Direct Tax

M&A Tax Update

ITAT Delhi Upholds Cost & Indexation Benefits for Shares Received via Family Settlement and Tax-Neutral Demerger

181 taxmann.com 423 (Delhi - Trib.)

Facts

The Assessee, KCT Papers Ltd., was part of a courtapproved group restructuring involving demerger under Sections 391–394 of the Companies Act. Pursuant to the scheme, the Assessee received equity shares of Ballarpur Industries Ltd. (BILT), which were originally held by the demerged company. Subsequently, BILT undertook a buyback of its shares, and the Assessee tendered its shares under the buy-back offer, giving rise to capital gains for AY 2008-09.

The Assessing Officer computed capital gains under Section 46A but denied the benefit of indexation and period of holding from the previous owner, treating the date of demerger as the date of acquisition. The Commissioner (Appeals) allowed the Assessee’s claim, leading to Revenue’s appeal before the Tribunal.

Assessee’s Arguments

The assessee contended that:

  • The receipt of shares pursuant to a court-approved demerger is not regarded as a “transfer” under Section 47.
  • In terms of Section 49(1)(iii)(e), the cost of acquisition and the period of holding of the shares must be taken as that of the demerged company.
  • Consequently, for computing capital gains on buy-back under Section 46A, indexation must be allowed from the date when the previous owner acquired the shares.

Revenue’s Arguments

The Revenue argued that the Assessee acquired the shares only on the appointed date of demerger, and therefore the cost and holding period should begin from that date. Indexation prior to demerger was not permissible, particularly when the gains arose from a buy-back.

Tribunal’s Findings

The ITAT Delhi dismissed the Revenue’s appeal, and held that:

  • Buy-back of shares is expressly treated as a transfer under Section 46A, but the mode of acquisition of shares remains governed by Sections 47 and 49.
  • Where shares are acquired through a tax-neutral demerger, the Assessee steps into the shoes of the previous owner for both cost and holding period.
  • The Assessee was therefore entitled to indexation from the date the shares were originally acquired by the demerged company.
  • The computation adopted by the Assessing Officer was contrary to the statutory scheme and settled law

Capital Reduction and Share Cancellation: ITAT Delhi Affirms Actual Cost and Disallows Section 50CA Invocation

ITA No.2261/Del/2022.

Facts

RBS AA Holdings (Netherlands), a Dutch tax-resident company, held 23.10 crore shares in its Indian subsidiary, RBS Prime Services (India) Pvt. Ltd., acquired in FY 2013-14 at INR 13.02 per share. In FY 2017-18, 14.67 crore shares were cancelled under a capital reduction scheme approved by the NCLT, for INR 10.09 per share. The Assessee treated this as a transfer of capital asset and claimed a long-term capital loss by applying Section 48 of the Income-Tax Act, computing full value at actual consideration and cost at INR 13.02 per share. Further, dividend income of INR 53.94 crore was claimed exempt under Section 10(34). The AO rejected this computation and assessed capital gains of INR 378.9 crore. The DRP upheld the AO’s view, and the matter was appealed before the ITAT.

Assessee’s Arguments

The Assessee contended that:

  • The actual purchase price (INR 13.02) should be the cost of acquisition, not face value.
  • Section 50CA should not apply because the actual consideration was higher than fair market value; the valuation report supported this.
  • Dividend received should be excluded from value to avoid double taxation.
  • The transaction was bona fide, not a colorable device for tax avoidance.

Revenue’s Arguments

  • Used face value (INR 10) from financials as cost basis
  • Re-computed fair market value under Rule 11UA, invoking Section 50CA
  • Alleged tax avoidance arrangement to re-patriate funds

Tribunal’s Findings

The ITAT Delhi dismissed the Revenue’s appeal, and held that:

  • The Assessee purchased the shares legitimately in 2013 and reflected cost in books; no tax avoidance found;
  • Section 50CA was inapplicable as actual consideration exceeded fair market value;
  • The appeal was allowed, granting relief to the Assessee.

Accordingly, the long-term capital loss claimed by the Assessee was upheld.

Indirect Tax

Customs

Extended Sea Cargo Manifest and Trans-shipment Regulations (SCMTR) timelines and enhanced compliance requirements

Notification No. 79/2025-Customs (N.T.) dated 31 December 2025

Circular No. 30/2025-Customs dated 3 December 2025

The transitional period under SCMTR, 2018 has been extended till 31 March 2026, requiring continued electronic filing of accurate declarations in the prescribed SCMTR format. Stuffing messages were made live for all locations from 25 September 2025. Further, DG Systems will onboard SEZ units and complete remaining SCMTR functionalities, while field formations will conduct regular outreach and issue trade notices.

Amendment in tariff concessions under various Foreign Trade Agreements

Notification 50/2025-Customs, Notification 51/2025-Customs, Notification 52/2025-Customs and Notification 53/2025- Customs dated 30 December 2025

The Central Government has recorded its satisfaction that the amendment is necessary in public interest and has accordingly modified the earlier notifications issued for the following FTAs: India-Australia ECTA, India-EFTA (Switzerland), India-EFTA (Norway) and India-EFTA (Iceland). Consequently, importers and other stakeholders must now refer to the amended tariff concessions from the effective date of the notification.

Foreign Trade Policy

Revision in procedure for claiming Deemed Export benefits

Public Notice No. 35/2025-26 dated 10 December 2025

The Government has amended certain provisions to clarify procedures and jurisdiction for claiming deemed export benefits. Applications must now be filed online only in revised forms with the jurisdictional RA or SEZ / EOU authority, after full payment and for a single category of supply. The changes streamline terminal excise duty refunds, Advance Authorization procedures, and eligibility, and are effective immediately.

Standardization of EOU permission formats through new appendices

Public Notice No. 41/2025-26 dated 31 December 2025

DGFT has amended the standard formats for letters and permissions issued to EOUs, effective immediately, while allowing Development Commissioners limited flexibility.The amendment aims to bring uniformity, clarity, and ease of compliance in the administration of the EOU scheme.

DGFT's Market Access Support Scheme funds trade fairs, BSMs and delegations, with online proposals and compliance rules.

Trade Notice No. 19/2025-26 dated 31 December 2025

DGFT has launched Market Access Support (MAS) under EPM – Niryat Disha with immediate effect. MAS provides structured support for BSMs, trade fairs, exhibitions, and delegations, with strong focus on MSME exports, and is being piloted via the Trade Connect ePlatform. Draft MAS Guidelines have been issued for 30-day stakeholder consultation, alongside pilot implementation, to build a results-driven market access framework.

Import authorisation process for restricted IT hardware under HSN 8471 via IMS portal, valid till 31 December 2026

Policy Circular No. 08/2025-26 dated 17 December 2025

The DGFT has notified the procedure for implementing the Import Management System (IMS) for restricted IT hardware (HSN 8471) for the year 2026. Importers can apply for authorization on the DGFT portal between 22 December 2025 and 15 December 2026, with approvals valid till 31 December 2026. The framework allows multiple applications, amendments during validity, and a mid-term review by MeitY.

Central Excise

Levy of Excise Duty on Chewing Tobacco, Jarda Scented Tobacco and Gutkha based on packing machine capacity

Notification No. 04/2025-Central Excise dated 31 December 2025

Certain tobacco products, including chewing tobacco, jarda and gutkha, have been notified as “notified goods” for the purpose of levy of excise duty under Section 3A, based on the capacity of production. The notification clarifies the scope by expressly including filter khaini and adopting an expansive definition of packing machines to curb potential duty evasion. These provisions will come into effect from 1 February 2026, thereby transitioning the covered manufacturers to a machinebased excise duty levy mechanism.

Maharashtra Industry, Investment and Services Policy - 2025

The Government of Maharashtra, on 31 December 2025 has notified the Maharashtra Industry, Investment, and Services Policy-2025. The policy aims to position Maharashtra as a global business destination, supporting its vision of a trilliondollar economy by 2030 and “Developed Maharashtra 2047”.