TaxTMI 
TaxTMI 
2015 (4) TMI 9
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....nder the ambit and scope of 'income from other sources' u/s 56(1) of the I.T Act." "3.Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) was justified in deleting the addition of Rs. 161,86,77,034/-, without appreciating the fact that the said receipts cannot be categorized as 'gifts' claimed to be exempt from taxation." 4.Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) was justified in holding the receipts without any consideration as "gift" in the absence of 'Natural Love and Affection' without appreciating the fact that 'Natural Love and Affection' is crucial element of any transaction to qualify as gift." 5.Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) was justified in relying on the provisions of section 25 of Companies Act and section 80G of the I.T Act and holding that a company can make gift, without appreciating the fact that these are specific provisions stipulated by statute for specific purposes and therefore, the same cannot be applied in generality and to the facts under consideration." "6.Whether on the facts and circumstances of the....
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.... and record perused. Facts in brief are that during the year under consideration i.e. F.Y.2008-09, assessee received Rs. 161,86,77,034/-, from four concerns and claimed it as gifts received from these concerns. The names and other details of the four concerns from whom the amounts have been received are as follows :- Sl.No Name of the Corporate Donor PAN Address Amount(Rs.) Source 1 Amur Trading Pvt. Ltd. AAACR2647D 505, Dalamal House, Nariman Point, Mumbai 42,90,52,221 Dividend receivable by donors from Reliance Industries Ltd. on their share holdings are directly transferred to the assessee 2 Madhuban Merchandise Pvt. Ltd. AABCM9540M 505, Dalamal House, Nariman Point, Mumbai 44,50,38,399 3 Tresta Trading Pvt. Ltd. AAACR2649P 505, Dalamal House, Nariman Point, Mumbai 42,78,44,222 4 Ornate Traders Pvt. Ltd. AAACO0856D 505, Dalamal House, Nariman Point, Mumbai 31,67,42,192 3. The assessee has claimed that the amount received are gifts received from the said four concerns. It is claimed that the amounts have been received directly from Reliance Industries Ltd. on account of the dividend rece....
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..... 48,41,71,580/* u/s 115JB of the Act. The return was processed u/s 143(J) of the J. T Act on 25.10.2010. Subsequently the case was selected for scrutiny and notice U/S 143(2) and 142(J) of the I T. Act were issued and served on the Appellant. The .Authorized Representative of the Appellant attended from tune to tune and submitted the requisite details. Regular Assessment U/s 143(3) was completed by the A.o. vide his order dt.ll.11.2011 determining total taxable income at Rs. 178,47,63,054/- under normal provisions of the Act and book profit of Rs. 210,28,48,614 u/s 115JB of the Act. The addition made by the AO is disputed in appeal before your Honour. The brief facts relating to additions/ disallowances made by the AO and disputed in appeal are as under: 2. The Appellant is a private limited company engaged in the business of Investment. During the year under consideration it received gifts aggregating to Rs. 161,86, 77,034/- from four companies viz. Amur Trading Private Ltd., Medhuban Merchandise Private Ltd., Tresta Trading Pvt. Ltd. and Ornate Traders Pvt. Ltd. All the above four companies are shareholder of Reliance Industries Limited [Reliance Industries] and receive divid....
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....d That the company do accept gift amounting to Rs. 44,50,38,399/- from Madhuban Merchandise Private Limited, the Transferor Company. Resolved Further That the Company do receive delivery of the same from the Transferor Company for completing the gift. Resolved Further That Smt. KD Ambani and Shri D.N Chaturvedi, Directors of the company, be end are hereby severally authorized to do, perform and execute all acts, deeds, matters and things as may be necessary, proper or expedient to give effect to this resolution and for matters connected herewith and incidental hereto. Similar such resolutions were also passed by the other four companies in their respective extra ordinary general meetings and board meetings. Consequently, the Appellant received gift of Rs. 16.l,86,77,034/- from above four companies during the year, as under: Name of the Company Amount of Gift (Rs) Amur Trading Private Limited 42,90,52,221 Madhuban Merchandise Private Limited 44,50,38,399 Tresta Trading Private Limited 42,78,44,222 Ornate Traders Private Limited 31,67,42,192 Total 161,86,77,034 As the gift received by the Appellant from corporate bodies is in ....
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....orthwith. The Appellant at the outset submits that, the gift of Rs. 161,86, 77,034/- received by the Appellant from Corporate bodies are in the nature of capital receipt and is not taxable under any of the provisions of the Income Tax Act - 1961. The Appellant submits that the Income Tax Act - 1961[hereinafter referred to as Act} is an act passed by the Parliament to levy tax on 'income' of an assessee. Thus what is subjected to tax under the Act is only the 'income' of the assessee and not each and every receipt of an assessee. The Appellant submits that where the other receipts not in the nature of income are intended to tax under the Act, the legislature has specifically made provisions for taxability of such receipts in the statute itself like section 45, section 56(v), 56(vi), 56(vii) etc. The Appellant submits that section 4 of the Act is the charging section which reads as under: "4. (1) Where any Central Act enacts that income - tax shall be charged for any assessment year at any rate or rates, income - tax at that rate or those rates shall be charges for that year in accordance with, and subject to the provisions including provisions for the lev....
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....aim the gift from the donor nor donor have any legal or contractual obligations to give gift to the Appellant. The gift received is a voluntary payments made by the donor, without consideration to the Appellant. The Appellant submits that the gift received has nothing to do with the business of the Appellant so as to constitute its income from business or a revenue receipt in the nature of income. The Appellant therefore submits that the Gift received is in the nature of a capital receipt not Hable to tax under the Income Tax Act. The Appellant further submits that as per section 14 of the Act, income of an assessee must be classified under the following heads of income viz "Salaries‖: "Income from house property': 'Profit and gains of business or profession", "Capital gain" and "Income from other sources". The Appellant submits that the provisions of the Act provides for what can be constituted/considered as income under the various heads of income. Thus income of an assessee shall be chargeable to tax only if it falls under any heads of income. In this connection the Appellant submits that the gift received is neither in the nature of Salary nor in the nature of ....
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.... gift was not covered and accordingly not subjected to tax. The Appellant therefore respectfully submits that certain gifts are made taxable from time to time by various well thought and well intended amendments in the Act and all the definition regarding taxability of gift (i.e. receipt of assets without sufficient or without any consideration) are inclusive and only those instance of gifts are required to be taxed and not all gifts. This is so, more particularly, because all gifts are capital receipt in nature and only certain gifts are made taxable. The Appellant submits that provisions of section 56(2)(v), (vi), (vii), and (viia) specifically covers the instances of gifts which are taxable under the provision of the Act: and all other gifts received by an assessee other than those covered in above sections are not chargeable to tax being capital in nature. In this connection the Appellant rely upon the following judicial pronouncements wherein the hon'ble courts have held that gift capital receipts without considerations are not in the nature of income and hence the same can not be charged to tax under the provisions of the Income Tax Act. 1) HH Maharani Shri Vijaykuv....
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....in such policies that the assessee expected to earn profit but was prevented from doing so by some overriding reason and, therefore, an amount was paid in lieu of profits. It is comparable to the class of cases I have mentioned above where the business continues but by some overriding reason profit cannot be earned. The situation in the present case is, however, entirely different. Even if there was any doubt as to what exactly the payment of Rs. 5 lakhs represented, it is now laid at rest by the findings of fact that have been placed before us upon remand. The company itself has admitted that the payment was made as a personal gift to the assessee. It may have been calculated on the possible loss that had been suffered, but it is obvious that there was no question of any legal liability on the part of the company to pay or any legal right on behalf of the assessee to receive payment. It was paid as a personal gift in consideration of the long association of the assessee and his firm with the shipping' company for a number of decades. It was entirely prompted by generosity, and there is no reason to equate the payment with the payment that the assessee could have received from ....
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....ake the payment: nor was the Government obliged to make the payment since it W8S purely discretionary The payment made by the Government was voluntary: it had no origin in what might be called the real source of income. The fact that proviso (d) to section 15(1) of the Bombay Act enabled to appellant to seek payment was far from saying that it was a source, It could not afford any foundation for such a source. It was a compassionate payment for such length of period as the Government might, in its discretion order. The amounts received by the appellant during the financial years in question were capital receipts and, therefore, not income within the meaning of section 2(24) of the income tax Act, 1961. 5) CIT Vs. Ramdeo Samadhi !J60 ITR 179KRajasthan) "The ingredients of "income" are: (i) it must be a periodical monetary return, (ii)coming in with regularity or expected regularity, (iii) from definite sources, and (iv) excluding a receipt in the nature of a mere windfall. It is well-settled that in order to become a vocation, an activity need not be organized and a single act may amount to carrying on a business, profession or vocation. In the case of ....
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....he contrary the market value of gift received was allowed as deductible expense while computing the total taxable income. In view of our above submission and various judicial pronouncements relied upon the Appellant submits that the gift of Rs. 161,86, 77,034/- received by the Appellant from corporate bodies are in the nature of capital receipt not liable to tax under the provisions of the Income Tax Act. 4. Now, coming to the AO's observation in the assessment order, the Appellant submits that the assessment order passed by the AO is solely on the basis of suspicion, surmises and on misconception of law. The Appellant submits that the AO framed the entire assessment order on misconception of law that a company being an artificial judicial person cannot give gift to another company. The AO further observed that for giving gift there has to be natural love and affection between the donor and donees. The Appellant submits that the above observations of the AO are self drawn conclusions/observations of AO without the authority of law. In this connection the Appellant submits that the Appellant and donors being Private Limited Companies are governed by the Companies ....
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....ts a limited company to be a donor. In view of above the Appellant submits that the under the law there is no impediment to a Private Limited company from making/receiving a gift of shares or interest in company and same is permitted as per the various provisions of the Companies Act and Transfer of Property Act. The Appellant further object to the findings of the AO that prerequisite of gift is that it should be out of natural love and affection. The Appellant strongly submits that none of the provisions of the Acts reproduced hereinabove anywhere states that the gift should be out of natural love and affection. The Appellant submits that the only condition stipulated by the Act lor a gift is that it should be made voluntarily and without consideration by one person to another person. The courts time and again have held that the love and affection does not constitute a consideration when the gift is given by a donor to donee and the gifts given has been held to be gift without consideration. The Appellant therefore submits that the observations of the AO in assessment order totally misconceived and without the authority of law. Apart from above, with respect to observations of ....
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....though repealed clearly has recognized the company a Juridical person as a donor and ma.de it an assessable entity under the Act. The Appellant therefore submits that as can be evident from the above it is amply clear that the legislature In its wisdom wherever thought fit has provided by even through taxing statutes that a Company can make/receive g1ft. The Appellant therefore submits that the observations of the AO in assessment order are erroneous and without the authority of law. 5. The Appellant further submits that the AO In assessment order has recorded several findings on the basis of assumptions and surmises throughout the order so as to draw a pre-meditated conclusion which are as under: 1) Page 7, para 6: "Since receiving a cash gift by a company from another set of companies is not only a very unusual and atypical but also a curious transaction. This sort of transaction is generally not heard of and raises serious doubts." The Appellant submits that the above observations of the AO are based on suspicion and surmises without there being any basis. Tile Appellant submits that an unusual transaction which the AO has not generally heard of does not in any ma....
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....are essential in determining whether or not a g1f't has been made, a) delivery. b) donative intent,' and c) acceptance by the donee." " The Appellant submits that all the above essentials stated by the AO are duly been fulfilled by the Appellant and all the four donor of gifts. With respect to delivery the Appellant submits that the dividend has actually been received by the Appellant in its bank account which conclusively prove the delivery of the gift from donor to donee i.e. the Appellant. With respect to donative intent, the Appellant submits that all tile four donors have passed a resolution in the meeting of shareholders and board of Directors that they intend to transfer the dividend on shares of Reliance Industries held by them to the Appellant donee as gilt. The Appellant therefore submits that the donative intent to transfer the dividend as gift is clear tram the resolution passed by the donors. With respect to acceptance by the donee the Appellant submits that it has duly passed a resolution in the meeting of shareholder and board of directors duly conveying their acceptance to the gilt. The Appellant therefore submits that all the essential requisites of g....
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.... included in the definition of person who are subjected to Gift Tax Act. Hence the observation of the AO that the company cannot make / receive the gift is totally baseless and against the specific provisions of the Act. The Appellant further submits: that the AO in his assessment order at various places observes that, This sort of transactions is generally not heard of, 'gifts are generally given and received by individuals etc. The Appellant submits that these observations of the AO clearly suggest that the AO has based his order solely on assumptions and surmises. The Appellant submits that when there is specific provisions in the Act with respect to treatment of gifts, no general conclusions can be drawn. The Appellant therefore submits that above observation of the AO clearly proves that the AO framed the assessment order in disregard to the provisions of the law on the subject and without bringing any contrary material on record. 4) Page 8, Para 6.4.; "Section 25 of the Indian Contract Act. 1872. lays down that a contract without consideration is void ab initio, except for an agreement in writing registered under the provision of Registration Act, 1908 and such agreeme....
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....e provisions of the law. 6) Page 9, Para 7: "No gift deed whatsoever has been executed. " The Appellant submits that the Memorandum and Article of Associations of the Appellant and all the four donor companies provides for power to receive and make gifts respectively. The gifts has been made by the donor companies after passing an ordinary resolution of the shareholders and Directors of the company and same has also been accepted after passing of ordinary resolution by the shareholders and directors of the Appellant. The Appellant submits that above is a sufficient compliance of various laws for making or receiving gift by the companies. The Appellant further submits that there is no requirement under the law for making a gift deed; hence non execution of gift deed alone can not be held to be prejudicial to the Appellant and moreso treating the gift as income of the Appellant under the Income Tax Act." 7) Page 9, Para 7." In legal term the act of gift cannot be said to be have been undertaken as the donee has not given express consent to receive the alleged gift." The Appellant submits that the above observation of the AO is erroneous and factually not correct. As state....
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....Hon'ble courts has no application to the Appellant's case. The Appellant submits that the gift received by the Appellant is in the nature of capital receipt duly supported by documentary evidence and hence cannot be deemed as revenue receipt liable to tax. The Appellant therefore submits that all the case laws relied upon by the AO in the assessment order has no relevance to the case of the Appellant and are distinguishable on facts. In view of our above submissions and various Judicial pronouncements relied upon, the Appellant submits that the gift of Rs. 161,86,77,034/- received by the Appellant from corporate bodies are in the nature of capital receipt and the same cannot be considered as income of the Appellant under any provisions of the Act and hence is not liable to tax. 4.1. During the course of appellate proceedings above, submissions of the assessee was remanded by the CIT(A) to the A.O. vide order u/s. 250(4) dated 31/8/11 which is as follows: Assessment in this case u/s. 143(3) is completed vide order dated 11/11/11 by the A.O. in which the claim of the assessee that it has received Rs. 161. 86 crore as gift has been rejected and it has been assessed as....
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.... Mumbai In response to the above letter of CIT(A), the A.O. sent the remand report dated 1/10/12, which is as follows: 1. "Comments and findings on the submissions and paper-book of the assessee dated 31/08/12. In this regard, before analyzing/drilling into the issues (raised by the assessee vide its paper book) with relevant tool of the law, the undersigned is pointing here out, with a purpose, that this case falls in such category of cases which were referred by the Hon'ble Fins nee Minister under the titles "provisions for countering tax-evasion" & "evil of tax-evesian" while presenting the Finance Act, 1964 in following manner: "84. It is a curious paradox of our situation that while money for worthwhile investments and public purposes is in short supply, there is a great deal of unaccounted money circulating in the economy in search of further under-cover gains. What is more important, this social evil inherent in tax evasion gets doubly compounded as it necessitates greater and greater tax burdens on those who are law' abiding. Perhaps, the most important problem that faces us in regard to fiscal reforms is that of devising astute and stringent....
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....d misconception of law' is nothing but baseless allegation and is more in to the nature of teaching and preaching, which has nothing to do with the facts of the case, therefore the undersigned does not think the same to be commented upon. 1.4 The second argument put forth by the assessee is about the legislation intent about taxability. In this regard, it has discussed section 4, 5, 2(45), 2(24) and 56(2)(v).(vu, (vii) of the I T Act. 1961, which are read as under: 1.5 While discussing section 2(24), the assessee itself has admitted that the definition of income provided in the said section is inclusive one and not exclusive. Reliance is placed on following judicial pronouncements: 'Income this Act connotes a periodical monetary return 'coming in' with some sort of regularity, or excepted regularity, from definite sources - CIT v. Shaw Wallace & Co. 6 ITR 178 (PC)/Padmaraje R. Kadambande v. CIT[1992) 195 ITR 877 (SC): The word ‗income is not limited by the words 'profits' and 'gains'. Anything which can properly be described as 'income; is taxable under the Act unless expressly exempted - Maharajkumar Gopal Saran Narain Singh v.....
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....t From the donor nor donors have any legal or contractual obligations to give gift to the appellant. The gift received is a voluntary payments made by the donor, without consideration to the appellant. As the assessee has correctly stated that gift is a voluntary payment made by the donor and duly received by donee. Basically, if we analyze this statement, then it is gathered that the said statement is only a assertion, which for the sake of totality has to be supported by reason. 1.8 The supporting reason has to be w.r.t the question that as to why any person will make gift to any other person. Now as the meaning of gift has not been provided in the Income-tax Act, therefore the meaning' has to be borrowed from any other law or statute prevailing in land. As the Gift-tax Act has already been abolished, therefore the meaning of gift can not be borrowed from it. Here, it is pertinent to mention that gilt, has been defined in Transfer of property Act 1882.Section 122 of the Transfer of property Act 1882, defines gift as under: "Gift" is the transfer of certain existing moveable or immoveable property made voluntarily and without consideration, by one person, called the dono....
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....fts are generally given and received by Individuals. Similarly a company or a body corporate cannot generally receive a donation, because there can never be a cause of compassion or charity in the case of a company. 1.14 Further gilt necessarily involves a contract because for a gilt to be valid and complete, it has to be accepted by the donee. Section 25 of the Indian Contract Act, 1872, lays down that a contract without consideration is void ab initio, except for all agreement in writing, registered under the provision of Registration Act, 1908 and such agreement is on account of natural love and affection. Therefore a claim of gift by a company is not sustainable as there can never be any love & affection by or between an artificial juridical person. 1.15 Further as far as gilt of the property is concerned, section 122 of the Transfer of Property Act, 1882 requires that transfer of property by way of gift must be accepted by the donee and inter alia such acceptance must be made during the life time of the donor and before the donee dies. The provisions using the word like the death of the donee are logically in the context of a living individual or natural person and not i....
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....R 114 (SC)/CIT v. Basant Rai Takhat Singh [1933] 1 ITR 197 (PC). Now let us analyze the position of different section quoted by the assessee in it favour and analyze whether same bears any merit in it or not. 1.20 The first point raised by the assessee vide its submission is that 'the gift was always treated as no taxable capital receipt till 31.03.2005. Thereafter the legislature vide Finance (no.2) Act, 2004 w.e.f 01.04.2005 inserted clause (v) to sub-section (2) of section 56 ....................' 1.21 In this regard it is to be mentioned that till 1988, since Gift tax Act was applicable, being direct tax in nature, therefore there was no need to have specific section for the purpose of taxability in the I. T Act. However, after the abolition of Gift Tax Act, as there was no tax on gifts, therefore, this was used as a colorable device to evade taxes, therefore vide Finance (no.2) Act, 2004 w.e.f 01.04.2005 inserted clause (v) to sub section (2) of section 56, gift received by an individual and HUF was made taxable. Here, it is pertinent to mention that the only exception was made in the case of gift received from close relation, because it was held by the legisl....
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....love and affection is being fulfilled while in the case of assessee under reference there is no such relation and natural love and affection. Thus, the gift given by son to his father: will not tinder the criteria of taxable income, as provided in the I. T Act, 1961. In view of the above analysis; ratio of the cited case law can not be applied in the case of assessee under reference. 2 CIT vs. Pran Jiban Jaitha 52 ITR 108 Section 28(i) of the Income-tax Act, 196] [Corresponding to section 10(1) of the Indian Income-tax Act, 19221 -- Business income - chargeable as - Assessee was a partner in a firm which acted as freight brokers of a shipping company - Firm used to receive a remuneration of one per cent on freight booked but no minimum remunerations was guaranteed by company to firm if no business was carried on - With outbreak of second world war company stopped functioning in Burma and no brokerage accrued to Kim thereafter - Assessee claimed compensation for loss of business during war period - Director of shipping company released Rs. 5 Jakhs to assessee "for loss of assets I and brokerage in Burma due to enemy action" - ITO held that Rs. 5 lakhs was income in assessee....
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....merger of Kolhapur state in the then State of Bombay. The allowance was continued for some time up to 31-7-1955. Therefore, it was discontinued because of the provisions of the Bombay merged Territories Miscellaneous Alienations Abolition Act, 1955, which was passed to abolish miscellaneous alienations of various kinds prevailing in the merged territories in Bombay. Under sub-section (1)(d) of section 15 of the said Act it was provided that a cash allowance could be paid as a compassionate payment notwithstanding the abolition of all alienations under section 4. The assessee continued to receive cash allowance as compassionate payment from 1-8-1956 on modified terms and the sanction of the same was conveyed to the assessee. For the assessment year 1963-64 and 1964-65, the assessee claimed that the amounts received by him were not assessable to income-tax as those receipts were of a capital nature. The ITO disallowed the assessee's claim and subjected the respective amounts to tax in each of the assessment years. On appeal, the AAC as well as the Tribunal. confirmed the order of the ITO. On reference, the High Court, relying on the case of HI-f Maharani Shri Vijavkuverba Saheb of Mo....
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....as not satisfied in the instant case. The offerings that were made at the Samadhi of R by the devotees or pilgrims were made by thorn at the spur of moment when they visited there. There was no prior determination. The offerings were voluntary in the shape of gifts and could not be attributed to any activity on the part of the assessee. Hence, none of the ingredients of the income existed in the instant case and therefore, the amount or offerings received by the descendants of R at R's Samadhi could not be regarded as income from any source assessable in the hands of the assessee known as R's Samadhi The ratio of the case is totally different with that of the assessee under consideration. In the quoted case, the receipt/offerings made at the Samadhi or R by the devotees or pilgrims, were made by them at the spur of moment when they visited there. These offerings were because of affection or faith or belief, which is totally absent in the case of assessee under reference. Therefore, the case law relied by the assessee does not hold good. 6 Mehboob Productions Private Ltd. Vs. CIT 106 ITR 758 Section 4, read with sections 2(24) and 10(3) of the Income-tax Ac....
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....a factory for fabrication and manufacture of hosiery needles, and received from them consignment of machinery and along with that, certain goods free of cost, these goods consisted partly of raw materials and partly of semi-furnished needles. These goods were brought into books by making debit and credit entries under 'Wire & strip Gift A/c and 'Semi-Processed needles Gift A/c. The assessee utilized these goods in the manufacture of finished products and sold the same in the market and the sale proceeds received by the assessee were credited in the trading account maintained in the books of account of the business, since they represented revenue receipts arising from the sale of the finished products. On the last date of the accounting year, the assessee closed the 'Wire and Strip Gift Account' and the 'Semi-Processed Needles Gift Account' by transferring the respective sums to the credit of the 'Capital Reserve Account' and debited an aggregate sum to the trading account by making corresponding credit entries in the accounts of 'Wire and Strip' and the Semi-Processed Needles: The net effect of these entries was that the profit of the assesse....
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....hen the law was not exactly similar as on today's time, Thereafter sea changes have taken place in these type of legal issues and 111 between there exist no case law where assessee has taken such type of' benefits, In addition to that this is an obsolete case law, which has no relevance to the fact of present case and the assessee has unfruitfully labored to compare the cited case law with his present case, Further the ratio of the cited case law is different from that of assessee under reference, A comparative analysis of the same is as under: a, Groz-beckert Saboo Ltd. received some raw material from collaborating foreign company (which has a definite role and pre-defined role in a joint venture) free of cost, while in the case of' assessee under reference there is no such collaboration Joint-venture/partnership or any other pre-defined relationship. Therefore relation between the doner and donee in the above referred case and in the case of assessee under reference is altogether different. b. In the case of Groz-beckert Saboo Ltd., the doner has sold machinery of substantial amount and along with that machinery it has gifted some raw material and se....
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.... down subsequent to 1-4-1989 only. 1.27 Now, as far as the issue raised by the assessee vide its submission (under Ii pro visions of section 56 (2), the gift received by the company does not find any place and the assessee claims that impugned sum is not taxable since it is a gift and it does not fall in any of the provision of section 56 (2) dealing with the taxability of gifts,), that there are 110 provisions in the income tax act, which prohibits that a company cannot receive gift or advance gift, is concerned, it is to be noted that (i) The provisions of section 56 (2) are only a few specific instances transactions that are taxable and these are without prejudice to the general provisions of section 56 (1) of the IT Act. Basically, in order to curb the practice of bringing unaccounted money in the books of the assessee, the act was amended and specific provisions were brought in the form of section 56 (2) to tax the gift, save from received from designated relation to the done. As specified above, since only living being receive or advance gift, therefore restrictions were place in the statute that only close relative can give or receive gift, so that abuse of exemp....
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....e Punjab & Haryana High court, Jaspal Singh v CIT [158 Taxman 3061, the Hon'ble Punjab & Haryana High Court etc., have held that a gift is something which is given out of natural love and affection. The above judicial pronouncements are as under: Section 69A of the Income-tax Act, 1961 - Unexplained moneys - Assessment year 2003-04 - Assessing Officer made addition to declared income of assessee by treating alleged gifts to be assessee's income from undisclosed sources - On appeal. Commissioner (Appeals) and Tribunal affirmed order of Assessing Officer by recording finding of fact that there was no relationship between donors and assessee and there was no natural love and affection and in its absence, gifts could not be accepted to be genuine - Assessee challenged order of Tribunal on ground that she should have been allowed an opportunity to cross-examine donors who denied to have given gifts - Whether even if cross-examination was allowed and donors, who had disowned making of gifts, were confronted and shown to be factually wrong, same would have made no difference as in absence of natural love and affection, gifts were not genuine - Held, yes - Whether, there f....
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....carrying out the alleged gift transaction much before the acceptance of the gift by the donee/recipient. Further, in the case of the assessee company, such alleged gift: transactions have also been noted in other years as well. 1.33 At this juncture, it would he relevant to mention that any credit which is found to be credited in the books of accounts and which does not have any corresponding liability has to he either assessed under section 56 or under section 68 of the I. T Act, 1961. In the case of assessee under reference, the undersigned is of considered opinion that the same should be taxed under section 56. The undersigned is in complete agreement with my predecessor. who passed this assessment order regarding the stand taken while considering the alleged pit as income from other sources. However, without prejudice to the above, since credit entry is found to be credited in the books of the assessee, therefore, if any how the same can not be taxed under section 56, then it would be taxed under the provisions of section 68, which is read as under: "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no ex....
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....IVATE LIMITED 124000 8. SAUMYA FINACE AND LEASING COMPANY PRIVATE LIMITED 133000 TOTAL: 1000000 ORNATE TRADERS PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of Rs. 10 each 1. AMUR TRADING PRIVATE LIMITED 1523952 2. LAZOR DETERGENTS PRIVATE LIMITED 801912 3. MADHUBAN MERCHNDISE PVT. LIMITED 912096 4. PRATIKSHA FINANCE & LEASING COMPANY PVT. LTD. 1308000 5. RASHI TRADING COMPANY PRIVATE LIMITED 507144 6. SAUMYA FINANCE AND LEASING CO.(P.) LTD. 1443744 7. TRESTA TRADING PRIVATE LIMITED 1523952 TOTAL: 8020800 TRESTA TRADING PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of Rs. 10 each 1. AMUR TRADING PRIVATE LIMITED 10000 2. LAZOR DETERGENTS PRIVATE LIMITED 10000 3. MADHUBAN MERCHNDISE PVT. LIMITED 9514 4. SAUMYA FINANCE AND LEASING CO.(P.) LTD. 9514 5. SHIKHAR TEXTURISING PRIVATE LIMITED 9514 6. SILKINA TRADING PRIVATE LIMITED 1533 TOTAL: 50075 ....
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....MBANI 3900 TOTAL: 38500 SHIKHAR TEXTURISING PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of Rs. 10 each 1. AMUR TRADING PRIVATE LIMITED 444150 2. DAINTY INVESTMENTS & LEASINGS P. LTD. 253800 3. LAZOR DETERGENTS PRIVATE LIMITED 487350 4. MADHUBAN MERCHNDISE PVT. LIMITED 487350 5. ORNATE TRADERS PRIVATE LIMITED 405000 6. TRESTA TRADING PRIVATE LIMITED 487350 TOTAL: 2565000 SILKINA TRADING PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of Rs. 10 each 1. AMUR TRADING PRIVATE LIMITED 1156720 2. KUDRAT INVESTMENT AND LEASING (INDIA) P.LTD. 1824000 3. LAZOR DETERGENTS PRIVATE LIMITED 1156720 4. MADHUBAN MERCHNDISE PVT. LIMITED 696000 5. SAUMYA FINANCE AND LEASING CO.(P.) LTD. 440000 6. TRESTA TRADING PRIVATE LIMITED 814560 TOTAL: 6088000 PRATIKSHA FINANCE AND LEASING COMPANY PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Nam....
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.... 1. AMUR TRADING PRIVATE LIMITED 985150 2. DAINTY INVESTMENTS & LEASINGS P. LTD 985150 3. LAZOR DETERGENTS PRIVATE LIMITED 985150 4. MADHUBAN MERCHNDISE PVT. LIMITED 915000 5. PURURAVA TRADERS PRIVATE LIMITED 329400 6. TRESTA TRADING PRIVATE LIMITED 985150 TOTAL: 5185000 ANUCHIT TRADERS PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of Rs. 10 each 1 AMUR TRADING PRIVATE LIMITED 327919 2. LAZOR DETERGENTS PRIVATE LIMITED 820000 3. MADHUBAN MERCHNDISE PVT. LIMITED 902082 4. SAUMYA FINANCE & LEASING CO. PVT.LTD. 1246400 5. TRESTA TRADING PRIVATE LIMITED 820000 6. UNICOME TRADING ENTERPRISES PVT. LTD. 631400 TOTAL: 4747800 DAINTY INVESTMENTS AND LEASINGS PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of Rs. 10 each 1. AMUR TRADING PRIVATE LIMITED 5165486 2. KUDRAT INVESTMENT & LEASING (INDIA) P. LTD 5890000 3. LAZOR DETERGENTS PRIVATE LIMITED 6282144 4. MADHU....
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....E LIMITED 1065216 TOTAL: 5606400 2.2. On going through the share holding patter, it is evident that all the above donor companies have share holding in each other. Apart from these companies Amur trading Pvt. Ltd. Maduban Merchandise Pvt. Ltd. Tresta Trading Pvt. Ltd. and Ornate Traders Pvt. Ltd. there are another companies viz Lazor Detergents Pvt. Ltd. Rashi trading company Pvt. Ltd. Rhino Bags Pvt. Ltd., Saumya finace & leasing Co. Pvt. Ltd., etc, which have share holding in all the above four companies. It is further observed that the companies have a common address i.e. 505, Dalamal House 5th Floor, 206, Nariman Point, Mumhai, therefore they are being controlled and managed by a particular group i.e reliance Industries. Further it is evident from the share holding pattern as on 13. 062008 of Lazor Detergents Pvt. Ltd. that 3900 shares in the name of Smt. K. D. Ambani jtly Shri M. D. Ambany Total shares of the company are 38500 shares. Now if we analyze thoroughly the share holding of all the above mentioned, companies, then it is observed that the cross holding are such that ultimately the control is being exercised by Smt. K D. Amb....
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....en by the then Assessing Officer while framing the order u/s.143(3) of the Act, but without bringing any cogent material on record or putting forward any additional arguments to support the issue in appeal. The AO has merely repeated the same arguments as were stated in the assessment order and elaborated the same without support of factual finding, legal provision or judicial pronouncements. At the outset we wish to state that the AO started his remand report by quoting the observation made by the then Finance Minister (FM.) as on 16.1-9. 1963 With respect to "Pro visions for countering tax-evasion" and "evil of tax-evasion'. The Appellant submits that the opening remark of the AO is totally out of context and unwarranted. The Appellant submits that the observations of the F.M. quoted by the AO in his Remand Report are the statement of FM in Parliament with respect to unaccounted money circulating in the economy and tax evasion thereof which are laudable and represents the Governments endeavor to control to control the social evil and affect fiscal reform. The Appellant submits that the observation of the AO that the "case of the Appellant falls in such category of cases which ....
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....al person: The AO in para 1.8, 1.9 to 1.16 and 1.27 of the Remand Report has observed that the gift can only be made and received by a living person (i.e human being) and not by the companies which is an artificial person. In this regard the AO relied upon the - definition of Gift provided under section 122 of the Transfer of Property Act. The Appellant at the outset submits that it has already made a detailed written submission at para 4 and 5 and demonstrated that various provisions of the Transfer of Property Act recognizes that the Company can transfer a moveable or immovable property by way of gift. The Appellant rely upon the written submission filed before your honour a copy of which were also forwarded to the AO. The Appellant submits that the AO failed to appreciate that section 5 of Transfer of Property Act clearly states that "living person" includes a company. The Appellant submits that the AO conveniently- ignored the provisions of the Transfer of Property Act to draw a premeditated conclusion against the Appellant. The Appellant therefore submits that these observation of the AO are grossly wrong and shall he quashed. 2.There has to be natural love and affection....
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.... is an income of the assessee are against the basic object of the Act and contrary to judicial pronouncements. The Appellant respectfully submits that the income tax is leviable only on the taxable income of the assessee and hence receipts of capital nature, unless specifically charged under the Act, are outside the ambit of the Income Tax Act. In this connection the Appellant strongly rely upon para 3 of its written submission (refer pages 5 to 15) wherein the issue has been discussed in detail. The Appellant therefore submits that the above observations of the AO is contrary to the provisions of the Act and intention of the legislature and shall be quashed. 4) Section_56(1) being residual taxing provision any income not covered under heads A to E specified in Section 14 of the Act is chargeable under the head income from other sources. The AO at pars 1.17 to 1.19 and 1.27 observed that any income not covered under the heads A to E specified in section 14 of the Act is chargeable under the head income from other sources, which is a residuary taxing provision. The AO therefore held that the gift received by the Appellant is chargeable to tax u/s 56 of the Act. The Appellant stro....
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....o explanation about the Nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year (Emphasis supplied) 'The Appellant submits that section 68 of the Act comes into play when any sum is found to be credited in the books of an assessee and the assessee offers no explanation about the nature and source thereof or the explanation offered by the assessee is not in the opinion of the Assessing officer satisfactory. The Appellant submits that in the case of the Appellant it has been clearly explained to the AO that the gifts were received from various corporate bodies and the same have been duly disclosed in the books of the Appellant. All the corporate bodies have confirmed to the making of gift and same have duly reflected in their books and audited accounts. The Appellant submits that the transactions and source has duly been explained to the AO. Even the AO neither in the assessment order nor in remand proceeding has doubted the nature or source of transaction. The Appellant submits that in the case of the Appellant....
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....ntext and needs to be ignored. 4. The AO further tried to distinguish various case laws relied upon by the Appellant in its written submission on flimsy grounds. The Appellant submits that the case laws relied upon by the Appellant in its written submissions, lays down the principle on the concept of "income" i.e. what can be termed as income chargeable under the Income Tax Act-1961and vice versa. The Appellant submits that the ratio laid down in all the case laws relied upon by the Appellant in its written submission is very much relevant to decide the issue in appeal. The Appellant further submits that the AO tried to distinguish the judgment of Hon'ble Supreme Court in the case of CIT Vs. Groz - beckert Saboo Ltd [16 ITR 125] on the ground that it has been pronounced by the Hon'ble Supreme Court long back in 1978 and this is an obsolete case law. The Supreme Court decides the substantial question of law holds good for all the time to come unless overruled by the court or by amendment to the Act. The Appellant submits that the judgment in the Groz- beckert Saboo Ltd (supra) although is a old judgment but explains the concepts of 'income" The judgment is valid from d....
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....fined person as under: (Xviii) ‗person" includes a Hindu Undivided Family or a company or an association or a body of individuals or persons whether incorporated or not." The Appellant therefore submits that the gift by a corporate body to another corporate body is not an unknown phenomenon as claimed by the A 0 in his remand report. The Appellant therefore submits that had the legislature intended to bring the gifts by one corporate body to another corporate body within the ambit of Income Tax Act, it would have certainly provided for the same in the statue itself The Appellant therefore submits that the above observations of the A 0 in remand report is solely based on assumptions, conjectures and surmises and has no hearing in deciding the case. As regards details of shareholding pointed out by the AO at Pare 2, it is respectfully submitted that none of the shareholders of the companies giving gift are shareholders of the Appellant. Only one of the shareholder of the Appellant i. e. Smt. KB. Ambani is shareholder of one Lazor Detergent Private Limited, holding only 10.13% of shares. Based on this fact the AO submitted that all the companies are being controlled and....
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....y is not in the nature of income. 8. Section 56 is not applicable to the money received by a company without consideration. In view of our submissions and various judicial pronouncements relied upon, the Appellant submits that the gift of Rs. 161,86,77,0371- received by the Appellant from corporate bodies are in the nature of capital receipt and the same cannot be considered as income of the Appellant under any provisions of the Act and hence the additional to total income made by the AO shall be deleted." 4.4 Subsequently, assessee fried its affidavit along with the affidavits of the four donor companies in support of its claim. The assessee also filed copy of a judgment of Honble ITAT, Mumbai, 'D' Bench, in the case of MIs. D.P. World Pvt. Ltd. vs. DCIT-2(1), Mumbai, and the copy of the judgment of Hon'bie Karnataka High Court in the case of CIT vs. Nadatur Tour Holdings & Investment Pvt. Ltd., in support of its claim. All the affidavits and the Judgments were forwarded by CIT(A) to the A.O. vide letter dated 6/12/12 for report as follows; "Sub : Appeal in the case of KD.A. Enterprises Pvt. Ltd. - A. Y 2009-10 I.T-27/DC.3(2)/2011-12 The asse....
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....s being made as under. 2.1 The judgment of Hon'ble ITAT, Mumbai in the case of DP World Pvt Ltd. vs. DCIT is altogether different than that of the assessee under reference. In the case of DP World Pvt. Ltd. vs. DCTT the shares of company (which is the owner of three residential flats at Hill Park) were gifted (by the shareholder) to ultimate holding company, so that case decided by the 1T47', no income accrue or arise because it is an internal matter between subsidiary and holding company. So in the cited case, whether it is gift or any other transfer, it hardly matter. There the Hon'ble Tribunal analyzed the facts that existed in the U K. and have approved action of Assessee on negative criteria that the department has not brought anything contrary to the clauses of gift/transfer. further at page no. 7 paragraph 15 of the ITA 7' order, the Hon'ble ITA T themselves have admitted, "although there are other decisions to the contrary however these decisions may not strictly hold good since the GTA has been deleted w.e.f. 01.10.1998 and section 4767L) of the Act continues in its original form This paragraph itself suggests that enough analysis has not be....
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....NN KUMAR) Deputy Commissioner of Income-tax 3(2), Mumbai. " 6. The comments of the A.O. were forwarded to the assessee and assessee filed the rejoinder vide letter dated. 22/1/13 as follows: "1. We refer to the copy of the letter dated 03.01.2013 of Deputy Commissioner of Income Tax-3(2) thereinafter referred to as the A.0.) in the case of Appellant for A. Y 2009 - 10 provided to us by your honour for our comment. The Appellant submits that the AO in his letter dated 03.01.2013 has submitted that the following cases relied upon by the Appellant has no relevance to the facts of the present case: 1.Decision of Mumbai ITAT, Di Bench in the case of DP World Private Limited and 2..Decision of Karnataka High Court in the case of Nad,9tur Holdings & Investments Private Limited. While differentiating the case laws relied upon by the Appellant, as regards decision of Mumbai ITA T, D' Bench in the case of DP World Private Limited he observed as under: 1. In the case of DP World Pvt. Ltd. vs. DCIT, the shares of company (which is the owner of three residential flats at Hill Park) were gifted (by the shareholder) to ultimate holding company. 2. No income accrue o....
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....received is not gift but the same is income, the A 0, in his submission, con yen len tly ignored following observations of Hon'ble ITAA at Para 13 which is summarised as under: "There is no requirement in the Transfer of Property Act that a 'gift' can be made only between natural persons out of natural love and affection which means that as long as a donor company is permitted by its Memorandum /Articles of Association to make a 'gift it can do so. " Para 16 which is summarised as under: 'the definition given u/s 122 of the TPA has to be accepted, meaning thereby that meaning of gift reflect non -element of love and affection. " Para 17 which is summarised as under. ' It would not be out of place to mention that a combined reading of Sec. 82 of the Companies Act; Section 5 and Section 122 of the TPA suggest that a company can validly transit's the shares by way of gift, provided where Memorandum /Articles of Association of the donor company permits the same The A0 further mentioned that receipt of dividend cannot be given exemption in the hands of Appellant. It is respectful submitted that Dividend is source of fund out of which the gift....
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....cludes deemed transfer or conversion of any property. We find nothing wrong in gifting the shares in favour of the company by its shareholders. Thus the Appellant relied on the observation of Honble High Court that the Company can receive gift. In view of our above submission and various judicial pronouncements relied upon the Appellant submits that gift received by the Appellant of Rs. 161,86,77,034/- is a capital receipt and has correctly been credited to capital reserve by the Appellant in its books of account,' hence being a capital receipt the same is not taxable under the provisions of the Income Tax Act. Further the gift received has correctly been credited to capital reserve account and the same cannot be added to book profit u/s 115JB of the Act in absence of any such adjustment specifically provided in the section." 7. After considering assessment orders, remand reports and the rejoinders filed by assessee, the CIT(A) deleted the addition made on account of gifts after having the following observations : 5. I have considered the facts of the case and submissions of the assessee. The assessee has claimed to have received gifts from four concerns totaling to....
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....case of introducing unaccounted money in the books of account of the assessee-company. Even otherwise, more doubt or suspicion cannot be the basis for making any addition or rejecting the claim of the assessee. Doubt and suspicion may lead to inquiry or investigation and, therefore, A.O. should have brought out facts or evidences contrary to the claim of the assessee on record, either during assessment proceedings or remand proceedings. Whereas, A.O. has not been able to bring out any other fact or evidence contrary to the claim of the assessee even after being allowed further -opportunity and time by way of remanding the case to him. Therefore, A.O. could not refute the claim of the assessee on the basis of any contrary fact or evidence. Hence, the claim cannot be rejected merely on the basis of doubt and suspicion. The additions cannot be made or decision cannot he taken on the basis of suspicion, assumptions, surmises, doubts or misconceptions, as has also been held by Hon'ble judicial authorities in many cases, out of which few are as follows:- (i)Omar Salay Mohamed Sait. vs. CIT - 37 ITR 151 (SC). (ii) Bhogilal H. Patel vs. CIT -- 74 ITR 692 (Born). (iii) German R....
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....mple delivery the gift can be made of an amount or cheque or other movable property. Whereas, in the case of the assessee, letters certifying the gifts with corresponding resolution of their board have been furnished before the A.O. During appellate proceedings assessee has also filed affidavits from all the four donor companies, certifying the gifts. Assessee has also filed its affidavit for certifying the receipt of gifts. Receipt of gift as well as making of gift are authorized by respective Memorandum and Articles of Association of the companies and the assessee. Gifts have been accepted by the assessee by adopting a resolution by the Board of Directors. Therefore, it cannot be said that these amounts are not gifts merely on the basis that there are no gift deeds or acceptance. 5.6 Coming to the two issues, whether companies can make gift or not and whether natural love and affection is necessary for gift or not. Assessee has claimed that the companies are competent to make and accept gifts and no natural love and affection is necessary. In this regard, besides its arguments, assessee has relied on the decision of Flonlble 'TAT in the case of D.P. World Pvt. Ltd. vs. DCI....
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.... a corporate reorganization involving transfer of shares of an Indian Company without consideration (a) Since the term "Gift" is not defined in the Act, which Jneanin4' should be ascribed to it and (b) Can a company being a corporate entity make a gift? 9. As gift is not defined under the Act. the Sale of Goods Act, Companies Act and the Indian (]ontract Act, a reference is made to the Gift Tax Act, 1958 (1G749 and the Transfer of Property Act, 1882 ('TPA). 10.GTA was in force with respect to gifts made till 1st October, 1998. Section 2 (xii) of the GTA defined gift as the transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or moneys worth and includes the transfer or con version of any property referred to in section 4 deemed to be a gift under that section. Transfer of property for inadequate consideration was Inter alia treated as deemed as gill. This is similar to section 56((vii.)(vjia) or-the I. T Act which under certain circumstances, treat the difference between the fair market value of the movable property (including shares of closely held company) and the consideration for ....
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....r these decisions may not strictly hold good since the GTA has been deleted w.e.t: 1.10.19.98 and Sec. 47(iii) of the Act continues in its original form. 16. Considering the above discussion, the definition given u/s 122 of the TPA has to he accepted, meaning thereby that meaning of gift reflect non- element of love and affection. Therefore, gift of shares of an Indian Company by a foreign company without consideration has to be treated as gift within the meaning of Sec. 476U) of the Act. 17. It would not be out of place to mention that a combined reading of Sec. 82 of the Companies Act, Section 5 and Section 122 of the TPA suggest that a company can validly transfer the shares by way of gift, provided where Articles of Association of the donor company permits the same. In case of donor is a foreign company, the relevant corporate/commercial law of the jurisdiction where the donor is based needs to be considered. In the light of the above discussion, we have no hesitation to hold that a company can gift shares and such transaction may appear as 'strange' transaction but cannot be treated as "non - genuine" transaction." In view of the above discussion and decision ....
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....and 1/4/13 respectively). Similarly section 80G allows deduction to companies also on the donations received by the companies. Therefore, it cannot be said that the assessee could not have received such gifts from other companies. It is clear from the Gift Tax Act, 1958, now repealed that gifts were taxable in the hands of the companies also. It is also clear from the Transfer of Property Act that companies can receive and make gifts as submitted by the assessee and discussed above and there is no requirement of any natural love and affection for making or receiving a gift by companies. Even the present Income-tax Act by way of Section 56(2)(viia) and 56(2)(viih) provides that gifts of certain in of shares are taxable in the hands of certain category of companies. The donations and charities are made and allowed to all type of companies Even deduction u/s 80G of income tax Act is allowed on account of donation to companies These charities and donations, which are allowed to companies, are nothing but gifts. Even the Companies Act allows companies with charitable purpose to be registered u/s.25 of the Companies Act and such companies are naturally allowed to accept gifts and dona....
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....z-Beckert Saboo Ltd. 116 'TR 125 (SC). Therefore, the receipts of these gifts by the assessee are capital receipts. This view is also supported by the following case laws as claimed by the assessee:- 1) 11H. Maharani Shri Vijay kuverba Saheb of Morvi & Anr Vs. CIT [49 ITR 594](Bornbay): 2).CIT Vs. Pran Jiban Jaitha [52 ITR 108] (Calcutta): 3)Lachit Films vs. CIT [195 ITR 402] (Gauhati): 4) Padmaraje R. Kadambande Vs. CIT 195 ITR 877]'Supreme Court): 5) CIT Vs. Ramdeo Samadhi [160 ITR 179](Rajasthan) 6) Mehboob Productions Private Ltd. Vs. CIT [106 ITR 7581](Bombay) 7.CTT Vs. Groz - Beckert Saboo Ltd [116 ITR 125] 6.Taxability of gifts: Now it will be relevant to discuss whether such gifts are taxable at all under any provisions of the I.T. Act. In this regard, A.O. has assessed it under the head "income from other sources" u/s. 56 of the I.T. Act. It is also relevant to examine, if such amount can be assessed as income u/s. 28(iv) or as deemed dividend u/s. 2(22)(e) of I.T. Act or as unexplained cash credit u/s. 68 of the I.T. Act or under any other provisions of the I.T. Act, for which discussion is made ....
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....by any other person were taxable under the Gift Tax Act only and there was no provision for taxing gifts under the Income-tax Act. Therefore, gifts were not separately taxed under any provisions of the Income- tax Act during the period when the Gift Tax Act was in existence and the question of taxing the gifts separately under Income-tax Act, did not arise. When the Gift Tax Act was repealed in 1998, legislature indicated its intention that the gifts will be no more taxable under the Gift Tax Act, but nc corresponding change was made under the Income-tax Act and, therefore, taxability of gift remained outside the tax net for a long time until section 56(2) was amended for bringing tax on gifts received by individuals and HUFs with certain conditions with effect from 01.04.2005. Therefore, legislature again indicated its intention that certain gifts received by individuals and HUFs only will be taxed under the Income-tax, in the hands of the recipient, but gifts received by companies or any other person other than individuals and HUFs were not brought under the tax net. With the passage of time, it was realized that certain kind of transactions of transfer of certain kind of shares ....
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....nd arising from business or the exercise of a profession. Therefore, such perquisite, benefit or receipt which arises from the business or from exercise of a profession can only be taxed u/s. 28(iv). In the case of the assessee, admittedly, there is no business relation or business transaction between the assessee and the four donor companies from whom the gifts have been received and, therefore, the amount received from the said four companies cannot he brought to tax u/s. 28(iv) of Income-tax Act. This issue has also been discussed by Hon'ble ITAT in the case of D.P. World Pvt. Ltd. (supra) and it has been held that such gifts are capital receipts and they are not taxable either under the head "income from other sources" or section 28(iv) of Income Tax Act. The relevant portion of the decision is reproduced below: "19. The A 0 has applied the provisions of Sec. 56 and treated the value of the flats as income under the head income from other sources' and the La'. C1T(A) has made the addition UJS. 2860 of the Act by treating the Stamp Duty value as income from profit and gains from business and profession. 20. . We have carefully considered both the provisions. Le....
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....as under : v) where any sum of money exceeding twenty-five thousand rupees is received without consideration by an individual or a Hindu undivided family from any person on or after the 1st day of September, 2004, 'hut before the 1st day of April, 2006, the whole of such ―However such amendment did not take care of the transactions involved in the instant case. The legislature further brought amendments as under: (vii) where an individual or a Hindu undivided family receives in any previous year, from any person or persons on or after the 1st day of October, 2009, (a) any sum of money, without consideration; the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum ; (b) any immovable property - (i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property ; (ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration, (c) any property, other than immovable property, "(i)) without consideration; the aggregat....
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....st day of June,2010. Certain lacuna may have still remained to be addressed therefore the legislature did not stop here but went on to make further amendments by inserting clause [viib]as under: (viib) where a company; not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares. Provided that this clause shall not apply where the consideration for issue of shares is received- -(i) by a venture capital undertaking from a venture capital company or a venture capital find or l(ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf Explanation. For the purposes of this clause, - - (a) the fair market value of the shares shall be the value- - (i) as may be determined iii accordance with such method as may be prescribed ; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, on the value, on the date of issue of s....
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....evidence with regard to all the three elements. This view is also supported by the decision of Hon'ble M.P. High Court in the case of CIT vs. Metachem industries 245 ITR 160 (MP), where it was held that once the assessee explained the credit standing in the name of its partners, then it is open to the A.O. to undertake further investigation, but assessee cannot be asked further evidences. Hon'ble Gawahati High Court has held in the case of Khandelwal Constructions vs. CIT 227 ITR 900 (Gau) that before rejecting the assessee's explanation, A.O. mast make proper inquiries and in the absence of proper inquiries, addition cannot be sustained. Whereas, in the case of the assessee A.O. has made sufficient. efforts, but nothing contrary to the claim of the assessee could be brought on record. Therefore, in view of the above discussion and case laws, the provisions of section 68 cannot be applied to the case of the assessee. 6.5 (d) - U/s. 2(22)(e) of Income Tax Act: Any loan or advance paid to a substantial shareholder with 10% interest in the company or to a concern in which such substantial shareholder has substantial interest (20%) is taxable to the extent of accumula....
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....d to show a certain kind of indirect and invisible control by certain persons. But for making any such payment to be taxable u/s. 2(22)(e), direct holding of required percentage of shares is necessary. On the other hand, it has been decided by certain appellate authorities that the recipient company should have direct holding, as registered and beneficial shareholders of the company from whom the payment have been received. Same is the decision of Hon'ble ITAT in the case of ACIT vs. Bhaumik Colours Pvt. Ltd. 118 lTD 15. Similar view has been confirmed by Hon'ble Bombay ITAT in the case of Universal Medicares Ltd. 190 Taxman 144, which has been confirmed by Hon'ble Bombay High Court. Similar is the decision of Hon'ble Delhi High Court in the case of CIT vs. Ankit.ech Pvt. Ltd. ITA No.462 of 2009, order dated 11/5/11. Therefore, these receipts cannot be assessee in the hands of the assessee u/s.2(22)(e) of I.T. Act. 6.6.(e)- Under any other head or provision of Income Tax Act: Income-tax is a tax on income and on certain other receipts which may not be income, but they are specifically made taxable under specific provisions of I.T. Act. The receipts of gifts by....
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....riod covered by the account: and b) Shall disclose every material feature, including credits or receipts and debits or expense in respect of non - recurring transactions or transactions of an exceptional nature. The Appellant submits that Part II of schedule VI, require profit and loss Account to- disclose the result of the working of the Company and any credit or receipt relating to business whether recurring or non - recurring. The Appellant submits that by no stretch of imagination receipt of gift from corporate bodies can be considered as receipt related to business. The Appellant submits that the gift received from corporate bodies are in the nature of capital receipt and hence rightly credited to capital reserve account which is in accordance with Part II and Iii of Schedule VI of the companies Act - 1956. The Appellant submits that the said Balance sheet and Profit & Loss Account are audited and approved by the Statutory Auditor. The same were adopted by the shareholders in Annual general meeting and filed with the Registrar of Companies. After such approval and adoption of the Balance Sheet of income, the AO is not the authority to correct the accounts under the compa....
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..... VT to the Companies Act" was made for the limited purpose of empowering the assessing authority to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, an AO under the IT Act has to accept the authenticity of the accounts with reference to the pro visions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinised and certified by statutory auditors and will have to be approved &v the company in its general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the "Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, we find it difficult to accept the argument of the Revenue that it is still open to the AO to rescrutinise this account and satisfy himself that these accounts have been maintained in accordance with the provisions of Companies Act. In our opinion, reliance placed by the Revenue on sub-s. (1A) of s. 115J of the I....
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....fore has the limited power of making increases and reductions as provided for in the Explanation to the said section. The Appellant further submits that Explanation to section 115JB of the Act is applicable only if the item of expense or income is debited or credited to the Profit & Loss Account. The Appellant submits that when the item of expense or income is not debited or credited to the Profit & Loss Account, Explanation to section 115JB of the Act cannot apply and hence no adjustment is required under that section to the books profit. The Appellant submits that in the case of the Appellant gift of Rs. 161,86,77,034/- received from corporate bodies are not credited to the Profit & Loss Account and hence no adjustment is required to the book profit declared by the Appellant u/s 115JB of the Act. Similar such issue has come up before the jurisdiction Hon'ble Bombay high Court in the case of CIT Vs. M/s Akshay textiles & Agencies Pvt. Ltd [304 ITR 4011 wherein the hon'ble Bombay High Court has held as under: "C. Whether on the facts and in the circumstances of the case and in law,, the Hon'ble Tribunal was correct in upholding the order of the CIT(A) in holding that the ....
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....ad ITA T Special Bench in the case of Rain Commodities Ltd. Vs. DCIT[40 SOT 265] to drawn conclusion against the Appellant. The Appellant submits that the facts in the case of the Rain commodities Ltd. (supra) are exactly opposite to the facts of the case of the Appellant. In fact the decision in the case of Rain commodities Ltd (supra) supports the contention of the Appellant. The Appellant submits that in the case of Rain Commodities Ltd (supra) the assessee prepared its Profit & Loss account in accordance with Part II and III of Schedule VI to the companies Act, 1.956 showing profit before tax at Rs. 99.42 crores. Thereupon while computing book profits under section 1I5Jb, the assessee deducted a sum of Rs. 149.77 crores from profit before tax of Rs. 99. 42 crores on the ground that the said sum represented capital gain arising to it on account of transfer of assets to its 100 percent subsidiary company which was exempt u/s 4760. The AO thus in the case of Rain commodities Ltd (supra) proceeded to computing the book profit u/s 115JB by taking the profit shown by the assessee, as per Profit & Loss Account prepared in accordance with Part II and III of Schedule VI to the Companies....
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....ble in the P&L a/c prepared in terms of Sch. VT to the Companies Act. Only in the computation of book profit under s. 115111 of the Act, the assessee claimed exclusion of long-term capital gain which is exempt under s. 4760 of the Act. It is due to fact that the assessee claimed deduction of long-term capital gain from book profit by virtue of being exempted income in the normal provisions of the Act and not because of the reason that the same was not includible in P&L a/c prepared under Part II and Part III of Sch. VI to the Companies Act. In the circumstances, when the assessee's themselves have included the capital gains arising from sale of subsidiary in the profit and loss the same cannot be excluded under any of the Explanations under s. 115JB. At this point it is not necessary for us to dwell upon the situation, where the assessee has directly credited the profit on sale of asset to a reserve account. The proviso to s. 115JB prescribes that the accounting policies, Accounting Standards and the method and rates of depreciation adopted for preparing the book profits under s. 115J8 shall be the same as adopted for the purpose of preparing such accounts including P&L a/c and lai....
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....y which the book-profit is to be increased. Therefore, it cannot be added to the book-profit u/s. 115JB. Hence, the addition made by the A.O. to the book-profit of Rs. 161,86,77,034/- is deleted. 10. Ground No.9: In this ground the assessee has disputed interest u/s. 234B and 234C, which are consequential in nature and, therefore, the A.O. is directed to recompute the same after giving effect to this order. 11. Ground No.10: 12. Mere initiation of penalty does not give rise to any cause of grievance, therefore, the ground is rejected. 13.Ground No.11: This ground of appeal is general in nature and requires no separate adjudication. Hence, it is treated as dismissed. 14. Ground No.12: This ground of appeal is general in nature and requires no separate adjudication. Hence, it is treated as dismissed. 15. Ground No.13; This ground of appeal is general in nature and require no separate adjudication. Hence, it is treated as dismissed. 16. In the result, the appeal is partly allowed." 8. Against the above order of CIT(A) , the Revenue is in appeal before us. 9. Smt. S. Padmaja, CIT(DR) appeared on behalf of the Revenue and contended that receipt of a gift by a ....
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....8213;any transfer of a capital asset under a gift, or will or an irrecoverable trust. Execution of a will involves a human agency. A gift by a corporation to a corporation (though a subsidiary or an associate enterprise, which is always claimed to be independent for tax purpose) is a strange transaction. To postulate that a corporation can give away its assets free to another even orally can only be aiding dubious attempts at avoidance of tax payable under the Act. 13. As per ld. CITDR, the submission of assessee to the effect that gift was always treated as non-taxable receipt in the hands of recipient till 31.03.2005, till the amendment of section 56(2)(1) by Finance Act No.2 of 2004 w.e.f. 01.04.2005, is an erroneous conclusion. Sec 56 falls under Chapter IV which is on "Computation of Income from other Sources". Sec 56 (1) reads as follows: "Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income -tax under the head "income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E." Therefore, income which is not exempt i.e. not to be excluded from ....
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.... adopted for preparing such accounts. The inescapable conclusion is that the book profits have to be calculated on the net profits computed as per parts II and III, of Schedule VI to the Companies Act, 1-956 and as adjusted by the amounts mentioned in the Explanation . No further rebates or deductions after such adjustments, notwithstanding away the fact whether any income is taxable or not under the normal provisions of the IT Act has to be added to the Book Profit as an extraordinary item as per accounting standard 5 II 8. Extraordinary items should be disclosed in the statement of profit and loss as a part of net profit or loss for the period. The nature and the amount of such extraordinary items should be separately disclosed in the statement of profit and loss in a manner that its impact on current profit or loss can be perceived". 17. Reliance was also placed in the case of M/s Sumer Builders (P) Ltd.(2012) 50 SOT 198 ( Mumbai), wherein ITAT Mumbai held that the Assessing Officer has powers to go behind accounts of a company and see as to whether same have been prepared in accordance with requirements of Parts II and III of Schedule VI of Companies Act, 1956; it was also h....
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....hargeable to tax being capital in nature. In this connection ld. AR relied upon the following judicial pronouncements wherein the hon'ble courts have held that gift/ capital receipts without considerations are not in the nature of income and hence the same cannot be charged to tax under the provisions of the Income Tax Act. 1)H.H. Maharani Shri Vijaykuverba Saheb of Morvi & Anr Vs. CIT [49 ITR 594](Bombay) 2) CIT Vs. Pran Jiban Jaitha [52 ITR 108] (Calcutta): 3) Lachit Films Vs. CIT [195 ITR 402](Gauhati): 4) Padmaraje R. Kadambande Vs. CIT [195 ITR 877](Supreme Court): 5) CIT Vs. Ramdeo Samadhi [160 ITR 179](Rajasthan) Mehboob Productions Private Ltd. Vs. CIT [106 ITR 758](Bombay): 20. Reliance was placed on the decision of Hon'ble Supreme Court in the case of CIT Vs. Groz- Beckert Saboo Ltd [116 ITR 125] wherein the Hon'ble Supreme Court has an occasion to consider the gift of raw material being stock in trade received by a company and its taxability under the Act. The Hon'ble Supreme Court has held that the gift of stock in trade received constituted a capital receipt in the hands of an assessee and on its conversion to stock in trade the market value as on the....
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....TO vs. W.D. Estate Pvt. Ltd. - 45 ITD 473 (Bombay `E' Bench) (viii) Bhilai Motors vs. CIT - 167 ITR 147 (MP). (ix) N.V. Philips Gloeilempenfabriekem vs. CIT - 172 ITR 541 (Kol). 21. Our attention was invited to the decision of Hon'ble Supreme Court in the case of Parimisetti Seetharamamma vs. CIT (56 ITR 532), wherein it was held as under : "By sections 3 and 4, the Indian Income-tax Act, 1922, imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. Where however a receipt is of the nature of income, the burden of proving that it is not taxable, because it fall within an exemption provided by the Act, lies upon the assesse. Where the case of the assessee is that a receipt did not fall within the taxing provision, the source of the receipt is disclosed by the assessee and there is no dispute about the truth of that disclosure, the income t....
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....taxable in the hands of the companies also. It is also clear from the Transfer of Property Act that companies can receive and make gifts as submitted by the assessee and discussed above and there is no requirement of any natural love and affection for making or receiving a gift by companies. Even the present Income-tax Act by way of Section 56(2)(viia) and 56(2)(viib) provides that gifts of certain kind of shares are taxable in the hands of certain category of companies. The donations and charities are made and allowed to all type of companies. Even deduction u/s.80G of Income-tax Act is allowed on account of donations to companies. These charities and donations, which are allowed to companies, are nothing but gifts. Even the Companies Act allows companies with charitable purpose to be registered u/s.25 of the Companies Act and such companies are naturally allowed to accept gifts and donations. Therefore, the companies are competent to receive and make gifts. All the three requirements of a valid gift, viz. identity of the donor, capacity/source and the genuineness stands proved in the case of the assessee. All the donor companies and the assessee are authorized by their Memorandum....
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....as placed upon the judgment of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. Vs. CIT (255 ITR 273). In this case, the Supreme Court has observed that while looking into accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with respect to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by the Companies Act, scrutinized and certified by the statutory auditors, approved by the shareholders and filed before the Registrar of the Companies who has statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In the case of Apollo Tyres the question raised before the Hon'ble Supreme Court was: (i) Can an AO while assessing a company for income-tax under s. 115J of the IT Act question the correctness of the P&L a/c prepared by the Respondent-company and certified by the statutory auditors of the company as having been prepared in accordance with the requirements of Parts II and III of Sch. VI to the Companies Act" The Honible Supreme Court in the case of Apollo Tyres(supr....
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....odily lifted from the Companies Act into the IT Act for the limited purpose of making the said account so maintained as a basis for computing the company's income for levy of income-tax. Beyond that, we do not think that the said sub-section empowers. the authority under the IT Act to probe into the accounts accepted by the authorities under the Companies Act. If the statute mandates that income prepared in accordance with the Companies Act shall be deemed income for the purpose of s. 115J of the Act, then it should be that income which is acceptable to the authorities under the Companies Act. There cannot be two incomes one for the purpose of Companies Act and another for the purpose of income-tax both maintained under the same Act. If the legislature intended the AO to reassess the company's income, then it would have stated in s. 115J that "income of the company as accepted by the AO. In the absence of the same and on the language of s. 115J, it will have to held that view taken by the Tribunal is correct and the High Court has erred in reversing the said view of the Tribunal. Therefore, we are of the opinion, the AO while computing the income under s. 115J has only t....
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....case. From the record we found that assessee is a private limited company engaged in the business of investment. The return for the year under consideration was filed at Rs. 16.60 crores under normal provisions of Act and book profit of Rs. 48.41 crores under section 115JB of the Act. During the year under consideration assessee has received gift of Rs. 161.86 crores from four companies viz. Amur Trading Private Ltd., Medhuban Merchandise Private Ltd., Tresta Trading Pvt. Ltd. and Ornate Traders Pvt. Ltd. All the above four companies are shareholder of Reliance Industries Limited [Reliance Industries] and receive dividend income from Reliance Industries. The assessee and all the above four companies are Private Limited companies and are governed by their respective Memorandum and Articles of Associations.' The Memorandum of Associations of the assessee and all the above tour companies provides for the receiving/giving of gift respectively. The Clause 30 of Memorandum of Associations of the assessee provided as follows: "To make and/or receive donations, gifts or income to or from such persons, institutions or Trusts, whether in cash or any other assets as may be thought to b....
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....t to give effect to this resolution and for matters connected herewith and incidental hereto." Similar resolutions were also passed by the other four companies in their respective extra ordinary general meetings. Thus, the assessee received gift of Rs. 161.86 crores from the above four companies. The gift so received was claimed as capital receipt, therefore, credited to capital reserve account in its books. 30. During the course of scrutiny assessment the AO raised query with respect to the gift received from corporate bodies. It was submitted by assessee that all the donor companies are shareholders of Reliance Industries Limited and received dividend income from Reliance Industries. The donor companies had given irrevocable instructions to Reliance Industries to pay dividend directly to assessee. The receipt of dividend was debited to bank account and credited to Capital reserve Account of the assessee. The assessee submitted that the Gift is in the nature of capital receipt and is not required to be credited to 'Profit and Loss Account' of the assessee. The assessee further submitted that it has prepared its books of accounts as per the requirement of the Compa....
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....ng section of the Act specifically provides for taxation of ‗income' of an assessee. For a receipt to be taxable under the provisions of the Act it must necessarily be in the nature of an income or its taxability should have been specifically provided by the statute. Section 2(24) of the Act defines 'income'. The definition of 'income' provided in section 2(24) although an inclusive definition, but it specifically provides the income which are intended to be taxed under the provisions of the Act. Even the income in the nature of capital gains as per section 45, and gifts received as per section 56(2)(v), (vi), (vii) etc are included in the definition of income. Thus under the Income Tax Act only the receipts which are in the nature of ‗income' are subjected to tax. Any other receipts which are not in the nature of ―income"are not liable to tax under the provisions of the Act. 31. As per the provisions of law prevailing during the year under consideration, the gift received by one corporate body from another corporate bodies do not come under the ambit of income as contemplated u/s 2(24) of the Act or any other provisions of the Act. The gift received ar....
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....nding the limit of receipts and nature of transaction but the applicability of the said section was restricted only to an individual or Hindu Undivided Family. Thus when the legislature intended for bringing to tax net the gift received by an assessee it has specifically provided so by enacting the law. As per section 56(2)(v) the gifts received by an individual and HUF only are made liable to tax. Thereafter for the first time two other category of assessees were added with effect from 1.06.2010 by Finance Act, 2010 in clause (viia) of section 56(2) of the Income Tax Act, 1961. These two categories of the assessees are ―a firm"and ―a company‖. However, the parliament restricted the taxability to receipt in the form of shares of an unlisted company without consideration or without sufficient consideration. Thus even after this amendment, any other movable / immovable properties received as gift was not covered and accordingly not subjected to tax. However, certain gifts are made taxable from time to time by various well thought and well intended amendments in the Act and all the definition regarding taxability of gift (i.e. receipt of assets without sufficient or ....
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....been accepted. 35. We found that suspicion of AO that the transaction of gift is dubious and to bring into books any unaccounted money is contrary to the facts on record. Insofar as admittedly the gifts have been received on account of dividend by the donor companies from the Reliance Industries Limited. The Reliance Industries Ltd. have also paid dividend distribution tax, therefore, such money received by the assessee is not unaccounted money. The AO has not brought any evidence on record contrary to the claim of the assessee. Even during appellate proceeding, the CIT(A) has given opportunity to the AO, in the remand report also, the AO could not rebut the claim of the assessee on the basis of any contrary evidence on record. Hence, the claim of assessee cannot be rejected merely on the basis of doubt or suspicion. 36. With regard to AO's objection regarding motive behind the transaction, the A.O. has stated in para 8 of the assessment order that it could not ascertain the exact nature or motive behind the transaction because of limited time and resources available, whereas, the case was remanded to the A.O. by CIT(A) and an opportunity was again given with the specific dir....
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.... by her in the relevant years were gifts made by S. the Maharani of Baroda. Relying on the following pieces of evidence, viz. (i) her admission that she acted as the local agent of S for disbursing salaries to the servants of S, and (ii) that in a bill issued by a garage the assesse was described as the private secretary of S, and observing that she had failed to place before the income tax authorities all the evidence in support of her contention, the Appellate Tribunal held that what was given to the assesse by S was remuneration for services rendered or to be tendered : Held, (i) that the burden of proof was wrongly placed by the Tribunal on the assesse; (ii) on the facts, that the two circumstances relied on by the Tribunal did not establish that what was given by S to the assesse was remuneration for services rendered or to be rendered; and that what the assesse received was not assessable to tax." 38. With regard to the AO's objection regarding gift deed, we found that the A.O. has held that these transactions cannot be treated as gifts because there are no gift deeds and because they have not been specifically accepted, whereas, there is no such legal requirem....
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.... held that the receipt is a capital receipt not taxable. Besides relying on the judgment of ITAT in the case of D.P. World Pvt. Ltd., the assessee also relied upon the judgement of ITAT Chennai in the case of Redington (India) Limited, ITA No. 513/Mds/2014. The relevant portion of the ITAT order on the issue of requirement of natural love and affection and competency of companies to make gift are reproduced below: "8. It is not uncommon that transfer of shares between corporate groups takes place for internal reorganization. Such a transfer may trigger capital gains ramifications in India since the shares of an Indian company are situated in India and when the transferor is a non-resident, the deeming provisions of Sec. 9(i)(i) of the I.T. Act, 1961 come into play. However Sec. 47(ii) contains list of transactions which are not treated as transfers for the purposes of Sec. 45 of the Act. Sec. 47(iii) of the Act relates to transfer of a capital asset under a gift, will or an irrevocable trust. The following issues arise in the application of Sec. 47(iii) of the Act in a corporate reorganization involving transfer of shares of an Indian Company without consideration: a) Since t....
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....d affection which means that as long as a donor company is permitted by its Articles of Association to make a 'gift; it can do so. Sec 82 of the Companies Act, 1956 also provide that shares in a company constitute movable property transferable in the manner provided by its Articles of Association. 14. Now the question arises whether the meaning of 'gift' as per Gift Tax Act could be imported for the purpose of Sec. 47(iii) of the Act. In the case of CIT vs. Shayam Narain Mehrotra (1981) 122 ITR 313 (Cal.) the High Court inter alia observed that the expressions similar to Sec. 47(iii) of the Act was present in the erstwhile Sec. 12B of the Indian Income Tax Act, 1922 i.e. even before the GTA came into force. This observation of the Honble High Court suggest that meaning of 'gift' as per GTA should not be imported for the purpose of Sec. 47(iii) of the Act. 15. Similar view has taken in the case of ITO vs. Buragadda Satyanarayan (1977) 106 ITR 333 (AO) and ACIT vs. Ranga Pai (1975) 100 ITR 413 (Kar). Although there are other decisions to the contrary however these decisions may not strictly hold good since the GTA has been deleted w.e.f. 1.10.1998 and Sec. 4....
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....validity of one corporate gifting to another. 4. CIT Vs. Stewarts & Lloyds of India Ltd. 165 ITR 416 (Cal): The Hon'ble High Court has accepted the legality of the corporate gifts. 5. Deere & Co. AAR of 2010 dated 27 May 2011 6. Goodyear Tire and Rubber Company AAR 1006 of 2010) dated 2 May 2011. 7. Dana Corporation 321 ITR 178 (AAR) 8. Amiantit International Hondings Ltd. 322 ITR 678 (AAR) 9. Vodafone Essar (2011-TII-01-HC-Del-(A) 41. Furthermore, As per section 56(2)(viia) and 56(2)(viib), gift of certain kind of shares received by a company in which the public are not substantially interested are taxable and, therefore, it is clear that the Income-tax Act, itself provides that companies can receive gifts, of course, gifts of only shares of certain kind received by certain category of companies are taxable. (The provisions of section 56(2)(viia) and (viib) are applicable w.e.f. 1/6/10 and 1/4/13 respectively). Therefore, it cannot be said that the assessee could not have received such gifts from other companies. It is also clear from the Transfer of Property Act that companies can receive and make gifts and there is no requirement of any natural love and a....
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....egard as a real source of income, will fall in the category of income; which is taxable under the Act. !¥here, however, a voluntary payment is made entirely without consideration and is not traceable to any source, which a practical man may regard as real source of his income, but depends entirely on the whim of the donor, cannot fall in the category of "income". What we have to see, therefore, in the present case, is whether the payment made by the son Maharaja to the father Maharaja, though voluntary, could be regarded as having an origin in what might be called the real source of come. On the facts found in the present case, we cannot say that the payments would be referable to any such source. The Department has not been able to show any material on record, from which such a conclusion can be drawn" 2) CIT Vs. Pran Jihan Jaitha [52 ITR 108] (Calcutta): "8. It W1JJ thus be seen that the basic reason for bringing such compensation into the net of taxation is that the parties had expressly agreed that the money that would be received would represent profits. It was inherent in such policies that the assessee expected to earn profit but was prevented from doing so by some....
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....assessee, a producer of films, from the Government is a financial aid or subsidy given by the Government with a view to encourage the film industry and is not a product of the normal business activities and such grant-in-aid is not a revenue receipt liable to be included in the total income of the assessee. 4) Padmaraje R. Kadambande Vs. CIT [195 ITR 877](Supreme Court}: "Held, reversing the decision of the High Court, that the payment under proviso (d) to section 15(J) of the Bombay Merged Territories Miscellaneous Alienations Abolition Act, 1955, was a purely discretionary payment. Neither the fact that the appellant applied for a grant for maintenance allowance nor the periodicity was conclusive. Regard had to be had only to the nature and quality of the payment. The appellant lost her right to the allowance under the Huzur order and, therefore, on an application by way of compassion, the payment was made. The mere fact that, after the order was made under section 15(J), it became an enforceable right was not relevant, There was no compulsion on the part of the Government to make the payment: nor was the Government obliged to make the payment since it W8S purely discretion....
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...." is some unexpected receipt not in the contemplation of" the assessee and not directly attributable to or occurring by way of its business profits. On the other hand, where there was clear expectation, though small, of receiving such advantage or profit, then it cannot be properly regarded as windfall merely because the advantage of receipt is much more than could have been reasonably anticipated." 43. In the case of CIT Vs. Groz- Beckert Saboo Ltd. [116 ITR 125] the Hon'ble Supreme Court has an occasion to consider the gift of raw material being stock in trade received by a company and its taxability under the Act. The Hon'ble Supreme Court has held that the gift of stock in trade received constituted a capital receipt in the hands of an assessee and on its conversion to stock in trade the market value as on the date of receipt of gift has to be allowed as deduction against the computation of taxable profit. The Supreme Court thus held the gift received being capital in nature and hence not chargeable to tax on the contrary the market value of gift received was allowed as deductible expense while computing the total taxable income. In view of judicial pronouncements di....
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....nies Act. Further as per section 5 of the Transfer of Property Act, a company is a living person, competent to transfer a property 88 per the Act and therefore the Transfer of Property Act permits a limited company to be a donor. 47. Now, coming to the observation of the AO to the effect that a company being an artificial person cannot not make gift. Even the taxing statue has recognized that the gift can be given by a company. In this connection the relevant provisions of Gift Tax Act, 1958 (now repealed) provided as under: a) Section 2(iii) of the Gift Tax Act, 1958 defines "(iii) "assessee" means a person by whom gift-tax or any other sum of money is payable under this Act, and includes (a) every person in respect of whom any proceeding under this Act has been taken for the determination of gift-tax payable by him or by any other person or the amount of refund due to him or such other person; (b) every person who is deemed to be an assessee under this Act:\ (c) every person who is deemed to be an assessee in default under this Act;" b) Section 2(xviii) of the Gift Tax Act, 1958 defines "(xviii) "person" includes a Hindu undivided family or a company or an....
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....fer the dividend on shares of Reliance Industries held by them to the assessee donee as gift. Thus, the donative intent to transfer the dividend as gift is clear from the resolution passed by the donors. With respect to acceptance by the donee, the assessee has duly passed a resolution in the meeting of shareholder and board of directors duly conveying their acceptance of the gift. Thus all the essential requisites of gifts stated by the AO in assessment order have been duly fulfilled by the assessee and no adverse conclusion can be drawn in the case of the assessee. 50. We found that the AO has relied on the decision reported at 214 ITR 801, 82 ITR 540, 207 ITR 89. All these decisions are distinguishable on facts. In the instant case, the gift received by the assessee is in the nature of capital receipt duly supported by documentary evidence and hence cannot be deemed as revenue receipt liable to tax. Thus, all the case laws relied upon by the AO in the assessment order has no relevance to the case of the assessee and are distinguishable on facts. 51. We had gone through the decision relied on by the AO in case of Sumati Dayal Vs. CIT, 214 ITR 801(SC), wherein hon'ble Su....
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....w.e.f. 1/4/05 by Finance (No.2) Act, 2004, by introducing clause (v) in sub-section 2 of section 56 that receipt of gifts by an individual and HUF became taxable in the hands of the donee, whereas, gifts received by any other person remained out of tax net. Whereas, with the introduction of clause (viia) and (viib) in sub-section 2 of section 56 w.e.f. 1/6/2010 and 1/4/2013 respectively, gift of only shares of certain category of companies by certain category of companies have become taxable and any other gift received by any company through any other mode, i.e. cash, cheque, listed shares or other kind of properties, other than the said certain category of shares is not taxable till date, under any provisions of the Income Tax Act. Even the legislative history shows that gifts received by companies other than certain kind of shares by certain category of companies mentioned under section 56(2)(viia) and (viib) are not taxable under Income-tax Act or any other Act. During the period, when Gift Tax Act was in existence, gifts by companies as well as by any other person were taxable under the Gift Tax Act only and there was no provision for taxing gifts under the Income-tax Act. Ther....
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....it or perquisite, whether convertible into money or not, arising from business or the exercise of a profession;" In our humble opinion, the transaction is of a gift which is a capital receipt in the hands of the assessee and therefore it cannot be said to be a case of any benefit or perquisite arising from business. The contention of the Ld. Departmental Representative that by the said transaction the assessee has derived benefit and such benefit has arisen from the business connection of the donor and the donee, cannot be accepted as no direct nexus has been 'established by any tangible material brought on record by the Ld. CIT [A]. Simply because both the donor and the donee happened to belong to the same group cannot ipso facto establish that they have any business dealings. As we have held that it is a case of a valid gift which is to be treated as capital receipt in the hands 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. 21. Now let us examine the provi....
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....xceeds such consideration: Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub -section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub-clause (b) as they apply for valuation of capital asset under those section. Even this amendment did not cover the issues involved in the present appeal . The legislature, in its wisdom, further strengthened the provisions of sec. 56(2) by making the following amendments: viia) where a firm or a company not being a company in which he public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010, any property, being shares of a company not being a company in which the public are substantially interested, - (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fa....
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.... hand. 22. Thus, we have considered the application of the provisions of sec. 28(iv) and sec 56 (i) & [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. " 58. Now, we examine taxability of gift u/s.68 of the IT Act. Section 68 deals exclusively with the subject of cash credits and places burden of proof squarely on the tax-payer, where he either offers no explanation or his explanation is unsatisfactory as to the nature and source of such cash credits. In such cases, it is for the assessee to prove the identity of the person from whom the money is received and his capacity/source of payment and the genuineness of the transaction. Therefore, in the case of the assessee also, it is expected from the assessee to prove all the three elements. The identity of the donors and the source/capacity are not in dispute and they have been admitted as explained, ....
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....mon shareholding between the assessee and the other four companies who have made the gifts. Therefore, no addition can be considered in the case of the assessee u/s. 2(22)(e) of Income-tax Act. 61. The AO has also added the amount of gift received while computing book profit u/s.115JB by holding that it should be credited to the profit and loss account as an item of exception nature. As per our considered view there is no merit in AO's contention. The Supreme Court in the case of Appollo Tyres (supra) has observed that while looking into accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with respect to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by the Companies Act, scrutinized and certified by the statutory auditors, approved by the shareholders and filed before the Registrar of the Companies who has statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In the case of Apollo Tyres the question raised before the Hon'ble Supreme Court was: (i) Can an AO while asse....
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....above contention is misplaced. Sub-s. (IA) of s. 115J does not empower the AO to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate, according to us, is bodily lifted from the Companies Act into the IT Act for the limited purpose of making the said account so maintained as a basis for computing the company's income for levy of income-tax. Beyond that, we do not think that the said sub-section empowers. the authority under the IT Act to probe into the accounts accepted by the authorities under the Companies Act. If the statute mandates that income prepared in accordance with the Companies Act shall be deemed income for the purpose of s. 115J of the Act, then it should be that income which is acceptable to the authorities under the Companies Act. There cannot be two incomes one for the purpose of Companies Act and another for the purpose of income-tax both maintained under the same Act. If the legislature intended the AO to reassess the company's income, then it would have ....
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....s liable to be taxed under s. 115JA of the IT Act, 1961 and that the decision of the Bombay High Court in CIT vs. Veekaylal Investment Co. (P) Ltd. (2001) 166 ITR (Bom) 96 : (2001) 249 ITR 597 (Bom) was not applicable ? " 2. Insofar as question "C", our attention is invited to the judgment of the Supreme Court in Apollo Tyres Ltd. vs. CIT (2002) 174 CTR (SC) 521 : (2002) 255 ITR 273 (SC). The question framed therein which is similar to the question "C" has been answered in favour of the assessee and against the Revenue. In the light of that the question of law as framed would not arise." 65. Similarly, Honble Bombay High Court in the case of Kinetic Motor co. Ltd. Vs. Dy. CIT (262 ITR 330) has observed that it is not open for the AO to make any adjustment to the book profits beyond what is authorized by the definition given in Explanation to section 115J of the Income Tax Act, if the accounts are certified by the auditors. The decision of jurisdictional Hon'ble ITAT, Mumbai in the case of The DCIT Vs. M/s Arundhati Traders Pvt. Ltd & Ors in [ITA No. 6293/Mum/2006 & others] wherein the Hon'ble Tribunal has observed as under: "21. Where the accounts are prepared and ....