2016 (4) TMI 348 - AT - Income Tax

Appellant's Share Receipt Not a Gift: Tax Tribunal Upholds Capital Gains Inclusion

Bilakhia Holdings Pvt. Ltd. Versus Addl. CIT, Vapi Range, Vapi and Vica-Versa

Bilakhia Holdings Pvt. Ltd. Versus Addl. CIT, Vapi Range, Vapi and Vica-Versa - TMI Issues Involved:1. Whether the receipt of shares by the appellant company from the Bilakhia family members constitutes a gift.2. Whether the addition of long-term capital gain from the sale of shares received as a gift to the book profit for taxation under Section 115JB of the Income Tax Act, 1961, was justified.Detailed Analysis:1. Whether the receipt of shares by the appellant company from the Bilakhia family members constitutes a gift:The assessee, a private limited company, received shares from the Bilakhia family as part of a family arrangement. The Assessing Officer treated these shares as discounted purchases rather than gifts, leading to the addition of long-term capital gains to the book profit under Section 115JB of the Income Tax Act, 1961. The CIT(A) initially held that the shares received by the assessee were indeed gifts and not discounted purchases. However, upon appeal, the Tribunal examined whether the transfer of shares could be considered a gift under the Transfer of Property Act, 1882, which defines a gift as a transfer of property made voluntarily and without consideration.The Tribunal referred to the Supreme Court's decision in CWT vs. HH Vijayaba, Dowgner Maharani Saheb of Bhavnagar Palace, which held that family arrangements are binding and enforceable, thus not without consideration. The family arrangement aimed to equalize holdings among the Bilakhia family members, indicating a monetary connotation. The Tribunal concluded that the transfer of shares was not voluntary and without consideration, and hence, could not be considered a gift. The decision of the CIT(A) was reversed, and the order of the Assessing Officer was restored.2. Whether the addition of long-term capital gain from the sale of shares received as a gift to the book profit for taxation under Section 115JB of the Income Tax Act, 1961, was justified:The assessee argued that the long-term capital gains from the sale of shares received as gifts should not be added to the book profit under Section 115JB. The Tribunal referred to its earlier decision in the case of Addl. CIT vs. Bilakhia Holding Pvt. Ltd. & others, where it was held that the Assessing Officer has no authority to adjust book profits once the accounts are audited and accepted by the general body, except as provided in the Explanation to Section 115JB. The Tribunal noted that the shares received by the assessee-company were not gifts, and hence, the gains from their sale should be routed through the profit and loss account.The Tribunal upheld the Assessing Officer's action of adding the long-term capital gain from the sale of shares to the book profit under Section 115JB. The decision of the CIT(A) to exclude these gains from the book profit was dismissed, and the order of the Assessing Officer was upheld.Conclusion:The Tribunal dismissed the appeal of the assessee and allowed the appeal of the Revenue. The receipt of shares by the assessee from the Bilakhia family members under the family arrangement was not considered a gift, and the addition of long-term capital gains from the sale of these shares to the book profit under Section 115JB was justified. The order of the CIT(A) was set aside, and the Assessing Officer's order was restored.