Facts of the Case

The respondent/assessee, M/s Ansal Properties and Infrastructure Ltd., transferred “Trunk Infrastructure” (including roads and related infrastructure), which constituted capital work-in-progress, to its 100% subsidiary, Ansal API Infrastructure Ltd.

This transfer resulted in a surplus of approximately ₹70.05 crore. The assessee disclosed this amount in its return of income along with a note explaining the nature of the transaction and claimed exemption under Section 47(iv) of the Act.

The Assessing Authority and CIT(A) treated the surplus as taxable income, holding it to be related to business assets. However, the ITAT reversed this finding and allowed the exemption.

Issues Involved

  1. Whether the transfer of “Trunk Infrastructure” (capital work-in-progress) to a wholly owned subsidiary qualifies for exemption under Section 47(iv) of the Income Tax Act.
  2. Whether surplus arising from such transfer is taxable as income under Section 45.
  3. Whether income voluntarily offered in return can still be excluded from taxation if not legally chargeable.

Petitioner’s (Revenue’s) Arguments

  • The surplus arose from transfer of assets used in business and hence should be treated as taxable income.
  • The assessee itself declared the surplus as income in its return; therefore, the Tribunal should not have allowed exemption beyond the assessment order.
  • The transaction was part of business activity and not purely capital in nature.

Respondent’s (Assessee’s) Arguments

  • The transfer was made to a 100% wholly owned Indian subsidiary, fulfilling conditions under Section 47(iv).
  • The asset transferred was a capital asset (capital work-in-progress) and not stock-in-trade.
  • The inclusion of income in the return was accompanied by a specific note (caveat) explaining that it was not taxable.
  • Section 47(iv) clearly excludes such transfers from the ambit of “transfer” under Section 45.

Court’s Findings / Order

  • The Court upheld the ITAT’s decision and dismissed the Revenue’s appeal.
  • It held that:
    • The conditions under Section 47(iv) were fully satisfied (100% subsidiary + Indian company).
    • Transfer of capital asset to a wholly owned subsidiary is not regarded as transfer, hence not taxable under Section 45.
    • Merely because an assessee includes a receipt in the return, it does not become taxable if it is not income under law.
  • The Court concluded that no substantial question of law arises.

 Important Clarifications

  • Every receipt is not income: Taxability depends on statutory provisions, not on disclosure alone.
  • Section 47(iv) overrides Section 45: If conditions are met, capital gains provisions do not apply.
  • Capital vs Business Asset Distinction: Even if used in business, a capital asset retains its character for exemption purposes.
  • Disclosure with caveat: Assessee can legally contest taxability despite declaring income.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/59029032023ITA1942023_184751.pdf

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