Benefit under Section 47(ivb) can’t be availed If Demerger not in manner envisaged under Section 2(19AA): ITAT [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal ( ITAT ) in ITO, Kolkata v. M/s Datex Ohmeda (India) Pvt Ltd. held that Benefit under Section 47 (ivb) of the Income Tax Act cannot be availed if demerger not in manner envisaged under Section 2(19AA) of the Income Tax Act.

In the instant case, the assessee company is a wholly owned subsidiary of GE Healthcare OY, Finland carrying on business of trading and servicing of medical equipments till 31.3.2018.  Thereafter, it was decided by board of directors of the company to transfer it’s T&D Division to Wipro G E Healthcare Pvt Ltd  and accordingly an application was moved by assessee company in January 2009 before the Hon’ble Calcutta High Court to transfer with retrospective effect from April 2018 through a scheme of demerger. This was accepted by the Calcutta and Karnataka High Courts. Thereafter, scheme was accepted by shareholders. In the return of income filed for the year under consideration, no capital gain arising from transfer of T&D Division by demerger  was offered to tax by the assessee company on the ground that the same was exempt under section 47(vib).

During the closure of assessment proceedings, it was noticed by the A.O that out of total unsecured loans of the T&D Division, only a small part of it had been transferred and the balance amount of loan taken from the holding company had not been transferred. The explanation of the assessee that the demerger was as per Hon’ble High Court’s order, as well as the condition stipulated in Section 2(19AA), had been satisfied was not accepted by the assessee.  The A.O. concluded that orders of Hon’ble High Court were passed as per companies act and as the conditions specified in Section 2(19AA) dealing with demerger has not been satisfied,   exemption from the capital gain as per provisions of section 47(vib) was not available. Appeal was made before the CIT(A). On perusal of the facts and circumstances of the case, it held that there was no violation or non-fulfillment of the condition of demerger as laid down in section 2(19AA) of the Income Tax Act.

The revenue appealed to the ITAT against the order of ld. CIT(A). The ITAT rejected the contention of the assessee that the said loan do not relate to T&D Division it added that transfer in the instant case is not in a manner as envisaged in section 2(19AA) and held that the same cannot be considered as demerger under the provision of income tax act and the benefit available under section 47(ivb) cannot be availed. Relying upon various judicial pronouncements, it held that in the instant case, there was no capital gain which would be subjected to tax under Section 50B of the Income Tax Act.