Case Law Details
ACIT Vs Feroke Boards Ltd. (ITAT Cochin)
The first issue to be decided is whether the assets transferred by the assessee to M/s.Masonite Holdings Private Limited is a “financial asset” coming within the Explanation 1(i)(e) to section 2(42A) of the I.T.Act. The term “financial asset” has been described in Explanation 1(i)(d) to section 2(42A) of the I.T.Act to be a capital asset, being share or any other security. As per Explanation (2) to section 2(42A) of the I.T.Act, the expression “security” shall have the meaning assigned to it in clause (4) of section 2 of the Securities Contract (Regulation) Act, 1956. As per section 2 of the Securities Contract (Regulation) Act, 1956, the term “security” includes “scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate”. Therefore, the “financial asset” has been described in the Act as share or security and the assets transferred by the assessee does not fall in the category of “financial asset”. This view is further affirmed by section 2(11) of the I.T.Act, which defines the term “block of asset” for the purpose of depreciation. The definition u/s 2(11) of the I.T.Act includes intangible assets. Since the intangible assets are covered in the definition of “block of asset” eligible for depreciation, the same cannot be again covered under the definition of “financial asset” as per Explanation (1) (i) (d) to section 2(42A) of the I.T.Act. Therefore, the assets transferred by the assessee, the period of holding cannot be determined as per Explanation 1(i)(e) to section 2(42A) of the I.T.Act, as contended by the Assessing Officer.
In the facts and circumstances of the case, we are of the view that the holding period should be determined as per Explanation 1(i) (b) to section 2(42A) of the I.T.Act to determine whether or not an asset is a short term capital asset. The said Explanation states in determining the period for which the capital asset was held by the assessee, “in the case of a capital asset which becomes the property of the assessee in the circumstances mentioned in sub section (1) of section 49, there shall be included the period for which the asset was held by the previous owner referred to in the said section.” Section 49(1)(iii)(e) states “where the capital asset became the property of the assessee under any such transfer as is referred to in clause (iv) or clause (v) or clause (vi) or clause (via) or clause (viaa) or clause (vica) or clause (viab) of section 47”. Section 47(vi) of the I.T.Act reads “any transfer, in a scheme of amalgamation of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company”. The assessee’s case was a scheme of amalgamation and assessee is an Indian company. Therefore, it is not correct for the Assessing Officer to consider 01.04.2008 as the date on which the assets were acquired, because the brand name was already there with Feroke Boards Limited (one of the companies that got merged with Feroke Boards & Doors (P) and later renamed Feroke Boards Limited). The brand name was registered with Trade Marks Registry (Trade Mark No.1432867 dated 14.03.2006).
Section 47(vi) states “any transfer, in a scheme of amalgamation of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian Company” is not to be treated as transfer. The term “amalgamation” is defined in section 2(IB) and the assessee’s case fall under the said definition. Therefore, there is no transfer taking place on 01.04.2008. The period of holding is much more than 36 months when the relinquishment / sale took place (on 18.05.2010). Therefore, the A.O. ought not to have taxed such receipts as STCG but should have taxed it as LTCG.
The Explanation to section 49(1) of the I.T.Act is a benevolent provision to extend applicability of the term “previous owner” to cover cases like assessee. Here the previous owner is the amalgamating company and this company did not acquire it in a mode referred to in clause (i) or clause (ii) or clause (iii) or clause (iv) of section 49(1) of the I.T.Act. However, as no purchase price was paid by the amalgamating company, the cost of acquisition was taken as `NIL’ as required u/s 55(2)(a)(ii) of the I.T.Act.
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