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2020 (6) TMI 528 - AT - Income TaxGain on the sale of assets - Long Term capital gain OR Short Term Capital Gains - “financial asset” u/s 2(42A) or not? - period of holding - assessee’s case was a scheme of amalgamation - transfer of intangible assets with right to carry on business - AO held that the period of holding of the assets transferred is less than 36 months and same being financial assets, the sale proceeds are to be treated as Short Term Capital Gain (STCG) - CIT-A held that period of holding of the said asset will include also the period held by the transferor company and treated the sale of asset as LTCG - whether the assets transferred by the assessee to M/s.Masonite Holdings Private Limited is a “financial asset” coming within the Explanation 1(i)(e) to section 2(42A)? HELD THAT:- "Financial asset” has been described in the Act as share or security and the assets transferred by the assessee does not fall in the category of “financial asset”. This view is further affirmed by section 2(11) of the I.T.Act, which defines the term “block of asset” for the purpose of depreciation. The definition u/s 2(11) of the I.T.Act includes intangible assets. Since the intangible assets are covered in the definition of “block of asset” eligible for depreciation, the same cannot be again covered under the definition of “financial asset” as per Explanation (1) (i) (d) to section 2(42A) of the I.T.Act. Therefore, the assets transferred by the assessee, the period of holding cannot be determined as per Explanation 1(i)(e) to section 2(42A) of the I.T.Act, as contended by the Assessing Officer. In the facts and circumstances of the case, we are of the view that the holding period should be determined as per Explanation 1(i) (b) to section 2(42A) of the I.T.Act to determine whether or not an asset is a short term capital asset. The assessee’s case was a scheme of amalgamation and assessee is an Indian company. Therefore, it is not correct for the Assessing Officer to consider 01.04.2008 as the date on which the assets were acquired, because the brand name was already there with Feroke Boards Limited (one of the companies that got merged with Feroke Boards & Doors (P) and later renamed Feroke Boards Limited). The brand name was registered with Trade Marks Registry (Trade Mark No.1432867 dated 14.03.2006). The term “amalgamation” is defined in section 2(IB) and the assessee’s case fall under the said definition. Therefore, there is no transfer taking place on 01.04.2008. The period of holding is much more than 36 months when the relinquishment / sale took place (on 18.05.2010). Therefore, the A.O. ought not to have taxed such receipts as STCG but should have taxed it as LTCG. Explanation to section 49(1) of the I.T.Act is a benevolent provision to extend applicability of the term “previous owner” to cover cases like assessee. Here the previous owner is the amalgamating company and this company did not acquire it in a mode referred to in clause (i) or clause (ii) or clause (iii) or clause (iv) of section 49(1) of the I.T.Act. However, as no purchase price was paid by the amalgamating company, the cost of acquisition was taken as `NIL’ as required u/s 55(2)(a)(ii) of the I.T.Act. The Hon’ble Delhi High Court in the case of CIT v. Mediward Publication (P) Ltd [2011 (4) TMI 503 - DELHI HIGH COURT] had held that transfer of intangible assets with right to carry on business was taxable as LTCG. - Decided against revenue.
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