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Informist, Thursday, Dec. 26, 2024

 

NEW DELHI – Rejecting the income tax department's plea, the Delhi High Court has upheld the Income Tax Appellate Tribunal's order to allow INR 2.48 billion of tax exemption to Hespera Realty Pvt. Ltd. under Section 10(38) of the Income Tax Act, 1961. The high court said it did not find fault with the decision of the Commissioner of Income Tax (Appeals) and the appellate tribunal in rejecting the tax department's contention.

 

In 2015, the high court had approved a scheme of arrangement under which five companies, including Hespera Infrastructure Pvt. Ltd. and Hespera Real Estate Pvt. Ltd., were merged with Hespera Realty with effect from Aug. 1, 2014. The five companies had held shares in Indiabulls Housing Finance Ltd.

 

After Aug. 1, 2014 and during the financial year 2014-15, three of the five companies sold the shares of Indiabulls Housing, resulting in long-term capital gains in the hands of Hespera Realty. Since the amalgamating companies were merged with Hespera Realty with effect from Aug. 1, 2014, the income earned from the transaction of the sale of shares was required to be assessed in the hands of Hespera Realty.

 

The sale of the shares resulted in long-term capital gains amounting to INR 2.81 billion, which Hespera Realty claimed was exempted by virtue of Section 10(38) of the 1961 Act. Out of the given sum, Hespera Realty accounted for INR 330.98 million as profits, but carried the balance amount of INR 2.48 billion directly to capital reserve. The assessing officer said that the amount of INR 2.48 billion was required to be added to book profits for the purposes of Section 115JB of the 1961 Act, relating to minimum alternate tax. Additionally, the assessing officer held that exemption under Section 10(38) of the Act was not available for the given amount. 

 

The commissioner of income tax (appeals) held that the entire amount of long-term capital gains of INR 2.81 was not liable to be included as income chargeable to tax by virtue of Section 10(38) of the Act. Accordingly, the commissioner upheld the exemption of INR 2.48 billion claimed by Hespera Realty. However, the commissioner did not interfere with the assessing officer's decision regarding the computation of book profits for the purpose of determination of minimum alternate tax. The challenge to this order was rejected by the appellate tribunal, against which the tax department moved the high court.  End

 

Reported by Surya Tripathi

Edited by Avishek Dutta

 

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