TMI Blog2022 (5) TMI 1275X X X X Extracts X X X X X X X X Extracts X X X X ..... came direct subsidiary of the assessee. The Book Value of the investments was Rs.2061.17 Lacs. Subsequently a special resolution was passed by the equity shareholders of FTL on 05.01.2010 approving the reduction of paid-up share capital by cancelling the equity shares against debit balance of Rs.1710.28 Lacs standing in the Profit Loss Account as on 31.03.2009. It could be seen that there was existing accumulated losses to the extent of Rs.1710.28 Lacs as on 31.03.2009 which were sought to be wiped-off by cancellation of shares. Accordingly, 1,71,02,800 shares of Rs.10/- each got cancelled and extinguished leaving remaining equity shares numbering 38,97,200 with the assessee Share Capital was reduced with a corresponding reduction in the existing accumulated losses and the transaction was a mere Book-entry and nothing more. The assessee wrote-off the amount of Rs.1682.91 Lacs in the Profit Loss Account and added back the same while computing the income under normal provisions. However, while computing Book-Profits u/s 115JB, the assessee does not add back the same on the ground that it is actual loss We concur with the findings in the impugned order that the assessee s ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd urged in the appeal is ground no.1 which read as under: - 1. Disallowance of investments written off of Rs. 16,82,92,557 1.1 On the facts and circumstances of the case and in law, the learned CIT(A) erred in upholding the action of the AO of disallowing an amount of Rs.16,82,92,557, towards write off of investments consequent to reduction in capital of the subsidiary, in computing book profits under provisions of section 115JB of the Act. 1.2 The learned CIT(A) erred in not appreciating that section 115JB is a selfcontained code and hence only specified adjustments can be added or excluded from book profits. The learned CIT(A) ought to have appreciated that write off of investment does not fall within specified adjustments and consequently cannot be excluded in computing book profit. As evident, the sole subject matter of the appeal is computation of bookprofits u/s 115JB. 2. The Ld. AR advanced arguments to support the case of the assessee whereas Ld. CIT-DR submitted that the impugned order is in accordance with law. Reliance has been placed by Ld. AR on the decision of Chennai Tribunal in the case of M/s PVP Corporate Parks Private Ltd. V/s DCIT (ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Less: Reduction of capital pursuant to the Hon ble Bombay High Court order dated 26.02.2010 u/s 100 of The Companies Act, 1956 (1,71,02,800) (16,82,91,552) Balance As on 31.03.2010 68,97,200 6,78.26,350 Accordingly, the assessee wrote-off the investment of Rs.1682.91 Lacs held in FTL and debited the same to the Profit Loss Account. The same was treated by Ld. AO as provision for losses of subsidiary companies as per Explanation (1)(d) for Section 115JB of the Act. 4.2 The assessee submitted that the write-off of the investment was actual write-off and it could not be taken as provision for losses of subsidiary companies. Alternatively, it was ascertained liability. Reliance was placed on the decision of Apollo Tyres Ltd. (255 ITR 273) for the submissions that Ld. AO had no jurisdiction to go behind the Profit shown in the Profit Loss Account except to the extent as provided in Explanation to Sec.115JB of the Act. 4.3 The Ld. CIT(A), relying on the decision of Special Bench Mumbai Tribunal in Bennett Coleman Co. Ltd. V/s Addl. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier, the appellant company, as a result of the approval of Hon ble Bombay High Court to the proposal of FTL to cancel its equity and reduce its capital has seen its investment reduce to the extent of Rs.16,82,91,552/-. It has also to be kept into consideration that loss is on account of investments in a subsidiary company. The issue for consideration here is whether the impugned loss is actual loss or a notional loss, hi the case of Bennett Coleman Co. Ltd. Vs Addl. Commissioner of Income-tax reported in [2011] 141 TTJ 777 (Mumbai SB), the Id. Mumbai Tribunal has held that loss on reduction in paid up equity share capital can at best be said to be a notional loss. The Id. Tribunal had held that assesses shareholder's percentage of shareholding before the reduction of share capital by the company and immediately after such reduction having remained the same, the loss, if any, is a notional loss. It was further held that in the case of reduction of capital nothing moves from the coffers of the company and, therefore, it is a simple case of no consideration which cannot be substituted to zero and the socalled loss arising to the assessee who has not received any consideration re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y shall not be chargeable to tax under section 45, in view of the provisions of section 47. The transaction involving any transfer of capital asset by a company to its wholly owned Indian subsidiary company is included in section 47 under clause (vi) and, hence, the said transaction is not regarded as 'transfer'. The existence of the element of 'transfer' is an essential condition for bringing the profits and gains arising on a transfer of a capital asset into taxation under section 45. Accordingly, in the absence of 'transfer', the profits and gains arising on said transfer of capital asset by a company to its wholly owned subsidiary is not chargeable to tax under 45. If the said profits and gains is not chargeable to tax under section 45, the same would not be considered as 'income' at all under the definition of income given in section 2(24). [Para 241]. The provisions of section 10 list out various types of income, which do not form part of total income. All those items of receipts shall otherwise fall tinder the definition of the term 'transfer' as defined in section 2(24), but they are not included in total income in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s due to reduction in equity shares of subsidiary company. I have already discussed in the foregoing paragraphs that the loss is nothing but a notional loss In so far as the appellant company is considered. As FTL Is a hundred percent owned subsidiary company, appellant's percentage of shareholding immediately before the reduction of share capital and thereafter remains the same. It is settled law that income includes 'loss' or 'negative income'- In the appellant's case, the notional loss cannot be classified as a 'loss' for the purposes of computation of income. This point of view also gets corroboration by the action of the appellant company in not claiming the transaction as Long Term Capital Loss in its computation of income under the normal provisions of the Act, The Id. Mumbai Tribunal in the Shivalik Venture case (supra) has categorically held that items falling outside the purview of the computation provisions of the Income-tax Act, cannot also be included in the 'book profit7 under Section 115JB of the Act Hence, in view of the fads, circumstances and judicial decisions discussed above. 1 am of the considered view that the notional loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mal provisions. However, while computing Book-Profits u/s 115JB, the assessee does not add back the same on the ground that it is actual loss. However, we concur with the findings in the impugned order that the assessee s ownership in FTL remains the same i.e., 100% before and after the cancellation of shares and nothing moves from the coffers of the assessee company on this transaction. Therefore, the write-off would be nothing but a notional loss of subsidiary company. The decision of Special Bench Mumbai Tribunal in Bennett Coleman Co. Ltd. V/s Addl. CIT (141 TTJ 777) clearly support this proposition wherein it was held that loss on reduction of equity capital could at best be a notional loss. The shareholders percentage of shareholding before and after the reduction of share capital remained the same and the loss was notional loss. Upon reduction of capital, nothing moves from the coffers of the company. Accordingly, the loss was held to be notional loss. For the said very reason, the decision of Chennai Tribunal in M/s PVP Corporate Parks Private Ltd. V/s DCIT (ITA No.497/Mds/2016 dated 01.08.2016) would not be applicable since in that case, there was actual sale of fixed a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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