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UTV Software Versus The ACIT 11 (1) , Mumbai

2016 (1) TMI 751 - ITAT MUMBAI

Sale of shares of joint venture company - slump sale - CIT(A) treating the sale of shares by the Appellant of its joint venture company as transfer of an undertaking ( i.e. slump sale u/s. 2(42C) of the Act) and hence, determining the capital gain tax liability u/s. 50B, instead of section 48 - Held that:- Considering the provisions of Sec. 50B and Sec. 2(42C) of the Act, in our considered opinion what the assessee has transferred is the shares in UHEL and this transfer of shares cannot be consi .....

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N.K. BILLAIYA, AM: This appeal by the assessee is directed against the order of the Ld. CIT(A)-3, Mumbai dated 21.2.2013 pertaining to Assessment year 2007-08. 2. The assessee has raised two substantive grounds of appeal. At the very outset, the Ld. Counsel for the assessee stated that under the instructions from his client (assessee), he is not pressing ground No. 2, the same is dismissed as not pressed. 3. The only surviving ground reads as under: Based on the facts and circumstances of the ca .....

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uction and distribution of films. The return for the year was filed at a loss of ₹ 21,01,75,216/- under normal provisions of the Act and the Book profit was returned at ₹ 19,44,37,860/- u/s. 115JB of the Act. 4.1. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee. 4.2. While scrutinizing the return of income, the Assessing Officer noticed that during the year the assessee has sold entire share holding in its 100 .....

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#8377; 45,84,44,579 Sales Capital Gain - long term ₹ 24,94,10,237/- 4.3. Taking a leaf out of the assessment proceedings for A.Y. 2006- 07, the AO was of the firm belief that the transaction amounts to slump sale of an undertaking and the capital gains have to be computed as per provisions of Sec. 50B of the Act. 4.4. The assessee was asked to explain the same. The assessee filed a detailed reply vide letter dated 6.4.2010 explaining that why the transaction should not be considered as slu .....

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000 Net worth of undertaking 25,49,00,000/- Net sales consideration 45,84,44,579/- Capital gain-short term 20,35,44,579/- 5. Aggrieved by this, the assessee carried the matter before the Ld. CIT(A) and reiterated its claim but without any success. 6. Before us, the Ld. Counsel for the assessee vehemently submitted that provisions of Sec. 50B of the Act which relate to the computation of capital gains in case of a slump sales is not at all applicable on the facts of the case. It is the say of the .....

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mpany. For this proposition, the Ld. Counsel relied upon the decision of the Hon ble Supreme Court in the case of Mrs. Bacha F. Guzdar Vs CIT 27 ITR 01. Further reliance was placed on the decision of the Hon ble High Court of Bombay in the case of Brooke Bond India Ltd 79 COMPCAS 346. In support of his submission, the Ld. Counsel also relied on the decision of the Hon ble Supreme Court in the case of Vodafone International Holdings Vs Union of India And Another 341 ITR 01 and Hon ble Karnataka H .....

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ssessee is holding 49% shares and others are holding 1% share in the Company United Home Entertainment Ltd (UHEL). The Ld. Counsel further clarified the fact that the share in UHEL were transferred by the assessee to Walt Disney Company. Thus, what have been transferred are the shares in UHEL when UHEL is still in existence. Therefore, it cannot be said that the assessee has transferred any undertaking which would come within the purview of definition of slump sale as given u/s. 2(42C) of the Ac .....

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of a slump sale, therefore the conclusion arrived at by the AO that the assessee has sold shares and same has been purchased by the purchaser and the transactions have given rise to the transfer of the undertaking within the definition of slump sale given u/s. 2(42C) of the Act. The Ld. DR concluded by saying that there is no error in the findings of the Ld. CIT(A). 8. We have given a thoughtful consideration to the rival contentions and have carefully perused the orders of the authorities belo .....

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arising from the slump sale effected in the previous year shall be chargeable to incometax as capital gains arising from the transfer of long-term capital assets and shall be deemed to be the income of the previous year in which the transfer took place : Provided that any profits or gains arising from the transfer under the slump sale of any capital asset being one or more undertakings owned and held by an assessee for not more than thirty-six months immediately preceding the date of its transfe .....

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essee, in the case of slump sale, shall furnish in the prescribed form along with the return of income, a report of an accountant as defined in the Explanation below sub-section (2) of section 288 indicating the computation of the net worth of the undertaking or division, as the case may be, and certifying that the net worth of the undertaking or division, as the case may be, has been correctly arrived at in accordance with the provisions of this section. 8.2. Now let us see the definition of sl .....

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ination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities 8.3. A perusal of the aforementioned section shows that the word undertaking has further been defined as per Explanation-=1 to Sec 2(19AA) and which reads as under: For the purposes of this clause, "undertaking" shall include any part of an undertaking, or a unit or .....

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sideration should have been received by UHEL and not the assessee because it is UHEL which has been transferred and being a distinct legal entity is entitled for the sale consideration of its transfer. However, this is not the case since the shares were transferred by the assessee, assessee received the sale consideration. 8.6. Shareholders right has been explained in detail by the Hon ble Supreme Court in the case of Mrs. Bacha F. Guzdar (supra) and the observations of the Hon ble Supreme Court .....

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of the company. A shareholder has got no interest in the property of the company though he has undoubtedly a right to participate in the profits if and when the company decides to divide them. The interest of a shareholder vis-a-vis the company was explained in the Sholapur Mills case**. That judgment negatives the position taken up on behalf of the appellant that a shareholder has got a right in the property of the company. It is true that the shareholders of the company have the sole determini .....

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areholders. 8.7. This view is further fortified by the decision of the Hon ble High Court of Bombay in the case of Brooke Bond India Ltd (supra) wherein, inter alia, one of the contention before the Hon ble High Court was that the agreement is illegal and unenforceable as it is contrary to Sec. 293(1)(a) of the Companies Act. The observations of the Hon ble High Court reads as under: The first contention is that, u/s. 293(1)9a), the Board of Directors of the first defendants, a public company, i .....

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this sale from the first defendant company in general meeting. Hence, the agreement is clearly prohibited u/s. 293(1)(a), as what has been agreed to was completely beyond the pale of the powers of the board of directors of the first defendants. 8.8. It would not be out of place to refer to the following observations of the Hon ble Supreme Court in the case of Vodafone International Holdings (supra). A controlling interest is an incident of ownership of shares in a company, something which flows .....

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s the shareholder to control the management. Shares, and the rights which emanate from them, flow together and cannot be dissected. The tax consequences of a share sale would be different from the tax consequences of an asset sale. A slump sale would involve tax consequences which could be different from the tax consequences of a sale of assets on itemized basis 8.9. In the very same order, the Hon ble Supreme Court further held that the subject matter of the transaction was the transfer of the .....

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ere was no assignment of price for each right, considered by the Revenue to be a capital asset in the transaction. In the absence of a permanent establishment profits were not attributable to Indian operations. The Department had failed to establish any connection with section 9(1)(i) . Under the circumstances, section 195 was not applicable . 8.11 A similar view has also been taken by the Hon ble High Court of Karnataka in the case of Bhoruka Engineering Indus. Ltd (supra). The language employe .....

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