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Income Tax Appellate Tribunal, - 3 -
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ITA No. 299 of 2019
IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 20TH DAY OF FEBRUARY, 2023 PRESENT THE HON'BLE MR. JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR. JUSTICE RAMACHANDRA D. HUDDAR INCOME TAX APPEAL NO. 299 OF 2019
BETWEEN:
PRINCIPAL COMMISSIONER OF INCOME TAX 4 BMTC COMPLEX KORAMANGALA BENGALURU
ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE -4(1)(1) BMTC COMPLEX KORAMANGALA BENGALURU …APPELLANTS
(BY SHRI. E.I. SANMATHI, SENIOR STANDING COUNSEL)
AND:
M/S JUPITER CAPITAL PRIVATE LIMITED NO.54, RICHMOND ROAD BANGALORE - 560 025. PAN:AABCJ 5666R …RESPONDENT (BY SHRI. A SHANKAR, SENIOR ADVOCATE, AS AMICUS CURIE FOR RESPONDENT; SHRI. NARENDRA KUMAR JAIN, ADVOCATE)
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 29.11.2018 PASSED IN ITA NO.445/BANG/2018 FOR ASSESSMENT YEAR 2014-2015,
Digitally signed by ANUSHA V Location: HIGH COURT OF KARNATAKA
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ITA No. 299 of 2019
PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HONBLE COURT AS DEEMED FIT AND ETC.
THIS ITA, COMING ON FOR FINAL HEARING, THIS DAY, P.S.DINESH KUMAR, J., DELIVERED THE FOLLOWING:
JUDGMENT
This appeal by the Revenue directed against order dated November 29, 2018 in ITA No.445/Bang/2018 for A.Y.2014-15 passed by the ITAT1, Bengaluru, has been admitted to consider following question of law; “Whether on the facts and circumstances of the case, the Tribunal is right in law in setting aside the disallowance of capital loss claimed by the assessee of Rs.164,48,55,840/- by holding that there is extinguishment of rights of 153340900 shares when no such extinguishment of rights is made out by the assessee as required under section 2(47) of the Act and there is no reduction in face value of share.”
Heard Shri E.I.Sanmathi, learned standing counsel for the Revenue, Shri A.Shankar, learned Senior Advocate as amicus curie and Shri Narendra Kumar Jain, learned advocate for the assessee.
1 Income Tax Appellate Tribunal
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ITA No. 299 of 2019
Assessee is a company in the business of investing in shares, leasing, financing and money lending. It has purchased 14,95,44,130 shares of Asianet Pvt.Ltd., having face value of Rs.10/-.
Undisputed facts of the case are, by the order of High Court of Bombay, share capital of Asianet Pvt.Ltd. was reduced to 9988. The face value of the share remained as Rs.10/- after reduction of the share. Assessee claimed loss of Rs.1,64,48,55,840/-. The AO2 disallowed the same holding that though the number of shares was reduced, share holding pattern had remained the same and assessee had continued to hold 99.88% shares. The CIT(A)3 confirmed AO’s order and the ITAT has reversed CIT(A)’s order and allowed the assessee’s appeal.
Shri E.I.Sanmathi, learned standing counsel for the Revenue urged following contentions;
2 Assessing Officer 3 Commissioner of Income Tax (Appeals)
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ITA No. 299 of 2019
that there is no effective transfer of shares and transaction did not resulted in relinquishment of rights; and that assessee had retained 99.88% of the share. Thus, there was no change in percentage of share holding pattern and the voting power has remained undisturbed.
In support of his contentions, he placed reliance on Vania Silk Mills (P) Ltd. vs. Commissioner of Income Tax4.
Shri Shankar, learned Senior Advocate submitted that reduction in number of shares and retaining the voting power are two distinct aspects. Once the number of shares is reduced and the face value of the share remains unchanged upon transfer, the redeemable value will change based on the number of shares. He submitted that the in the instant case, the share value prior to reduction was 14,95,44,130 at the rate of Rs.10/- which would work
4 (1991) 59 TAXMAN 0003
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ITA No. 299 of 2019
out to Rs.1,49,54,41,300/-. The realizable value on the reduced number of shares namely 9988 at the face value of Rs.10/- is Rs.99,880/-. He further submitted that in case where face value is increased, the assessee will be liable to pay tax. In such circumstance, the Tax Authorities have held that transaction amounts to transfer. So far as authorities cited by Shri Sanmathi is concerned, Shri Shankar submitted that the Hon’ble Supreme Court in Commissioner of Income-tax Vs. Grace Collis5 has held that Vania Silk Mills (P).Ltd’s case was not a good law and the said position in law is not refuted by Shri Sanmathi.
We carefully considered rival contentions and perused the records.
Undisputed facts are, pursuant to the order passed by the High Court of Bombay, number of shares has been reduced to 9988. It is significant to note that the face value of the share has remained
5 [2001] 115 TAXMAN 326 (SC) Para 15
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ITA No. 299 of 2019
same at Rs.10/- even after the reduction. The AO’s view that the voting power has not changed as the percentage of assessee’s share of 99.88% has remained unchanged is untenable because if the shares are transferred at face value, the redeemable value would be Rs.99,880/- whereas the value of 14,95,44,130 number of shares would have been Rs.1,49,54,41,300/-.
In our considered view, the ITAT has rightly followed authority in Karthikeya V.Sarabhai vs. The Commissioner of Income Tax6 with regard to meaning of transfer by holding that there was no transfer within the meaning of that expression contained in Section 2(47) of the Income Tax Act, 19617.
In view of the above, we find no error in the impugned order. Resultantly, this appeal fails and hence, the following; ORDER (i) Appeal is dismissed; and
6 1998 2 ITR 163 SC 7 ‘The Act’ for short
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ITA No. 299 of 2019
(ii) Question of law is answered in favour of the assessee and against the Revenue. No costs.
Sd/- JUDGE
Sd/ JUDGE
AV List No.: 1 Sl No.: 38