IN HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS 30TH DAY OF JULY, 2014 PRESENT HON'BLE MR.JUSTICE N KUMAR AND HON'BLE MR.JUSTICE B MANOHAR I.T.A. NO.580 OF 2013 BETWEEN: 1. COMMISSIONER OF INCOME TAX III BANGALORE. 2. JOINT COMMISSIONER OF INCOME TAX (OSD) CIRCLE-12(5), BANGALORE APPELLANTS (BY SRI E R INDRAKUMAR, SENIOR COUNSEL FOR SRI E I SANMATHI, ADVOCATE) AND: SRI.VIKRAM VISHWANATH 865, 12TH MAIN, III BLOCK NEAR RAMA TEMPLE KORAMANGALA BANGALORE 560034 RESPONDENT (BY SRI M S SYALI, SENIOR COUNSEL FOR SRI S PARTHASARATHI, ADVOCATE) 2 THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT, 1961, AGAINST ORDER DATED 14.06.2013 PASSED IN ITA NO.154/BANG/2013 FOR ASSESSMENT YEAR 2009- 10 AND TO SET ASIDE APPELLATE ORDER DATED 14.06.2013 PASSED IN ITA NO.154/BANG/2013 FOR ASSESSMENT YEAR 2009-10 BY INCOME TAX APPELLATE TRIBUNAL, 'B' BENCH, BANGALORE. THIS INCOME TAX APPEAL COMING ON FOR ADMISSION THIS DAY, N.KUMAR, J. DELIVERED FOLLOWING: JUDGMENT revenue has preferred this appeal against order passed by Tribunal holding that transfer of capital asset of sole proprietary concern of assessee to Company is by way of succession, in view of provisions of Section 47(xiv) of Income Tax Act, 1961, (for short, Act ) and therefore, any capital gain arising from such transfer cannot be brought to tax. FACTUAL MATRIX 2. assessee is individual. M/s.Vikram Logistic and Maritime Services Private Limited (for short, VLMS ) was incorporated in year 1992 by assessee s father, 3 Mr.C.Vishwanatha Iyer. main object of Company was transportation and logistic services. Company was handling agent for Container Corporation of India, public sector undertaking. Company had offices at Whitefield in Bangalore, Thandayarpet and Madras Harbour in Chennai, besides offices in Coimbatore and other places. 3. family members of assessee held shares in said Company. There was division of business between members of family. In that family arrangement, all shares in VLMS was transferred to assessee with effect from 7.4.2001, except 10 shares held by Rajalakshmi Vishwanath. assessee thereafter invested funds into business and in turn, VLMS issued additional shares to assessee. 29,800 shares were allotted on 30.3.2003, 2,49,950 shares were allotted on 31.3.2003 and 1,99,960 shares were allotted on 27.3.2004. 4 4. Funds were also infused into business of VLMS by foreign investor by name Xanfiretic Holding Company Limited and in turn, 2,46,300 shares of Rs.100/- per share were issued at premium of Rs.3,173/- per share and allotted by VLMS to foreign investor. After such allotment, assessee held 4,99,900 shares of Rs.100/- each. 5. On 26.3.2009, shares of Rs.100/- were sub-divided into shares of Rs.10/- each. Thereafter, bonus shares were issued on very same day. After issue of 4,99,900 bonus shares, total share holding of assessee in VLMS was 9,99,98,000. 6. On 22.6.2007, Company by name Anuradha Holdings Private Limited (for short, AHPL ) was incorporated. assessee and his mother, Mrs.Rajalakshmi Vishwanath Iyer were subscribers to Memorandum of Association 5 and Articles of Association of AHPL. main object of AHPL was to acquire, establish or promote companies, render advice and services for project development. Apart from above main object, one of object of AHPL was to take over proprietary business investment and assets of assessee. 7. On 27.3.2009, agreement for take over of proprietary business of assessee by AHPL was entered into. agreement also narrates as to how assessee has acquired certain commercial assets with intention of achieving his business objective to be owned in his proprietary capacity. agreement further refers to fact that AHPL was formed only for purpose of corporatising business activities of assessee. agreement concludes with view to give effect to above intention and assessee transferring all business and business assets and liabilities of assessee. assessee 6 has given schedule of movable assets less liabilities which were being taken over by AHPL. 8. Clause-2 of take over agreement provides that Assignee pursuant to take over of assignor proprietary business concern and in discharge of liability and in fulfillment of Section 47(xiv) of Act, agrees to allot 2 lakh equity shares of Rs.100/- each at premium of Rs.16,895.44079 per equity share as consideration to Assignor for complete take over of business assets and liabilities. 9. perusal of balance sheet of assessee as on 31.3.2008 shows that all assets and liabilities referred to in schedule was taken over except other advances and liabilities mentioned in last two items. said two items are stated to be advances given and liabilities incurred 7 between 1.4.2008 till 27.3.2009, date of agreement for takeover of business. 10. assessee filed return of income for assessment year 2009-10 in which he claimed that there was capital gain on transfer of 9,99,98,000 shares held by him in VLMS to AHPL under takeover agreement and same was not chargeable to tax in view of provisions of Section 47(xiv) of Act. In respect of other assets that were subject matter of takeover, there was no capital gain because they were all advances paid which had to be taken over on basis of actual payment. 11. Assessing Authority after getting explanations from assessee, rejected contentions of assessee, holding that assessee did not conduct any business as proprietor and did not own any assets and liabilities, except shares in two Companies. Hence, there was only 8 transfer of shares held by assessee in VLMS to AHPL. There was no real transfer of assets and liabilities of business. By mere transfer of shares held by him in one Company to another Company, assessee has attempted to give colour of those transactions that are not regarded as transfer within ambit of Section 47 of Act. assessee has not satisfied any of criteria mentioned in Clause-xiv of Section 47 of Act. Therefore, Assessing Authority held that assessee is not entitled to claim exemption under Section 47(xiv) of Act and sale consideration is to be taxed as capital gains under Section 45 of Act. Accordingly, sum of Rs.3,26,71,17,906/- was determined as long-term capital gains. 12. Commissioner of Income Tax (Appeals) has affirmed said finding and dismissed appeal. As against said order, assessee preferred I.T.A.No.154/Bang/2013 before Tribunal. 9 13. Tribunal, on consideration of entire material on record and after noticing stand of revenue, held that assessee was in business of holding of investments. This is not case where assessee satisfied himself with merely making investment and looking for dividend. Therefore, there was business activity in matter of holding of investments carried on by assessee. One of objective for which AHPL was incorporated was to takeover proprietary business investment and assets of assessee. purpose behind provisions of Section 47(xiv) of Act is to encourage running business in organised form, viz. as limited liability company rather than in form of partnership or sole proprietary concern. Such conversion either of firm into company or proprietary concern into company are encouraged and assets transferred pursuant to such conversion are not regarded as transfer giving raise to tax on capital gains. approach that needs to be adopted is to assess business realities and appreciate inputs of man behind veil. As 10 early as June 2007, when AHPL was incorporated, assessee believed that he was in business of holding of investments and that this business had to be corporatised. assessee had conceived business model of converting his business of holding investments in shares of VLMS to AHPL as early as 2007, when AHPL was incorporated. Transfer of shares of VLMS by assessee took place in June 2009. It cannot be said that plea of assessee is afterthought. Contemporaneous documents clearly indicate intention of assessee of having indulged in business of holding shares of VLMS as proprietor. assessee corporatised his business of holding investments (shares) in VLMS by transferring same to AHPL in which he held virtually all shares. Therefore, Tribunal was of view that claim of assessee regarding applicability of provisions of Section 47 (xiv) of Act should be accepted as it would advance purpose behind those provisions. Therefore, Tribunal upheld claim of assessee that there was succession to sole 11 proprietary concern of assessee by Company as result of which, sole proprietary concern sold capital assets or intangible asset to company and therefore, transfer by way of succession was not transfer in view of provisions of Section 47(xiv) of Act and therefore, capital gain arising from such transfer could not be brought to tax. Therefore, appeal was allowed. impugned orders passed by authorities were set aside and assessee was given benefit of exemption. 14. Aggrieved by said order, revenue is in appeal. RIVAL CONTENTION 15. learned Senior Counsel Sri E. R. Indra Kumar appearing for revenue assailing impugned order contended that, in circumstances of case, conditions prescribed in clause-xiv of Section 47 are not fulfilled. Firstly, there is no succession which is condition 12 precedent for application of this provision. Secondly, he contended that all assets and liabilities held by assessee are not transferred which is yet another condition that is to be fulfilled before benefit of aforesaid provision could be granted. He submitted that this provision / exemption has to be strictly construed as held by Apex Court in various judgments and therefore, he submits that Tribunal committed serious error in interfering with well-considered orders passed by lower authorities and therefore, impugned order requires to be set aside. 16. Per contra, learned Senior Counsel Sri M. S. Syali appearing for assessee submitted that assessee is in business of holding of investments. He infused his funds and improved business. Therefore, he has transferred his share holding in favour of another Company which is completely controlled by him. He received no consideration for such transfer. On contrary, all assets and 13 liabilities of his sole proprietary concern was transferred to new Company without any consideration and as he holds more than 50% of voting powers in said Company, requirements of Clause-xiv of Section 47 is complied with and therefore, assessee is entitled to benefit and Tribunal rightly upheld claim of assessee by setting aside orders passed by authorities. SUBSTANTIAL QUESTION OF LAW 17. In light of aforesaid facts and rival contentions, substantial question of law that arises for our consideration in this appeal is, Whether in facts and circumstances of case, Tribunal is justified in holding that provisions of Section 47(xiv) of Income Tax Act, 1961, are applicable, without appreciating fact that assessee had not carried on business in capacity of sole proprietary concern but had only held certain investments? 14 18. Section 45 of Act deals with capital gains. It provides that any profits or gains arising from transfer of capital asset effected in previous year shall save as otherwise provided in sections 54, 54B, 54D, 54E, 54I(EA), 54(EB), 54(F), 54(G) & 54(H) be chargeable to income tax under head capital gains and shall be deemed to be income of previous year in which transfer took place. However, Section 47 of Act deals with transactions not regarded as transfer. It reads as under: 47: Nothing contained in section 45 shall apply to following transfers: xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (xiv) Where sole proprietary concern is succeeded by company in business carried on by it as result of which sole proprietary concern sells or otherwise transfers any capital asset or intangible asset to company Provided that- (a) all assets and liabilities of sole proprietary concern relating to 15 business immediately before succession become assets and liabilities of company; (b) shareholding of sole proprietor in company is not less than fifty percent of total voting power in company and his shareholding continues to remain as such for period of five years from date of succession; and (c) sole proprietor does not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of allotment of shares in company; 19. Therefore, it is clear from aforesaid provisions that when sole proprietary concern which is carrying on business, sells or otherwise transfers its capital asset to company, though it earns any profit or gains from transfer of such capital asset, it shall be deemed to be income of previous year in which transfer took place. Section 45 16 which is charging section on capital gain is not attracted subject to assessee satisfying three conditions mentioned in aforesaid sections. three conditions to be fulfilled for being eligible for such benefit are: (1) all assets and liabilities of sole proprietary concern relating to business immediately before succession becomes assets and liabilities of company; (2) shareholding of sole proprietor in successor company should not be less than 50% of total voting power of company and its shareholding continues to remain as such, for period of five years from date of succession; and (3) for such transfer or sale, sole proprietor should not receive any consideration or benefit directly or indirectly, in any form or manner other than by way of allotment of shares in successor company. 17 Once these conditions are satisfied, though by such transfer, assessee earns capital gains, same is not chargeable to capital gain tax. SOLE PROPRIETARY CONCERN 20. In this background, it is necessary to understand meaning of word sole proprietary concern used in said section, because said provision exclusively applies only to sole proprietary concern. In Black s Law Dictionary, word proprietary is defined as under: Proprietary, n. proprietor or owner; one who has exclusive title to thing; one who possesses or holds title to thing in his own right; one who possesses dominion or ownership of thing in his own right. Proprietary, adj. : Belonging to ownership; owned by particular person; belonging or pertaining to proprietor; relating to certain owner or proprietor. word proprietary interest is defined as under: 18 Proprietary interest. interest of owner of property together with all rights appurtenant thereto such as right to vote shares of stock and right to participate in managing if person has proprietary interest in shares. Similarly, word proprietary rights is defined as under: Proprietary rights: Those rights which owner of property has by virtue of his ownership. 21. In case of DR.J.M.MOKASHI V. COMMISSIONER OF INCOME TAX, reported in (1994) 207 ITR 252, explaining meaning of word concern appearing in section 64 (1) (ii), Bombay High Court at pages 259 and 260 has held as under: assessee has raised number of controversies in regard to interpretation of above provisions and true meaning of some of expressions used therein. We shall deal with them one by one. First, we may deal with controversy in regard to scope and ambit of 19 expression concern . According to assessee, expression concern refers only to business establishments as contrasted with professional organizations which depend on personal skill and knowledge of person concerned. Establishments of professionals like doctors, according to counsel for assessee, do not fall within ambit of expression concern , and as such, section 64(1)(ii) has no application to payments made by individual, who is professional, to spouse of such individual. We have carefully considered above submission. We, however, find it difficult to accept same and give such narrow and constricted meaning to word concern which is neither natural nor borne out from setting and context in which it appears. word concern is word of wide import. It has various shades of meanings. According to dictionaries, it means something which pertains to person; business affair. It also means matter that engages person s attention, interest or care or that affects his welfare or happiness. In Black s Law Dictionary (Sixth Edition), it has been defined that : 20 Concern.- To pertain, relate or belong to; be of interest or importance to; have connection with; to have reference; to involve; to affect interest of. From above definitions, it is evident that word concern is word of wide import and it conveys different ideas and meanings depending upon contest and setting in which it appears. In context of section 64(1)(ii) read with Explanation 2 thereto, it is clear that concern includes any company, firm, individual or any other entity carrying on business or professional activity. It cannot be given any restricted meaning to take out of its ambit professional organizations or organizations run as proprietary establishments. It covers all establishments or organizations-whether engaged in business activities or professional activities. This is so also because word business itself is word of wide import and has been broadly interpreted to include professions, vocations, and callings . It is in this context that in Barendra Prasad Ray v. ITO (1981) 129 ITR 295, Supreme Court, while interpreting expression business 21 connection appearing in section 9(1) of Act, held as follows (at page 306): word business is one of wide import and it means activity carried on continuously and systematically by person by application of his labour or skill with view to earning income. We are of view that in context in which expression business connection is used in section 9(1) of Act, there is no warrant for giving restricted meaning to it excluding professional connections from its scope. 22. word business is also defined under Act in section 2(13) as under: business includes any trade, commerce or manufacture or any adventure or concern in nature of trade, commerce or manufacture 23. word concern is word of wide import. It has various shades of meanings. According to dictionaries, it means something which pertains to person; business 22 affair . It also means matter that engages person s attention, interest or care or that affects his welfare or happiness. It cannot be given any restricted meaning. It covers all establishments or organizations whether engaged in business activities or professional activities. Therefore, meaning to be given to word concern depends upon context and setting in which it appears. In context of clause (xiv) of Section 47, sole proprietary concern means proprietor/an individual of business which is carried on by him exclusively. 24. It is contended that assessee was not carrying on business as sole proprietary concern and therefore, it cannot be said that by such transfer, transferee company succeeded to sole proprietary concern. It was contended that mere holding investment would not constitute business. In this context, it is useful to refer to few judgments on point. 23 25. Supreme Court in case of BENGAL AND ASSAM INVESTORS LIMITED VS. COMMISSIONER OF INCOME TAX [ (1966) 59 ITR 547] dealing with case of investment company where question was, whether its dividend income formed part of its profits and gains chargeable to tax under section 10 of Indian Income Tax Act, 1922, observed at page 554 as follows: It seems to us that on principle before dividends on shares can be assessed under section 10, assessee, be it individual or company or any other entity must carry on business in respect of share; that is to say, assessee must deal in those shares. It is evident that if individual person invests in shares for purpose of earning dividend he is not carrying on business. only way he can come under section 10 is by converting shares into stock- in-trade, i.e. by carrying on business of dealing in stocks and share .. 26. Again Supreme Court in case of COMMISSIONER OF INCOME TAX VS. DISTRIBUTORS 24 (BARODA) P.LTD. [(1972) 83 ITR 377] while dealing with question as to whether there could be any business of holding of investments, at page 383, it held as follows: We cannot say that Legislature did not know its own mind when it used that expression in section 23A. We must give some reasonable meaning to that expression. No part of provision of statute can be just ignored by saying that legislature enacted same not knowing what it was saying. We must assume that legislature deliberately used that expression and it intended to convey some meaning thereby. expression business is well-known expression in income-tax law. It means, as observed by this court in Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax (1954) 26 ITR 765, some real, substantial and systematic or organized course of activity or conduct with set purpose . This is also meaning given to that expression in earlier decisions of High Courts and Judicial Committee. We must therefore, proceed on basis that legislature was aware of meaning given by courts to that expression when 25 it incorporated section 23A into Act in 1957. Hence we must hold that when legislature speaks of business of holding of investments , it refers to real , substantial and systematic or organised course of activity of investment carried on by assessee for set purpose such as earning profits. 27. After referring to these two judgments, Madras High Court in case of COMMISSIONER OF INCOME TAX, MADRAS-I vs AMALGAMATIONS (P) LIMITED [(1977) 108 ITR 895] held as under: We have looked into section 23A and we do not find in it any words importing fiction. It considered two kinds of businesses; one is dealing in investments and other is holding of them and holding of investment in appropriate cases would, in view of Parliament, equally be business as dealing in them. only requirement is that there must be real substantial and systematic or organized course of activity or conduct with set purpose of earning profit which is test for business. 26 Examined in this light, it would be found that assessee is not mere investor in single company. It has investments in 16 companies. It had taken active interest in business of those companies as is clear from services that had been rendered in shape of export promotion, liaison office at Delhi and internal audit. It also rendered consultation in respect of finance by its directors meeting every day with reference to needs and requirements of each Company. It was also stated before us that apart from original acquisitions, assessee-company itself was responsible for starting several engineering companies and that it held shares in such companies which it actively promoted. Even without going into correctness or otherwise of this submission about which relevant facts do not appear on record, we consider that assessee company had systematic or organized course of activity in matter of working for and advising its subsidiaries. This is not case where assessee contented itself with merely making investment and looking for dividend We would, therefore, hold that there was business activity in matter of holding of 27 investments on facts here. Even then, question that would arise is whether expenditure that has been incurred was wholly and exclusively laid out for purpose of assessee s business. assessee s business is holding of investments. If assessee had incurred any expenditure in respect of its business, it would certainly be allowable as deduction. 28. judgment of Madras High Court was challenged by Revenue before Apex Court. Apex Court in case reported in (1997) 226 ITR 188, (COMMISSIONER OF INCOME TAX VS. AMALGAMATIONS PVT.LTD.), dealing with aforesaid question has observed thus: We are unable to accept this contention. High Court, in our opinion, as rightly pointed out that business of assessee company is holding of investments and if with reference to business of holding investments, any expenditure has been incurred that could have been allowed 28 as deduction. . assessee- company could hold its investment and earn its dividends . 29. In fact, word investment company had been defined under section 109 of Act, prior to its omission, as under: Investment company means company whose business consists wholly or mainly in dealing or holding of investment . Therefore, law recognized holding of investment by company as business. It was submitted this concept is well recognized all over world. 30. In support of said contention, reliance was placed on IRAS e-Tax guide. Clause 2.1 reads as under: 2.1 - business of making investment is different from business of dealing in investments or passive holding of investments. Based on facts and business activities of case, company, trustee of property trust, partner of 29 LLP or LP may be considered as carrying on business of making investment. Its income would then be taxable under section 10(1)(a) of ITA but provisions of section 10E would apply from 1996 to determine income to be brought to tax. Clause 3.3. reads as under: 3.3. - To recognise that companies may hold investments not for sale but to derive investment income as trade, business of making investments was introduced with enactment of section 10E. Section 10E prescribes tax treatment of companies engaged in business of making investments. It ensures that company that does not trade in investments would not enjoy same tax treatment of expenses applicable to company carrying on trade of investment dealing. Accordingly, section 10E is not applicable to company carrying on trade of dealing in investments. Clause 4.2. reads as under: Cl.4.2 whether entity is carrying on business of making of investments is question 30 of fact. entity claiming to be carrying such business must satisfy comptroller of this fact based on its activities. Once entity has satisfied this fact, it may then apply provisions of section 10E to determine its income derived from its business of making investments from that YA onwards. income so determined is chargeable to tax under section 10(1)(a) of ITA. 31. From aforesaid discussion, it can be seen that holding of investment is treated as business. If individual in systematic or organised course of activity or conduct, with set purpose, makes investment and holds that investment for purpose of earning profits, then it constitutes business. If individual person invests in shares for purpose of earning dividend, he is not carrying on business. But if he converts shares into stock - in - trade, then it amounts to his carrying on business of dealing in stocks and shares. Here, we have to bear in mind distinction. One is dealing in investment 31 and other is holding of them. If investment is made in equity for purpose of getting dividends, then it does not amount to business. But, if investment is made with intention of deriving profit, then it is business notwithstanding fact that even in such cases in addition to profits, dividend is also received. business of holding of investment is different from business of making of investments and looking for dividends. active interest assessee takes in business after making investment for purpose of holding investment, is also decisive factor. If investment made is really substantial and systematic or organized course of activity or conduct with set purpose of earning profit and active interest is taken in carrying on business to improve his investment, then it is business of holding of investment. Such business may be carried on either by company, or partnership firm or individual. Then, if such business carried on by sole proprietor is succeeded by company and such succession is by way of sale or otherwise transfer of any 32 capital asset to company, then subject to assessee satisfying conditions mentioned in Section 47 (xiv), capital gain arising out of such transfer or sale is not liable for payment of capital gain tax. It is only when such business is carried on by individual/assessee as sole proprietary concern, clause-(xiv) of section 47 is attracted. Such benefit is not extended to other forms of persons as defined under Act. purpose behind provisions of Section 47(xiv) of Act is to encourage running business in organised form, viz. as limited liability company rather than in form of partnership or sole proprietary concern. Such conversion either of firm into company or proprietary concern into company are encouraged. It is incentive to corporatize sole proprietary concern into company. Therefore, tax benefit is extended to encourage such conversion. 32. Whether entity is carrying on business of making of investments is question of fact. Therefore, we have to 33 look at facts of case to find out as to whether assessee satisfies requirement prescribed under law. 33. In instant case, assessee is individual. He held shares in VLMS to extent of 4,400 initially. He was actually participating in business of said company. He was also employed in said company. There was division of business between members of family who are other share holders. other share holders transferred entire share holding in favour of assessee, except 10 shares held by Rajalakshmi Vishwanathan, with effect from 7.4.2001. Thereafter, assessee infused funds into business and VLMS issued additional shares to assessee. On 30.3.2003, 29,800 shares were allotted and on 31.3.2003, 2,49,560 shares were allotted and on 27.3.2004, 1,99,964 shares were allotted. funds were also infused into business of VLMS by foreign investor by name Xanfiretic Holding Company Ltd. In turn 2,46,300/- shares of Rs.100/- per share were issued to foreign investor at 34 premium of Rs.3,173 per share. On 26.3.2009, shares of Rs.100/- each were sub divided into shares of Rs.10/- each and thereafter bonus shares were issued on same day, i.e., as against share holding of 4,99,900 by assessee, 4,99,900 bonus shares were allotted. Thus, total share holding of assessee in VLMS was 9,99,98,000. He was actively involved in carrying of business of Company. 34. Much prior to allotment of bonus shares, i.e. on 22.6.2007, company by name Anuradha Holdings Private Limited (AHPL) was incorporated by assessee and his mother. main object of AHPL was to acquire, establish or promote companies, render advice and services for project development. One of main objects of AHPL was to take over proprietary investment business and assets of assessee. On 27.3.2009, agreement for taking over of proprietary business of assessee was entered into. He has transferred all shares in VLMS held by him along with all assets and liabilities relating to business 35 carried on by him in favour of M/s Anuradha Holdings Pvt.Ltd.. In turn, he has been allotted shares of said company to extent of 99% of shareholding of said company. On date of such take over, shares of assessee was valued at Rs.329,29,34,000/-. In fact, he had also invested money for purchase of land, flat, etc. as is reflected in schedule of Assets less liabilities for take over. consideration for said take over was allotment of 2,00,000 equity shares of Rs.100/- each on premium of Rs.16,895.44079 per equity share as consideration to assignor for complete take over of business assets and liabilities. It is after such take over, assessee filed return of income tax for assessment year 2009-10 claiming capital gain on transfer of 9,99,98,000 shares held by him in VLMS to AHPS and contended that same was not chargeable to tax in view of provision of section 47(xiv). 36 35. In this factual background, when we look at aforesaid provision, it is clear that assessee was sole proprietary concern and he was holding investment in VLMS. Relating to said business, he also had incurred expenditure by entering into agreement to purchase land, flats as set out in schedule of movable assets less liabilities. Under take over agreement, all assets and liabilities of sole proprietary concern relating to business was transferred in favour of AHPL. When he was allotted 2,00,000/- equity shares, his share holding in AHPS had come to 99% of total shares of AHPL. Though share of AHPL was valued at Rs.16,895.44079 for share of Rs.100/- which works to 329,29,34,000/-. assessee did not receive any consideration or benefit directly or indirectly in any form or manner other than by way of allotment of shares in company. Therefore, all three tests prescribed in section 47(xiv) of Act are fulfilled. Though by virtue of such transfer or sale, it resulted in profits and gains and consequently capital gains, but by virtue of section 37 47(xiv), same was not taxable as capital gain. This is precisely what Tribunal has held. Both lower authorities did not properly appreciate scope of section 47(xiv) of Act and fell into error in holding that assessee is liable to pay capital gain tax under section 45 of Act. 36. In that view of matter, we do not find any error committed by Tribunal in setting aside orders passed by lower authorities. Thus, substantial question of law is answered in favour of assesee and against revenue. Hence, we pass following order: Appeal is dismissed. No costs. Sd/- JUDGE Sd/- JUDGE KM/YN Commissioner of Income-tax-III, Bangalore / Joint Commissioner of Income-tax (OSD) Circle-12(5), Bangalore v. Vikram Vishwanath