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2018 (9) TMI 1027 - HC - Income TaxCapital gain tax liability - Allotment of shares of the company which succeeds to the business of the partnership firm - reasonable period' - Non-compliance with the condition stipulated in clause (b) of Clause (xiii) of Section 47 - capital gains tax liability of the erstwhile firm or the successor-company - delay the process of allotment of shares of the Company in favour of the erstwhile partners - Held that:- No sufficient reason or excuse to delay the process of allotment of shares of the Company in favour of the erstwhile partners to an unreasonably long period of about 3½ years. By such delay of 3 to 4 years, not only the partners were deprived of their right to receive the Dividends for this period of delay because had they been allotted these shares at the time of succession of the business or immediately thereafter, before the end of previous year on 31.03.2000 as against the succession of business on 01.05.1999, they would have become entitled to receive the Dividends for the financial year ending on 31.03.2000, but since in the present case last allotment of shares to larger extent was made by the Company only on 11.03.2003, they were deprived of such an opportunity for 3 years in a row. Had it been a case of other shareholders or outside shareholders also joining the said company and the allotment process of shares could have been legally delayed for 3 years for such other persons also, in a hypothetical case, even such other shareholders would have been deprived of such Dividends from the company, if the reasons assigned by the Company that Authorized Share Capital of the company was not suitably increased was to be taken as a valid excuse, for that purpose. Therefore, we are satisfied that on a reasonable and harmonious construction of the relevant provisions of the Act quoted above, the Company in the present case was rightly held liable for the capital gains tax liability by virtue of Section 47(A)(3) of the Act read with Section 47(xiii)(b) of the Act. We are of the opinion therefore that the learned Tribunal was justified in holding that the Assessee-company was liable to pay such capital gains tax liability instead of the partnership firm and to that extent the Assessing Authority as well as the First Appellate Authority viz., CIT(A) fell in error in affixing such liability on the partnership firm. Answer the aforesaid substantial question of law in favour of the Revenue and against the Assessee, by holding that the allotment of shares of the company which succeeds to the business of the partnership firm has to be complied before the end of relevant previous year in which such succession of business takes place.
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