By TIOL New Service

NEW DELHI, DEC 09, 2016: THE ISSUE IS - Whether the benefit of exemption from Capital Gains Tax can be denied to an undertaking sought to be revived by the BIFR on the ground that after rehabilitation, the company has shown profitability. NO IS THE VERDICT.

Facts of the case:

The Assessee, which is engaged in textile machinery manufacture, became sick in 2001, and its case was referred to the BIFR and the scheme for revival of the Assessee was sanctioned by BIFR. In terms of the viability projected in the sanctioned scheme of 2003, the net-worth of the company was expected to turn positive by 2005-06 and its accumulated losses were expected to be eliminated during 2006. These projections remained unfulfilled, however, and there was a sharp decrease in the company's net-worth due to which it could not generate the necessary internal accruals. BIFR, therefore, reviewed and modified the rehabilitation scheme. Assessee then approached BIFR through an application, requesting it to direct the income tax authorities to inter-alia, exempt the company from capital gains tax on the sale of assets, which was to be made by the Assessee as part of the Modified Rehabilitation Scheme. BIFR allowed the application. Joint Director of Income Tax (Recovery) rejected the request for exemption from capital gains tax. Assessee filed a writ petition. Since the return of income for the AY 2010-11 was due, the Assessee, pending the receipt of the order of the DIT (Recovery) filed its return of income for the AY 2010-11 without subjecting the capital gains to tax based on the sanctioned scheme, recommending the relief of capital gains tax as well as the sanctioned scheme. The assessment order passed in the Assessee's case for the A.Y. 2010-11 dated 08.02.2013 did not include the capital gain arising from transfer of the assets. Assessee's Writ Petition was disposed of as infructuous. Income tax authorities again denied relief to the Assessee. Assessee filed writ petition in which Court directed DIT (Recovery) to once again consider the proposed scheme and the question of entitlement of the Assessee to concession as sought for by the Assessee. Income Tax authorities rejected the request vis-à-vis capital gains exemption.

On appeal, HC held that,

++ Though the modified scheme was issued in 2009, the consideration and grant of relief took place on 29.12.2012 by the income tax authorities when they actually took note of the projections. It is a matter of recndents that exemption from payment of capital gains tax is not warranted cannot be held illegal.

(See 2016-TIOL-2968-HC-DEL-IT)