COMMISSIONER OF INCOME-TAX vs. KALINDI INVESTMENT PVT. LTD.

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ITR/237/1985HC GujaratGJHC24012367198511 June 2001Author: HONOURABLE MR. JUSTICE ANIL R. DAVE,HONOURABLE MR. JUSTICE D.A.MEHTA3 pages
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What did the High Court hold?

The High Court, in its oral judgment, referred to a previous decision in I.T.R. No. 243/85, decided on March 8, 2001, which had already answered the referred questions. For Question 1, the Court held in the negative to a limited extent, in favor of the revenue and against the assessee. This implies that while Section 41(2) might not apply to all assets, some profits could still be assessed. The reasoning, as per the cited paragraphs, was that Section 41(2) governs specific assets, and Section 47 exempts transfers to wholly-owned Indian subsidiaries from capital gains tax (Section 45). For Question 2, the Court held in the affirmative, again in favor of the revenue and against the assessee, meaning the AAC was right in setting aside the assessment and requiring the ITO to reframe it. The operative direction was that the reference stands disposed of with no order as to costs.

What were the facts?

This case involves an Income Tax Reference filed by the Commissioner of Income-tax against Kalindi Investment Pvt. Ltd. The reference was made by the Income Tax Appellate Tribunal, Ahmedabad Bench 'A', to the High Court of Gujarat under Section 256(2) of the Income-tax Act, 1961. The dispute concerns the assessment of profits arising from the sale of assets by a holding company to its wholly-owned subsidiary. The procedural history indicates that the High Court was asked to decide two specific questions of law referred by the Tribunal. The High Court heard arguments from both the department and the assessee.

What were the issues?

The Tribunal referred two questions to the High Court for its opinion: 1. Whether, on the facts and in the circumstances of the case, no question of assessing profits u/s 41(2) of the Income-tax Act, 1961 arises in the hands of a holding company in case of sale by a holding company as a going concern to its 100% subsidiary company? 2. Whether, on the facts and in the circumstances of the case, the Appellate Assistant Commissioner (AAC) was right in setting aside the assessment and requiring the Income Tax Officer (ITO) to reframe the assessment? Assessee's contentions: While not explicitly detailed in this judgment, the reference to a prior judgment (ITR No. 243/85) suggests the assessee argued that Section 41(2) applies only to specific assets (building, machinery, plant, or furniture) and not others. The assessee also likely relied on Section 47 of the Act, which exempts certain transfers to wholly-owned subsidiaries from capital gains tax. Revenue's contentions: The revenue's arguments are not explicitly stated but are implied by the questions referred and the outcome of the prior judgment, which favored the revenue on both counts to a limited extent.

Which sections of the Income-tax Act were involved?

Section 41(2),Section 256(2),Section 47,Section 45

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 237 of 1985

For Approval and Signature:

Hon'ble MR.JUSTICE A.R.DAVE and Hon'ble MR.JUSTICE D.A.MEHTA

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- COMMISSIONER OF INCOME-TAX Versus KALINDI INVESTMENT PVT. LTD. -------------------------------------------------------------- Appearance: MR BB NAIK for MR MANISH R BHATT for Petitioner MR RK PATEL for Respondent No. 1

--------------------------------------------------------------

CORAM : MR.JUSTICE A.R.DAVE and MR.JUSTICE D.A.MEHTA

Date of decision: 11/06/2001

ORAL JUDGEMENT (Per : MR.JUSTICE A.R.DAVE)

The following two questions have been referred to this Court for its opinion by the Income Tax Appellate Tribunal, Ahmedabad Bench 'A', under the provisions of sec. 256(2) of the Income-tax Act, 1961. 1. "Whether, on the facts and in the circumstances of the case, no question of assessing profits u/s 41(2) of the Income-tax Act, 1961 in the hands of a holding company arises in case of sale by a holding company as a going concern to its 100% subsidiary company?

2.

Whether, on the facts and in the circumstances of the case, the AAC was right in setting aside the assessment and requiring the ITO to reframe the assessment?"

2.

We have heard learned advocate Shri B.B. Naik appearing for the applicant-department and learned advocate Shri R.K. Patel appearing for the respondent-assessee.

3.

It has been very fairly submitted by the learned advocates that the questions, which have been referred to this court, have already been answered in I.T.R. No. 243/85 by this court. Upon perusal of the said ITR, which has been decided by this court on 8.3.2001, we find that question No. 1, which has been referred to this court, has been answered in the negative to a limited extent i.e in favour of the revenue and against the assessee whereas question No. 2 has been answered in the affirmative i.e. in favour of the revenue and against the assessee. Paragraphs 20 and 21 of the said judgment, which are relevant for our purpose, are reproduced hereinbelow :

"

20.

Before concluding, we must note that even while not accepting the major arguments urged on behalf of the assessee, there is some substance in the contention of Mr. R.K. Patel for the assessee that the provisions of section 41(2) govern only building, machinery, plant or furniture and that, therefore, other assets cannot be included within the scope of section 41(2) for taxing the difference between thew written down value and the actual cost. We also find that in view of the provisions of section 47 of the Act, transfer will not attract the provisions of section 45 relating to capital gains if the transfer of capital assets is by a company to its wholly owned subsidiary company and the holding company as well as the subsidiary company are Indian companies.

21.

In view of the above discussion, our answer to question No. 1 is in the negative to the above extent i.e. in favour of the revenue and against the assessee. Our answer to question No. 2 is in the affirmative to the above extent i.e. in favour of the revenue and against the assessee."

4.

In view of the decision referred to hereinabove and as the questions, which have been referred to this court have been finally concluded, we answer question No. 1 in the negative to the extent mentioned hereinabove i.e. in favour of the revenue and against the assessee whereas our answer to question No. 2 is in the affirmative to the limited extent as stated hereinabove i.e. in favour of the revenue and against the assessee.

The reference stands disposed of accordingly with no order as to costs.

(A.R. Dave, J.)

(D.A. Mehta, J.)

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