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2010 (7) TMI 765 - HC - Income TaxTransfer - whether assets at written down value level valued at ₹ 3,01,700 in exchange of shares valued at ₹ 15,74,874 did not constitute 'transfer' within the meaning of section 2(47) as held by Tribunal ? - Tribunal deleting the addition made by the AO by invoking the proviso to section 41(2) - Held that:- As decided in Kartikeya V. Sarabhai v. CIT [1997 (9) TMI 2 - SUPREME Court] while considering the scope of "transfer" within the meaning of section 2(47) of the Act, where the company had sought to reduce the share capital by reducing the face value of the preference shares, had held the same to be "transfer" under section 2(47) of the Act. Ths the answer to the first question that assets given at the written down value in exchange of shares would amount to 'transfer' within the meaning of section 2(47) of the Act. Section 41[2] applies wherever the sale proceeds of the capital asset of an assessee exceeds the written down value. The amount that is chargeable to tax under this section is so much of the excess as does not exceed the difference between the actual cost and the written down value. This is taxed as income arising from business or profession of the assessee in the previous year in which the asset is sold. The said charge is termed as balancing charge. This represents the depreciation allowance which is allowed in the previous years from the profits earned by the assessee in those years and where subsequently the capital asset has been sold for excess value, then the difference between the original cost and the written down value is treated as income under section 41(2) of the Act by way of balancing charge.Thus following Chandra Katha Industries’ case [1982 (4) TMI 49 - ALLAHABAD High Court] transfer of assets at written down value for shares of higher value amounts to transfer and attract tax under section 41(2) of the Act. View taken by the Tribunal, thus, cannot be upheld.
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