2016 (9) TMI 1493 - AT - Income Tax

Tax Tribunal: Appeals Allowed, Deletions Under Sections 2(22)(a), 115-O, 56(2)(vii), Recognized as Gift

The Tribunal allowed all four appeals filed by the assessees, directing the deletion of additions made under sections 2(22)(a), 115-O, and 56(2)(vii) and ... Deemed Dividend and taxability u/s 2(22)(a) - transfer of shares is the case of “disguised distribution of accumulated profits - HELD THAT:- Ultimate beneficiaries of the impugned transaactions are again the same individual of the shroff family. We don't find any benefit accrued to them in any manner. Therefore, the analysis of the provisions of clause (a) of section 2(22) reveals that the same are inapplicable to the share transaction under consideration. In our opinion, the CIT (A) has randomly applied these provisions invalidly and without having any strength of explicit legal provisions. There are no provisions for taxing the so called indirect benefit accrued to the shareholders of the company and provisions of section 2(22)(e) and the that of the section 64 helps the assessee. We direct the AO to delete the addition on this account. Taxability of donor companies u/s 115-O - HELD THAT:- CIT (A) exceeded his jurisdiction in directing the AO to tax the donor companies u/s 115-O of the Act, which may be consequent one, but they are not the subject matter of appeals before him. Therefore, we order for deletion of such direction. Therefore, further, we direct the AO to delete the addition on this account. Gift and its taxability u/s 56(2)(vii) - transaction of gift of UPL and UEL shares to NCPL as a colourable device - HELD THAT:- The assessee is the donor and not the receiver as per the transfer agreement honoured by the revenue authorities. Therefore, in our view the said provisions are not applicable to the facts on record. CIT's conclusions relating to the indirect transfer of benefit suffers from the lack legislative support in any form. Therefore, we direct the AO to delete the addition on this account. The donor and donee of the benefit are the same. On this factual matrix, we do not find any indirect benefit unfairly accrued to the assessee-individual. Even if the transfer is not bonafide, we find it is case of donating share with right hand and receiving the benefit from the left hand of the same individual. In our view, the conclusion of the CIT(A) is far stretched and unsustainable. Therefore, the allegation of colourable device and applying the judgment of the Apex Court in the case of McDowells [1985 (4) TMI 64 - SUPREME COURT] is randomly and erroneously done. Thus, we dismiss the conclusions of the CIT (A). The transfer agreement dated 26.2.2010 needs to be considered as the “gift agreement” as title is not determinative and for this, we rely on the Honble Bombay HC judgment in the case of NCPL [2014 (4) TMI 480 - BOMBAY HIGH COURT] and Gujarath High Court's judgment in the case of Prakriya Pharmachem [2016 (1) TMI 946 - GUJARAT HIGH COURT]. So far as the assessee is concerned, the impugned transactions are covered by the provision of section 47(iii) of the Act as prima facie held by the said judgments. There is no case of invoking the provisions of section 2(22)(a) on the assessee-individual. Similarly there is no case for direction to AO for invoking th provisions of section 115- 0 of the Act on the donor companies where the Shroff family members are the share holders. Finally we disapprove the CIT(A)‟s claim of colourable device in these cases of individuals. Considering the same, we are of the opinion that the grounds raised by the assessee are required to be allowed in favour of the assessee. Issues Involved:1. Taxability under section 2(22)(a) of the Income Tax Act.2. Taxability of donor companies under section 115-O.3. Taxability under section 56(2)(vii) of the Income Tax Act.4. Allegation of the gift of shares as a colourable device.5. Taxability of rental income as income from house property on a protective basis (specific to one appeal).Detailed Analysis:I. ITA No.4660/M/2015 (AY: 2010-2011) - Jaidev R. Shorff1. Taxability under Section 2(22)(a):The CIT(A) invoked section 2(22)(a) of the Act, concluding that the transfer of shares was a 'disguised distribution of accumulated profits.' The CIT(A) directed the AO to tax the FMV of shares under section 2(22)(a) in the hands of the Shroff family members. However, the Tribunal found this conclusion legally unsustainable, noting that the assessee was not a shareholder in NCPL and thus no benefit accrued to him. The Tribunal directed the AO to delete the addition on this account.2. Taxability of Donor Companies under Section 115-O:The CIT(A) directed the AO to tax the donor companies under section 115-O for the benefit granted to the Shroff family members. The Tribunal held that the CIT(A) exceeded his jurisdiction in directing this, as it was not the subject matter of appeals before him. The Tribunal ordered the deletion of such direction.3. Taxability under Section 56(2)(vii):The CIT(A) held that the provisions of section 56(2)(vii) were attracted to these share transfer transactions without consideration. The Tribunal found that the assessee was the donor and not the receiver, making section 56(2)(vii) inapplicable. The Tribunal directed the AO to delete the addition on this account.4. Allegation of Colourable Device:The CIT(A) considered the transfer of shares as a colourable device to evade tax, applying the judgment of McDowell & Co Ltd. The Tribunal found no indirect benefit accrued to the assessee and dismissed the CIT(A)'s conclusion as far-fetched and unsustainable.Decision:The Tribunal concluded that the transfer agreement should be considered a 'gift agreement,' making the transaction an exempt transfer under section 47(iii). The Tribunal allowed the appeal in favor of the assessee.II. ITA No.4359/M/2015 (AY: 2010-2011) - Rajnikant D. ShroffIssues:The issues raised were identical to those in ITA No.4660/M/2015. The Tribunal applied the same reasoning and conclusions.Decision:The Tribunal allowed the appeal in favor of the assessee.III. ITA No.4583/M/2015 (AY: 2010-2011) - Vikram R. Shroff1-4. Identical Issues:The first four grounds were identical to those in ITA No.4359/M/2015. The Tribunal applied the same reasoning and conclusions.5. Taxability of Rental Income on Protective Basis:The Tribunal noted that the rental income was substantively taxed in AY 2009-2010 and allowed the ground, providing relief to the assessee.Decision:The Tribunal allowed the appeal in favor of the assessee.IV. ITA No.4584/M/2015 (AY: 2010-2011) - Sandra R. ShroffIssues:The issues raised were identical to those in ITA No.4583/M/2015. The Tribunal applied the same reasoning and conclusions.Decision:The Tribunal allowed the appeal in favor of the assessee.Conclusion:All four appeals filed by the assessees were allowed by the Tribunal. The Tribunal directed the deletion of additions made under sections 2(22)(a), 115-O, and 56(2)(vii) and dismissed the allegation of the transactions being a colourable device. The Tribunal recognized the transfer agreements as 'gift agreements,' making the transactions exempt under section 47(iii).