Emami Infrastructure Ltd Vs ITO (ITAT Kolkata)
We first consider whether there is a transfer, in view of section 47(iv) of the Act. The undisputed fact is that M/s. Emami Realty Ltd is a 100% subsidiary of M/s.Emami Infrastructure Ltd, the assessee herein. M/s.Emami Rainbow Niketan Pvt. Ltd is in turn a 100% subsidiary of M/s. Emami Realty Ltd. In other words, this is a second step down 100% subsidiary of the assessee. The issue is whether the provisions of section 45(iv)(a)(b) is applicable to a second step down subsidiary. They are divergent views on this issue. The Hon’ble Bombay High Court in the case of Petrosil Oil Co.Ltd Vs. CIT reported in 236 ITR 220 (Bom.) held as under:-
“In this case, the Income-tax Act nowhere defines what is a “subsidiary company”. The Finance (No. 2) Act also does not define what is a “subsidiary company”. There would be a dichotomy if the assessee-company were to be a subsidiary company of the U.S. company for the purposes of the Companies Act, but were deemed not to be a subsidiary of the U.S. company for the purposes of the Income-tax Act. I am in agreement with the view expressed by my brother Dr. Saraf J., that the meaning given to the term “subsidiary company” under section 4(1)(c) of the Companies Act must be imported into section 108 of the Income-tax Act. Of course, the further condition laid down under section 108(b) must also be fulfilled. Thus, a sub-subsidiary would be a subsidiary under section 108(b) if the whole of its share capital has been held by the parent company or its nominees throughout the previous year. 84. If that meaning is incorporated then it is very clear that the assessee is a subsidiary within the meaning of section 108(b) of the Income-tax Act. This is so because, admittedly, the U.S. company is a company in which the public are substantially interested and falls within section 108(a). A 100 per cent. owned sub-subsidiary of a 100 per cent. owned subsidiary would be a subsidiary within the meaning of section 4(1)(c) of the Companies Act and also within the meaning of section 108(b) of the Income-tax Act. The assessee fulfils the condition of section 108(b) inasmuch as throughout the previous year 100 per cent. of its share capital was held by the U.K. company. Throughout the previous year 100 per cent. of the share capital of the U.K. company was held by the U.S. company. The U.K. company is thus a nominee of the U.S. company. The assessee would thus be a subsidiary within the meaning of section 108(b). In this view of the matter, it is not necessary to consider the Petrosil Oil Company Ltd. vs Commissioner Of Income-Tax on 22 September, 1993 Indian Kanoon three other angles propounded by Mr. Dastur. 85. I am, however, unable to accept the view that for the purposes of Paragraph F not only the assessee but the parent company/companies must also be domestic companies. A reading of Paragraph F does show that the rates of tax applicable therein are applicable to a “domestic company”. The reference to “domestic company” in the beginning is to the assessee. By virtue of section 2(6) (a) of the Finance (No. 2) Act, 1971, one has to go to section 108 of the Income-tax Act to determine whether a company is a company in which the public are interested. It is clear that section 108 of the Income-tax Act does not limit its applicability to a “domestic company”. Section 108 does not provide in clause (a) that it is to apply only to a domestic company. On the contrary, it applies to “any” company. Similarly, clause (b) of section 108 does not provide that it applies to a subsidiary of a domestic company. Thus, under section 108(a) a company could be a company in which the public are substantially interested even though it is not a “domestic company”. If that be so then a “subsidiary” under section 108(b) could be a “subsidiary” of a company which is not a domestic company. As stated above, the definition of a “subsidiary” under section 4(1)(c) includes a “sub-subsidiary”. As stated above the definition of “subsidiary” under the Companies Act must be imported into the Income-tax Act. Thus, even a sub-subsidiary would be a “subsidiary” under section 108(b). Such “subsidiary” may be a “sub-subsidiary” of a company which is not a domestic company. That under section 108 a company need not be a domestic company is also clear from the circular of the Central Board of Direct Taxes and from section 2(17) of the Income-tax Act. The authority in Indo-Nippon Chemical Co. Ltd.’s case [1986] 161 ITR 635 (Bom), also supports this view. 86. Thus the Legislature was well aware that a company can be a company in which the public are substantially interested by being a subsidiary or a sub-subsidiary of a company which is not a domestic company. Knowing this the Legislature, in Paragraph F, has only provided that the assessee is to be a domestic company. If the intention of the Legislature was that not only the assessee but its parent company/companies should be domestic company/companies, then the Legislature would have had to specifically so provide. In that case the Legislature could not/would not have, by virtue of section 2(6) (a) imported section 108 of the Income-tax Act. In that case, the Legislature would have in clause I(1) of paragraph F provided words to the effect “where the company and its parent company/companies is/are domestic company/companies in which the public are substantially interested”. The Legislature has purposely omitted to do so and the court cannot add words. 87. If it is held that the words “domestic company” in the opening part to clause I of Paragraph F govern the entire clause I, then there would be conflict between clause I and section 108 of the Income-tax Act. To avoid that conflict one would have to add words to section 108(b) of the Income tax Act to restrict a subsidiary to be a subsidiary of a domestic company. Where the Legislature intentionally omits to do so, the court cannot add words. This is particularly so when it is possible to harmonise both, without addition of any words to either, if it is held that the parent company/companies need not be domestic company/companies. It is settled law that if two interpretations are possible, then the one which harmonises must be accepted. It will, therefore, have to be held that so long as the assessee is a “domestic company”, it could be a company in which Petrosil Oil Company Ltd. vs Commissioner Of Income-Tax on 22 September, 1993 Indian Kanoon the public are substantially interested, even if the parent company/companies is/are not domestic company/companies. 88. In this view of the matter, it will have to be held that the assessee is domestic company in which the public are substantially interested Accordingly, the first question is answered as above. 89”
Applying the above decision of the Hon’ble Bombay High Court in the case of supra, we have to hold that the transaction in question cannot be regarded as transfer in view of provisions of section 47(iv) of the Act, as it is a transfer of capital asset by a company to its subsidiary company and as a second step down 100% subsidiary company is also as subsidiary of the assessee company under the Companies’ Act 1956 as the term ’subsidiary company’ has not been defined under the Income-tax Act, 1961.
Respectfully following the decision of the Hon’ble High Court of Bombay in the case of supra, we hold that the transaction of sale of shares of M/s. Zandu Realty by the assessee to M/s. Emami Rainbow Niketan Ltd is not regarded as a transfer in view of Sec.47(iv) of the Act. Hence, the question of computing either capital loss or capital gain does not arise. Thus, the assessee is not entitled to carry forward the capital loss of Rs.25 crores as claimed.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
This appeal by the Assessee is directed against the order dt. 03-03-2014 of the Commissioner of Income Tax (Appeals)-XII, Kolkata for A.Y 2010-11.
2. The only issue is to be decided as to whether the CIT-A justified in confirming the order of AO in determining the long term capital gain at Rs. 29,05,83,769/- against the claim of assessee as long term capital loss of Rs.25,05,20,775/- in the facts and circumstances of the case.
3. Brief facts of the case are that the assessee is a company. The assessee filed its return of income for the A.Y under consideration declaring total income at Rs.88,79,544/-. Notices u/s. 143(2) and 142(1) of the Act were issued. In response, the AR representing the assessee appeared and furnished requisite details and explanation in support of its claim. The AO determined the total income of the assessee at Rs.29,99,30,657/- as against the Rs.88,79,544/- vide his order dt:30-03-2013 u/s 143(3) of the Act.
4. During the A.Y under consideration the assessee claimed long term capital loss on account of sale of 286329 equity shares of Zandu Realty Ltd as under:-
(2) Long term capital gain on sale of 286329 equity shares of M/s. Zandu Realty Ltd., on which STT has not been paid:-
