TaxTMI 
TaxTMI 
2017 (10) TMI 628
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....iled return of income on 26.7.2010 declaring total income of Rs. 1,44,340/- which was processed under section 143(1) of the Act. Subsequently, the AO received a letter from the erstwhile ACIT-18(1), Mumbai that the assessee is a beneficiary of Anil Agarwal Discretionary Trust hereinafter called (AADT), Bahamas and during the year ended on 31.3.2010 the assessee has received a sum of Rs. 59,55,59,638/- from the said trust. On the basis of the said information the case of the assessee was reopened u/s 147 r.w.s.148 of the Act and a notice was issued and served on assessee on 19.12.2014. The said information came to the erstwhile ACIT-18(1), Mumbai now ACIT-21(1), in the case of another beneficiary of the same trust Mrs Kiran Agarwal from the Foreign Tax and Tax Research Division, Ministry of Finance. The AO found that the assessee has not disclosed any receipt from the said discretionary trust in the return filed in the relevant assessment year and therefore, he formed a belief that the income chargeable to tax has escaped assessment within the meaning of section 147 r.w.s.148 of the Act. The reasons recorded u/s 148 of the Act were supplied to the assessee. The case was adjourned se....
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....Rs. 59,55,59,638/- to the income of the assessee by framing assessment u/s 147 r.w.s 147 of the Act vide order dated 31.3.2015. 4. Aggrieved by the order of the AO, the assessee preferred appeal before the ld. CIT(A), who also dismissed the appeal of the assesses after taking into consideration the submissions and contentions of the assessee as incorporated in para 15 of the appellate order by observing and holding vide para 16 to 19 of the said order as under : "16. I have carefully considered the submissions of the appellant, findings made in the assessment order and fats on record. Mu findings are as under : 16.1 The appellant has played twin role as one of the beneficiaries of Anil Agarwal Discretionary Trust formed on 11thDecember 2007 in Bahamas as well as settler of the trust with initial contribution of USD 1000 towards settlement of the Trust. Other two beneficiaries are Mrs. Kiran Agarwal and Mr. Agnivesh Agarwal, another settler. Apart from the contribution of USD 1000 by Shri Dwarka Prasad Agarwal, the two settlers also gifted shares of Volcan Investments Limited held by them into the Trust. The gifted shares of Volcan Investment Limited represented 100% of its....
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....en compared with the case of Mrs. Kiran Agarwal, wherein it was held to be tax free. This is further elaborated in the following paragraphs. 19. This first and foremost distinguishing feature is the manner of receipt of the fund in the hands of Mr. Dwarka Prasad Agarwal, which is completely different as compared to Mrs. Kiran Agarwal, notwithstanding the fact that both are beneficiaries of the trust. As observed from the Trust deed, Anil Agarwal Discretionary Trust is a discretionary trust since the shares of the beneficiaries are indeterminate and it is upto the discretion of the Trustees to decide the manner of distribution of the income of the trust, as to when, to what extent and in what proportion the income of any previous year will be distributed. The beneficiaries do not have any right to claim any income of the Trust or the capital funds without the discretion of the Trustees in their favour. It is solely upto the Trustees to distribute any amount as per their discretion. And such discretion is always applied with a written resolution clearly specifying the terms and conditions of the distribution of income as provided in the trust deed. In such a scenario, the provisio....
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....tector Mr. Anil Agarwal keeping in view the terms and conditions of the trust deed. The scanned copies of the resolutions are as under- Anil Agar'wal Discretionary Trust Meeting of Trustees held at Loyalist Plaza. Don Mackay Blvd. and over the phone on 3rd January 2011 Present: E Isaac Colle (Chairman) Anil Agarwal (Protector by phone) Apologies: D P Agawal Kiran Agarwal 1. Quorum Chairman confirmed tha a quorum being present the meeting started. 2. Purpose of the meeting Chairman of the meeting Informed the trustees that the meeting had been called to consider a distribution of $5675.nOO.O0 to Mrs. Kiran Agarwal. He further stated that the trustees had received the consent letter from the Protector. 3. Distribution After due discussion it was RESOLVED THAT the consent of the protector Mr.Anil Agawal having been received as per the trust deed. the trustees approved and consented to make distribution of USD675OOO to Kiran Agarwal. It was further noted that this distribution would be from the accumulated funds of the trust arising out of income of the earlier years. 4. Any Other Business There being no other business the meeting was ad....
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....ppellant, there is no question of prior written consent or direction of Shri Anill Agarwal, Te protectors. Te relevant clauses of the trust settlement deed are re-produced as under :(a) The Trustee, with the prior written consent of the Protector, shall during the Trust period pay or apply the income of the Trust Fund (or the balance thereof not accumulated or otherwise applied by the Trustee under any of the provisions hereof) and may, on the written direction of the Protector, from time to time pay or apply the whole or any of the capital of the Trust Fund to or for the advancement maintenance of benefit of the Beneficiaries. (b) XXXXXXX (c) XXXXXXXX (d) In the case of any of the Beneficiaries who are for the time being under the age of twenty five(25) years the Trustee may, with the prior written consent of the Protector, pay the income for the maintenance, education or benefit of such Beneficiary to his or her parent or guardian, whether or not there is other fund applicable to the same person or to any person bound by the law to provide for ,his or her maintenance education or benefit and such payment shall be good discharge to the Trustee. (e) On the written direc....
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....the receipt of dividend by the trust on 31st March, 2009 while Mrs. Kiran Agarwal received the fund of the trust well beyond one year of. the same by the trust. No doubt financial year changed on 31.03.2009 i.e. the day dividend was received by the trust, but the appellant received the same within a year. 28. - Yet another distinguishing feature is the role played by Mr. Dwarka Prasad Agarwal in the trust, which is both as settler as well as beneficiary. On the other hand, Mrs. Kiran Agarwal has been designated only as a beneficiary of the trust. Although there is no prohibition in nominating a Settler as a beneficiary, if the terms of the trust deed provide so. However, it is customary for discretionary trust deeds to exclude the settler of a trust from being a beneficiary. Otherwise it leads the trust to acquire the characteristic of a "revocable trust" as the settlers retain full control over the terms of the trust and the assets contained within it. In such a situation, any income generated by revocable trust is taxable to the trust's settlers during his lifetime. As discussed in detail while highlighting the first distinguishing factor, the receipt of income in the hands of....
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.... far as the resolutions authorizing distribution the income by the trustee are concerned , the ld counsel submitted that the ld.CIT(A) did not call for the resolutions in the appellate proceedings taking the same as covered by the case of Mrs.Kiran Agarwal. The assessee was not directed to file resolutions along with the approval from the Protector of the Trust. The ld counsel submitted that the same were filed before the ITAT as additional evidences under Rule 29 of the Income Tax Appellate Procedure Rules with the prayers that the same may kindly be admitted in the interest of justice. The ld. AR further stated that AADT was created by the trust settlement deed dated 11.12.2007 by. The ld. AR submitted that the said trust deed was made 11.12.2007 between Shri Dwarka Prasad Agarwal, Onclave PTC Ltd and Anil Kumar Agrawal. That Shri Dwarka Prasad Agarwal is a the settler, Onclave PTC Ltd is trustee and Anil Agarwal is the Protector. Thus the settler made an irrevocable settlement called Anil Agarwal Discretionary Trust (AADT). It was also expressly provided in the preamble that the settler was desirous of making an irrevocable settlement. The beneficiaries of AADT are Mrs. Kiran Ag....
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....ubmitted that the dividend declared and paid in March, 2009 by Volcan to AADT, the income of AADT such income being declared outside India by the foreign company to its foreign shareholder could not be subject mater of any tax in India. The trustee of AADT capitalized the income and added it to the corpus of the Trust in the financial year 2008-09 and in next financial year the trust distributed a pat of the corpus USD 12,660,000 equivalent to Rs. 59,55,59,638/- to Mr.Dwarka Prasad Agarwal one of the beneficiary of AADT. Thus, the amount received by Mr.Dwarka Prasad Agarwal on distribution of corpus from AADT was therefore a capital receipt and not chargeable to tax. Finally, the ld.AR argued that the AO brought to tax capital receipt in the hands of the assessee merely on the ground that the AADT was not liable to tax on its income as no legal basis. In support of his contention, the ld. AR relied upon the following decisions: i) CIT V/s Kamalini Khatau-209 ITR 101(SC); ii) Vikramsinghji Gondal-363 ITR 679 (SC); iii) Jyothirsinhji Gondal V/s CIT Tax appeal 229/2002 and others decided on 12.9.2008 reported in 326 ITR 594 (Gujarat High Court). iv) Shanta Ben Patel in ITA....
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....ed. The ld. DR submitted that the assessee has made self serving arrangements by which the distribution of was made in the subsequent years than the year in which the foreign dividend was received by discretionary trust. The ld. DR further submitted that the dividend was received by AADT on 31.3.2009 and the formalities such as meeting of the Board of trust and other various formalities are required to be fulfilled which were not possible in a single day. Hence the receipt by the assessee was not a capital receipt as has been made out by the assessee. The ld. DR, while pointing out the whole structure and arrangement , submitted that settler and trustee and beneficiaries were the same and they have managed and arranged the whole drama in such a manner that no tax would be paid by the assessee on the money received which otherwise is laible to tax inIndia. The ld.DR also submitted that it was not clear as to when the dividend declared by Vedanta Resources PLC and the period for which the said dividend was declared and credited. The ld DR stated that it was for the financial years 2007-08 and 2008-09 the dividend could not have been declared and paid on 31.3.2009. The ld DR argued th....
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....ore they have no relevance of the issue involved in the present appeal. The ld. AR submitted that Vedanta Resources PLC is a company formed under UK Rules and registered in Stock Exchange and the said entity was required to comply with the requirements of Security Exchange. In respect of the other decisions in the case of McDowell and Co Ltd and other decisions (supra), the ld.AR argued that all these decisions are relating to colourable devices. However, in the present case, the transactions were genuine and have been explained with the help of the documents exchanged under Exchange of Information under Treaty (TIEA) between India and Bahamas. The ld. AR further stated that even if the transactions were treated as colorable device as contended by the ld.DR, the amount should not have bene taxed in the impugned assessment year as the assessee received only part of the amount received by AADT in that year and in the subsequent years. As regards reliance on Mohan Manoj Dhupelia's decision, the ld.AR distinguished the same by submitting that in the Dhupelia's case, the assessee was not able to explain the nature of receipt in the Luxembourg Trust and hence the trust was ignored and th....
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.... The dividend received by AADT was deposited in its account with Deutshe Bank copy of which is as filed at pages 12 of the paper book. The trustee in their meeting held on 31.3.2009 noted that the amount received from Volcan Investments Ltd has not been passed on to the beneficiaries and it was decided that the surplus be transferred to the corpus fund and be accumulated until distributed to the beneficiaries. The assessee received the following amounts during the financial year 2008-09 as distribution of corpus US 12,660,000. For the sake convenience, the details of the money received date wise with necessary details are given hereunder:- (i). Receipt of USD 7,000,000 = INR 33,53,90,975 (a). The Trustees in their meeting held on 22nd Sep., 2009 resolved to make distribution of USD 7,000,000 to DP Agarwal (the Assessee). The Trustees also noted that this distribution would be from the accumulated funds of the trust arising out of income of earlier years. In terms of the Trust Deed the Trustees received the consent of the Protector Anil Agarwal. (b) The amount of USD 7,000,000 was debited to the bank account of AADT n 24th Sep., 2009 in account no 2015075. (c) The Assess....
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....) Receipt of USD 11 0,000 = INR 50,28,075/- a) The Trustees in their meeting held on 29th Jan., 2010 resolved to take distribution of USD 110,000 to DP Agarwal (the Assessee). The Trustees also noted that this distribution would be from the accumulated funds of the trust arising out of income of earlier years. In terms of the Trust Deed the Trustees received the consent of the Protector Anil Agarwal. b) The amount of USD 110,000 was debited to the bank account of AADT on 2nd Feb., 2010 in account no 2015075. c) The Assessee received the amount of USD 110,000 in Indian Rupee on 3rd Feb., 2010 in his bank account with ICICI Bank Account no 000401556481 . The amount in Indian Rupee was Rs. 50,28,075/-. The necessary details qua amounts in Indian Rupee are extracted below to give a compact view of the money received which are as under:- S.No. Date of Resolution Amount USD ($) Date of payment Deutshe Bank Date of Receipt ICICI Bank Amount in INR (Rs.) 1 22-9-2009 7,000,000 24-9-2009 25-9-2009 33,53,90,975 2 12-10-2009 5,000,000 14-10-2009 15-10-2009 22,95,62,475 ....
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.... over Mrs.Kiran Agarwal placed at page 102 of the paper book as well as the assessee. It is on the basis of the said information, the AO reopened the assessment in the case of Dwarka Prasad Agarwal for the current year as well as the next year. In the case of Mrs. Kiran Agarwal, the addition was made in the regular assessment itself though the information from FT&TR was pending while framing the assessment. In the appellate proceedings in the case of Mrs.Kiran Agarwal, the CIT(33) called for remand report from the AO. The AO forwarded the same to the CIT(33) who considered the said report while adjudicating the appeal of Mrs.Kiran Agarwal and decided he issue that the dividend income declared and paid in March, 2009 to AADT by the foreign company outside India to its foreign shareholder is not a subject matter of tax in India. The trustees of AADT capitalized the income received in FY 2008-09 and added to the corpus of the trust as on 31.3.2009. The trustee decided to distribute the amount out of corpus in the subsequent years including the current year under consideration. The trustees distributed a part of the corpus to the assessee besides other beneficiary Mrs.Kiran Agarwal. Th....
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....ause he does not fall within the ambit of section 166, may not be assessed upon income received by him and tax recovered from him thereon if that is permissible under any other provisions of the Act for, as aforestated, section 166 is merely clarificatory. Section 5 defines the total income of any person to include income received by him or received on his behalf or which accrues or arises to him. A person may be directly assessed in respect of such income. The income of a discretionary trust which is within the accounting year distributed to and received by the beneficiary would, therefore, be subject to assessment in his hands and tax thereon would be recoverable from him. Such income would squarely fall within the broad sweep of total income under section 5 and the beneficiary would be liable to assessment and recovery of tax thereon under section 4". In the case of Vikramsinghji Gondal (supra) it has been held as under : "18. A discretionary trust is one which gives a beneficiary no right to any part of the income of the trust property, but vests in the trustees a discretionary power to pay him, or apply for his benefit, such part of the income as they think fit. The trus....
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....tury Dictionary, The Random House Dictionary, The New Oxford Illustrated Dictionary, Black's Law Dictionary, Bouvier's Law Dictionary and Webster's New World Dictionary. (j) Nothing is receivable in these years by any of the beneficiaries and hence, option under Section 166 is not available to Revenue. For this purpose, reliance is placed on the decision of the Hon'ble Supreme Court in the case of CIT v. Smt. Kamalini Khatau : [1994]209ITR101(SC) wherein it is held that Section 166 of the Act is not applicable as the word used in Section 166 of the Act is 'receivable' which cannot be applied to discretionary trust." Also in conclusion, the Gujarat High Court observed: "....a close and combined reading of Clauses 3 and 4 of the trust deed makes it abundantly clear that the sole trustee has every power or authority to take decision with regard to the trust property and since it has been decided by the trustee to retain the income of the trust, it cannot be said that such income is being received by the assessee." While deciding Gondal's case Gujarat High Court made the following observations with respect of Kamalini Khatau 201 ITR 101 (SC): "In ....
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....e obligation of the manufacturer and nothing more. The definition of 'turnover' given in section 2(5) of the relevant Sales Tax Act clearly indicates that the total amount charged as the consideration for the sale is to be taken into account for determining the turnover. Where a bill of sale is issued, the total amount set out therein is to be taken into consideration. Admittedly, the bills issued by the appellant, in the instant case, did not include the excise duty. Payment of excise duty is a legal liability of the manufacturer; its payment was a condition precedent to the removal of the liquor from the distillery and payment by the purchaser was on account of the manufacturer. According to normal commercial practice, excise duty should have been reflected in the bill either as merged in price or shown separately. As a fact, in the hands of the buyer the cost of liquor was what was charged by the appellant under its bill together with excise duty which the buyer had directly paid on seller's account. The consideration for the sale was thus the total amount and not what was reflected in the bill. Therefore, the excise duty though paid by the purchaser to meet the l....
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.... They have been given only to explain the legal position on section 281." In the case of Nayantara G Agarwal (supra) the Hon'ble Bombay High Court held as under: "The Tribunal was fully justified in coming to the conclusion that the firm in question was not genuine and that the interest in land got extinguished at least on the date, when the so-called deed of partnership came to an end by the deed of dissolution and it became the property of the other partner, i.e., the company, for a consideration of Rs. 10 lakhs which was paid to the assessee in the form of shares. The Tribunal was right in holding that the firm was not genuine and that there was a transfer of capital asset from the assessee to the company within the meaning of section 2(47) which was subject to capital gains tax under section 45. The facts clearly went to show that the various transactions including the creation of the partnership, transfer of land to the firm by way of capital contribution of the assessee and dissolution of the partnership were, in fact, only devices to evade capital gains tax that would arise as a result of transfer of the land in question by the assessee to the company. A careful per....
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.... to be assessed by applying the taxing statute so as to ascertain whether it is a sham or make-believe transaction or one which is genuine and, therefore, is eligible for deduction under the Act. Hence, courts have to look into the form of the transaction to find out its substance so as to ensure that there is no avoidance of tax by a method impermissible in law. The assessee-firm paid commission to a firm and the partners of the assessee-firm and the payee-firm were the same. There was no evidence of any services being rendered by the payee-firm, except to the assessee-firm. The Assessing Officer held that it was an instance of a colourable device adopted by the assessee by creating the payee firm, as the two concerns were brought into existence with the sole object of diverting the profits of the assessee and thereby reduce the tax incidence of the firm. Under the circumstances, the Assessing Officer disallowed the entire expenditure claimed on account of marketing and sales promotion expenses paid to the payee firm as there was no marketing survey activity in that year and, therefore, the entire amount was added back as excessive and unreasonable to the benefits accrued to th....
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....as under : "The import of sections 37(1)(iii ) and 57(iii) was considered by Hon'ble the Supreme Court in CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 . It was a case where difference of opinion on the subject between various judgments of the High Courts was considered as the Tribunal had directly referred the matter for opinion of Hon'ble the Supreme Court. The issue under consideration therein was whether interest on money borrowed for investment in shares which had not yielded any dividend is permissible under section 57(iii ). It was opined that even though the language of section 37(1) is a little wider than that of section 57(iii ), but that was of no effect, as the language of section 57(iii) being clear and unambiguous has to be considered according to its plain natural meaning. It should not be given narrow and constricted meaning. It does not provide that expenditure shall be deductible only if any income is made or earned. [Para 18] The issue as to whether an assessee, who had borrowed funds carrying interest and advanced part thereof to its sister-concern on interest free basis, can claim deduction to that extent was considered by the Supreme Court in S....
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....ot be stretched to hold a roving enquiry or deep probe. [Para 23]" In the case of Bharti Devi Sarabhi (supra) the Hon'ble Supreme Court held as under : "the decision which was relied on by the High Court had been reversed by the Supreme Court in CIT v. Kamalini Khatau [1994] 209 ITR 101. Accordingly, following the aforesaid decision of the Supreme Court, it was to be held that the Tribunal was not justified in law in holding that the sum received by the assessee from various discretionary trusts could not be taxed in the hands of the assessee under section 166. Note : The case was decided against the assessee." In the case of Moti Trust Kota (supra), the Hon'ble Supreme Court held as under : " Even if the trust in question was regarded as a discretionary trust inasmuch as the profits had during the relevant assessment years been credited to the respective accounts of the beneficiaries, therefore, in view of the decision in CIT v. Kamalini Khatau [1994] 209 ITR 101, it was the beneficiaries in whose hands the income would be assessed. That being so, the appeals were allowed and the questions of law referred by the Tribunal had to be answered in favour of the assessee.....
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....ssee did not raise any ground in the memorandum of appeal and it is just after thought. 17. After hearing both the parties on the issue of admission of additional ground and after examination of records, we find that the issue arising out of the AO as well as ld.CIT(A), who dismissed the appeal of the assessee on this issue. We find from the record that the issue is arising from the assessment record before the authorities below. The mere fact that the assessee did not raise the issue in memorandum of appeal could not deprive the assessee in its legitimate right to agitate the same before the higher forum which is against the principle of natural justice. Accordingly, we are inclined to admit the same for adjudication. 18. Facts of the issue are that the AO observed from the balance sheet that the assessee has received an amount of Rs. 72,92,100/- from M/s Volcan Investment Ltd. Accordingly queriy was raised and the explanation sought for from the assessee, which was replied vide letter dated 31.3.2015, which is as under : " 11.1 In response to the above the assessee filed reply on 31.03.2015 as below: "We understand that you have raised a query the gift amounting to IN....
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....icial juridical entity because the basic condition of love and affection for making gifts does not exist being artificial entities lacking emotion neutral. Though the transfer of shares has been given the colour of a gift, nothing has been brought on record to suggest its genuineness and compliance with domestic or foreign laws. Gifting of shares of the company, which is controlled by the appellant and his family is nothing, but gifting to oneself, which is never the intention of I.T. Act even before amendment. The scheme of the Act that any income can only be exclude from the total income of the taxpayer if the Act specifically provides for such exemption and that, in the instant case no exemption is specifically provided for such transfer. 35.3 Apart from that I find the reliance of the AR of the appellant on various case laws are misplaced as facts are distinguishable. In the case of CIT VIs Nadatur Holdings and Investments (P.) Ltd. [2012) 26 taxmann.com 224 (Kar.), the issue before the Hon'ble Karnataka High Court was whether the gift from shareholders to the company was genuine and permissible while in the instant case the situation is just opposite and* involves a foreign....
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....er hand, I find that recently the Authority for Advance Rulings (AAR) in the case of Orient Green Power Pte Ltd Orient Green Power Pte. Ltd [2012] 346 ITR human agency. 35.5. The citation of amendment in section 56(2)(vii)( c ) of the IT Act with effect from 1st Oct, 2009 will not have any effect considering the observations made in the preceding paragraphs that the appellant is otherwise taxable with respect to the gift received from the donor company. 36. Considering the overall facts and circumstances of the issue involved. I do not find any infirmity in the action of the AO in treating the receipt of Rs. 72,92,100/- as income in the hands of the assessee under the head "income from other sources". Hence, the addition is confirmed. Thus ground no.3 is dismissed." 20. The ld.AR vehemently submitted that the company M/S Valcon Investments Ltd could validly gift shares to the assessee and the ld CIT(A) grossly erred in affirming the order of AO on this issue. In support of his contention, the ld.AR relied upon on series of decisions : a) DP World (P ) Ltd V/s DCIT (Mum) 140 ITD 694; b) Redington (I) Ltd V/ JCIT (2014) 49 taxmann.com 146 (Chennai-Trib); c) DCIT V/s....
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....me gardener to maintain the garden of the officer and he also spends some time occasionally for maintenance of the garden in the house of some director or senior official, then, in the absence of rule of valuation, such benefit cannot be subjected to tax provided under the Chapter. It is so because in most of the cases valuation rules have been provided so as to remove the discretionary power of the assessing authorities. Under sub-section (2) of section 115WC, different valuation rules have been provided for certain situations. For example, in the case of a company which is running a hotel business, the value of the fringe benefit has been specified at 5 per cent instead of 20 per cent in a case where some benefit in the shape of accommodation in a hotel was given which is not owned by assessee. In other words, it can be said that wherever specific value/cost, which can be directly arrived or imputed, then such value can be taken as the amount of fringe benefit. At the same time, where no direct specific cost can be attributed to a particular benefit, then the same cannot be valued. From above also it becomes clear that unless and until valuation rules have been provided where det....
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....on 47(iii), as correct provision of law applied to the case of the assessee was section 47(iv) of which the condition had not been satisfied by the assessee company. [Para 71] Gift is definitely a transfer of property. The mother law governing the subject matter of transfer of property is Transfer of Property Act, 1882. Section 5 of the Transfer of Property Act, 1882, defines the term 'transfer of property', as an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself, or to himself and one or more other living persons; and 'to transfer property' is to perform such act. This is the master definition of 'transfer of property'. Other forms of transfers like gift are subject to this master provision. The law provides in the same section 5 of the TP Act, 1882 that 'living person' includes a company or association or body of individuals, whether incorporated or not. Thus, TP Act,1882 considers a company not only as a person but literally speaking as a 'living person', a person with life. The same expression 'person' provided in section 5 is transplanted in section 122 o....