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2014 Supreme(Bom) 574
High Court of Judicature at Bombay
S.J. VAZIFDAR & B.P. COLABAWALLA, JJ.
M/s. Bharat Bijlee Limited, Mumbai
Versus
The Assistant Commissioner of Income Tax, Circle 6(1), Mumbai & Others
Writ Petition No. 18 of 2013
Decided on: 05-03-2014
For the Petitioner:J.D. Mistri, Senior Counsel with Madhur Agrawal i/b Atul K. Jasani, Advocates.
For the Respondents:Suresh Kumar, Advocate.
The main legal point established in the judgment is that the reassessment proceedings were not justified as the petitioner had fully disclosed all material facts necessary for its assessment, and the transaction constituted a scheme of arrangement and was not taxable as per the provisions of section 50B of the Income Tax Act, 1961.
Headnote:
Income Tax - Scheme of Arrangement - Income Tax Act, 1961, Section 148 - The court discussed the provisions of section 391 and 394 of the Companies Act, 1956, and the implications of the Second Amendment Agreement dated 13.08.2004. The court also considered the valuation report prepared by a firm of chartered accountant and the assessment proceedings under section 143(3) of the Income Tax Act, 1961.
Fact of the Case:
The petitioner challenged a notice issued by the Assistant Commissioner of Income Tax under section 148 of the Income Tax Act, 1961 and an order passed by the Deputy Commissioner of the Income Tax, Assessing Officer, disposing of its objections challenging the validity of the reassessment proceedings. The dispute arose from an agreement for the transfer of business between the petitioner and another party, which led to a series of assessment proceedings and appeals.
Finding of the Court:
The court found that the petitioner had fully disclosed all material facts necessary for its assessment for the assessment year 2005-2006 and that the reassessment proceedings were not justified. The court also held that the transaction constituted a scheme of arrangement and was not taxable as per the provisions of section 50B of the Income Tax Act, 1961.
Issues: The issues revolved around the validity of the reassessment proceedings, the disclosure of material facts by the petitioner, and the taxability of the transaction under section 50B of the Income Tax Act, 1961.
Ratio Decidendi: The court's decision was based on the finding that the petitioner had fully disclosed all material facts necessary for its assessment and that the transaction constituted a scheme of arrangement and was not taxable as per the provisions of section 50B of the Income Tax Act, 1961.
Final Decision: The court made the rule absolute in favor of the petitioner, holding that there was no justification for the reassessment proceedings. The court also emphasized that the petitioner had fully disclosed all material facts necessary for its assessment for the assessment year 2005-2006.
S.J. Vazifdar, J.
1. The petitioner has challenged a notice issued by respondent No.1 Assistant Commissioner of Income Tax, under section 148 of the Income Tax Act, 1961 and an order dated 12.10.2012, passed by respondent No.2 Deputy Commissioner of the Income Tax, Assessing Officer, disposing of its objections challenging the validity of the reassessment proceedings. Respondent No.3 is the Commissioner of Income Tax.
2. An agreement dated 31.05.2004 was entered into between the petitioner, Tiger Elevator Private Limited and Kone Elevator India Private Limited (TEPL). Under the agreement subject to the orders of this Court under sections 391 and 394 of the Act, TEPL and the petitioner agreed to implement the scheme of arrangement whereby the petitioner was to transfer its lift field operations business to TEPL for the consideration and on the terms and conditions stipulated therein. Clauses 1.9, 1.10, 1.55 and 4.1 of the said agreement read as under:-
“1.9 “Bonds A” means the bonds of the value of Rs.95,500,000/- (Rupees Ninety-five million, five hundred thousand only) to be issued by Tiger to BBL pursuant to the Scheme of Arrangement in the form Schedule AA 1.9.
1.10 “Bonds B” means the bonds of the value of Rs.47,750,000/- (Rupees Forty-seven million, seven hundred and five thousand only) to be issued by Tiger to BBL pursuant to the Scheme of Arrangement in the form Schedule AA 1.10.
1.55 “Shares” means 33,425,000 (thirty-three million, four hundred and twenty-five thousand) preference shares of the face value of Rs.10/- (Rupees ten only) each, to be issued to BBL by Tiger in its capital pursuant to the Scheme of Arrangement. Schedule AA 1.55 is the format of the preference shares to be issued.
4.1 The consideration for the transfer of the Business shall be Shares and Bonds to be issued by Tiger to BBL the aggregate of the value of Shares and of the Bonds is hereinafter referred to as the (“Fixed Amount”) where, Bonds A shall be subject to plus or minus the 1st Adjustment, plus or minus the 2nd Adjustment, plus or minus the 3rd Adjustment, plus the 4th Adjustment and plus the 5th Adjustment and Bonds B shall be subject to plus the 6th Adjustment.”
3. By an agreement titled Second Amendment Agreement dated 13.08.2004, clause 4 of the agreement dated 31.05.2004 was modified as follows :-
“2 CONSIDERATION
Clause 4 of the Agreement is hereby substituted to read as follows :
4.1 The consideration for the transfer of the Business shall be Shares and Bonds to be issued by Tiger to BBL the aggregate of the value of Shares and of the Bonds is hereinafter referred to as the “Fixed Amount”) where, Bonds A shall be subject to plus or minus the 2nd Adjustment, plus or minus the 3rd Adjustment, plus the 4th Adjustment and plus the 5th Adjustment and Bonds B shall be subject to plus the 6th Adjustment.
4.2 The Fixed Amount has been calculated according to the following formula:
Fixed Amount = Rs.330,000,000/- (Rupees Three Hundred and Thirty Million Only), i.e. A + B, where;
“A” = Rs.317,520,000/- (Rupees Three Hundred Seventeen Million Five Hundred Twenty Thousand Only). This is calculated as the outcome of (2.8 x Annual Value at the Appointed Date), where the Annual Value at the Appointed Date is Rs.113,400,000/-.
“Annual Value” is defined as being equal to the aggregate amount of the annual customer price of actually transferred Maintenance Contracts. However, for the purposes of calculating the value of factor “A” only, the Annual Value at the Appointed Date shall be determined on the basis of the list of Maintenance Contracts attached to hereto as Schedule AA 4.2.
“B” = Rs.13,086,000/- (Rupees Thirteen Million Eighty Six Thousand Only). This is calculated as the outcome of (0.0257548 x New Elevator Sales where the New Elevator Sales) is Rs.508,100,000/-.
“New Elevator Sales” is defined as being equal to the amount of the New Elevator Business Turnover for the 12 month period ending at March 31, 2004, as shown on the 2004 Financi
