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

Jaidev R. Shroff, Rajnikant D. Shroff, Vikram R. Shroff And Sandra R. Shroff Versus ACIT, Central Circle-38, Mumbai.

Jaidev R. Shroff, Rajnikant D. Shroff, Vikram R. Shroff And Sandra R. Shroff Versus ACIT, Central Circle-38, Mumbai. - TMI 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).