2013-TIOL-955-ITAT-PANAJI ACIT vs. Joe Marcelinho Mathias ITA No. 43/PNJ/2013 Assessment Years: 2009-10. Date of Order: 26.04.2013

Facts:
The assessee, an individual, was carrying on business of real estate, as a sole proprietor, by acquiring land, developing the same by sub-dividing the same into plots and selling the said plots. The land was held as stock-in-trade. The net worth of the concern, as per audit report u/s. 50B(3) was Rs. 1.62 crore. On 31-03-2009, vide Deed of Succession, all the assets and liabilities of the proprietory concern were transferred to a private limited company for a consideration of Rs. 963 crore against acquisition of shares of a company at a high premium. The assessee contended that the transfer was covered by section 47(xiv) and therefore, the provisions of section 45 were not attracted.

The Assessing Officer (AO) was of the view that section 47(xiv) does not exempt capital gains if the assets are transferred at a value which is higher than the book value. He held that receipt of additional consideration by way of allotment of shares over and above the proprietor’s capital was in violation of conditions laid down in section 47(xiv). He held that since the assessee got additional income/benefit than what was due as per books of accounts this amounted to receiving any direct or indirect benefit other than by way of allotment of shares and therefore the assessee is not entitled to exemption. The AO taxed the capital gains and denied the benefit of section 47(xiv).

Aggrieved the assessee preferred an appeal to the CIT(A) who allowed the assessee’s appeal.

Aggrieved, the revenue preferred an appeal to the Tribunal.

Held :
The assessee has disposed off the industrial undertaking to a private limited company and in exchange thereof, the assessee has received consideration by way of shares in the company. Therefore, this is a clear cut case of a transfer of an undertaking to a private limited company. Section 45 is applicable when there is a profit or gain arising from the transfer. Profit and gains will also include losses. The undertaking has been valued by the assessee more than the net worth, therefore, there is profit and gain and the provision of section 45 was clearly applicable in the case of the assessee. Once a capital gain arises and is chargeable to tax u/s. 45, section 47 provides for certain exceptions according to which certain transactions are not regarded to be transfer.

The only objection on the part of the revenue is that the assessee did not comply with the condition no. 3 of section 47(xiv) since assessee has received consideration by way of allotment of shares in the company and the value of those shares are more than the value of the assets as was disclosed in the books of the proprietory concern. In our opinion, the assessee has duly complied with the condition as stipulated in clause (c) to section 47(xiv). This proviso only requires that same proprietor does not receive any consideration or benefit directly or indirectly in any form or manner other than way of allotment of shares in the company. The words form or manner other than by way of allotment of shares in the company qualify the words `does not receive any consideration or benefit’ as well as `directly or indirectly’. This clearly denotes that proviso (c) permits receiving consideration or benefit directly or indirectly by way of allotment of shares in the company. It is not a case where the assessee has received any other consideration or benefit other than the allotment of shares in the company.

The Tribunal held that receipt of higher value of shares because of revaluation of assets at the time of succession cannot be treated as consideration or benefit received other than by way of allotment of shares. The Tribunal confirmed the order of CIT(A).

This ground of appeal of revenue was dismissed.