Case: Commissioner of Income Tax Vs. Annamalaiar Mills

1. We have heard learned Counsel for the parties and perused the impugned order dated January 20, 2004 passed by the Division Bench of the High Court of Judicature at Madras in T.C. No. 55 of 2001. Briefly stated, the facts of this case are as follows:M/s. Annamalaiar Mills (P.) Ltd., Respondent herein is a holding company of M/s. Annamalaiar Textiles (P.) Ltd. Hundred percent shares of M/s. Annamalaiar Textiles (P.) Ltd. were held by the Respondent-company. In the Respondent-company, there were two groups of shareholders; the majority shareholder called Group A was having 61.26 per cent shares whereas the minority shareholders called Group B were holding 38.74 percent, shares.2. An agreement was entered into between the two groups on June 24, 1985 by which Group A came to hold all the shares in the holding company, i.e., the Respondent herein and Group B was given 100 percent. shares in the subsidiary company, i.e., M/s. Annamalaiar Textiles (P.) Ltd. However, M/s. Annamalaiar Textiles (P.) Ltd. also paid a sum of Rs. 42.45 lakhs to the Respondent-company.3. Proceedings under the Gift-tax Act were initiated in respect of payment of Rs. 42.45 lakhs received by the Respondent-company. However, we are not concerned with the question of levy of gift-tax under the present proceedings.4. The Assessing Officer treated the amount of Rs. 42.45 lakhs paid by the M/s. Annamalaiar Textiles (P.) Ltd. to the Respondent-company as capital gains on the footing that since both the companies are now 100 percent. owned by Group A or Group B, as the case may be, payment of Rs. 42.45 lakhs was to offset valuation of the shares of M/s. Annamalaiar Textiles (P.) Ltd.5. The Assessing Officer opined that the Respondent herein-Assessee was liable to pay tax for capital gains which was upheld in the appeal before the Commissioner of Income-tax (Appeals). However, the Income-tax Appellate Tribunal, Madras, in appeal preferred by the Respondent herein accepted the pleas put forth by the Respondent herein, set aside the assessment and restored the matter to the Income-tax Officer so that the asses-see may approach the Central Board of Direct Taxes. The Income-tax Officer was further directed to finalise the assessment in accordance with the directions that may be given by the Central Board of Direct Taxes.6. The matter was taken up before the High Court of Madras and the order of the Tribunal was upheld by the Madras High Court.The sole question which arises for our consideration is as to whether the sum of Rs. 42.45 lakhs paid by M/s. Annamalaiar Textiles (P.) Ltd. to the Respondent-company is liable to any capital gains or not.7. It is not in dispute that M/s. Annamalaiar Textiles (P.) Ltd. did not pay any amount to the shareholders who ultimately got the shares transferred in their names. The Respondent was holding 100 percent. shares of M/s. Annamalaiar Textiles (P.) Ltd., before it was transferred to Group B. No payment was made to the shareholders belonging to Group B and, therefore, the question of there being any capital gains at the hands of the Respondent herein does not arise.8. Needless to mention that the transaction of payment of Rs. 42.45 lakhs had been subjected under the Gift-tax Act and the Department cannot claim both under the Gift-tax Act and also levy tax under the Income-tax Act.

Decision reasoning: 0[ds]7. It is not in dispute that M/s. Annamalaiar Textiles (P.) Ltd. did not pay any amount to the shareholders who ultimately got the shares transferred in their names. The Respondent was holding 100 percent. shares of M/s. Annamalaiar Textiles (P.) Ltd., before it was transferred to Group B. No payment was made to the shareholders belonging to Group B and, therefore, the question of there being any capital gains at the hands of the Respondent herein does not arise8. Needless to mention that the transaction of payment of Rs. 42.45 lakhs had been subjected under the Gift-tax Act and the Department cannot claim both under the Gift-tax Act and also levy tax under the Income-tax Act.