Income Tax Appellate Tribunal - Mumbai
Kamal Imran Panju, Mumbai vs Department Of Income Tax on 3 August, 2011
आयकर अपील य अ धकरण "ए" यायपीठ मुंबई म।
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, MUMBAI ी आय.पी. बंसल, या यक सद य एवं ी संजय अरोड़ा, लेखा सद य के सम ।
BEFORE SHRI I. P. BANSAL, JM AND SHRI SANJAY ARORA, AM
आयकर अपील सं./I.T.A. No. 7620/Mum/2011
( नधारण वष / Assessment Year: 2008-09)
Addl. CIT 12(1), Kamal Imran Panju
st
Room No.117, 1 Floor, JN Marshal & Co.,
Aayakar Bhavan, M. K. Marg, बनाम/ Apeejay Chambers,
Mumbai-400 020 Vs. 5 Wallace Road, Fort, Mumbai
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AACPP 1468 M
(अपीलाथ /Appellant) : ( यथ / Respondent)
या पे सं./C.O. No. 212/Mum/2012
(Arising out of ITA No. 7620/Mum/2011)
( नधारण वष / Assessment Year: 2008-09)
Kamal Imran Panju Addl. CIT 12(1),
JN Marshal & Co., Room No.117, 1st Floor,
बनाम/
Apeejay Chambers, Aayakar Bhavan, M. K. Marg,
5 Wallace Road, Fort, Mumbai Vs. Mumbai-400 020
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AACPP 1468 M
( या ेपक/Cross objector) : ( यथ / Respondent)
राज व क ओर से/Revenue by : Shri Surinder Jit Singh
नधा रती क ओर से / Assessee by : Shri Hitesh Gajaria
सनु वाई क तार ख / : 30.12.2013
Date of Hearing
घोषणा क तार ख /
: 31.12.2013
Date of Pronouncement
2
ITA No. 7620/M/11 & CO No. 212/M/12
Kamal Imran Panju (A.Y. 2008-09)
आदे श / O R D E R
Per Sanjay Arora, A. M.:
This is an Appeal by the Revenue and a Cross Objection (CO) by the Assessee, impugning the Order by the Commissioner of Income Tax (Appeals)-23, Mumbai ('CIT(A)' for short) dated 03.08.2011, partly allowing the assessee's appeal contesting its assessment u/s.143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.) 2008-09 vide order dated 30.12.2010.
2. The only issue arising in the Revenue's appeal is the maintainability in law of the deletion of the income in the sum of Rs.16,74,85,500/- assessed by the Assessing Officer (A.O.) as dividend income u/s.2(22)(d) of the Act. The assessee's CO raises an alternate contention, claiming that even if the same is held as dividend income, i.e., as against the capital gains arising on the transfer of shares, the same would be exempt u/s.10(34) r.w.s. 115-O of the Act.
2.1 The Revenue's case is that the transfer of shares by the assessee in the instant case is not by way of buy-back of its shares by the issuing company, i.e., whose shares stands transferred, inasmuch as the same does not represent a buy-back of shares in terms of section 77A of the Companies Act, 1956 ('Companies Act' hereinafter). To qualify as such, the offer of buy-back must be on a proportionate basis to all the share-holders, which was not so in the instant case.
2.2 The assessee's case, on the other hand, is that the said reduction of capital was pursuant to a scheme u/ss.391 to 394 of the companies act, since approved by the hon'ble jurisdictional High Court, so that it is only by way of reduction of capital u/ss.100 to 102 of the said Act. Sections 391 to 395 and section 102 of the companies act operate in a field different from section 77A thereof, which has been held by the hon'ble courts as only an enabling provision, so that a company could even prior to its enactment (i.e., by Companies Amendment Act, 1999 w.e.f 31.10.1998), reduce its capital by acquiring its shares. Toward this, reliance is placed on the decision in the case of SEBI vs. Sterlite 3 ITA No. 7620/M/11 & CO No. 212/M/12 Kamal Imran Panju (A.Y. 2008-09) Industries (India) Ltd. (2003) 53 CLA 41 (Bom) by the jurisdictional high court. Further, the transaction is covered by section 46A of the Act, which draws no distinction qua the route adopted by the company for the purchase of its shares. In any case of the matter, as afore-stated, even assuming the transaction to result in dividend income in the hands of the assessee, the same being not a dividend u/s. 2(22)(e) of the Act., but only u/s.2(22)(d), would stand to be exempt u/s.10(34) r.w.s. 115-O of the Act. This in fact is the basis of the assessee's CO.
3. We have heard the parties, and perused the material on record as well as perused the case law cited.
3.1 It would be relevant to briefly state the course of the hearing of the instant appeal. When the appeal was originally heard, i.e., on 05.09.2013, the ld. DR had sought time on the ground the Revenue intended to withdraw its appeal. An allowance of its appeal may, in view of the assessee's CO, be prejudicial to the interest of the Revenue inasmuch as the dividend income, as assessed, is liable to exempt from tax. However, as the Revenue had earlier also sought adjournment on that basis, the Bench was disinclined to grant time, the matter was proceeded with. It was also made clear that the Bench cannot predicate its decision, which shall though on merits. The appeal was heard and the decision reserved. It was, however, made clear by the ld. AR that his C.O. may not be decided in case the Revenue's appeal is dismissed, making an endorsement to that effect on the C.O. itself.
As, however, on going through the record, and the decisions relied upon by the Revenue, its appeal was found to be meritorious, so that accepting it may prove prejudicial to it in view of the assessee's CO, raising an alternate claim, it was considered proper to allow a further opportunity to it to state anything it may wish to in the matter inasmuch as an appellant cannot normally be put in a position worse than he is in prior to filing the appeal. The matter was, accordingly, posted again, whereat the ld. DR again sought time for withdrawing the appeal. The ld. AR would state that he had no objection per se thereto though the matter in view of the delay involved ought to be put to a 4 ITA No. 7620/M/11 & CO No. 212/M/12 Kamal Imran Panju (A.Y. 2008-09) closure. A final opportunity was accordingly allowed to the ld. DR, and the matter adjourned to a convenient date. No withdrawal petition, however, was filed; the Revenue again seeking time in view of non availability of competent authority, i.e., Commissioner of Income Tax-12 Mumbai ('CIT' for short), being on leave on account of sickness. It was further explained by the ld. DR that the matter stands referred to the Chief CIT-7 Mumbai, who stands transferred by CBDT, with no one transferred in his stead. Further, he argued, that in the event of withdrawal of its appeal, the assessee's CO shall not survive. The ld. AR, on the other hand, would once again press for the closure of the matter; reiterating his stand that the assessee shall not press its CO (or the ground raised thereby) if the Revenue's appeal were to be dismissed. The hearing was closed at this stage.
3.2 Though we would normally be inclined to grant adjournment as the competent authority is stated to be sick, we cannot but keep in mind that the matter was posted only by way of abundant caution, to allow the Revenue an opportunity to state or rely upon whatever it may wish to in pursuance of its appeal and, further, that the matter has been postponed for too long. The matter, as we understand, has been delayed due to reference by the competent authority to the Chief CIT, even as we find no basis for the said reference. As such, there being no person in charge of the office of the Chief CIT is of no consequence. The Revenue should have acted responsibly, firstly, while deciding on filing the appeal and, subsequently, on the assessee preferring a CO, which aspect in fact could have even otherwise been advanced and set up by him in the hearing of the appeal itself, i.e., independent of his CO. True, a CO is for all intents and purpose an appeal. It cannot, however, be conditional, i.e., subject to a particular result in the main appeal. A respondent can even otherwise support the order appealed against on any of the grounds decided against him, so that the assessee need not have necessarily preferred a CO, and its alternate claim, where raised in hearing the main appeal, would have to be addressed. The withdrawal of the appeal could only be with the leave of the court, whose decision cannot be taken one-sided, and has to be after hearing both the sides. As such, nothing 5 ITA No. 7620/M/11 & CO No. 212/M/12 Kamal Imran Panju (A.Y. 2008-09) much turns on the arguments advanced with reference to the survival or otherwise of the assessee's CO. i.e., independent of the main appeal. The question even otherwise is academic in the present case inasmuch as there has been in fact no withdrawal of appeal, for which extended time stands allowed by the tribunal. Accordingly, the adjournment application dated 30.12.2013 is rejected, and we proceed to decide the Revenue's appeal and the assessee's CO on merits, i.e., as per law; the facts being undisputed.
3.3 In our view, the matter is required to be considered not from the stand-point of whether the purchase of the assessee's shares by the issuing company falls to be considered as a buy-back u/s.77A of the companies act or not, but whether the transaction is in substance a reduction of capital by the company following the scheme of arrangement providing an exit option to the minority shareholders (i.e., the Marshall Group, consisting principally the assessee and her husband holding 19.60% of the shareholding, besides the residuary shareholders, at 3.14%), considered with reference to the relevant provisions of the Act. There is no dispute qua the same being a reduction of capital by the issuing-transferee company under the relevant provisions of the governing statute, i.e., the companies act.
3.4 Section 2(22)(d) of the Act reads as under:
Definitions '2. In this Act, unless the context otherwise requires,--
(22) "dividend" includes--
(a) ...................
(b) ...................
(c) ...................
(d) any distribution to its shareholders by a company on the reduction of its
capital, to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933, whether such accumulated profits have been capitalised or not;' We have carefully gone through each of the decisions relied upon by the Revenue per ground no. 4 of its grounds of appeal, viz. CIT vs. G. Narasimhan [1999] 236 ITR 6 ITA No. 7620/M/11 & CO No. 212/M/12 Kamal Imran Panju (A.Y. 2008-09) 327 (SC); CIT vs. Urmila Ramesh [1998] 230 ITR 422 (SC); and Kartikeya V. Sarabhai vs. CIT [1997] 228 ITR 163 (SC). The issue under reference stands amply clarified by the apex court in the case of G. Narasimhan (supra), rendered after considering its earlier two decisions, i.e., in the case of Urmila Ramesh and Kartikeya V. Sarabhai (supra); the latter rendered following the decision in the case of Anarkali Sarabhai vs. CIT [1997] 224 ITR 422 (SC). It clarified that the decision in the case of Kartikeya V. Sarabhai (supra) did not consider the provision of section 2(22)(d) of the Act. Vide the said section, any distribution by a company to its shareholders on a reduction of capital, to the extent it possess accumulated profits, whether capitalized or not, shall for the purposes of the Act be considered as dividend income. Accordingly, it was held that the distribution made by the company on the reduction of its share capital, which correlated with the company's accumulated profit, whether capitalized or not, is to be considered as dividend in the hands of the assessee-recipient, and the income liable to be taxed accordingly. It is only in case of distribution in excess of such accumulated profits that the question of the capital receipt in the hands of the shareholder would arise.
3.5 Clearly, therefore, in the present case, the receipt of Rs.1674.85 lacs, to the extent it is attributable to the accumulated profits of the company, would be dividend u/s.2(22)(d) r.w.s. 2(24)(ii) of the Act. The assessee declaring the entire sum, including that attributable to accumulated profits (which again stands defined per Explanation 2 to section 2(22)), as towards transfer consideration of the shares on the reduction of capital, liable to capital gains, is thus not correct in the eyes of law. Only the sum received over and above that referable to the accumulated profits would bear the character of a capital receipt and, thus, being in respect of a transfer of a capital asset, liable to tax u/s.45(1) of the Act. The Revenue's case is unexceptional.
The ld. CIT(A) has failed to consider the clear provision of law qua reduction of capital, i.e., sec. 2(22)(d), as well as the relevant decision by the apex court settling the matter. The buy-back of shares, as indeed the reduction of capital, by a company could only be in terms of the relevant provisions of the companies act. Section 46A, it may be 7 ITA No. 7620/M/11 & CO No. 212/M/12 Kamal Imran Panju (A.Y. 2008-09) noted, was introduced on the statute-book (by Finance Act, 1999 w.e.f. 01/4/2000) as a consequential amendment to the companies act, allowing a company to purchase its own shares (or other specified securities) subject to certain conditions (vide s.77A). To clarify the legal position qua such buy back of shares u/s. 77A of the companies act, s. 46A was inserted to provide that any consideration received by a shareholder (or holder of other specified security) on the purchase of its shares (or the specified securities) by the issuing company, shall, to the extent it is in excess of the its cost of acquisition, and subject to s. 48, be deemed as capital gains in the year of such purchase. Sec. 2(22) was simultaneously amended (vide clause (iv) thereto) to exclude any part of such consideration for being considered as dividend u/s. 2(22) of the Act. There is accordingly no conflict between the different provisions, and s. 46A is only toward purchase of its shares, etc. by a company by way of buy-back u/s.77A, and not by way of reduction of capital through the procedure specified in its respect under the companies act. In fact, it is not even the assessee's case that it is a case of buy-back of shares u/s. 77A of the companies act, so that the provision of s. 46A, considered by the ld.CIT(A) as validly invoked by the assessee, has no application in the facts and circumstances of the case.
4. In view of the foregoing, the impugned receipt is liable to be considered as dividend u/s.2(22)(d) of the Act to the extent and as attributable of the accumulated profits of the company. We decide accordingly, and the Revenue succeeds in part.
5. Coming to the assessee's CO, claiming that the dividend income u/s. 2(22)(d) is exempt u/s. 10(34) of the Act, so that no tax liability in its case would arise in any view of the matter.
Section 10(34) of the Act reads as under:
"Incomes not included in total income.
10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included--
(1) .................
(2) .................
(34) any income by way of dividends referred to in section 115-O; ..."8 ITA No. 7620/M/11 & CO No. 212/M/12
Kamal Imran Panju (A.Y. 2008-09) Section 10(34) of the Act, thus, exempts income by way of dividends referred to in u/s.115-O from tax. Section 115-O of the Act falls under Chapter XII-D of the Act, titled 'Special provisions relating to tax on distributed profits of domestic companies'. The heading of the section itself reads as: 'Tax on distributed profits of the domestic companies'. The term 'domestic company' is defined under section 2(22A) of the Act, and that the issuing company in the instant case is a domestic company is not in dispute. Even otherwise, it flows from the assessee's argument itself inasmuch as the dividend would not be exempt u/s. 10(34) unless it is a dividend referred to in section 115-O, i.e., distributed by a domestic company. The reading of the section would bear out that the same is only applicable to sums declared, distributed or paid by a qualifying (domestic) company by way of dividend, whether interim or otherwise. The word 'dividends' for the purposes of Chapter XII-D has been defined per Explanation thereto to mean the same as given vide clauses (a) to (d) of sub-section (22) of section 2 of the Act. The amount under reference has been confirmed by us as falling u/s. 2(22)(d) to the extent of the transferee- company's accumulated profits and, as such, as dividend within the contemplation of section 115-O. The same is, therefore, dividend referred to in section 115-O and, accordingly, covered by the provision of section 10(34) of the Act. The assessee's claim per its CO, to the extent the receipt of Rs.1674.86 lacs is a dividend u/s. 2(22)(d), is, thus, valid in law. The same is liable to additional income-tax u/s. 115-O in the hands of the company paying the same (dividend), and which though follows directly from what has been held by us, is another matter, with which we are not directly concerned with in the present case. The assessee thus also succeeds in part. We decide accordingly.
6. In the result, both the Revenue's appeal and the assessee's CO are partly allowed in the terms indicated above.
Order pronounced in the open court on December , 2013
Sd/- Sd/-
(I. P. BANSAL) (SANJAY ARORA)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मुंबई Mumbai; दनांकDated : 31.12.2013
9
ITA No. 7620/M/11 & CO No. 212/M/12
Kamal Imran Panju (A.Y. 2008-09)
व. न.स./Roshani, Sr. PS
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आयु त(अपील) / The CIT(A)
4. आयकर आयु त / CIT - concerned
5. वभागीय त न ध, आयकर अपील य अ धकरण, मुंबई /
DR, ITAT, Mumbai
6. गाड फाईल / Guard File
आदे शानस
ु ार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai