DCIT Vs Rajoo Engineers Ltd. (ITAT Rajkot)
ITAT Rajkot held that provision of section 56(2)(vii)(c) of the Income Tax Act doesn’t get attracted in case of share received on amalgamation as new shares allotment by amalgamated company does not give rise to a transfer of shares and hence also section 56(2)(vii) (c) has no application.
Facts- The present appeal has been preferred by the revenue mainly contesting that CIT(A) has erred in deleting protective addition made on account of excess value transferred to beneficiary within the meaning of provision of section 56(2)(vii)(c) of the Income Tax Act amounting to Rs. 18,74,73,500/-.
Conclusion- Held that provision of section 56(2)(vii)(c)(ii) does not apply in the case of Public limited company, it is only applicable to individual and HUF- assessees. New shares allotment by amalgamated company does not give rise to a transfer of shares and hence also section 56(2)(vii) (c) has no application and proviso (h) excludes the transfer from rigor of deeming provision. In case of shares issued under amalgamation, there are no two parties to a transfer of a property. There are tripartite arrangements between amalgamated company, amalgamating company and shareholder of the amalgamating company. Transfer of shares in a scheme of amalgamation is not considered as ‘transfer’ u/s 47 (vii) of the Act. If it is not transferred, then the application of section 56(2) is not applicable. There is no anti- abuse of provision and the new share is allotted as per the Amalgamation scheme under the supervision of the High Court after hearing of all stake holders including the Government. The Scheme of amalgamation under which an exchange ratio of shares is approved by the high court, and it is conclusive. So, question of skewed swap ratio or issuing shares at discounted rate does not arise. Based on the above factual position and position in Law, the conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A).
