2014 (4) TMI 480

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... 2(A). The case in a nutshell is this. The petitioner is a wholly owned subsidiary of Demuric Holdings Private Limited (DHPL). All the shares of DHPL are held by various members of the Shroff family and enterprises of the Shroff group (hereinafter collectively referred to as the "Shroff group"). The members of the Shroff group have a substantial shareholding in United Phosphorous Ltd. (UPL) and Uniforce Enterprises Ltd (UEL) which are listed on the recognized stock exchanges. The Shroff group transferred all their shares in UPL and UEL to the petitioner by way of a gift. The respondents concede that no consideration was paid for the transfers but contend that the value of the shares - about Rs.1400.crores - is liable to be brought to tax under section 56(1) or in the alternative under section 28(iv) of the Income Tax Act, 1961. (B). We have granted the petitioner's application for a stay of recovery on certain conditions which protect the revenue in view of the exceptional facts of this case. The following factors, not by themselves, but taken together persuade us to grant the stay on certain conditions. Firstly, the petitioner has made out a strong prima-facie case on pri....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....,38,60,590/-. By their letters dated 25.04.2013 and 08.05.2013 the Petitioner informed Respondent No.5 that it had filed an appeal against the Assessment Order before respondent No.6 and requested him to keep the recovery of Rs.677,38,590/- in abeyance till such time the appeal was disposed off. (e) There followed a series of applications, requests and representations by the petitioner to the various respondents requesting that the recovery be kept in abeyance and to expedite the hearing of the appeal before respondent No.6. Pending the decision in the appeal, each of these were dealt with by the respective respondents. It is not necessary to set them out in detail as ultimately the impugned order on the petitioner's application for a stay of the recovery pending the appeal was decided by respondent No.6 pursuant to an order of a Division Bench of this Court. Suffice it to note that prior to the impugned order, pursuant to the earlier applications, respondent No.5 had directed that in the event of the petitioner depositing 25% of the demand in eight equal installments over a period of three months, the recovery proceedings for the balance amount would stand stayed till 30.09....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....e Companies Act, 1956 (1 of 1956), and the conditions specified either in item (A) or in item (B) are fulfilled, namely :- (A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made thereunder ; [(B) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by - (a) the Government, or (b) a corporation established by a Central, State or Provincial Act, or (c) any company to which this clause applies or any subsidiary company of such company [if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year.] Explanation.-In i....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... the meaning assigned to it in the Explanation to clause (vii);" 5. The AO in the assessment order held that the transfer agreement is purely in the nature of "transfer" as it does not mention the word "gift". He rejected the contention that the transfer of the shares was by way of gift "as the agreement is titled as 'Transfer Agreement' ". He observed that if it had been a gift "it would have been a gift deed". 6. The petitioner has more than just a strong prima-facie case in this regard. The title given to a document is not determinative of its true character. The purport of the document must be ascertained on a consideration of the contents thereof. The respondents do not deny that no consideration in the terms of money or moneys worth was paid by the petitioner to the transferors. 7. The AO further observed that the consideration for transferring the shares was basically for creation of a better business environment by way of maximizing focus in various business areas and to align the group companies' organizational activities undertaken with growth aspirations. This per se was a "consideration" and the transaction could not be termed as a "gift". The transaction w....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....he Income Tax Appellate Tribunal (ITAT). We obviously do not refer to the order as a precedent. It was however, important so far as the authorities under the Act are concerned, including the AO and the CIT. It is difficult to see how in view of the order of the Tribunal, the AO or the CIT could have refused to grant a stay. The reliance placed upon the order of the ITAT in the case of D.P. World (P) Ltd. vs. Deputy CIT by Mr. Pardiwalla, the learned senior counsel appearing on behalf of the petitioner, is well founded. The facts in that case are similar to the facts of the case before us. The appellant therein i.e. the assessee and M/s.British India Steam Navigation Co. (BISNCL) were 100% subsidiaries of Peninsular & Oriental Steam Navigation Co. (POSNC) incorporated in the United Kingdom. POSNC in turned was a 100% subsidiary of D.P. World, a company based in Dubai. BISNCL transferred three residential flats to the assessee / appellant. The transaction involved a transfer of the shares which entitled the holder of the shares to the said flats. The assessee contended that the transaction was a gift of shares and therefore, capital receipt in its hands. The AO inter-alia observed....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....s of the assessee, in the absence of any specific provision taxing a Gift as a deemed business income, provisions of sec. 28[iv] cannot be applied on the facts of the case. The CIT [A] erred in taxing the value of the stamp duty as income under sec. 28[iv] of the Act. 22. Thus, we have considered the application of the provisions of sec. 28[iv] and sec 56[1] & [2] from all the possible angles on the facts of the case, in our humble opinion the transaction involved in the present appeal is nothing but a Gift and thus it is a capital receipt not taxable under the alleged provisions of the Act. Therefore, The Assessee Succeeds and Revenue fails. Issues involved in this ground are decided in favor of the assessee and against the Revenue." 13. In view of the judgment of the Tribunal, the petitioner has more than just a strong prima-facie case for a stay. That however, is not by itself the reason for our granting the petitioner relief. It is, as we said earlier, one of several factors for our order. 14. There is in addition, a practical aspect of this matter which together with the other factors including the decision of the Tribunal in D.P. World (P) Ltd, persuades us to grant ....