Case Details: Commissioner of Income-tax - II Tiruchirapalli vs. Tamil Nadu State Transport Corporation (Kum Div.I) Ltd. - [2026] 182 taxmann.com 556 (Madras)
Judiciary and Counsel Details
- Dr Anita Sumanth and Mrs K. Govindarajan Thilakavadi, JJ.
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V. Mahalingam & Dr S. Sathiya Narayanan, Sr. Standing Counsels for the Appellant.
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A.S.Sriraman, S.Sridhar, J. Balachander & Ms K. Kavitha for the Respondent.
Facts of the Case
The assessee, a State transport corporation, had, pursuant to a Government Order, allotted shares aggregating to about Rs. 74.14 lakhs (at Rs. 10 per share), converting outstanding interest payable to the Government on loans into equity share capital.
The Assessing Officer, on examining the notes to accounts, held that such conversion was not acceptable and treated the amount of about Rs. 74.14 lakhs as deemed profits taxable under section 41(1)(a). On appeals, the Commissioner (Appeals) and Tribunal deleted the addition.
The matter reached the Madras High Court
High Court Held
The Court held that converting liability received from the Government and the interest payable on such loan into equity share capital by allocating shares is an acceptable method of treating the principal and outstanding interest. Therefore, the amount of equity gain in such circumstances is not liable to be taxed as deemed profits.
Accordingly, the addition made by the Assessing Officer was not sustainable and the issue was decided in favour of the assessee.
List of Cases Reviewed
- CIT v. Metropolitan Transport Corporation (Chennai) Ltd. [2020] 121 taxmann.com 372/421 ITR 307 (Madras) (para 7) followed.
- CIT v. Vijaya Retreaders [2001] 119 Taxman 395/[2002] 253 ITR 53 (para 38) distinguished
- Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798/91 Taxman 26 (SC) (para 43) followed
List of Cases Referred to
- CIT v. Metropolitan Transport Corporation (Chennai) Ltd. [2020] 121 taxmann.com 372/421 ITR 307 (Madras) (para 7)
- CIT v. Jayanand Khira & Co. (P.) Ltd. [1987] 32 Taxman 434/[1988] 170 ITR 31 (Bombay) (para 33)
- CIT v. Vijaya Retreaders [2001] 119 Taxman 395/[2002] 253 ITR 53 (Kerala) (para 38)
- CIT v. J.H. Gotla [1985] 23 Taxman 14 j/156 ITR 323 (SC) (para 40)
- Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798/91 Taxman 26 (SC) (para 43).
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