TaxTMI 
TaxTMI 
2012 (6) TMI 64
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....the Income Tax Act, 1961? (ii) Whether the impugned order passed by the Income Tax Appellate Tribunal is perverse?" 3. Sunair Hotels Ltd. was granted the rights to develop a hotel at Bangla Sahib Road by the New Delhi Municipal Corporation (NDMC) in 1970. However, due to some differences that developed between the two, the development rights were cancelled. Sunair Hotels Ltd. incorporated another group company, the respondent assessee herein, and vide letter dated 16th September 1993, wrote to the NDMC to substitute its name with that of the respondent assessee. During the pendency of this request, in the year 1993- 94, Sunair Hotels Ltd. transferred its development rights to the respondent assessee for NIL consideration. However, the NDMC refused to transfer the licensee rights in the name of the respondent assessee. During the year 1994- 95, the respondent assessee transferred the hotel development rights back to Sunair Hotels Ltd. for a consideration of 21 crores. 4. The respondent assessee in the return filed for the assessment year 1995-96, had shown capital gain of Rs.21 crores on transfer of hotel development rights to Sunair Hotels Ltd., but the same was claimed to be ex....
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....me power exercisable by it at its discretion without the consent or concurrence of any other person, can appoint or remove the holders of all or a majority of the directorships; but for the purposes of this provision that other company shall be deemed to have power to appoint to a directorship with respect to which any of the following conditions is satisfied, that is to say- (a) that a person cannot be appointed thereto without the exercise in his favour by that other company of such a power as aforesaid; (b) that a person's appointment thereto follows necessarily from his appointment as director2 [* * *] or manager of, or to any other office or employment in, that other company; or (c) that the directorship is held by an individual nominated by that other company or a subsidiary thereof. (3) In determining whether one company, is a subsidiary of another- (a) any shares held or power exercisable by that other company in a fiduciary capacity shall be treated as not held or exercisable by it; (b) subject to the provisions of clauses (c) and (d), any shares held or power exercisable- (i) by any person as a nominee for that other company (except where that other is concern....
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....as a wholly owned subsidiary of Sunair Hotels Ltd. It was in fact a wrong claim. The respondent assessee had seven registered individuals as shareholders and Sunair Hotels Ltd. was not a holder of even a single share. 7. During the course of block assessment proceedings, the respondent assessee claimed that it was wholly owned subsidiary of Sunair Hotels Limited and that the seven shareholders were nominees of Sunair Hotels Limited and not shareholders in their individual right. The entire expenditure for incorporation of the company, as well as investment in the subscribed share capital of Rs.7,000/-, was made by the holding company in the names of the seven shareholders. The Assessing Officer rejected the said contention observing that material unearthed during the search operation under Section 132 of the Act, and during the post search investigation, elucidated that the respondent asssessee was not a wholly owned subsidiary of Sunair Hotels Limited as claimed. He specifically examined and rejected the two contentions of the respondent being (i) that the shareholders were nominees of Sunair Hotels Limited and were not shareholders in their individual capacity and (ii) that the ....
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.... Limited. He had ascribed his signature on the Memorandum etc. on the asking of Vinod Bindal. (ix) The inspection report of Mr. J.N. Tikku, Deputy Director (Inspection) dated 22nd November, 2000 under Section 209A of the Companies Act states that there were several irregularities/violations with regard to the issue of shares etc. (x) The minutes of Board of Directors of the respondent assessee seized at the time of search show extensive use of fluid to change the dates of the meetings. Robin Gupta had categorically denied his attending the Board meeting on 23rd October, 1993 in which it was recorded that the individual shareholders were nominees of Sunair Hotels Limited. Minutes of the meeting of Board of Directors, seized as Annexure A-31 show that they have been written on the same date using the same pen and in the same writing. Annexure 31 was a false and forged document created by the respondent assessee to support the claim that it was a wholly owned subsidiary of Sunair Hotels Limited. (xi) Sunair Hotels Limited had made a request to NDMC on 16th September, 1993 to substitute and transfer the license to the respondent assessee but the respondent assessee was incorporated ....
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....ted and the same was deleted. 10. Appeal filed by the Revenue, has been dismissed by the impugned order dated 26th October, 2007. We deem it appropriate to reproduce the entire reasoning given by the tribunal, as a question of perversity has been raised. Paragraphs 8 to 14 of the order passed by the tribunal read as under:- "8. We have considered the rival submissions of both the parties, perused the record and carefully gone through the impugned order of the tax authorities below. 9. In the instant case the ld. DR for the Revenue except placing reliance on the reasoning given in the order of AO was not able to controvert the factual observations made in the order of CIT(A) and the findings recorded on the basis of the conclusions drawn on the factual observations made by the CIT(A). 10. On the other hand the ld. AR for the assessee first reiterated submissions made before the CIT(A) and thereafter relying on the reasoning given in the order of CIT(A) submitted that the CIT(A) rightly deleted the impugned addition of Rs.21 crores made by the AO. 11. The first point required to be resolved by us is whether on the basis of statement of Shri Robin Gupta recorded on 8-3-2001 ....
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....in Gupta we find firstly that Shri Robin Gupta states that the signatures appearing on form no. 1 prescribed under Rule3(1) of sec. 187C were not his. It is however to be noticed that in his statement Shri Robin Gupta has further stated that he was unable to recall the mode of payment of the share capital. Further, that the day to day affairs of the company were being looked by Shri S.P. Gupta, an another subscriber. We have already mentioned hereinabove that the AO has not made any enquiries from the other remaining sharesholders of the assessee company, so, in these facts the only satisfactory basis for arriving at a decision regarding capital gain u/s 47(v) could not be the examination of the other subscribers who could actually disclose as to whether they had made the investment in the share capital of the assessee company. Only on this basis the real ownership of the shares in question could have been ascertained by the AO, but, in the instant case the AO has failed to do so by bringing on record any cogent evidence. 13. Now coming to the other point whether the assessee company has fulfilled the condition laid down in sec. 187C of the Companies Act and the effect thereof. In....
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....ssee. It does not hold even a single share. The seven shareholders were individuals. (ii) As per Section 49 of the Companies Act, all investments made by a company should be held in its own name. Sub-section (3) stipulates that a company may hold shares in the subsidiary company in its own name or in the name of its nominee, in so far as it is necessary to do so to ensure that the number of members of the subsidiary is not reduced to less than 7 (seven), in the case of public limited company, and in the case of private company the number should not fall below 2 (two). (iii) There is a difference between a subsidiary company and a wholly owned subsidiary company. In the case of wholly owned subsidiary company, the entire shareholding must be held by the holding company or its nominees. This is not necessary in the case of a subsidiary company. (See Sections 4 and 49 of the Companies Act) (iv) Respondent assessee was not set up or incorporated as a wholly owned subsidiary company of Sunair Hotels Limited. In the Memorandum of Understanding dated 17th June, 1993 or in subsequent correspondence with NDMC, it was not alleged or stated that the respondent assessee was a wh....
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....0 (SC), CIT vs. P. Mohankala, (2007) 291 ITR 278 (SC) and other decisions on similar lines of the Delhi High Court. (ii) No evidence relating to undisclosed income was found during search and, therefore, block assessment proceedings are void. Block assessment proceedings are not a substitute for regular assessment proceedings. [See Commission of Income Tax vs. Ravi Kant Jain, (2001) 250 ITR 141 (Del); CIT vs. V.B. Aggarwal, (2008) 296 ITR 750 (Del), CIT vs. Pramod Kumar Gupta, (2010) 320 ITR 408 (Del); CIT vs. Balaji Wire Private Limited, (2008) 304 ITR 393 (Delhi); N.R. Paper and Board Limited & ors. vs. DCIT, (1998) 234 ITR 733 (Guj.); Caltradeco Steel Sales (P) Ltd. vs. DCIT (2000) 243 ITR 643 (Cal.); CIT vs. Md. Rizwan (2009) 316 ITR 317 (Patna).] (iii) In the regular assessment order under Section 143(3) in the case of assessee relating to the assessment year 1995-96, the Assessing Officer had held that factually no transaction had taken place between Sunair Hotels Limited to transfer the hotel development rights in favour of the respondent assessee and then by the respondent assessee in favour of Sunair Hotels Limited. He had held that these transactions were infructuous an....
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.... as a wholly owned subsidiary. These balance-sheets were filed with the Registrar of Companies in 1995. (x) The register of members records that the seven shareholders were nominees of the holding company i.e. Sunair Hotels Ltd. (xi) The respondent assessee and the holding company were operating from the same premises. The transaction of Rs.21 crores was duly disclosed in the balance sheet/ computation of assessable income for the assessment year 1995-96. (xii) Statement of Robin Gupta was not credible and an afterthought. There were differences between Robin Gupta and other shareholders. Robin Gupta is related to S.P. Gupta and because of differences, their relationship had taken an ugly turn. He had wrongly answered and claimed that he was not a nominee of Sunair Hotels Ltd. Robin Gupta had executed a power of attorney in favour of V.K. Bindal. Being a well educated person holding degree in MBA (Finance), he was aware of the papers signed by him. Robin Gupta had not disclosed and declared the shares, held by him in the respondent assessee, in the balance-sheet and documents filed with his income tax returns. He was not the de facto shareholder and Sunair Hotels Ltd. was ....
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....as a subsidiary of Sunair Hotels Ltd., benefit under Section 47(v) cannot be claimed. The requirement is more stringent. 16. In paragraph 11 of the order, it is stated that the Assessing Officer was not justified in concluding that Robin Gupta was holding shares in his own name and not as a nominee because of the bald oral statement, as there was no other material/evidence. He has not been able to substantiate the claim that investment in the shares was in his personal capacity. He did not prove and establish the said fact from any document/ evidence, when the case of the respondent assessee was that the source and payment in fact was made by Sunair Hotels Ltd. For the sake of convenience, we are reproducing paragraph 11 once again:- "11. The first point required to be resolved by us is whether on the basis of statement of Shri Robin Gupta recorded on 8-3-2001 the AO was justified in concluding that Shri Robin Gupta held the shares in his own name and not as a nominee because except bald oral statement, he has not been able to substantiate the claim of investment in the shares in his personal capacity by providing any document/evidence when the case of the assessee is that the so....
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....nly show that the respondent assessee was liable to pay Rs. 75,000/- to Sunair Hotels Ltd. who had made the said payments or had provided funds or was a creditor. The last entry on 31.3.1994 relates to Rs.7,000/- and is on the credit side. As per the said entry, the same was made for allotment of 700 shares @ Rs.10/- each in the respondent assessee to Sunair Hotels Ltd. The said entry is an adjustment entry and no payment either by cheque or cash has been made. The respondent assessee was admittedly incorporated on 22nd October, 1993. The Articles and Memorandum of Association record the initial shareholding in the name of 7 persons. These shareholdings were issued on or before the date of incorporation. For issue of shares, payment for the shares has to be made. It is not the case of the respondent assessee that these were partly paid up shares. Sequitor is that the payments for the issue of share capital should have been made on or before the date of incorporation i.e. 22nd October, 1993. Obviously the entry dated 31st March, 1994, that too an adjustment entry made in the books of Sunair Hotels Ltd. would not show and establish that the payment of the shares was made by Sunair Ho....
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....he shareholder in his individual/ personal capacity but as a nominee of the third person. [See In Re: Dinshaw Maneckjee Petit Bart, AIR 1927 Bom 371] 22. It was recorded that the receipts were issued by Registrar of Companies. This is again factually incorrect. It is not case of the respondent assessee that the Registrar of Companies had issued any receipts for issue of share capital in the name of the respondent assessee. The further finding recorded is that the Assessing Officer had not controverted these facts. This is wrong and incorrect as per the findings recorded in the assessment order. The last finding in the said paragraph that the payment towards share capital by Sunair Hotels Ltd. has been established beyond doubt, is a presumptuous statement without reference to any other material/evidence which forms the basis/foundation. 23. Thereafter, the tribunal has stated that the statement of Robin Gupta, that he had not signed form I prescribed under Rule 3 relating to declaration under Section 187C, should be ignored for the reason that he was unable to recall the mode of payment of share capital and it was stated that day to day affairs of respondent assessee was looked af....
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.... Assessing Officer but he has failed to do so. As noticed and held above, there is no presumption that the registered shareholder is a nominee of a third person. In case of a dispute, the person who claims to the contrary has to establish and show that the person mentioned in the register of shareholders was his nominee. The onus is on the person who states and claims that what is apparent is not real. It was not for the Assessing Officer to establish to the contrary but for the assessee to show and establish that it was a wholly owned subsidiary of the holding company and the shareholders were merely the nominees of the holding company. There is no presumption that the shareholders were nominees. 26. In paragraph 13, the tribunal has referred to requirement of Section 187C of the Companies Act and effect thereof. It is stated that the violation of Companies Act, mismatch of signature, discrepancies in recording of the minutes books were aspects which the authorities under the Companies Act could take note of and also take punitive action. As far as provisions of Section 47(v) are concerned, the investment in the shares was made by Sunair Hotels Ltd. and the same was reflect....
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.... claimed that the signatures on the forms/declarations made were forged and fabricated. The tribunal is required to examine and consider whether the said conduct, reflects and is of relevance. 29. The last part of paragraph 13 refers to the statement of Robin Gupta and states that the tribunal had analyzed the statement and it cannot be relied upon as he has failed to establish that he had made payment of Rs.1000/- from his own funds as this amount was not shown in his balance sheet. We have already commented about this aspect above. 30. At this stage, we may notice two contentions of the respondent. The first contention is that block assessment proceeding are bad as no material or evidence was found in the search. This aspect has not been examined and dealt with by the tribunal. A reading of the order passed by the Assessing Officer would show that he has referred to the evidence and material which was found during the search and thereafter, he has referred to the post search investigation and verification. As per the assessment order, the evidence/material found during the search and post search investigation had revealed that the respondent assessee was not 100% subsidiary of ....
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....nce from proved facts is a question of fact. However, as observed in Bomford versus Osborne, (1942) 10 ITR [E.C.] 27 there can be cases where inferences drawn from proved or admitted facts, can give rise to question of law when facts proved or admitted, do not provide and do not support, the conclusions of fact. A finding of fact can be challenged on the ground that it is perverse. Way back in 1954, the Supreme Court in Dhirajlal Girdharilal versus CIT, (1954) 26 ITR 736 (SC) had observed: "....if the court of fact, whose decision on a question of fact is final, arrives at this decision by considering material which is irrelevant to the enquiry, or by considering material which is partly relevant and partly irrelevant, or bases its decision partly on conjectures, surmises and suspicions, and partly on evidence, then in such a situation clearly an issue of law arise.... .....It is well established that when a court of fact acts on material, partly relevant and partly irrelevant, it is impossible to say to what extent the mind of the court was affected by the irrelevant material used by it in arriving at its finding. Such a finding is vitiated because of the use of inadmissible mat....