The Commissioner of Income-tax, Chennai v. Shardlow India Ltd
[Citation -2020-LL-0716-6]

Citation 2020-LL-0716-6
Appellant Name The Commissioner of Income-tax, Chennai
Respondent Name Shardlow India Ltd.
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 16/07/2020
Assessment Year 2007-08
Judgment View Judgment
Keyword Tags transfer of capital asset • profit on sale of asset • beneficial ownership • subsidiary company • transfer of land • holding company • indian company
Bot Summary: 485 of 2018 respect to the transfer of land to M/s.Simpson Co. Ltd. Whether on the facts and in circumstances of the case and in law, Tribunal was right in holding that whole of the share capital of the assessee/subsidiary company is held by the holding company viz. The facts, which were not disputed by the Revenue, are that the holding company has 80 lakhs share, out of which, 79,99,975 shares are held by the holding company themselves namely M/s.sSimpson and Co. Ltd., and the balance 25 shares are held by six individuals, who have been nominated by the holding company. 485 of 2018 company, and the holding company is an Indian company. The dispute raised by the Revenue is that whole of the share capital of the subsidiary company is not held by the holding company as there are six individual shareholders. The explanation offered by the assessee is that under the Companies Act, a public limited company should have a minimum of seven shareholders. Now the requirement of Section 47(v) is that the whole of the share capital of the subsidiary company should be held by the holding company. The whole of the share capital being held by the holding company is certainly not the same thing as whole of the share capital being held in the name of the holding company.


TCA.No.485 of 2018 IN HIGH COURT OF JUDICATURE AT MADRAS DATED : 16.7.2020 CORAM HONOURABLE MR. JUSTICE T.S.SIVAGNANAM AND HONOURABLE MRS. JUSTICE V.BHAVANI SUBBAROYAN TAX CASE APPEAL NO.485 OF 2018 (heard through video conferencing) Commissioner of Income Tax, Chennai ...Appellant Vs M/s.Shardlow India Ltd., Chennai-11. ...Respondent APPEAL under Section 260A of Income Tax Act, 1961 against order dated 13.4.2016 made in ITA.No.774/Mds/2015 on file of Income Tax Appellate Tribunal, Chennai B Bench for assessment year 2007-08. 1/10 http://www.judis.nic.in TCA.No.485 of 2018 For Appellant : Mr.J.Narayanaswamy, SSC For Respondent : Mr.R.Vijayaraghavan for M/s.Subbaraya Aiyer Padmanabhan Judgment was delivered by T.S.SIVAGNANAM,J We have heard Mr.J.Narayanaswamy, learned Senior Standing Counsel appearing for Revenue and Mr.R.Vijayaraghavan, learned counsel appearing on behalf of M/s.Subbaraya Aiyer Padmanabhan, learned counsel on record for respondent. 2. This appeal by Revenue under Section 260A of Income Tax Act, 1951 (for short, Act) is directed against order dated 13.4.2016 made in ITA.No.774/Mds/2015 on file of Income Tax Appellate Tribunal, Chennai B Bench for assessment year 2007- 08. 3. appeal has been admitted on 04.9.2018 on following substantial questions of law : (i) Whether on facts and in circumstances of case and in law, Tribunal was right in holding that assessee is entitled for exemption under Section 47(v) with 2/10 http://www.judis.nic.in TCA.No.485 of 2018 respect to transfer of land to M/s.Simpson & Co. Ltd.? (ii) Whether on facts and in circumstances of case and in law, Tribunal was right in holding that whole of share capital of assessee/subsidiary company is held by holding company viz. M/s.Simpson & Co Ltd., even though 25 shares were held by persons other than holding company? (iii) Whether on facts and in circumstances of case and in law, Tribunal was correct and justified in ignoring principles laid down in (AAR) 348 ITR 368 on identical issue? (iv) Whether on facts and in circumstances of case and in law, Tribunal was correct in ignoring provisions of Companies Act, as per which only person in whose name shares are entered in its registers can only be treated as shareholders and hence M/s.Simpson & Co Ltd., is not 100% of shares of assessee company? and (v) Whether on facts and in circumstances of case in law, Tribunal was correct in ignoring difference between provisions of Section 47(iv) and (v) wherein holding by nominee is specifically recognized in 3/10 http://www.judis.nic.in TCA.No.485 of 2018 Seciton 47(iv) whereas Section 47(v) stipulates whole of share capital to be held by holding company? 4. assessee, which is public limited company, filed return of income for assessment year under consideration i.e 2007-08 returning income of -NIL-. return was processed under Section 143(1) of Act and later, Assessing Officer proceeded with regular assessment. assessment was reopened on 06.8.2013 by issuing notice under Section 148 of Act on ground that assessee transferred some portion of its land at Sembium to its holding company namely M/s.Simpson & Co. Ltd., for consideration of Rs.375 lakhs resulting in profit on sale of asset and same was not offered to tax under head capital gains against assessee on ground that assessee company is 100% subsidiary of M/s.Simpson & Co. Ltd. by referring to Section 47(v) of Act. 5. On perusal of records, Assessing Officer found that 25 shares of assessee company out of 80 lakhs shares were held by nominees of holding company namely M/s.Simposon & Co. Ltd. Therefore, Assessing Officer held that assessee was not eligible 4/10 http://www.judis.nic.in TCA.No.485 of 2018 for exemption of capital gains as per provisions of Section 47(v) of Act. 6. Aggrieved by order of assessment dated 31.12.2013, assessee filed appeal before Commissioner of Income Tax (Appeals)-15, Chennai-34 [for brevity, CIT(A)], who, by order dated 27.2.2015, dismissed same. Aggrieved by that, assessee filed appeal before Tribunal, which allowed appeal by impugned order, which is called in question in above tax case appeal by Revenue. 7. facts, which were not disputed by Revenue, are that holding company has 80 lakhs share, out of which, 79,99,975 shares are held by holding company themselves namely M/s.sSimpson and Co. Ltd., and balance 25 shares are held by six individuals, who have been nominated by holding company. explanation offered was that public limited company should have minimum of seven shareholders. Further, it was stated that those six individuals, who were nominated by M/s.Simpson and Co. Ltd., have no individual right as shareholder and their holding is for and on behalf of M/s.Simpson and Co. Ltd. This very fact was not disputed by Revenue before all forums. 5/10 http://www.judis.nic.in TCA.No.485 of 2018 8. argument of Mr.J.Narayasanasamy, learned Senior Standing Counsel appearing for Revenue is that distinction has been clearly brought out if one reads Section 47(iv) and Section 47(v) of Act and it is clear that word nominees is not present in Clause (v) to Section 47 of Act and therefore, contention advanced by assessee does not merit acceptance. 9. Though, at first blush, contention advanced by Mr.J. Narayanaswamy, learned Senior Standing Counsel is appealing, on closer scrutiny of purpose, for which, Section 47 of Act was introduced, we are convinced to take decision against Revenue. We support such conclusion with following reasons : Section 47 of Act deals with transaction not regarded as transfer. Therefore, purposive interpretation has to be given to said provision. Otherwise, as rightly contended by learned counsel appearing for respondent, provision itself would become redundant. Section 47(v) of Act states that nothing contained in Section 45 of Act shall apply to any transfer of capital asset by subsidiary company to holding company if (a) whole of share capital of subsidiary company is held by holding 6/10 http://www.judis.nic.in TCA.No.485 of 2018 company, and (b) holding company is Indian company. fact that company is Indian company is not disputed. 10. dispute raised by Revenue is that whole of share capital of subsidiary company is not held by holding company as there are six individual shareholders. 11. As pointed out earlier, total number of shares are 80 lakhs, out of which, 79,99,975 shares are held by holding company. This fact is also not disputed by Revenue. remaining 25 shares are held by six individuals. explanation offered by assessee is that under Companies Act, public limited company should have minimum of seven shareholders. individuals are nominees of holding company and they have no individual right, which facts were also not disputed. Therefore, on facts, it has to be held that whole of share capital of subsidiary company is held by holding company in instant case. 12. reliance placed on decision of Bombay High Court in case of CIT Vs. M/s.Papilion Investments Private Limited [2009-TIOL-491-HC-Mum-IT] merits acceptance. In said case, more or less identical factual situation was taken into consideration and it was held that beneficial ownership of holding company is 7/10 http://www.judis.nic.in TCA.No.485 of 2018 to be taken note of and proper interpretation is not given to facts, as it would render provisions of Section 47(v) of Act redundant. entire decision reads as follows : 1. Heard learned Counsel for parties. 2. Tribunal, in paragraph No.9 of its order, has recorded categorical finding, which reads as under: ''9. In case before us, and in view of provisions of Companies Act, 1956, it is not possible for PFIPL to have less than two shareholders. As matter of fact, there cannot be any company in India which has less than two members i.e. shareholders. Now requirement of Section 47(v) is that whole of share capital of subsidiary company should be held by holding company. whole of share capital being held by holding company is certainly not same thing as whole of share capital being held in name of holding company. In fact, that situation is legal impossibility in India. In case one is to proceed on basis that entire share capital of subsidiary company should be held in name of holding company, there cannot be any situation in which section 47(v) 8/10 http://www.judis.nic.in TCA.No.485 of 2018 can apply. That is certainly not interpretation which can be termed as ut res magis valeat quam pereat, i.e. to make statute effective rather than making it redundant. As held by Hon ble Supreme court, in case of CIT Vs. Teja Singh (35 ITR 408), construction which results in rendering provision redundant must be avoided. For this reason alone, interpretation canvassed by revenue is to be rejected. 3. Having seen finding recorded by Tribunal, no fault can be found with view taken by Tribunal. In this view of matter, appeal stands dismissed for want of substantial question of law with no order as to costs. 13. In light of above discussion, we hold that order passed by Tribunal does not call for any interference. 14. Accordingly, above tax case appeal filed by Revenue is dismissed and substantial questions of law are answered against Revenue. No costs. 16.7.2020 9/10 http://www.judis.nic.in TCA.No.485 of 2018 T.S.SIVAGNANAM, J AND V.BHAVANI SUBBAROYAN, J RS To Income Tax Appellate Tribunal, Chennai B Bench. TCA.No.485 of 2018 16.7.2020 10/10 http://www.judis.nic.in Commissioner of Income-tax, Chennai v. Shardlow India Ltd
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