JOINT COMMISSIONER OF INCOME TAX, vs. M/S. FERRO CONCRETE COMPANY OF INDIA

- 1 - IN THE HIGH COURT OF KARNATAKA CIRCUIT BENCH AT DHARWAD DATED THIS THE 24TH DAY OF AUGUST, 2012 PRESENT THE HON’BLE MR. JUSTICE N. KUMAR AND THE HON’BLE MR. JUSTICE H. S. KEMPANNA R.P. No. 1548/2011 in I.T.A. No. 4/2007 BETWEEN: 1. Joint Commissioner of Income Tax (Assessment), Special Range, Hubli. 2. Commissioner of Income Tax, Central Revenue Building, Hubli. - Petitioners (by Sri Y.V. Raviraj, Advocate) AND: M/s Ferro Concrete Company of India, Industrial Estate, Gokul Road, Hubli. - Respondent (by Sri A. Shankar, Advocate) This review petition is filed under Order XLVII Rule 1 R/w Sec. 151 of CPC praying to review the judgment passed by this Court in I.T.A. No. 4/2007 dated 17.03.2011, etc.

- 2 - This petition coming on for hearing on interlocutory application this day, N.Kumar J., made the following: ORDER 1. This review petition is filed seeking review of the orders passed by this Court on 17.03.2011 dismissing the appeal following the judgment of this Court in I.T.A. No. 3170/05 disposed of on 05.07.2010 holding both the substantial questions of law against the Revenue. 2. The grievance is Clause 13 to Sec. 47 of the Act has been inserted with the statute with effect from 01.04.1999.

Therefore for the assessment year 1993-94 in the present case before this Court the respondent is outside the ambit of Clause 13 of Sec. 47 of the Act as the same was not in existence in the relevant assessment year 1993-94.

Therefore the

- 3 - provisions of Sec. 45(4) and 47 of the Act are attracted in the present case and to that extent there appears to be an error. 3. We do not see any merit in the said ground. This Court in I.T.A. no. 3170/05 has held Sec. 45 of the Act deals with capital gains with reference to transfer of capital asset and the tax payable on such capital gain. Sec. 47 of the Act expressly deals with transfer/transactions, which are not to be regarded as transfer under the Act. Clause 13 is the one such transfer, which, in effect, is not a transfer under the Act. It provides, any transfer of a capital asset or intangible asset by a firm to a company as a result of succession of the firm by a company in the business carried on by the firm or any transfer of a capital asset to a company in the course of demutualisation or corporatisation of a

- 4 - recognised stock exchange in India as a result of which an association of persons or body of individuals is succeeded by such company is not a transfer. Therefore under the Act, even if there is a transfer, under S.47 it is not a transfer of a capital asset so as to attract tax on capital gains. Of course, for attracting the aforesaid clauses, certain conditions have to be fulfilled. Firstly, all the assets and liabilities of the firm relating to the business immediately before the succession become the assets and liabilities of the Company. Secondly, all the partners in the firm immediately before the succession, become the shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of succession. Thirdly, the partners of the firm do not receive any consideration or

- 5 - benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in the company. Once these three conditions are fulfilled, the liability to pay tax on transfer of capital gains would not arise. In that context, the date on which this amendment came into force is of no relevance. We do not see any grounds for reviewing the order. Accordingly this review petition is dismissed. SD/- JUDGE SD/- JUDGE Bvv