2008 PLP 1646 (PTD)

(b) "transfer" includes the sale, disposition, exchange or relinquishment of the asset, or the extinguishments of any right therein, but does not include-- (i) any transfer by reason of the compulsory acquisition of any capital assets under any law for the time being in force; (ii) any transfer of a capital asset under a gift, bequest or will or an irrevocable trust; (iii) any distribution of the assets of a company to its shareholders on its liquidation; and (iv) any distribution of capital assets on the dissolution of a firm or other association of persons or the partition of a Hindu undivided family.

28. Computation of capital gains.

(1) Computing the income under the head "Capital gains", the cost of acquisition of the capital assets and any expenditure incurred wholly and exclusively in connection with the transfer thereof shall be deducted. (2) The provisions of section 24 shall, so far as may be, apply to the allowances and deductions under this section as they apply to the allowances and deductions in respect of income chargeable under the head "income from business or profession".

29. Cost of acquisition, and consideration for transfer how determined.

(1) Where the capital asset became the property of the assessee (a) under a gift, bequest or will; or (b) by succession, inheritance or devolution; or (c) on any distribution of assets on the dissolution of a firm or other association of persons or the partition of a Hindu undivided family; or (d) on any distribution of assets on the liquidation of a company; or (e) under a transfer of a revocable or an irrevocable trust, the fair market value of the asset, as on the date on which it became the property of the assessee, shall, for the purpose of subsection (1) of section 28, be deemed to be the cost of acquisition".

6. It is argued that a bare perusal of section 27 ibid shows that it is profit or gain arising from the transfer of a capital asset which has been treated as capital gain or income of the assessee which is to be assessed, therefore, primarily the transfer of capital assets as provided in this section should be by the assessee in favour of another person. In the present case, there is no transfer as such of capital assets or the shares held by the complainant assessee in the dissolved company with reference to which the capital gain could be said to have arisen. It is a case of amalgamation of the company in which the complainant company held specified number of shares of nominal value of Rs.10 each and under the judgment of the High Court of Sindh Karachi, the same stood dissolved. In the company with which the same was amalgamated, the question of allotment of shares to the complainant-company arose. The High Court in its judgment, dated 27-11-1996 while approving the scheme of amalgamation laid down a criterion that the share-holders amalgamated/dissolved company should be allotted fully paid-up shares of specified number. The allotment was not in consequence of transfer of capital assets of any valuable consideration in order to treat the same as capital gain or income. In the judgment of the Sindh High Court, the reference to the shares held by the complainant company in the dissolved company was made only to provide a criterion for allotment of number of shares in the company with which the same was amalgamated and nothing else, therefore, comparison of the value of both sets of shares in order to hold that it was a gain as envisaged by section 27 was not in accordance with the said provisions of law, for as submitted, there was no transfer or disposition from complainant of any capital assets from which any income could be said to have arisen. This is apart from the fact the nominal value of the shares allotted was merely paper transaction, therefore, the pars value of the same could not have been taken as far excess of the share value in order to make comparison of the difference of the value of the two sets of shares.

7. Learned counsel for the complainant further maintained that the complainant has been discriminated in this case in that those share-holders of the dissolved company who were also allotted 33% shares in the company after amalgamation were not proceeded against under section 27 of the ITO, 1979. According to him, this conduct of the department is clear indication of the stand of the department that it was not a capital gain/income, which could be assessed and income tax charged. As regards objection to the jurisdiction of the FTO with reference to section 9(2) on the ground that it was a mere question of assessment of quantum of income and the determination of the quantum of income tax recoverable under the law, he submitted that the complaint is against misadministration inasmuch the Income Tax Officer erroneously treated the allotment of shares in the amalgamated company as income or capital gain based on transfer of capital asset. It was a case of objection to the proceedings under section 27 of the ITO, 1979 and not in the proceedings on merits relating to quantum of income tax assessed.

8. D.R. on the other hand, submitted that apart from section 9(2), the FTO has no power in matter as the Income Tax Appellate Tribunal being not part of the Revenue Division, as such, no direction or recommendation could be made or given with regard thereto. He submitted that there was no discrimination inasmuch as if no proceedings were initiated against those to whom 33% shares were allotted, the same may be an act against law but could not in any manner benefit the complainant as an illegal act could not be a ground to commit another illegality. He further submitted that a letter was written to the complainant to provide particulars of those shareholders by the department but no reply was given.

9. To the last contention raised by the D.R., learned counsel for the complainant replied that the complainant is not objecting to the department of not taking 'action against the other shareholders under section 27 but inaction on its part against them was being put up as evidence in favour of the contention raised above that it was not treated as capital gain correctly by the Department qua those shareholders and the complainant was demanding equal treatment in the matter that the complainant should also not be charged any income tax and treated alike.

10. Learned counsel for the complainant submitted that the particular of the said shareholders could easily be obtained from the Registrar of the Companies, therefore, it was a lame excuse that the complainant did not provide particulars for the complainant was not required to know the particulars of those shareholders.

11. After considering the above-contentions raised by the parties, I was inclined to agree with those raised by the learned counsel for the complainant and would have proceeded further but for lack of the power to make any recommendation or direction, the case could not be processed further qua judgment of the Income Tax Appellate Tribunal and objection raised by D.R. in this regard is hereby sustained. However, I am not disposed to agree with him that it was a case of bar of jurisdiction under section 9(2) of the FTO Ordinance, being merely a case of assessment of income.

12. The complainant availed statutory remedies by filing appeal before the Commissioner Appeal against the order of the DCIT and before the Income Tax Appellate Tribunal, which were dismissed. The jurisdiction of the FTO extends to proceedings within Revenue Division and its officers and not to the Income Tax Appellate Tribunal, which is a judicial Tribunal and not part of Revenue Division. The Tribunal is an independent body and FTO has no power to make any recommendation or pass any direction in respect of judgment passed by the said Tribunal. The complainant law in the circumstances of the case.

13. For the foregoing reasons, this complaint is hereby disposed being not maintainable and the case is closed. C.M.A./574/FTO Order accordingly.