Asstt. CIT v. Privi Speciality Chemicals Ltd.

Case Laws Analysis
REFERRED CIT v. Woodward Governor India P. Ltd. 2009 TaxPub(DT) 1628 (SC)
REFERRED Kartikeya V. Sarabhai v. CIT 1997 TaxPub(DT) 1341 (SC)
REFERRED Anarkali Sarabhai v. CIT 1997 TaxPub(DT) 1028 (SC)
REFERRED Anarkali Sarabhai v. CIT 1982 TaxPub(DT) 1367 (Guj-HC)

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The Tax Publishers2023 TaxPub(DT) 779 (Mum-Trib) IN THE ITAT, C BENCH, MUMBAI G.S. PANNU, PRESIDENT & SINGH KARHAIL, J.M. Asstt. CIT v. Privi Speciality Chemicals Ltd. ITA No.7356/Mum./2019 4 January 2023 ORDER *Per Bench* The captioned appeal has been filed by the Revenue challenging the impugned order dated 11-9-2019, passed under section 250 of the Income Tax Act, 1961 (the Act) by the learned Commissioner (Appeals)9, Mumbai, [learned Commissioner (Appeals)], for the assessment year 201112. 2. In its appeal, the assessee has raised the following grounds: '1. Whether on the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in directing the assessing officer to delete the addition of Short Term capital Gains arising on account of premium received by assessee for transferring Redeemable Cumulative Convertible Preference Share and Fully Compulsory Convertible Preference Shares to equity shares during the year. 2. Whether on the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in directing the assessing officer to delete the addition of Rs. 1,16,64,751 as it is unrealized foreign exchange gain even though the same is accounted for by the assessee as per the mercantile system of accounting. 3. The appellant craves leave to amend or alter any ground or add new ground which may be necessary.' 3. The issue arising in ground No. 1, raised in Revenues appeal, is pertaining to the addition on account of premium received by the assessee as short-term capital gains. 4. The brief facts of the case pertaining to this issue are: The assessee is a private limited company and is engaged in the business of manufacturing, trading, and export of aroma chemicals. For the year under consideration, the assessee e-filed its return of income on 10-12-2009 declaring a total loss of Rs.1,39,84,692. The assessee company originally issued fully compulsory convertible preference shares (FCCPS) and Redeemable Cumulative Convertible Preference Shares (RCCPS) at a face value of Rs. 10,000 each to M/s Avigo Venture Investments Ltd and M/s Avigo Trustee Company Private Ltd. Thereafter, both the preference shareholders transferred these preference shares to M/s Satguru Construction. During the year under consideration, all the redeemable preference shares were redeemed by the assessee by issuing 19,29,953 equity shares at a face value of Rs. 10 each and crediting Rs. 22,06,90,470 in the Reserves and Surplus under the Security Premium Account. Accordingly, during the assessment proceedings, the assessee was asked to show cause as to why the amount credited as a security premium in the Reserves and Surplus be not treated as a capital gain on redemption of preference shares. In response thereto, the assessee submitted that the transfer on the conversion of preference shares into equity shares is in the hands of the shareholder i.e. M/s Satguru Constructions, and not in the hands of the assessee. The assessee further submitted that even in the case of a buyback of shares, the capital gains and transfer in such a case, only arise in the hands of the shareholder and not in the hands of the company. The Assessing Officer (assessing officer) vide order dated 10-2-2014 passed under section 143(3) of the Act did not agree with the submissions of the assessee and by placing reliance upon the decision of Honble Gujarat High Court in Anarkali Sarabhai v. CIT (1982) 138 ITR 437 (Guj.) : 1982 TaxPub(DT) 1367 (Guj-HC) held that there was an asset which was transferred and as gain has been accrued to the assessee, therefore the same is assessed as capital gains in the hands of the assessee. The assessing officer treated the amount of Rs.22,06,91,000 credited to the Security Premium Account as short-term capital gains and added the same to the total income of the assessee. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2023 TaxPub(DT) 779 (Mum-Trib)

IN THE ITAT, C BENCH, MUMBAI

G.S. PANNU, PRESIDENT & SINGH KARHAIL, J.M.

Asstt. CIT v. Privi Speciality Chemicals Ltd.

ITA No.7356/Mum./2019

4 January 2023

ORDER

Per Bench

The captioned appeal has been filed by the Revenue challenging the impugned order dated 11-9-2019, passed under section 250 of the Income Tax Act, 1961 (the Act) by the learned Commissioner (Appeals)9, Mumbai, [learned Commissioner (Appeals)], for the assessment year 201112.

2. In its appeal, the assessee has raised the following grounds:

'1. Whether on the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in directing the assessing officer to delete the addition of Short Term capital Gains arising on account of premium received by assessee for transferring Redeemable Cumulative Convertible Preference Share and Fully Compulsory Convertible Preference Shares to equity shares during the year.

2. Whether on the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in directing the assessing officer to delete the addition of Rs. 1,16,64,751 as it is unrealized foreign exchange gain even though the same is accounted for by the assessee as per the mercantile system of accounting.

3. The appellant craves leave to amend or alter any ground or add new ground which may be necessary.'

3. The issue arising in ground No. 1, raised in Revenues appeal, is pertaining to the addition on account of premium received by the assessee as short-term capital gains.

4. The brief facts of the case pertaining to this issue are: The assessee is a private limited company and is engaged in the business of manufacturing, trading, and export of aroma chemicals. For the year under consideration, the assessee e-filed its return of income on 10-12-2009 declaring a total loss of Rs.1,39,84,692. The assessee company originally issued fully compulsory convertible preference shares (FCCPS) and Redeemable Cumulative Convertible Preference Shares (RCCPS) at a face value of Rs. 10,000 each to M/s Avigo Venture Investments Ltd and M/s Avigo Trustee Company Private Ltd. Thereafter, both the preference shareholders transferred these preference shares to M/s Satguru Construction. During the year under consideration, all the redeemable preference shares were redeemed by the assessee by issuing 19,29,953 equity shares at a face value of Rs. 10 each and crediting Rs. 22,06,90,470 in the Reserves and Surplus under the Security Premium Account. Accordingly, during the assessment proceedings, the assessee was asked to show cause as to why the amount credited as a security premium in the Reserves and Surplus be not treated as a capital gain on redemption of preference shares. In response thereto, the assessee submitted that the transfer on the conversion of preference shares into equity shares is in the hands of the shareholder i.e. M/s Satguru Constructions, and not in the hands of the assessee. The assessee further submitted that even in the case of a buyback of shares, the capital gains and transfer in such a case, only arise in the hands of the shareholder and not in the hands of the company. The Assessing Officer (assessing officer) vide order dated 10-2-2014 passed under section 143(3) of the Act did not agree with the submissions of the assessee and by placing reliance upon the decision of Honble Gujarat High Court in Anarkali Sarabhai v. CIT (1982) 138 ITR 437 (Guj.) : 1982 TaxPub(DT) 1367 (Guj-HC) held that there was an asset which was transferred and as gain has been accrued to the assessee, therefore the same is assessed as capital gains in the hands of the assessee. The assessing officer treated the amount of Rs.22,06,91,000 credited to the Security Premium Account as short-term capital gains and added the same to the total income of the assessee.