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2016 (10) TMI 1326 - AT - Income TaxCapital gain computation - Consideration for de-merger of the telecom undertaking - value of consideration adopted for computation of capital gain - as per AO revaluation of assets e taken as a consideration for transfer of undertaking - HELD THAT:- Full value of consideration has to be taken based on the price that has been commercially agreed between the parties and cannot be imputed on a notional basis. In case of transfer of a capital asset, what can be taxed in the hands of the seller under the Act is real or actual gain that accrues/ arises from transfer of the assets and hence, in absence of any sale consideration (and resultant profit from such transfer) no notional gain can be imputed in the hands of the seller to tax such transfer. The other two only Sections (Le. Section 50C and Section 50D of the Act), which provide for imputation of consideration are also not applicable to the present case and hence, no consideration can be imputed in the instant case. Wherever considered appropriate, the legislature has inserted specific provisions for assumption of sale consideration for transfer of assets in specified cases. It is therefore unjust and unwarranted to impute/ assume consideration in cases which clearly do not fall within the ambit of such specified Provisions. Allegation of AO for taking the revaluation of assets as a consideration for transfer of undertaking, the learned AO has failed to understand that the Business Restructuring Reserve created in the books of the assessee was merely an accounting entry passed in the books of the Appellant on account of revaluation of its investment and that, the amount representing an accounting entry could not be deemed to be the value of consideration for transfer of the telecom undertaking by the assessee. The fair valuation of the investments by the assessee in its books cannot by any stretch of imagination be considered as a consideration received by the assessee from ICL for de-merger of its telecom undertaking. The creation of such a reserve only represents an accounting entry passed by the assessee in its books of account and does not represent any consideration whatsoever received from ICL or any third person towards transfer of the telecom undertaking to ICL. Further, in case of any consideration being received or paid, there have to be atleast two parties and given that in the instant case the reserve was created on account of a unilateral action by the assessee, the same cannot be treated as a consideration received from ICL. It is unimaginable to assume that creation of reserve in the books of the assessee on account of revaluation of its own investments is the consideration paid by ICL. The Business Restructuring Reserve merely represented a notional reserve created to bring the value of the investment held in Indus to its fair value and does not in any manner represent any consideration received by the assessee. In the instant case, there is no nexus between transfer of telecom undertaking by the assessee and revaluation of the investment in Indus except that both the transactions are independent transactions arising from the same Scheme of Arrangement. Hence, as no consideration has accrued to the assessee on account of the said de-merger, no profit or gain can be said to have accrued or received by the assessee. Accordingly, on the short ground of no consideration having been accrued or received by assessee, AO was not justified in computing capital gain on the transfer of undertaking. We therefore, set aside the order of AO on this issue. As we are going to allow this ground of assessee‟s appeal regarding no capital gains in absence of any consideration for de-merger of the telecom undertaking, we are not going to deal with the other arguments of learned AR. Denial of amortization of telecom licence fees under section 35 ABB (2) is restored back to the file of AO for deciding afresh keeping in view our above observation of no capital gains on demerger of telecom undertaking to ICL. We direct accordingly.
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