ITAT held that the reserve created on amalgamation is capital in nature and not taxable as perquisite

Recently, the Income Tax Appellate Tribunal, Mumbai held that the reserve created on amalgamation is capital in nature and not taxable as perquisite.

- Anirudha Jain

Facts of the Case:

The appeal is filed by the Deputy Commissioner of Income Tax, Central Circle-Mumbai for Assessment Year (A.Y.) 2018-19 against the appellate order passed by the Commissioner of Income Tax (Appeals) ["learned CIT(A)"], Mumbai dated 13.03.2023 wherein the appeal filed by Samagra Wealthmax Private Limited (the assessee, also referred to as Samagra) against the assessment order passed by National e-assessment, Delhi (the Assessing Officer) dated 29.04.2021, was partly allowed.

1. Assessee is a Company engaged in the business of Real Estate, during FY 2017-18, with an intent to simplify the group structure, rationalize the administrative overhead and to achieve greater administrative efficiency, M/s Celina Buildcon and Infra Private Ltd. (referred to as Celina) was amalgamated with the assessee company as per the scheme of amalgamation approved by the Regional Director, Western Region, Mumbai.

2. Celina Buildcon and Infra Pvt. Limited was step down wholly owned subsidiary company of the assessee and as a result, no consideration was discharged on amalgamation.

3. Pursuant to the merger, the share capital of Celina Buildcon and Infra Pvt. Limited was knocked-off and generated capital reserve in the books of the assessee company of Rs.149.29 crore.

Assessing Officer's view:

Why the amount of Rs.149.29 crores should not be treated as income of the assessee company for A.Y. 2018-19 either as income from other sources or business income by invoking the provisions of Section 41(1) of the Act.