Reserve and surplus acquired on amalgamation is not revenue receipt; held not taxable under sec. 28(iv)

Enhancement of capital reserve due to amalgamation (in nature of merger) of assessee-co. with other companies, was not in revenue field and, thus, was not in nature of income so as to be considered for taxation under section 28(iv).

The Tribunal held as under:

1)    Provisions of section 28(iv) provide that besides the profits and gains from business or profession (‘PGBP’) carried on by the assessee, any other benefit or perquisite arising therefrom is also chargeable to tax under the head 'PGBP’;

2)    The conditions precedents for such taxability are:

(i)   There should be benefit or perquisite, and

(ii)  Such benefit or perquisite should arise from the business or the exercise of a profession;

3)    The expression 'arising from business' essentially implied that the benefit or perquisite would be in the nature of a business receipt or revenue receipt. No matter how wide could be the scope of section28(iv), the difference between a capital receipt and revenue receipt could not be overlooked;

4)    Thus, unless a receipt was revenue receipt, it could not be in the nature of income and unless it was in nature of income, it could not be considered for taxation under section 28(iv);

5)    The instant case was of amalgamation in the nature of merger which was proposed for the purpose of better, efficient and economical management to withstand the recessionary trend in the economy and to obtain advantage of economies of large scale;

6)    Even if there was a benefit in the process, such a benefit could only be in the capital field, because it was related to the non-trading assets and capital. What it affected was the capital structure of the assessee-company and the manner in which business was consolidated;

7)   Therefore, the enhancement of its capital reserve as a result of amalgamation could only be construed as a benefit accrued to the assessee. But such benefit was not in revenue field and was, thus, not in nature income. Accordingly, there was no occasion to invoke section 28(iv) – ITO v. Kyal Developers (P.) Ltd [2014] 42 taxmann.com 70 (Kolkata - Trib.)