| QUERY: | Whether the exemption is available for share in income of HUF of the relevant assessment year or for lump sum payment out of past accumulated incomes. Please intimate can it come within the preview of Section 56(2)? |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | CA. H. N. Motiwalla |
| SECTION(S): | 10(2) |
| GENRE: | Taxation (Domestic) |
| CATCH WORDS: | Share in income of HUF -Share income of a member of HUF |
Although the respondents purport to contend that proper procedure had been followed, record does not bear that there had been any communication made to the petitioner as to its submissions being not acceptable before or at the time of making the adjustment. Decisions in the cases of “A. N. Shaikh”, “Hindustan Unilever Ltd.,” and “Milestone Real Estate Fund” (supra) relied on, on behalf of the petitioner have not been met with by the respondents nor it is the case of the respondents that any other course could be adopted for adjustment of refund. There is stark absence of material showing compliance of requirements viz: application of mind to contentions on behalf of the petitioner, reasoned order and its communication to the assessee. The facts and circumstances lend lot of substance to submissions advanced on behalf of the petitioner that there is absence of compliance of requirements under section 245 of the Act, coupled with observations of high court in the decisions relied upon on behalf of the petitioners
The consequence of approved scheme of amalgamation was that amalgamating company had ceased to exist and on its ceasing to exist, it cannot be regarded as a person against whom assessment proceeding can be initiated. In said case before notice under Section 143(2) of the Act was issued on 26.9.2013, the scheme of amalgamation had been approved by the high court with effect from 1.4.2012. It has been observed that assessment order passed for the assessment year 2012-13 in the name of non-existing entity is a substantive illegality and would not be procedural violation of Section 292 (b) of the Act. The Supreme Court in its aforesaid decision, has quoted an extract from its decision in Saraswati Industrial Syndicate Ltd. Vs. CIT8. The Supreme Court has also referred to decision of Delhi high court in the case of CIT Vs. Spice Enfotainment Ltd.9and observed that in its decision Delhi high court had held that assessment order passed against non-existing company would be void. Such defect cannot be treated as procedural defect and mere participation of appellant would be of no effect as there is no estoppel against law. Such a defect cannot be cured by invoking provisions under section 292B
To summarise, in our view, the issue of shares at ‘face value’ by the amalgamated company (assessee) to the shareholders of amalgamating company in pursuance of scheme of amalgamation legally recognized in the Court of Law neither falls with scope & ambit of clause (viib) to S. 56(2), when tested on the touchstone of objects and purpose of such insertion i.e. to deem unjustified premiums charged on issue of shares as taxable income; nor does it fall in its sweep when such deeming clause is subjected to interpretative process having regard to the scheme of the Act
As noted by the Central Board of Direct Taxes circular # 8 of 2018, explaining the reason for the insertion of the third proviso to Section 50C(1), has observed that “It has been pointed out that the variation between stamp duty value and actual consideration received can occur in respect of similar properties in the same area because of a variety of factors, including the shape of the plot or location”. Once the CBDT itself accepts that these variations could be on account of a variety of factors, essentially bonafide factors, and, for this reason, Section 50C(1) should not come into play, it was an “unintended consequence” of Section 50(1) that even in such bonafide situations, this provision, which is inherently in the nature of an anti-avoidance provision, is invoked. Once this situation is sought to be addressed, as is the settled legal position- as we will see a little later in our analysis, this situation needs to be addressed in entirety for the entire period in which such legal provisions had effect, and not for a specific time period only. There is no good reason for holding the curative amendment to be only as prospective in effect.
Under S. 18 an acknowledgement of liability signed by the party against whom the right is claimed gives rise to a fresh period of limitation. Under Explanation (b) to the Section the word ‘signed’ means signed either personally or by an agent duly authorised. A company being a corporate body acts through its representatives, the Managing Director and the Board of Directors. Under S. 210 of the Companies Act it is the statutory duty of the Board of Directors to lay before the Company at every annual general body meeting a balance sheet and a profit and loss account for the preceding financial year. S. 211 directs that the form and contents of the balance sheet should be as set out in Part I of Schedule VI. The said form stipulates for the details of the loans and advances and also of sundry creditors. The balance sheet should be approved by the Board of Directors, and thereafter authenticated by the Manager or the Secretary if any and not less than two directors one of whom should be the Managing Director. (See S. 215). The Act also provides for supply of copies of the balance sheet to the members before the company in general meeting. Going by the above provisions, a balance sheet is the statement of assets and liabilities of the company as at the end of the financial year, approved by the Board of Directors and authenticated in the manner provided by law. The persons who authenticate the document do so in their capacity as agents of the company. The inclusion of a debt in a balance sheet duly prepared and authenticated would amount to admission of a liability and therefore satisfies the requirements of law for a valid acknowledgement under S. 18 of the Limitation Act, even though the directors by authenticating the balance sheet merely discharge a statutory duty and may not have intended to make an acknowledgement.