2025 (12) TMI 499 - HC - Income Tax

Revenue's s.260A appeal fails; SC precedents govern s.28(iv), 115JB, and fresh s.56 facts barred from introduction

Pr. Commissioner of Income Tax 3-Mumbai Versus KDA Enterprises Pvt. Ltd.,

HC dismissed Revenue's appeal under s.260A, holding that no substantial question of law arose. On taxability of receipts u/s 28(iv) and their inclusion in ... Receipts taxable u/s 28(iv) - whether same was covered under the ambit and scope of “Benefit” arising from business as contained in the section? - ITAT deleting the addition to the book profit u/s 115JB - as submitted such receipt will have to be taken as income and credited to the P&L A/c as per clause 2(b) & 3(xii)(b) of Part II of Schedule VI of the Companies Act? - HELD THAT:- The issue raised in question E stands concluded against the Revenue and in favour of the Assessee by the decision of the Apex Court in CIT v/s. Mahindra and Mahindra Ltd [2018 (5) TMI 358 - SUPREME COURT] No substantial question of law MAT Computation - Revenue fairly stated that the issue stands concluded against the Revenue and in favour of the Assessee by virtue of the decision of the Hon’ble Supreme Court in Apollo Tyres Ltd. [2002 (5) TMI 5 - SUPREME COURT] Receipt treated as income - income under Section 56 - gift made by an incorporated company - whether same was covered under the ambit of and scope of “income” u/s 2(24) especially when receipt was from a group company and the overall objective of the group was to do business and earn profits? - We find that all throughout, it was the case of the Revenue that the monies received by the Assessee Company from Kardam Commercial Pvt., Ltd. was taxable in the hands of the Assessee Company itself [and not in the hands of its shareholders (the so-called beneficiaries)] on the ground that one Company cannot give a gift to another Company, and therefore the monies received by the Assessee Company [from Kardam Commercial Pvt. Ltd.] would have to be treated as income under Section 56 of the IT Act. We find that this court, time and again, has held that a question which does not arise from the impugned order cannot be made the subject matter of an Appeal under Section 260A of the Income Tax Act. One such judgment is in the case of Tata Chemicals Ltd. [2002 (4) TMI 42 - BOMBAY HIGH COURT] and the other is in the case of Smt. Lata Shantilal Shah [2009 (1) TMI 436 - BOMBAY HIGH COURT] The reason for taking this view is not far to see. It is now well settled that the Tribunal is the last fact-finding authority. It is on the facts before the Tribunal that a substantial question of law is raised before this Court. Of course, if the findings given are contrary to the facts on record, that would itself lead to perversity, which would give rise to a substantial question of law. However, if the foundational facts are not placed before the Tribunal, a question of law based on such facts cannot give rise to a substantial question of law. This is for the simple reason that in this Appeal, new facts would have to be brought on record, and the foundation would have to be laid, before answering the said question. This is wholly impermissible in an Appeal under Section 260A of the Income Tax Act. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the Tribunal was justified in deleting the addition of a receipt treated as income under section 56 of the Income Tax Act, 1961. 1.2 Whether a gift can be validly made by one incorporated company to another, and consequently whether the deleted addition on that footing was justified. 1.3 Whether questions relating to taxability under section 28(iv) and inclusion of the receipt in book profits under section 115JB raised any substantial question of law. 1.4 Whether additional questions of law involving allegations of use of a shell company, lifting the corporate veil, application of the McDowell anti-avoidance principle, and reopening of individual assessments could be framed in an appeal under section 260A when no foundational facts for such questions were laid before the Tribunal. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Deletion of addition under section 56 and validity of gift between incorporated companies Interpretation and reasoning 2.1.1 The Court noted that the Tribunal had deleted the addition of Rs. 87,15,95,326/- following its own earlier decision in the assessee's case for a prior assessment year, where a similar receipt characterized by the Revenue as not being a permissible 'gift' between companies had been treated as non-taxable. 2.1.2 The Revenue's proposed substantial questions of law A to D essentially challenged (i) the non-taxability of the receipt as income within section 2(24), and (ii) the Tribunal's acceptance of the transaction as a 'gift' between companies, contending that a company cannot, in law, make a gift to another company. 2.1.3 The Court reformulated and admitted only two substantial questions of law: (A) whether the Tribunal was justified in law in deleting the addition of Rs. 87,15,95,326/-, and (B) whether the Tribunal was justified in deleting the addition without appreciating the Revenue's case that a gift cannot be made by an incorporated company, holding that the Revenue's original questions C and D were subsumed within these two. Conclusions 2.1.4 The Appeal was admitted only on two substantial questions of law concerning (i) the justification of the deletion of the addition, and (ii) the legal possibility of a gift between incorporated companies. Questions C and D as framed by the Revenue were not separately entertained as they were covered by these two admitted questions. 2.2 Taxability under section 28(iv) and inclusion in book profit under section 115JB Legal framework 2.2.1 The Court referred to section 28(iv) of the Income Tax Act, 1961, concerning taxation of benefits arising from business, and section 115JB regarding computation of book profit for minimum alternate tax. 2.2.2 The Court also referred to the Supreme Court decisions in CIT v. Mahindra and Mahindra Ltd. (404 ITR 1) and Apollo Tyres Ltd. v. CIT (255 ITR 273). Interpretation and reasoning 2.2.3 With respect to the question whether the receipt was taxable under section 28(iv) (Revenue's question E), the Court observed that, in an earlier appeal involving the same assessee and similar issues, counsel for the Revenue had conceded that the issue stood concluded against the Revenue by the decision of the Supreme Court in Mahindra and Mahindra Ltd.; consequently, that question had not been entertained in the earlier appeal. 2.2.4 Applying the same reasoning, the Court held in the present matter that the issue raised in question E was squarely covered by Mahindra and Mahindra Ltd., did not give rise to any substantial question of law, and therefore could not be entertained. 2.2.5 As to the inclusion of the receipt in book profit under section 115JB (Revenue's question F), the Court noted that the same issue had been raised in the earlier appeal and that the Revenue had then fairly stated that it was concluded against the Revenue by the Supreme Court in Apollo Tyres Ltd. v. CIT. On that basis, the Court had refused to entertain the question in the earlier appeal. 2.2.6 The Court held that, in the present appeal as well, question F stood answered against the Revenue and in favour of the assessee by Apollo Tyres Ltd., and therefore did not give rise to any substantial question of law. Conclusions 2.2.7 Questions relating to taxability of the receipt under section 28(iv) and to its inclusion in book profits under section 115JB did not give rise to any substantial question of law in view of binding Supreme Court precedents in Mahindra and Mahindra Ltd. and Apollo Tyres Ltd., and were therefore not entertained. 2.3 Competence to raise additional questions of law based on new factual foundations in an appeal under section 260A Legal framework 2.3.1 The Court proceeded on the settled principle, as laid down in earlier decisions including CIT v. Tata Chemicals Ltd. (256 ITR 395) and CIT v. Smt. Lata Shantilal Shah (323 ITR 297), that a question which does not arise from the order of the Tribunal cannot be made the subject matter of an appeal under section 260A of the Income Tax Act. 2.3.2 The Court reiterated that the Tribunal is the last fact-finding authority and that substantial questions of law before the High Court must arise from the facts as found or placed before the Tribunal. If findings are contrary to the record, perversity may itself raise a substantial question of law, but new factual foundations cannot be introduced for the first time in a section 260A appeal. Interpretation and reasoning 2.3.3 The Revenue sought to frame additional questions of law alleging, inter alia, that the assessee was a shell company and a mere vehicle for transferring money to its shareholders; that the so-called gifts were actually monies received by those shareholders; that the anti-avoidance principles in McDowell & Co. Ltd. v. Commercial Tax Officer (154 ITR 148) should apply; that the corporate veil should be lifted and the sums taxed in the hands of the individuals under section 56(2); and that individual assessments should be reopened under section 150. 2.3.4 The Court examined the orders of the Assessing Officer, the Commissioner (Appeals), and the Tribunal, and found that at no stage had the Revenue contended that the assessee was a shell company, that the amounts from Kardam Commercial Pvt. Ltd. were actually for the benefit of the shareholders, or that the arrangements constituted a device to evade tax. 2.3.5 On the contrary, the Court observed that the consistent stand of the Revenue throughout was that the money received by the assessee from Kardam Commercial Pvt. Ltd. was taxable in the hands of the assessee company itself on the ground that one company cannot give a gift to another, and therefore the receipts were income under section 56 in the hands of the assessee. 2.3.6 The Court held that permitting the additional questions would require bringing in new facts and laying a fresh factual foundation at the High Court stage, which is 'wholly impermissible' in an appeal under section 260A, as such questions do not arise from the Tribunal's order and are not based on findings or material considered by the Tribunal. Conclusions 2.3.7 The additional questions of law proposed by the Revenue, based on allegations of shell company, routing of funds to shareholders, application of McDowell, lifting the corporate veil, taxing shareholders under section 56(2), and reopening of individual assessments under section 150, were held not to arise from the Tribunal's order, lacked foundational facts before the Tribunal, and therefore could not be framed or entertained in the present appeal under section 260A. 2.3.8 The appeal was confined to the two substantial questions of law earlier formulated and admitted by the Court, and directions were issued to the Registry to communicate the order to the Tribunal to keep the records available.