COMMISSIONER OF INCOME TAX vs. PANNER INVESTMENT PVT.LTD.

Facts

The Revenue, Commissioner of Income Tax, appealed against an order of the Income-tax Appellate Tribunal (ITAT) for assessment year 1994-95. The ITAT had dismissed the Revenue's appeal. The assessee, Panner Investment Pvt. Ltd., an investment company, filed a return declaring Nil income. During scrutiny, the Assessing Officer (AO) noted the assessee received Rs. 9,36,862.20 as distributions from the liquidators of its wholly-owned subsidiary, Shetrunjaya Investment Pvt. Ltd. The assessee claimed this receipt as exempt under Section 47(iv)/47(v) read with Section 46(2) of the Income-tax Act, 1961, relying on an ITAT decision. However, the AO, disregarding the ITAT decision, followed a CIT(A) ruling and taxed Rs. 1,44,330/- as capital gain, representing the surplus distribution over the capital contribution from another subsidiary, Kanjanjunga Investment Pvt. Ltd.

Held

The Gujarat High Court held that the issue raised in the present Tax Appeal is covered by its earlier decision in Tax Appeal No. 102/1995 dated 07/10.02.2006, reported in [2006] 286 ITR 66 (Guj.), in the case of Commissioner of Income Tax vs. Brahmi Investments Pvt Ltd. In that judgment, the Court had considered the legal aspect from all angles and held that capital gains tax is not leviable upon the assessee on the said receipt. Therefore, the present Tax Appeal was disposed of in terms of that judgment and order. The operative direction was to dispose of the appeal in terms of the cited precedent.

Key Issues

1. Whether the Appellate Tribunal is right in law and on facts in holding that capital gain chargeable to tax u/s. 46(2) will also be eligible for grant of benefit envisaged under section 47(v) of the Act? Assessee's contention: The assessee argued that the issue is squarely covered in its favour by the decision of the Gujarat High Court in the case of Brahmi Investment P. Ltd., which had considered the legal aspect and held that capital gains tax is not leviable on such receipts. Revenue's contention: The Revenue challenged the ITAT's order, which had dismissed its appeal. The specific arguments of the Revenue are not detailed in the judgment, other than its challenge to the Tribunal's finding.