Case Law Details
DCIT Vs Brandon & Co. (P) Ltd. (ITAT Mumbai)
Introduction: The Income Tax Appellate Tribunal (ITAT) Mumbai recently ruled on the appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-3, Mumbai. The case, titled DCIT vs Brandon & Co. (P) Ltd., involves a crucial decision on the set-off of carry-forward loss of capital gains in the context of a demerger.
Background of the Case: The case revolves around the assessment for the A.Y. 2012-13, where the assessee company, Brandon & Co. Pvt. Ltd., demerged a part of its business to Ramrod Advisors Pvt. Ltd. The dispute arises from the set-off claim of long-term capital loss incurred during AY 2006-07.
First Issue: Set-off of Capital Loss in Demerger: The primary contention raised by the Revenue is the alleged error in allowing the set-off of carry-forward loss of capital gains in the case of demerger. The ITAT examined the provisions of Section 74 of the Income Tax Act, 1961, and upheld the CIT(A)’s decision, emphasizing that the loss of the demerged company, Brandon & Co. Pvt. Ltd., could be set off against its own capital gains.
Second Issue: MAT Credit in Demerger: The second aspect of the case involves the carry-forward and set-off of Minimum Alternate Tax (MAT) credit in the context of the demerger. The ITAT, affirming the CIT(A)’s decision, clarified that MAT credit belongs to the assessee and can be carried forward even in the case of demerger.
Legal Standpoint and Tribunal’s Analysis: The legal arguments revolved around the provisions of Section 115JAA of the Act. The ITAT highlighted that MAT credit represents the excess tax paid by the assessee under MAT in earlier years and is inherently linked to the assessee, not the demerged company. The Tribunal emphasized that there is no specific provision barring the carry-forward of MAT credit in the case of demerger.
Conclusion: In conclusion, the ITAT dismissed the Revenue’s appeal, affirming both the set-off of carry-forward loss of capital gains and the carry-forward of MAT credit in the context of the demerger. The decision provides clarity on the treatment of losses and credits during corporate restructuring, offering valuable insights for future cases.
This detailed article analyzes the recent ITAT Mumbai order in the case of DCIT vs Brandon & Co. (P) Ltd., shedding light on the crucial aspects of set-off of carry-forward loss of capital gains and MAT credit in the context of a demerger. The Tribunal’s legal interpretation provides important guidance for taxpayers and practitioners navigating similar scenarios.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-3, Mumbai [in short CIT(A)], in appeal No. CIT(A)-3/IT-60/ACIT 2(1 )(1 )/1 6-17, dated 23.12.2016. The Assessment was framed by the Asst. Commissioner of Income Tax-Circle 2(1)(1), in short ‘ACIT’/ AO) for the A.Y. 2012-13 vide order dated 23.02.2015 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2. The first issue in this appeal of Revenue is against the order of CIT(A) allowing the set off of carry forward of loss of capital gains in the case of demerger. For this Revenue has raised the following ground No. 1: –
“1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing set off of carry forward of loss of capital gains in the case of demerger when no such provision exists in the I. T. Act, 1961.”
3. Briefly stated facts are that the assessee company during the AY 2011-12, demerged a part of its business to one Ramrod Advisors Pvt. i.e. the resulting company. The said demerger was approved under the orders of Hon’ble Bombay High Court dated 16.12.2011 and assessee has enclosed copy of the Scheme of arrangement for demerger also the order of Hon’ble High Court for demerger and return of income of Ramrod Advisors Pvt. Ltd for AY 2011-12 and 2012-13 in its paper book at pages 45-132. The assessee incurred long term capital loss during AY 2006-07 amounting to ₹ 31,04,864/- on sale of its own listed shares and redemption of debt of mutual funds. This loss was allowed in AY 2006-07. The assessee has filed copy of statement of income for AY 2006-07 along with acknowledgement proving that this return of income was filed within the due date as prescribed under section 139(1) of the Act. These details are enclosed in assessee’s paper book at pages 27-32. A part of the loss was set off during AY 2008-09 and assessee has also filed statement of income for AY 2008-09 along with assessment order under section 143(3) of the Act, which is enclosed at pages 33 to 43 of the assessee’s paper book. The balance loss of ₹ 30,45,360/- was carried forward and which was set off during the year under consideration against long term capital gain under the head tenancy rights. During the year under consideration, the assessee claimed set off of the said long term capital loss brought forward in its returned income. However, the AO denied the set off of the said long term capital loss by relying on the provisions of section 74 of the Act read with section 72 A of the Act. The AO also relied on the decision of Mumbai Tribunal in the case of Clariant Chemicals (I) Ltd. vs. ACIT in IT Appeal Nos. 4281 & 4983/Mum/2011 vide order dated 19 Sept 2014. Aggrieved, assessee preferred the appeal before CIT(A).
4. The CIT(A) allowed the claim of the assessee by observing in Para 6.6. as under: –
“6.6 I have carefully considered the rival submissions and the facts of the case. During the financial year 201I-12, one unit of Brandon and Co. Pvt. Ltd. demerged with a new company which came into existence in the name of M/s Ramrod Advisors Pvt Ltd. Scheme of the merger “as approved by the Hon’ble Bombay High Court. The case of the appellant is that the amalgamating company i.e. Brandon and Co. Pvt. Ltd. is entitled for set off of long term capital loss to the extent of Rs. 6,34,436/-, whereas amalgamated company namely NI/s Ramrod Advisors Pvt. Ltd. is not entitled. The AO relied on the judgment of Clariant Chemicals (I) Ltd. 53 Taxmann.com 39 (MumbaiTrib.), which is distinguishable as the amalgamated company M/s Clariant Chemicals (I) Pvt. is not entitled to carry forward and set off the long term capital loss, whereas amalgamated company is entitled to set off such loss. In an opinion, part of the portion of the appellant company has been demerged with the new company M/s Ramrod Advisors Pvt. Ltd., which is not entitled for set ‘off of carry forward of long term capital loss, whereas the demerging company Brandon and Co. Pvt. Ltd. is entitled for the set off of carried forward loss. In view of the above Ground No. 1 is allowed.”
Aggrieved, now Revenue is in second appeal before Tribunal.
5. Before us, the learned Sr. DR Shri DG Pansari, argued that on behalf of the Revenue. He only relied on the assessment order. On the other hand, assessee was represented by Shri. M M Golvala & Hormurd
6. After hearing both the sides and going through the facts and circumstances of the case, it is observed that the assessee before the AO, during the course of assessment proceedings, explained that long term capital-loss relates to this very company and it is carried forward from AY 2006-07, which was partly claimed in AY 2008-09 and the balance loss of ₹ 30,45,360/- was carried forward, which was set off during the year under consideration against long term capital gain on tenancy rights. It was claimed that the full details of loss incurred during the year have already been furnished before AO vide letter dated. 10.201 4. Time and again, it was claimed that the loss relating to this very assessee and the same has been set off as per the provisions of section 74 of the Act, which is the only provision of income dealing with carry forward and set off of such capital loss. The learned Counsel for the assessee before us also contended that there is no bar in section 74 to set off of the said loss and it was also clarified that there was no loss claimed or set off in the hands of Ramrod Advisors Pvt. Ltd., the resulting company. The learned Counsel for the assessee before us contended that the AO relied on the provisions of section 74 of the Act but contended that there is no mentioned of the situation that when loss is to be carried forward and set off in the case of demerger. The learned Counsel for the assessee clarified that the argument of the AO is erroneous and present loss is that of the assessee itself and once this is the situation as per the provisions of section 74 of the Act, the said loss is allowable to be set off. It is not the case that such loss has been claimed by resulting company but the assessee itself. He also clarified that section 72A of the Act can apply only to respective person and this section has no application for carry forward or set off of capital loss. We agree with the contention of the assessee that merely because there is a specific provision for disallowance of business loss, it does not mean that there is no provision for set off of capital loss of the very assessee itself. Accordingly, we are of the view that there is no specific provision which would prohibit the set off of such loss in the hands of the assessee itself. Even the learned Counsel for the assessee explained that the reliance placed by the AO on the decision of Clariant Chemicals (I) Ltd. (supra) is misplaced because the situation in that case was that there was brought forward loss in an amalgamating company which the assessee admitted to set off of post amalgamation in the hands of the amalgamated company. The normal principle in the case of loss is that the loss of an amalgamating company dies when the said company is amalgamated because the company itself dies or comes to an end. He explained that the context with the Tribunal pointed out that there should be a specific provision in section 74 of the Act, if capital loss of amalgamating company is to be set off in the hands of an amalgamated company, after amalgamation. We find that this was not the case of assessee setting of its own loss but this was the case of loss of different company being claimed by assessee and Mumbai Tribunal decided accordingly. In view of the above facts and circumstances, we are of the view that the CIT(A) has rightly allowed the claim of the assessee and we confirm the order of CIT(A). This issue of Revenue’s appeal is dismissed.
7. The next issue in this appeal of Revenue is against the order of CIT(A) allowing the carry forward and set off of brought forward of MAT credit in the case of demerger. For this Revenue has raised the following ground No. 2: –
“On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in allowing carry forward and set off of b/f MAT credit in the case of demerger.”
8. The AO noted that the assessee has claimed brought forward of MAT credit of ₹ 20,36,759/- for AY 2010-111 and ₹ 92,62,482/- for AY 2011-12 available for set off and carry forward the same. The AO came to same reasoning as for carry forward of capital loss in the case of demerger, he disallowed carry forward and set off of MAT credit. The assessee preferred the appeal before CIT(A), who allowed the claim of the assessee exactly on the same reasoning’s vide Para 7 as under: –
“7. Ground No. 2 relates to denial of carried forward MAT credit belonging to the appellant company of Rs. 1,12,99.241/-. The AO was of the view that there is no specific provision in the case of a demerger. The AR says that MAT relates to appellant company can be earned forward. There is no bar u/s 1 15.JAA as far as the carry forward of MAT credit is concerned, in the case of the merging company. Section 115JAA does not bar the appellant company to carry forward the MAT credit of Rs. 1,12,99,241/-. In this situation also, the MACF credit can he carried forward in the appellant company’s case and not of the merged company namely M/s Ramrod Advisors Pvt. Ltd. Therefore, Ground No. 2 is allowed in this case.”
Aggrieved, now Revenue is in appeal before Tribunal.
9. The learned Sr. DR supported the orders of the AO and on the other hand, the learned Chartered Accountant argued on behalf of the assessee.
10. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the MAT credit represents the excess tax paid under MAT over the tax payable under the normal provisions of the Act by the assessee itself in the earlier years. Thus, the MAT credit is that of the assessee itself and not of the demerged company. There are no provisions under section 115JAA of the Act that on demerger, the brought forward MAT Credit of the assessee itself cannot be carry forward. Further section 115JAA (7) of the Act specifically provides, the instances under which MAT Credit will not be allowed to be carry forward and the only instances specified that there is on conversion of Private Company or unlisted private Ltd. Company into a limited liability partnership and in such circumstances, the arguments of the AO would have been relevant only if the MAT credit was claimed by the resulting company i.e. Ramrod Advisors Pvt. Ltd. But that is not the case here. Accordingly, we find no infirmity in the order of CIT(A) and this issue of the Revenue’s appeal is also dismissed.
11. In the result, the appeal of Revenue is dismissed.
Order pronounced in the open court on 27-08-2018.
