Income on sale of shares of company merged has to be regarded as LTCG: ITAT


The Income Tax Appellate Tribunal (ITAT) Bangalore, on February 5, Income on sale of shares of a company merged should be treated as Long Term Company Gain (LTCG).

Facts of the case:-

The assessee, Shaw-Wallace Financial Services Ltd., (SWFSL), Kolkata, was a company engaged in the business of financing and investments. It later merged with another company by the name M/s. Shaw Wallace Breweries Ltd., (SWBL) which was duly approved by the Hon’ble High Court of Kolkata. In the course of assessment proceedings pursuant to filing the return of income, the assessee submitted before the Assessing Officer (AO) that on account of the above merger, SWFSL ceases to have a separate legal entity and does not exist, and no assessment can be framed in the name of a non-existent entity and doing so will render such order of assessment invalid.

Interpretation of law:-

The AO, however, passed an order of assessment under section 144 of the Income Tax Act, 1961. In which, since the evidence was not produced in respect of expenditure, the expenditure debited to P & L Account was disallowed while completing the assessment, as aforesaid under section 144 of the Act.

The LTCG declared by the Assessee was accepted by the AO. The AO was of the view that income declared by the Assessee SWFSL under the head LTCG was in the nature of income chargeable to tax under the head “Income from Business” and therefore he issued a notice under section 148 on SWBL, the successor in interest of SWFSL, calling upon SWBL to file a return of income. In response, SWBL filed a reply stating that the return of income already filed for the above Assessment Year (by SWFSL the predecessor of SWBL) may be treated as a return filed in response to notice under section 148 of the Act.


The only reason given by the AO for coming to the conclusion that income on the sale of shares has to be regarded as business income is due to the fact that the cost of acquisition of the shares was less and the sale proceeds of those shares were very high and therefore the gain in question should be regarded as income from the business.

Vice President N.V. Vasudevan and Accountant Member B.R. Baskaran while dismissing the appeal of the Assessee held, “. . . approach of the AO is contrary to the tests laid down in the several Circulars, in particular, Circular No.4/2007. In the light of the subsequent Circulars pointed out above, we are of the view that the income on the sale of shares has to be regarded as LTCG. We, therefore, uphold the order of CIT(A). In view of the above conclusion in the appeal of the Revenue, we are of the view that no adjudication is necessary for so far as the C.O. filed by the assessee is concerned.”

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