Case Note & Summary
The revenue (appellant) filed an appeal under Section 260-A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal (ITAT) dated 14.06.2013 in ITA No.154/Bang/2013 for the assessment year 2009-10. The respondent-assessee, an individual, had transferred the capital asset of his sole proprietary concern to a company, M/s Vikram Logistic and Maritime Services Private Limited (VLMS), which was incorporated in 1992 by his father. The main object of VLMS was transportation and logistic services, and it acted as a handling agent for Container Corporation of India. The revenue contended that the transfer was not by way of succession and thus capital gains tax was applicable. The ITAT held that the transfer was by way of succession under Section 47(xiv) of the Act, exempting capital gains. The High Court, after considering the factual matrix and legal provisions, dismissed the revenue's appeal, affirming the ITAT's order. The court reasoned that the transfer of a sole proprietary concern to a company where the assessee holds at least 50% shares qualifies as succession under Section 47(xiv), and therefore, no capital gains tax arises.
Headnote
A) Income Tax - Capital Gains - Section 47(xiv) Income Tax Act, 1961 - Succession - Transfer of capital asset from sole proprietary concern to a company - The issue was whether such transfer is by way of succession and thus exempt from capital gains tax. The court held that the transfer falls within the ambit of Section 47(xiv) as it is a succession of the business, and therefore, any capital gain arising from such transfer is not taxable. (Paras 1-2)
Issue of Consideration
Whether the transfer of a capital asset from a sole proprietary concern to a company amounts to succession under Section 47(xiv) of the Income Tax Act, 1961, thereby exempting capital gains from tax.
Final Decision
Appeal dismissed. The order of the Income Tax Appellate Tribunal is affirmed. No substantial question of law arises.
Law Points
- Transfer of capital asset from sole proprietary concern to a company is by way of succession under Section 47(xiv) of Income Tax Act
- 1961
- capital gains not taxable
- interpretation of 'succession' in context of business transfer
Case Details
2014 LawText (KAR) (07) 23
E R Indrakumar (Senior Counsel for Sri E I Sanmathi, Advocate) for appellants, M S Syali (Senior Counsel for Sri S Parthasarathi, Advocate) for respondent
Commissioner of Income Tax – III, Bangalore and The Joint Commissioner of Income Tax (OSD), Circle-12(5), Bangalore
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Nature of Litigation
Income Tax Appeal under Section 260-A of Income Tax Act, 1961 against order of ITAT.
Remedy Sought
Revenue sought to set aside the ITAT order and bring capital gains to tax.
Filing Reason
Revenue challenged ITAT order holding that transfer of capital asset from sole proprietary concern to company is by way of succession under Section 47(xiv) and thus capital gains not taxable.
Previous Decisions
ITAT order dated 14.06.2013 in ITA No.154/Bang/2013 for assessment year 2009-10 held in favor of assessee.
Issues
Whether transfer of capital asset from sole proprietary concern to a company amounts to succession under Section 47(xiv) of Income Tax Act, 1961.
Submissions/Arguments
Revenue argued that transfer is not by way of succession and capital gains tax is applicable.
Assessee contended that transfer falls under Section 47(xiv) and is exempt from capital gains tax.
Ratio Decidendi
Transfer of a capital asset from a sole proprietary concern to a company where the assessee holds at least 50% shares is by way of succession under Section 47(xiv) of the Income Tax Act, 1961, and therefore, any capital gain arising from such transfer is not taxable.
Judgment Excerpts
The revenue has preferred this appeal against the order passed by the Tribunal holding that the transfer of the capital asset of the sole proprietary concern of the assessee to a Company is by way of succession, in view of the provisions of Section 47(xiv) of the Income Tax Act, 1961, and therefore, any capital gain arising from such transfer cannot be brought to tax.
Procedural History
The assessee filed return for assessment year 2009-10. The Assessing Officer assessed capital gains on transfer of asset from sole proprietorship to company. The Commissioner of Income Tax (Appeals) upheld the assessment. The ITAT allowed the assessee's appeal, holding that transfer is by way of succession under Section 47(xiv). Revenue filed appeal under Section 260-A before High Court.
Acts & Sections
- Income Tax Act, 1961: Section 47(xiv), Section 260-A
