Referred Section

section 2(19AA)

The content ion of the AO that appel lant has not compl ied wi th
the provisions of sect ion 2(19AA) and thus el igibi l i ty for
exempt ion from capi tal gain tax is erroneous. At thi s juncture, i t
is pert inent to refer to the provision of Sec. 2(19AA) of the Act
wherein the def ini t ion of demerger has been given. Relevant
extracts of the same i s reproduced herein below: -
(19AA) "demerger", in relat ion to companies, means the transfer,
pursuant to a scheme of arrangement under sect ions 391 to 394
of the Companies Act , 1956 (1 of 1956), by a demerged company
of i ts one or more undertakings to any resul t ing company in such
a manner that -
(i) al l the property of the undertaking, being transferred by the
demerged company, immediately before the demerger, becomes
the property of the resul t ing company by virtue of the demerger;
(i i) al l the l iabi l i t ies relatable to the undertaking, being
transferred by the demerged company, immediately before the
demerger, become the l iabi l i t ies of the resul t ing company by
virtue of the demerger;
(i i i) the property and the l iabi l i t ies of the undertaking or
undertakings being transferred by the demerged company are
transferred at values appearing in i t s books of account
immediately before the demerger;
. . . . . . . . . . . . . . . . . . . . . . .”
(Emphas is Added)
2.1. On perusal of the aforement ioned sect ion i t is may be
noted that the words ' trans fer pursuant to the scheme of
arrangement s in such a manner that al l the assets and l iabi l i t ies
are transferred' imply that the demerger should be pursuant to
the Scheme of arrangements u/s 391 to 394 of the Companies
Act , 1956, which mandates transfer of al l the assets and
l iabi l i t ies of the undertaking. In this regard, i t IS humbly
submi t ted that the said clause i s an integral part of the scheme
of arrangements (as discussed above in Para 1.1) vide which the
appel lant has demerged i ts "T&O" division. Since, the demerger
scheme includes the clause to transfer al l the asset s and
I .T.A. No 2038/KOL/2014
As ses sment year : 2009-2010
Page 4 of 16
l iabi l i t ies and i t has been approved by the Hon'ble Calcut ta High
Court vide order dated so: October 2009, quest ioning the order
of demerger on the ground that the appel lant has not
transferred al l the l iabi l i t ies is bad in law and i t tantamount to
chal lenging the orders of Calcut ta and Karnataka High Court .
2.2. Furthermore, i t is humbly submi t ted that the said loan
amount ing to Rs.50,62,98,144/- was an interest - free loan
granted by the appel lant 's holding company since i t was
suf fering huge losses over a number of years . In other words , i t
may be appreciated that the instant loan was in the nature of
capi tal infusion by the holding company to keep the company
af loat , which was in any case converted to equi ty shares in the
name of the holding company.
2.3. It may please be noted that such a loan was paid to the
CHQ division of the appel lant company to revive the company's
heal th and hence was a l iabi l i ty of the CHQ and never could such
loan be considered as a l iabi l i ty of the T&O or the ME division.
The T&O division of the appel lant was a prof i table undertaking
and had a posi t ive net worth as wel l , which was speci f ical ly
acquired by Wipro-GE.
2.4. It is humbly submi t ted that the AO has erred in coming to
the conclus ion that al l the assets and l iabi l i t ies of the "T&O"
divi sion has not been transferred by the appel lant . Reference in
this regard is made to the balance sheet of the "T&O" divis ion
which has been drawn in the valuat ion report . On perusal of the
same i t is seen that the unsecured loan of Rs.50,62,98,144/-
which is under considerat ion did not form part of "T&D"
divi sion. The requis i te of Sec. 2(19AA) is that as sets and
l iabi l i t ies pertaining to the demerged undertaking should be
transferred and not of the whole company. Since the unsecured
loan under considerat ion did not pertain to-the "T&D" divi sion,
the appel lant was not bound to transfer the same to the
transferee.
2.5. In the instant case, your kindsel f would appreciate that
al l the assets and l iabi l i t ies belonging to the T&D Division were
duly transferred to Wipro GE. The impugned loan of
Rs.50,12,98,144/- was never a l iabi l i ty of the T&D division, i t
was not required to be transferred to Wipro-GE as a part of the
demerger arrangement . Your Kindsel f would appreciate that the
ent ire facts were furni shed before the Hon'ble Calcut ta and
Karnataka High Court s and the scheme ment ioning al l assets and
l iabi l i t ies of the divi sion being transferred was duly approved by
Hon'b!e court s”.