In its recent ruling[1], Kolkata bench of Income Tax Appellate Tribunal (“ITAT”) rejected the retrospective application of General Anti-Avoidance Rule (“GAAR”) on a scheme of amalgamation approved by the Punjab & Haryana High Court (“HC”) and Delhi HC.
Background
M/s. JCT Limited (“Assessee”) is a public limited company, engaged in the business of manufacturing, sale and export of textiles, nylon and different varieties of yarns. M/s Gupta and Syal Ltd. (“Subsidiary”) was a wholly-owned subsidiary of the Assessee. During Assessment Year (“AY”) 2011-12, the business of the Subsidiary was amalgamated with the Assessee by a scheme of amalgamation approved by the Punjab & Haryana HC as well as the Delhi HC. Prior to the amalgamation, the Subsidiary had no substantial business activity and the only income earned by the Subsidiary in that financial year was in the nature of rent and receipts from sale of a land. Upon amalgamation, the long-term capital gains (“LTCG”) from the sale of land of the Subsidiary were set off against the losses and unabsorbed depreciation of the Assessee for AY2011-12.
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