The Commissioner Of Income Tax, Chennai v. M/S.shardlow India Ltd.,Chennai-11

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 16.7.2020 CORAM THE HONOURABLE MR. JUSTICE T.S.SIVAGNANAMAND THE HONOURABLE MRS. JUSTICE V.BHAVANI SUBBAROYANTAX CASE APPEAL NO.485 OF 2018(heard through video conferencing) The Commissioner of Income Tax, Chennai ...Appellant Vs M/s.Shardlow India Ltd.,Chennai-11. ...Respondent APPEAL under Section 260A of the Income Tax Act, 1961against the order dated 13.4.2016 made in ITA.No.774/Mds/2015 onthe file of the Income Tax Appellate Tribunal, Chennai ‘B’ Benchfor the assessment year 2007-08 against the order of theCommissioner of Income Tax(Appeals)-15 Chennai-34 dated27/02/2015 and Pertains to assessment year 2007-2008 against theorder of the Deputy Commissioner of Income Tax, Company Circle-VI(2) Chennai-34 dated 31/12/2013. For Appellant : Mr.J.Narayanaswamy, SSC For Respondent : Mr.R.Vijayaraghavan for M/s.Subbaraya Aiyer Padmanabhan Judgment was delivered by T.S.SIVAGNANAM,J We have heard Mr.J.Narayanaswamy, learned SeniorStandingCounselappearingfortheRevenueandMr.R.Vijayaraghavan, learned counsel appearing on behalf ofM/s.Subbaraya Aiyer Padmanabhan, learned counsel on record forthe respondent. 2. This appeal by the Revenue under Section 260A of theIncome Tax Act, 1951 (for short, the Act) is directed againstthe order dated 13.4.2016 made in ITA.No.774/Mds/2015 on the https://hcservices.ecourts.gov.in/hcservices/ file of the Income Tax Appellate Tribunal, Chennai ‘B’ Bench forthe assessment year 2007-08.3. The appeal has been admitted on 04.9.2018 on thefollowing substantial questions of law : “(i) Whether on the facts and incircumstances of the case and in law,Tribunal was right in holding that assesseeis entitled for exemption under Section 47(v) with respect to the transfer of land toM/s.Simpson & Co. Ltd.? (ii) Whether on the facts and incircumstances of the case and in law,Tribunal was right in holding that whole ofthe share capital of the assessee/subsidiarycompany is held by the holding company viz.M/s.Simpson & Co Ltd., even though 25 shareswere held by persons other than the holdingcompany? (iii) Whether on the facts and incircumstances of the case and in law,Tribunal was correct and justified inignoring the principles laid down in (AAR)348 ITR 368 on identical issue? (iv) Whether on the facts and incircumstances of the case and in law,Tribunal was correct in ignoring theprovisions of the Companies Act, as perwhich only the person in whose name theshares are entered in its registers can onlybe treated as shareholders and henceM/s.Simpson & Co Ltd., is not 100% of theshares of the assessee company? and (v) Whether on the facts and in circumstances of the case in law, Tribunalwas correct in ignoring the differencebetween provisions of Section 47(iv) and (v)wherein holding by nominee is specificallyrecognized in Seciton 47(iv) whereas Section47(v) stipulates whole of the share capitalto be held by the holding company?” 4. The assessee, which is a public limited company,filed the return of income for the assessment year underconsideration i.e 2007-08 returning an income of -NIL-. Thereturn was processed under Section 143(1) of the Act and later,the Assessing Officer proceeded with the regular assessment. Theassessment was reopened on 06.8.2013 by issuing a notice underSection 148 of the Act on the ground that the assesseetransferred some portion of its land at Sembium to its holdingcompany namely M/s.Simpson & Co. Ltd., for a consideration of Rs.375 lakhs resulting in a profit on sale of asset and the samewas not offered to tax under the head ‘capital gains’ againstthe assessee on the ground that the assessee company is a 100%subsidiary of M/s.Simpson & Co. Ltd. by referring to Section 47(v) of the Act. Rs.375 lakhs resulting in a profit on sale of asset and the samewas not offered to tax under the head ‘capital gains’ againstthe assessee on the ground that the assessee company is a 100%subsidiary of M/s.Simpson & Co. Ltd. by referring to Section 47(v) of the Act. 5. On perusal of the records, the Assessing Officerfound that 25 shares of the assessee company out of 80 lakhsshares were held by the nominees of the holding company namelyM/s.Simposon & Co. Ltd. Therefore, the Assessing Officer heldthat the assessee was not eligible for exemption of capitalgains as per the provisions of Section 47(v) of the Act. 6. Aggrieved by the order of assessment dated31.12.2013, the assessee filed an appeal before the Commissionerof Income Tax (Appeals)-15, Chennai-34 [for brevity, the CIT(A)], who, by order dated 27.2.2015, dismissed the same.Aggrieved by that, the assessee filed an appeal before theTribunal, which allowed the appeal by the impugned order, whichis called in question in the above tax case appeal by theRevenue. 7. The facts, which were not disputed by the Revenue,are that the holding company has 80 lakhs share, out of which,79,99,975 shares are held by the holding company themselvesnamely M/s.sSimpson and Co. Ltd., and the balance 25 shares areheld by six individuals, who have been nominated by the holdingcompany. The explanation offered was that a public limitedcompany should have minimum of seven shareholders. Further, itwas stated that those six individuals, who were nominated byM/s.Simpson and Co. Ltd., have no individual right as ashareholder and their holding is for and on behalf ofM/s.Simpson and Co. Ltd. This very fact was not disputed by theRevenue before all the forums. 8. The argument of Mr.J.Narayasanasamy, learned SeniorStanding Counsel appearing for the Revenue is that thedistinction has been clearly brought out if one reads Section 47(iv) and Section 47(v) of the Act and it is clear that the word‘nominees’ is not present in Clause (v) to Section 47 of the Actand therefore, the contention advanced by the assessee does notmerit acceptance. 9. Though, at the first blush, the contention advancedby Mr.J. Narayanaswamy, learned Senior Standing Counsel isappealing, on a closer scrutiny of the purpose, for which,Section 47 of the Act was introduced, we are convinced to take adecision against the Revenue. We support such a conclusion withthe following reasons : Section 47 of the Act deals with transaction notregarded as transfer. Therefore, a purposive interpretation hasto be given to the said provision. Otherwise, as rightly https://hcservices.ecourts.gov.in/hcservices/ contended by the learned counsel appearing for the respondent,the provision itself would become redundant. Section 47(v) ofthe Act states that nothing contained in Section 45 of the Actshall apply to any transfer of capital asset by subsidiarycompany to the holding company if (a) the whole of the sharecapital of the subsidiary company is held by the holdingcompany, and (b) the holding company is an Indian company. Thefact that the company is an Indian company is not disputed. 10. The dispute raised by the Revenue is that whole of theshare capital of the subsidiary company is not held by theholding company as there are six individual shareholders. https://hcservices.ecourts.gov.in/hcservices/ contended by the learned counsel appearing for the respondent,the provision itself would become redundant. Section 47(v) ofthe Act states that nothing contained in Section 45 of the Actshall apply to any transfer of capital asset by subsidiarycompany to the holding company if (a) the whole of the sharecapital of the subsidiary company is held by the holdingcompany, and (b) the holding company is an Indian company. Thefact that the company is an Indian company is not disputed. 10. The dispute raised by the Revenue is that whole of theshare capital of the subsidiary company is not held by theholding company as there are six individual shareholders. 11. As pointed out earlier, the total number of shares are80 lakhs, out of which, 79,99,975 shares are held by the holdingcompany. This fact is also not disputed by the Revenue. Theremaining 25 shares are held by six individuals. The explanationoffered by the assessee is that under the Companies Act, apublic limited company should have a minimum of sevenshareholders. The individuals are nominees of the holdingcompany and they have no individual right, which facts were alsonot disputed. Therefore, on facts, it has to be held that wholeof the share capital of the subsidiary company is held by theholding company in the instant case. 12. The reliance placed on the decision of the BombayHigh Court in the case of CIT Vs. M/s.Papilion InvestmentsPrivate Limited [2009-TIOL-491-HC-Mum-IT] merits acceptance. Inthe said case, a more or less identical factual situation wastaken into consideration and it was held that the beneficialownership of the holding company is to be taken note of and aproper interpretation is not given to the facts, as it wouldrender the provisions of Section 47(v) of the Act redundant. Theentire decision reads as follows : parties. 2. The Tribunal, in paragraph No.9 ofits order, has recorded a categoricalfinding, which reads as under: ''9. In thecase before us, and in view of theprovisions of the Companies Act, 1956, it isnot possible for the PFIPL to have less thantwo shareholders. As a matter of fact, therecannot be any company in India which hasless than two members i.e. shareholders. Nowthe requirement of Section 47(v) is that thewhole of the share capital of the subsidiarycompany should be held by the holdingcompany. The whole of the share capitalbeing held by the holding company is certainly not the same thing as whole of theshare capital being held in the name of theholding company. In fact, that situation isa legal impossibility in India. In case oneis to proceed on the basis that entire sharecapital of the subsidiary company should beheld in the name of the holding company,there cannot be any situation in whichsection 47(v) can apply. That is certainlynot an interpretation which can be termed asut res magis valeat quam pereat, i.e. tomake the statute effective rather thanmaking it redundant. As held by Hon’bleSupreme court, in the case of CIT Vs. TejaSingh (35 ITR 408), a construction whichresults in rendering a provision redundantmust be avoided. For this reason alone, theinterpretation canvassed by the revenue isto be rejected. 3. Having seen the finding recorded bythe Tribunal, no fault can be found with theview taken by the Tribunal. In this view ofthe matter, appeal stands dismissed for wantof substantial question of law with no orderas to costs.” 13. In the light of the above discussion, we hold that theorder passed by the Tribunal does not call for any interference. 14. Accordingly, the above tax case appeal filed bythe Revenue is dismissed and the substantial questions of laware answered against the Revenue. No costs. Sd/- Assistant Registrar(CS-III) //True copy// Sub Assistant Registrar RSTo 1.The Income Tax Appellate Tribunal, Chennai ‘B’ Bench. 2. The Commissioner of Income Tax (Appeals)-15, Chennai-34 3. Having seen the finding recorded bythe Tribunal, no fault can be found with theview taken by the Tribunal. In this view ofthe matter, appeal stands dismissed for wantof substantial question of law with no orderas to costs.” 13. In the light of the above discussion, we hold that theorder passed by the Tribunal does not call for any interference. 14. Accordingly, the above tax case appeal filed bythe Revenue is dismissed and the substantial questions of laware answered against the Revenue. No costs. Sd/- Assistant Registrar(CS-III) //True copy// Sub Assistant Registrar RSTo 1.The Income Tax Appellate Tribunal, Chennai ‘B’ Bench. 2. The Commissioner of Income Tax (Appeals)-15, Chennai-34 https://hcservices.ecourts.gov.in/hcservices/ 3. The Deputy Commissioner of Income Tax, Company Circle -VI(2) Chennai-34 Company Circle -VI(2) Chennai-34 +1cc to M/s.Subbaraya Aiyer, Advocate SR.No.24787 SS(CO)GMY(03/08/2020) TCA.No.485 of 2018