S. 28(iv)

M/s Spencer & Co Ltd v ACIT [2012-TIOL-370-ITAT-MAD-TM] (Chennai ITAT) Background: The asseessee M/s Spencer and Company Ltd, had filed its return of income u/s 139(1) for assessment year 2002-03, on 30.10.2002. M/s. Spencer Industrial Fund Ltd. (SIFL) was amalgamated with the assessee company with effect from 1st April, 2001. Consequently, the assessee company revised its return u/s 139(5) by filing a return on 23.11.2003 disclosing information regarding amalgamation of SIFL with it. The AO observed that there was a direct nexus between loans obtained and investments made, expenditure incurred in relation to exempt income was not deductible u/s 14A. The assessee’s income was subject to income escapement proceedings and, a notice u/s 148 was issued. Pursuant to the amalgamation, the assets and liabilities of SIFL got vested with the assessee company and were recorded at their fair values. The excess of fair value of net assets over the paid up value of allotted equity shares worked out to Rs. 2,899.68 lakhs. This surplus amount was transferred by the assessee to its General Reserve Account. The CIT observed that this surplus amount of Rs. 2,899.68 lakhs was not subjected to tax as business income under section 28(iv) and thereafter, initiated revision proceedings u/s 263. 

Surplus on amalgamation not taxable u/s 28(iv) – Chennai ITAT