ACIT Vs KCT Papers Limited (ITAT Delhi)
Family Settlement + Tax-Neutral Demerger: ITAT Allows Indexation From Previous Owner, Revenue Appeal Dismissed
In this appeal, Revenue disputed CIT(A)’s order which had accepted Assessee’s computation of long-term capital loss on buyback of shares of Ballarpur Industries Ltd. Tribunal noted that Assessee had received the shares pursuant to Court-approved amalgamation & demerger schemes undertaken to implement the Thapar Family Settlement.
Tribunal examined the record where the corporate restructuring, share movements, diagrams & shareholder lists were placed on record, & found that all conditions u/s 2(1B) for amalgamation & u/s 2(19AA) for demerger were satisfied, including the requirement that not less than three-fourths of shareholders of KCTBL became shareholders of the resulting company. Consequently, transfers under these schemes were exempt u/s 47(vi)/(vib), requiring cost of acquisition to be determined u/s 49(1)(e) with reference to cost to previous owner & period of holding to be reckoned from the date shares were first held by such previous owner. Tribunal also noted that AO himself had accepted identical treatment in the same assessment order for long-term capital gain computation relating to developmental rights in Energetic Construction Pvt Ltd, thereby contradicting his stance on BILT shares. Tribunal agreed with CIT(A) that the AO’s adoption of book value as on 1.4.2006 & denial of indexation from the period of previous owner was arbitrary, contrary to settled law & inconsistent with family-settlement jurisprudence cited in CIT(A)’s findings. Tribunal upheld CIT(A)’s reasoning in full & dismissed Revenue’s appeal.
