Income Tax Appellate Tribunal Judgments

Mumbai ITAT: Preference shares conversion into equity, not ‘transfer’; Deletes LTCG addition

Mumbai ITAT rules that conversion of cumulative and compulsory convertible preference shares (CCPS) into equity shares does not amount to ‘transfer’ u/s. 2(47), deletes long-term capital gains (LTCG) addition.

During relevant AY 2012-13, upon conversion of CCPS into equity shares, AO had assessed the difference in the market value of equity shares and the cost of CCPS as LTCG on account of the transfer of shares by way of exchange in the hands of the assessee co.

The hon’ble ITAT remarked that it “is not a case where one form of share has been exchanged, bartered, swapped for another form of share.” clarified that there is no exchange of any share as the pre-conversion security (i.e.CCPS) has ceased to exist.

The hon’ble ITAT further clarified that Revenue’s interpretation if adopted would lead to double taxation and would be against the legislative intention.

The hon’ble ITAT relied on CBDT Circular of May 1964 and Co-ordinate bench ruling in Vijay M. Merchant wherein it was held that where one type of share is converted into another type, there is no ‘transfer’ of a capital asset, distinguished SC ruling in Motors & General Stores Pvt. Ltd. on facts.

Jaipur ITAT: Upholds reassessment absent assessee’s HO expense apportionment disclosure for Sec 80IA computation

Jaipur Income Tax Appellate Tribunal (ITAT) upholds re-assessment for AY 2010-11 (initiated beyond 4 years period) as no disclosure was made by assessee co. regarding apportionment of any head office (HO) expenses while computing deduction u/s 80IA in respect of its wind power generating undertakings.

The hon’ble ITAT noted that while claiming deduction u/s. 80IA, the assessee had only considered direct operation and maintenance expenses without charging proportionate HO expenses, therefore rejected assessee’s stand that since AO had examined assessee’s claim u/s. 80-IA during the original assessment, re-opening after the expiry of 4 years was not justified.

The hon’ble ITAT acknowledged that it could be assessee’s position that HO expenses have no nexus with tax holiday units and therefore, there was no necessity to allocate these expenses at the first place, however, it observed that such a position of the assessee and the related facts were not disclosed by the assessee.

The hon’ble ITAT noted that the issue of allocation of HO expense was not examined at all during the course of original assessment, therefore held that the question of change of opinion doesn’t arise, and distinguishes assessee’s reliance on SC ruling in Techspan India on facts.

On merits, the hon’ble Income Tax Appellate Tribunal (ITAT) observed that though the entire operation and maintenance of wind plants was outsourced to Suzlon Energy, assessee still remained responsible for overall supervision at the strategic and managerial level, therefore ruled that the common expenses in relation thereto needs to be allocated in the ratio of turnover and restores matter back to AO to recalculate the eligible profits.