Case Law Details
Aamby Valley Ltd Vs ACIT (ITAT Delhi)
Initially by Finance Act 2004 with effect from 1st April, 2005, under Section 56(2) sub-section (v) was inserted and subsequently, other sub-sections (vi) (vii) and (viia) were inserted by the Taxation Laws Amendment Act, 2006, Finance Act 2009 with effect from 01st October 2009 and sub-section (viia) was inserted by the Finance Act, 2010 with effect from 01st June 2010. When clause (v) was inserted under Section 56(2) the Explanatory Notes on the said provision of Finance Act 2004 reads as under :
“In order to curb bogus capital building and money lending, a new sub-section has been inserted in Section 56 to provide that any sum received without consideration on or after First day of September 2004, by an individual or HUF from any person shall be treated as income from other sources.
A threshold limit of 25000 rupees is also provided. If the amount so received exceeds this limit, the whole of the amount shall become taxable.
2. From its explanatory note, it is apparent that these provisions were brought into the statute to curb bogus capital building and money laundering. When the clause-(viia) was inserted in Section 56(2), the Memorandum explaining this provision of Finance Bill 2010 (supra), states – “In order to prevent the practice of transferring unlisted shares at prices much below their market value, it is proposed to amend Section 56(2) to also include within its ambit, transactions undertaken in shares of a company (not being a company in which public are substantially interested) either for inadequate consideration or without consideration where recipient is a Firm or a Company”. Section-2(18) provides the definition of a “Company” in which the public are substantially interested. It is also proposed to exclude transactions undertaken for business reorganisation arrangements and amalgamation which are not regarded as ‘Transfer’ under clauses (via) (vic) (vicb) (vid) and (vii) of Section 47 of the Income Tax Act, 1961”. From this Memorandum, it is apparent that this provision is anti abuse provision intended to cover transactions resulting into tax evasion by dubious methods. In the Memorandum nowhere expressed that this provision has been brought into the Statute to cover transactions of business restructuring or rearrangement. It is not denied that the assessee has received shares of SVPs companies at the time of amalgamation of AVVPL with the assessee and assessee is a company in which public are not substantially interested. However, the above provisions contained under Section 56(2)(viia) used the words “receives-any property being shares”. But the Memorandum explaining the said provision clearly states that “this clause has been inserted in order to prevent the practice of transferring unlisted shares.” In our view, the said Section can be applied if there is a transfer of shares in favour of a Firm or a Company. For the transfer of shares, we agree with the assessee that there must be a transferor and transferee and transferred assets i.e., shares. In the case of amalgamation, it cannot be said that there is a transfer of shares as there is only statutory vesting of the assets by virtue of the Scheme. Section 56(2)(viia) is applicable only if assessee being a Company receives shares of a Company either without consideration or for a consideration which is less than the aggregate fair market value. In the instant case, due to Composite Scheme of Arrangement and Amalgamation, it cannot be said that there is no consideration or inadequate consideration. In fact, due to the arrangement, the assessee transferred the assets of various undertakings to SPVs and in consideration thereof, acquired the shares of SPVs through AVVL and through this process, the shares of AVVL held by the assessee got substituted with the shares of various SPVs which were being earlier held by AVVL. It is not the case of the Revenue that the market value of the shares received by the assessee was less than the market value of the undertaking which was transferred by the assessee to various SPVs. Even no such evidence was brought on record. Therefore, in this view of the matter, the provisions of Section 56(2)(viia) would not apply to this case. It may also be noted here that Section 56(2)(viia) excludes the transaction of business reorganisation and amalgamation which are not regarded as transfer under various sub-clauses of Section 47 of the Income Tax Act including sub-section (vii) of Section 47 of the Income Tax Act. The assessee stated that it has received the shares in consequence of the amalgamation and, therefore, the case would fall within the exception provided under section 47(vii) of the Income Tax Act, 1961. This Section provides “any transfer by a shareholder in scheme of amalgamation, of a Capital Asset being a share or shares in the amalgamating company, if – (a) the transfer is made in consideration of the allotment to him of any share or shares in the amalgamated company except where the shareholder itself is the amalgamated company and (b) the amalgamated company is an Indian Company”.
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