TATA SONS LTD,MUMBAI vs. CIT 2, MUMBAI

ITA 3468/MUM/2016Status: DisposedITAT Mumbai23 January 2024AY 2009-1065 pages
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What did the Tribunal hold?

The Tribunal held that the reduction of capital in this case amounted to extinguishment of rights on the shares, which constitutes a transfer under section 2(47). The loss arising from this reduction was considered a capital loss, not a notional loss. Crucially, the Tribunal found that even though the assessee did not receive any consideration, its investment was reduced, resulting in a capital loss that should be allowed to be set off against other capital gains. The Tribunal distinguished the case from the Special Bench decision in Bennett Coleman & Co. Ltd., noting that in the present case, shares were cancelled without consideration, unlike the substitution of shares in Bennett Coleman. The Tribunal also relied on the Gujarat High Court's decision in CIT vs. Jaykrishna Harivallabhdas, which held that capital gains can be computed even if the sale consideration is 'Nil'. Therefore, the AO was correct in allowing the computation of long-term capital loss. Consequently, the order of the PCIT under section 263 was set aside, and the appeal of the assessee was allowed on merits.

What were the facts?

The assessee, M/s. Tata Sons Limited, filed an appeal against an order dated 28/03/2016 passed by the Principal Commissioner of Income Tax-2 (PCIT), Mumbai, under section 263 of the Income Tax Act, 1961, for the Assessment Year 2009-10. The PCIT had revised the assessment order passed by the Assessing Officer (AO) on 09/05/2013. The core issue pertains to the AO's allowance of a long-term capital loss of Rs. 20,46,97,54,090/- on account of reduction of capital in Tata Tele-Services Company Ltd. (TTSL). The reduction of capital was effected through a Scheme of Arrangement and Reconstruction under the Companies Act, 1956, which involved cancellation of shares without any consideration payable to shareholders. The PCIT considered the AO's order erroneous and prejudicial to the interest of the revenue.

What were the issues?

1. Whether the proceedings under section 263 are bad in law because the PCIT disregarded the specific inquiry and conscious application of mind by the AO during the assessment proceedings, and whether the PCIT erred in forming a different opinion to treat the assessment order as erroneous and prejudicial to the revenue? The assessee contended that the AO had undertaken specific inquiries and allowed the claim consciously. The revenue, through the PCIT, argued that the AO's order was erroneous. 2. Whether the PCIT erred in concluding that the Scheme of Arrangement and Reconstruction was not a case of reduction of capital and that the computation mechanism under section 48 fails because there was no consideration received or accruing to the assessee? The assessee relied on CIT v. D. P. Sandu Bros. Chembur P Ltd. (273 ITR 1) for the proposition that consideration needs to be capable of determination. The revenue's position was that no consideration meant no capital gain/loss computation. 3. Whether the PCIT erred in failing to note the provisions of section 55(2)(v)(b) and in not confirming that the cost of acquisition of remaining shares would include the cost of shares cancelled on reduction? This issue is linked to the computation of capital gains.

Which sections of the Income-tax Act were involved?

Section 2(47),Section 48,Section 55(2)(v)(b),Section 263,Section 45,Section 100,Section 101(2),Section 102

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Income Tax Appellate Tribunal, ‘E‘ BENCH

Before: SHRI AMIT SHUKLA & SHRI GAGAN GOYAL

For Appellant: Shri J.D. Mistri / Shri Rohit |, Ms. Aastha Dhowan |, Shri Ujjwalkumar Chavhan
Pronounced: 23/01/2024

PER AMIT SHUKLA (J.M):

The aforesaid appeal has been filed by the assessee against order dated 28/03/2016 passed by ld. PCIT-2, Mumbai in his revisionary juri iction u/s.263 for the A.Y.2009-10. 2. In the grounds of appeal, assessee has raised the following grounds:-

1.

Proceedings u/s.263 Bad in Law: Mss. Tata Sons Limited

a) The Principal Commissioner of Income-tax 2 (‘CIT’) erred in disregarding the specific inquiry on the Computation of Capital Gains undertaken by the Assessing Officer during assessment proceedings, upon which the claim was allowed by the AO consciously, ad

The order continues below.

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