TMI Blog2013 (3) TMI 392X X X X Extracts X X X X X X X X Extracts X X X X ..... antage, perquisite or receipt is not in the nature of income, there cannot be any occasion to bring the same to tax under section 28(iv). In the case of Padmaraje R Kadambande v. CIT (1992 (4) TMI 215 - SUPREME COURT) observed the amounts received by the assessee during the financial year in question have to be regarded as capital receipts, and, therefore, are not income within meaning of section 2(24) of the Income Tax Act. This clearly shows, as is the settled law, that a capital receipt, in principle, is outside the scope of income chargeable to tax. Howsoever liberal or narrow be the interpretation of expression 'income', it cannot alter character of a receipt, i.e. convert a capital receipt into revenue receipt or vice versa. The crucial distinction between capital and revenue cannot be blurred or nullified by even the most liberal interpretation of expression 'income'. Also see Dr K George Thomas v. CIT (1985 (9) TMI 2 - SUPREME COURT) wherein held that the burden is on the revenue to establish that the receipt is of a revenue nature" though "once a receipt is found to be of revenue character, whether it comes under exemption or not, it is for the revenue to establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. Dahiya. For the Respondent M.K. Patni. ORDER:- Pramod Kumar, Accountant Member - By way of this appeal, the appellant Assessing Officer has called into question correctness of learned Commissioner (Appeals)'s order dated 8th August 2011, in the matter of assessment under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for the assessment year 2008-09, on the following grounds: 1. That, on the facts and in the circumstances of the case, the learned CIT(A) has erred in considering the issue of shares by amalgamated company to the shareholders of amalgamated company in lieu of transfer of undertaking of the amalgamating company are all transfers within the meaning of section 2(47(i) of the Income Tax Act, 1961. Therefore, the said order of the learned CIT(A)- VII, Kolkata is perverse and liable to be quashed. 2. That, on the facts and in the circumstances of the case and in law, the learned CIT(A)- VII Kolkata has erred in considering the provisions of Section 47(vii) of the Income Tax Act, 1961, when it has not been relied upon by the assessee during the course of assessment proceedings under section 143(3) of the Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come of the assessee under section 28(iv) of the Income Tax Act, 1961. The assessee's explanation was that the said amount is neither a benefit, nor a perquisite, nor even advantage of any kind, but simply a result of merger of accounts of amalgamating and amalgamated company. This explanation did not satisfy the Assessing Officer. He rejected the submissions of the assessee, and, in a very scholarly discussion, observed as follows: (i) It appears that the assessee is an investment company and had an accumulated profit of Rs. 6,36,196/- as on 31.03.2007 and Rs.3,14,944/- as on 31.03.2008. The earning per share of the company in Rupees is (12.85). Likewise M/s. Vidya Vincom Pvt. Ltd. is also an investment company and had an accumulated profit of Rs.2,529/- and Rs.4,552/- as on 31.03.2006 and 31.03.2007 respectively. The earning per share of the company (in Rupees) has been mentioned in the audited accounts for the year ended on 31.03.2007 as negligible. No dividend has been distributed by both the companies in any of the previous years. (ii) It has been found that the assets and liabilities of the amalgamated company had been taken over by the amalgamating company whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is benefited in a myriad ways by way of amalgamation. The assessee in its sane mind will not venture into this exercise of amalgamation, without going into the due diligence of evaluating the pros and cons of an amalgamation with another company. When it has done so, its only motive can be to derive maximum benefit out of it. Therefore, the net result of enhancement of 'Capital Reserve' to the tune of Rs.2,06,87,692/- can only be termed as a benefit accruing to the assessee under section 28(iv) of the Income Tax Act, 1961. In the instant case, the intention of the amalgamating company, i.e. the assessee company was to earn profit as there was no reason to amalgamation particularly where the performance of both the company were alike and there was no actual business shown by it during the past year (other than investment in mostly in private limited companies). Therefore, the resultant of amalgamation is considered as a business transaction and the profit arising out of merging of accounts of the amalgamated company with the amalgamating company is business income which is in the nature of benefit or perquisite arising from business or the exercise of a profession, covere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reserve cannot be treated as income of the appellant. Thus, I conclude that amalgamation reserve of Rs.2,06,87,692/- cannot be treated as business income under section 28(iv) of the Income Tax Act. Thus Ground No. 1 is decided in the favour of the appellant. 4. The Assessing Officer is aggrieved, and is in appeal before us. 5. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position. 6. We find that there is no dispute about the fundamental factual position that it is a case of amalgamation of companies, and it is as a result of this scheme of amalgamation, duly approved by Hon'ble jurisdictional High Court - a copy of which is placed on our records as well, that the capital reserve of the amalgamating company, i.e. VVPL, was shown in the books of accounts of the assessee. The short question that we really need to answer is whether on these facts, the transfer of capital reserve to the assessee company can indeed be considered to be an income of the assessee under section 28 (iv) as a 'business income'. As we deal with this issue, we may also mention that given these facts, as far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8(iv), the difference between a capital receipt and revenue receipt cannot be overlooked. In the case of Mahindra Mahindra Limited v. CIT (261 ITR 501), Hon'ble Bombay High Court has, in the context of this significant distinction between revenue and capital receipts, held that waiver of principal amount in respect of imports of plant and machinery could, by no stretch of logic, be treated as 'business income', and, therefore, as an income taxable under section 28(iv). One must bear in mind the fact that section 28 only refers to the "income" which can be charged to income tax under the head "profits and gains from business or profession", and, therefore, when a particular advantage, perquisite or receipt is not in the nature of income, there cannot be any occasion to bring the same to tax under section 28(iv). Hon'ble Supreme Court, in the case of Padmaraje R Kadambande v. CIT (195 ITR 877) observed that, " we hold that the amounts received by the assessee during the financial year in question have to be regarded as capital receipts, and, therefore, are not income within meaning of section 2(24) of the Income Tax Act." (Emphasis by underlining supplied by us). This clearly shows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er or not the benefit, even if that be so, is on capital account or revenue account, it is necessary to understand the nature of transaction which has resulted in, what the Assessing Officer, perceives as 'benefit to the assessee'. This was a case of amalgamation in the nature of merger, and an amalgamation in the nature of merger, in corporate parlance, is the process of blending of two or more companies into one of these blending companies, the shareholders of each blending company becoming substantially the shareholder of the company which holds the blended undertaking. The expression 'amalgamating company' is used for the 'blending company' which loses its existence into the other company and the expression 'amalgamated company' is used for blended undertaking, which holds existence of those two or more companies. In essence thus, the whole exercise of amalgamation in the nature of merger is an exercise in that of pooling of resources, as also pooling of assets, into the company in which two or more companies are blended. It is a process of corporate reconstruction and it is only with the approval of Hon'ble jurisdictional High Court that this exercise is carried out. In the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trade, as also his reliance on Hon'ble Supreme Court's judgment in the case of Rajputana Textiles (Agencies) Ltd. v. CIT 42 ITR 743 (SC), wherein it was held that where from the very beginning, purchase of shares is made with the intention of selling them, at a profit, it is an adventure in the nature of trade. However, we are unable to see any merits in these arguments either. Whatever be the scope of expression 'business', an advantage has to be of income nature first, and when it is not of income nature, it cannot be brought to tax under the head profits and gains from business or profession. As regards the transactions in the nature of 'adventure in the nature of trade' in a situation in which shares are purchased with an intention of selling the same, right now we are dealing with a case of amalgamation by way of merger and not by way of purchase of shares, and, therefore, there cannot be any question of selling of the shares, nor does this judicial precedent deal with the issue before us in any other manner. There is no material whatsoever before us to indicate that the benefit, even if accruing to the assessee, was in revenue field, in the course of assessee's business deali ..... X X X X Extracts X X X X X X X X Extracts X X X X
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