety. Then, it referred to clause14.1 of the scheme. 18. The Tribunal then held that, areading of the clauses in the scheme ofarrangement shows that the transfer of theundertaking has took place in exchange forissue of preference shares and bonds. Itheld that, merely because there wasquantification when bonds/preference shareswere issued, would not mean that themonetary consideration was determined andits discharge was only by way of issue ofbonds/preference shares. In other words, theTribunal held and as a fact that this is nota case where the consideration wasdetermined and decided by parties in termsof money but its disbursement was to be intermsofallotmentorissueofbonds/preference shares. In fact, all theclauses read together and the entire schemeof arrangement envisages transfer of thelift division not for any monetaryconsideration. The scheme does not refer toany monetary consideration for the transfer.The parties were agreed that the assesseewas to transfer the undertaking and takebonds/preference shares as consideration.Thus, it was a case of exchange and not asale. Therefore, the Tribunal held thatsection 2(42C) of the Act was inapplicable.If that was not applicable and was notattracted, then, section 50B was alsoinapplicable.19. We are of the opinion that thefindings of fact rendered by the Tribunal Page numbers Page numbers Page numbers Page numbers from paragraph 40 and in relation to groundNo. 2 are thus rendered by applying thelegal principles to the facts andcircumstances of the assessee's transaction.In the given facts and circumstances andgoing by the clauses of the scheme andreading them harmoniously and together, theTribunal held that the transfer of the liftdivision comes within the purview of section2(47) of the Act but cannot be termed as aslump sale. 20. This finding of fact cannotbe said to be perverse or based on nomaterial. It also cannot be said to bevitiated by an error of law apparent on theface of the record. It is in thesecircumstances, we find that this appeal doesnot raise any substantial question of law.21. It also does not raise anysubstantial question of law because thealternative argument, though formulated forconsideration before the Assessing Officerand covered by question No. 4(iii), is notpressed before us.22. Before us, the emphasis of theRevenue is on the applicability of section 2(42C) of the Income-tax Act, 1961.23. Before parting, we must make areference and in all fairness to a DivisionBench judgment of the Delhi High Courtrendered in the case of SREI InfrastructureFinance Ltd. (supra). This decision isheavily relied upon by Mr.Suresh Kumar,learned counsel appearing for the Revenue,in support of this appeal. Mr. Suresh Kumarsubmits that the order of the Tribunal runscontrary to the law laid down in thejudgment of the Delhi High Court. The DelhiHigh Court has considered the matter in thelight of the amendments made to the Income-tax Act, 1961, particularly, by the FinanceAct, 1999, with effect from April 1, 2000.24. We see no force in the contentionof Mr. Suresh Kumar. Firstly, it is notnecessary for us to decide any widerquestion or larger controversy. The judgmentof the Delhi High Court would apply providedthe transfer is by way of a sale. Before the Page numbers Delhi High Court, the facts were that thepetitioner company was engaged in projectfinancing through term loans and leasing inspecified sectors. For the assessment year2009-10, the petitioner had disclosed lossof more than Rs. 76 crores in their return.No return was filed for the assessment year2010-11. The book loss was more than Rs. 72crores. An application was filed before theSettlement Commission for the two assessmentyears and disclosing the additional income.The Settlement Commission passed an orderand which is termed as final order inparagraph 4 of the judgment of the DelhiHigh Court, determining and deciding variousquestions which are raised in the writpetition. In the writ petition, the onlyaspect was that of taxability of Rs. 375lakhs under section 50B of the Income-taxAct as capital gains on "slump sale" paidunder the scheme of arrangement to thepetitioner by its subsidiary. The SettlementCommission held that the amount of Rs. 375lakhs received by the petitioner from itssubsidiary on transfer of its projectfinance business and assets based onfinancingbusinessincludingitsshareholding in SREI Insurance Broking Pvt.Ltd. was taxable under section 50B of theAct as a slump sale. 25. The argument of the petitioner wasthat this is a transfer under the scheme ofarrangement but is not a sale. The scheme ofarrangement was sanctioned by the High Courtof Calcutta. The argument was that this is atransfer of a statutory interest andcharacter. Section 50B, therefore, had noapplication as the scheme of arrangement isnot a slump sale.26. It is in dealing with that argumentand in the peculiar facts that the DelhiHigh Court held that the petitioner'scontentions cannot be accepted. Thepetitioner before the Delhi High Court hadadmitted that there was a monetaryconsideration in the scheme of arrangement.The money was paid and additionally sharesof a third company were issued in favour of the assessee. Thus, the consideration was inmoney as also shares and not shares or bondsexclusively. The transfer could not betermed as an exchange but a sale. In thatlight the Delhi High Court held that theconsideration of Rs. 375 lakhs was receivedon transfer of the project finance businessof the assessee's subsidiary including itsshareholding in another company. Therefore,the transaction itself was by way of a saleand not an exchange.27. There is no necessity for us toanalyze the circumstances in which section50B was inserted in the statute book. Beforeus, the issue as to whether the conclusionsreached by the hon'ble Supreme Court in thecase of Motors and General Stores (Pvt) Ltd.(supra) would still hold good or that theywould not be the enabling principles afterthe amendment to the Income-tax Act does notarise at all. We proceed on the footing thatthe statute was amended with some specificobject and purpose. However, we are inagreement with the learned senior counselappearing for the assessee before us thatthe applicability of section 50B would haveto be considered in the facts andcircumstances of each case. If the transferis by way of sale, only then it could betermed as a slump sale and then section 50Bwould beattracted. It is in these circumstancesand going by the facts of the present casethat we have decided the present appeal. Nolarger question or wider controversy need bedecided as we are of the opinion that eventhe judgment rendered by the Delhi HighCourt is distinguishable on facts.28. For the above reasons, we do notfind any merit in the appeal. The same doesnot raise any substantial question of law.It is accordingly dismissed.” 33. As could be seen from the above legal position, theCourt distinguished the decision in the case of SREIInfrastructure Finance Ltd., as it found a monetaryconsideration in that case. Page numbers 34. In the earlier part of this judgment, we havereferred to the scheme of arrangement and we find that there isno monetary consideration, which was passed on from thetransferee company to the assessee, but there is only allotmentof shares. 35. The Revenue has argued before us that even in thescheme of arrangement, the word ‘consideration’ has been usedand that therefore, it is a transfer and the provisions ofSection 50B of the Act would stand attracted. 33. As could be seen from the above legal position, theCourt distinguished the decision in the case of SREIInfrastructure Finance Ltd., as it found a monetaryconsideration in that case. Page numbers 34. In the earlier part of this judgment, we havereferred to the scheme of arrangement and we find that there isno monetary consideration, which was passed on from thetransferee company to the assessee, but there is only allotmentof shares. 35. The Revenue has argued before us that even in thescheme of arrangement, the word ‘consideration’ has been usedand that therefore, it is a transfer and the provisions ofSection 50B of the Act would stand attracted. 36. An identical question was considered by the Hon’bleSupreme Court in the case of Motors and General Stores (P.) Ltd.In that case also, the agreement contained the expression‘consideration of the transfer’. After considering the documentsin its entirety, the Hon’ble Supreme Court observed that theoperative part of the document showed that there was an exchangeof properties described in schedule I for 5% tax free cumulativepreference shares of the company and the valuation was done forthe purpose of stamp duty and in essence, the transaction wasone of exchange and there was no sale of the propertiesdescribed in schedule I for any monetary consideration. Thatapart, the Hon’ble Supreme Court noted that there was nosuggestion on behalf of the Revenue of bad faith on the part ofthe assessee company nor it was alleged thatparticular form ofthe transaction was adopted as a cloak to conceal a differenttransaction. In the case before us also, there is no suchallegation made by the Revenue against the assessee company.Thus, this decision will clearly support the case of theassessee and mere use of the expression ‘consideration fortransfer’ cannot be said to be a transaction as a sale. 37. To the same effect is the decision of the Hon’bleSupreme Court in the case of CIT, Bombay Vs. Rasiklal Maneklal(HUF) [reported in (1989) 177 ITR 198] wherein it was held thatthe allotment of shares could not be construed to be a transfer. 38. Another important aspect, which needs to be noted,is the effect of approval of the scheme of arrangement by theHigh Court of Calcutta. This issue was considered by the BombayHigh Court in the case of Sadanand S. Varde Vs. State ofMaharashtra [reported (2001) 247 ITR 609] wherein afterreferring to various decisions, it has been held that there isoverwhelming authority of precedents suggesting that when anamalgamation takes place, the transfer of assets takes place bythe force of the company court's order and/or by operation oflaw and it ceases to be a contractual or a consensual transfer. Page numbers 38. Another important aspect, which needs to be noted,is the effect of approval of the scheme of arrangement by theHigh Court of Calcutta. This issue was considered by the BombayHigh Court in the case of Sadanand S. Varde Vs. State ofMaharashtra [reported (2001) 247 ITR 609] whe