TaxTMI 
TaxTMI 
2017 (11) TMI 1599
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....(UBS in short) was a 100% owner of shares of Claridges Hotel Pvt. Ltd (CHPL in short), which is an Indian company. CHPL, besides other investments, had made investment in assessee company, M/s. Godavari Shilpkala Ltd. (GSL in short) in the form of equity shares of Rs. 125.52 crores and Rs. 72 crores by way of debentures as on 1st April, 2009. CHPL also had a business convention division in which an investment had been made. 2.1 A scheme of demerger between Asian Hospitality Management Pvt. Ltd. (AMHPL), CHPL and the assessee was filed before the Hon'ble Delhi High Court on 19 May 2010 and vide order dated 25.05.2010, the Hon'ble Delhi High Court has approved the scheme and the relevant documents were filed with the Registrar of Companies on 26.03.2010. As per the scheme, the Business Convention Division of CHPL stood transferred to the assessee company w.e.f. 01.04.2009 (appointed date) along with stocks, shares, debentures and other charges forming part of the Schedule of the Property to the order of the Hon'ble Delhi High Court (supra). As per the said Schedule placed at page 61 of the Paper Book (PB), the assets directed to be transferred are listed as under:- PART....
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....issued to the shareholders of CHPL against the consideration of Rs. 128 crores by way of debentures. 5. The Ld. Assessing Officer disagreed with the assessee and did not give credit of Rs. 72 crores of OCD said to be forming a part of Rs. 72,23,63,000 as per the Schedule of Property and proceeded to add the entire Rs. 200 crores being OCD transferred by CHPL to the assessee company in lieu of shares. He held that the OCD of Rs. 200 crores are not covered by the order of Hon'ble Delhi High Court and are in contravention thereof and even otherwise, constitutes an income in the hands of the assessee company u/s 2(24) since the said section includes income of all kinds. The Assessing Officer relied on a number of decisions as to the definition of income and proceeded to add a sum of Rs. 200 crores to the returned income of the assessee. 6. Aggrieved by the assessment order, the assessee carried the matter before the ld. CIT(A), who after considering the detailed submissions of assessee, assessment order and various case laws, deleted the entire addition of Rs. 200 crores. The findings and reasonings of the ld. CIT(A) are summarized as under : (i) In the Schedule to the order of....
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....saction is always on the capital account. (v) The Ld. CIT(A) opined that this is perfectly acceptable method of raising share capital of a company and even Schedule-VI of the Companies Act mandates and approves such a transaction which is in the nature of issuance of shares for consideration other than cash. (vi) The Ld. CIT(A) went a step further to examine the source of investment by CHPL in debentures of Godawari. The finding of fact was that CHPL had sold its shares in ELEL Hotels to Indian Hotels Company Limited and out of the consideration received, it had subscribed to debentures of GSL. Bank statements of CHPL and other supporting records to buttress this fact was examined by Ld. CIT(A) before arriving at the conclusion that source of investment for debentures by CHPL stood established. 7. The Ld. DR vehemently opposed the order of the Ld. CIT(A). He contended that the current assets are defined as cash or cash equivalent and the OCDs cannot be said to be a part of the sum of Rs. 72,23,63,000 as on 31.03.2009. According to him, there were no OCDs as on 31.03.2009 and in the Balance Sheet of CHPL, as on 31.03.2010, they are shown as application money. It was further ....
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....d powers of 'Business Convention Division' of demerged company( Claridges Hotels Pvt. Ltd.) specified in first, second and third part of Schedule-II and all other property, right and power of 'Business Convention Division' be transferred to transferee company no. l(assessee). 2.2 As per (part) Schedule forming part of the financial statements for the year ended 31.03.2010 of Claridges Hotels Pvt. Ltd., the amount of Rs. 200 Cr. is shown as 'Debenture application money pending allotment'(ref. page # 81 of PB). Therefore, the Amt. of Rs. 200 Cr which assessee is terming as 'Optionally Convertible Debentures(OCDs)' and consists of two parts, namely, i) Amt. of Rs. 72 Cr. upto from 04.02.2009 to 31.03.2009 and ii) Rs. 128 Cr. between 01.04.2009 to 18.06.2009(ref. para 5.7/page # llof CIT(A)'s order), was simple money advanced to Godavary Shilpkala Ltd. by Claridges Hotels Pvt. Ltd. even upto 31.03.2010. 2.3 As per para 4 of (part) Schedule-20 forming part of the financial statements for the year ended 31.03.2010 of Claridges Hotels Pvt. Ltd. (ref. page # 82 of PB, the controlling stakes in Hotel Sea Rock, Mumbai were sold to Indian Hotel Compan....
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....d to the shareholders of demerged company in the ratio of 1:6. 2.9 As per clause 6.1, 6.1.1, 6.1.2 and 6.1.3 of the scheme of arrangements (ref. page #46 of PB), there is no provision of crediting balance to 'share premium account'. As per clause 6.1.3 of the scheme of arrangements, excess or deficit shall be credited to General Reserve or debited to goodwill. 2.10 Business has been transferred as on-going concern. It is also stated as per 2(b) of (part) Schedule forming part of the financial statements for the year ended 31.03.2010 of Claridges Hotels Pvt. Ltd.(ref. page #80 of PB). As per scheme sanctioned by the Hon'ble HC, the 'current assets' worth Rs. 7,22,363 thousand are allowed to be transferred ( ref. Schedule of Property- Part-III). The question is whether it covers the application money for Optionally Convertible Debentures(OCD)? The answer is big 'No' because: a) Application money for Optionally Convertible Debentures(OCD) as on 31.03.2009 cannot be current asset because the 'current asset' is defined as, "cash or cash equivalent or any other asset which can be reasonably expected to be converted into cash within one year....
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....held as part of 'Business Convention business' done by 'Business Convention undertaking' ? Certainly, it was investment of Claridges Hotels Pvt. Ltd. in Godavari Shilpkala Ltd. as it was made in the said company because it owned two Hotel Properties namely, 'The Clariges- 5 star hotel (name has changed to 'Vivanta by Taj') and 'Atrium'-3 star hotel and also developed high end commercial property named 'Pinnacle' with total salable area of 3,18,754 Sq. ft. The decision to invest sale proceeds of sale of investment (of Claridges Hotels Pvt. Ltd.) in ELEL Hotels and Investments Ltd., Sky Deck Properties and Developers Pvt. Ltd. and Sheena Investments Pvt. Ltd. could have been planned near about the date of agreement (i.e. 12.11.2008). vi) The figure of sales proceeds of investment (of Claridges Hotels Pvt. Ltd.) in ELEL Hotels and Investments Ltd., Sky Deck Properties and Developers Pvt. Ltd. and Sheena Investments Pvt. Ltd. is much more than figure of Rs. 200 Crores. Then how come a part of it becomes part of 'Business Convention business' done by 'Business Convention undertaking' ? vii) whether investment of balance 1....
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....ion has yielded income in the hands of transfree. The answer is a resounding 'yes' because the definition of income u/s 2(24) is wide enough and courts have ruled in favour of Revenue as per the ratios relied upon by the AO. 5.2 It is not relevant as to whether source of this credit is explained in hands of transferor because it is not question of section 68. 5.3 The allotment of share is in consideration of the scheme of demerger sanctioned by the order of Hon'ble HC. Any plea that it is in consideration of something transferred outside the scheme of demerger, is illogical and liable for rejection. 6. It may be seen from the above that i) partial and incomprehensible information was presented before CIT(A). ii) CIT(A) did not appreciate facts and circumstances and misdirected himself into irrelevant questions. iii) The correct position is that it is receipt to assessee which is formed to carry out business activity and earn income. The apparent is that every receipt to an artificial juridical entity formed for earning profit through business is income. The onus is upon the assessee to show that it is not 'income' of the assessee. The assessee ....
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....addition on the only ground that OCDs worth Rs. 200/- crores were transferred in contravention of the direction of the Hon'ble Delhi High Court. ASSESSEE's CONTENTIONS: Following is the flowchart of demerger scheme: Universal Business Solution (Mauritius) ↓ 100% Owner of Claridges Hotel Pvt. Ltd. (Indian company) Invested in Godavari Shilpkala Hospitality Ltd. : 1. Rs. 72 crores in Deb as on 01.04.2009 2. Rs. 128 crores in Deb between 01.04.2009 & May 2010 3. Rs. 125.52 as Equity shares in GSL Business convention division (Rs. 0.30 crore) ↓ Investment of Rs. 325.52 in GSL and Banquet division worth Rs. 0.30 crores transferred to assessee as per demerger scheme approved by Delhi High Court. DEMERGER SCHEME APPROVED BY DELHI HIGH COURT ↓ 1. New company i.e. GSHPL formed after demerger gets following assets from Claridges Hotel Pvt. Ltd.: A. Business convention division with assets & liabilities worth Rs. 0.30 crore; B. Debentures in GSL worth Rs. 200 crores C. 100% equity shares of GSL 125.52 crores Total assets transferred 325.82 crores 2. (i) In lien GSHPL issues its shares in the ratio of 1:6 to shareholder of CHPL which is UBSL Maur....
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....ed by the Business Convention Division." From the aforesaid, your honour will appreciate that the demerged undertaking or the Business Convention Division specifically included investment is GSL which on the date of the demerger on 1st April 2009 were in the form of Rs. 72 crores investment by way of debentures. Further investment of Rs. 128 crores by way of subscription of debentures was made by Claridges Hotels Pvt. Ltd in GSL between the date of demerger i.e. the effective dated i.e. 23 June 2010. f) Subsequent investments from appointed date till effective date were held under trust by CHPL: The Hon'ble Delhi High Court also provided that since their order was passed only in May, 2010 and the appointed date being 01.04.2009, all subsequent business/investment etc. till the date of the High Court order that had taken place in the Business Convention Division would be held as investment/trust by Claridges Hotels and would be transferred by way of demerger. (refer clause 4.1 on page no. 44 of PB) g) Also refer clause 7.1.1 on page no. 47 of the paper book which specifically allows CHPL to expand the investment in the demerged undertaking with concurrence of GSHPL. (refer clause....
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.... shares having been issued by it to M/s UBSL, Mauritius, given a detailed note in its audited books of account to its share holders. Refer page no. 23 of PB V. Judgements relied upon are not applicable to the case of the assessee: 1. The ld. AO has merely cited judgments on an academic basis that the word 'income' is not limited by the word 'profit and gains'; the motive of the payer is not relying while deciding whether the receipt is revenue or capital, payments constitute income because they are referable to a definite source, income is a word of 'elastic import', assessee must prove the source of receipt, taxability cannot be decided on the basis of entries which the assessee may choose to make in his accounts etc. 2. Detailed submissions were given on the issue of judgements relied upon the ld. AO while making the impugned addition which has been reproduced by the ld. CIT(A) in its order on page no. 16 in para 5.9. 3. The ld. CIT(A) has held in para 6.9 that reliance placed by the ld. AO on various judgments was of no help. (refer page no. 29) VI. ALTERNATE SUBMISSION 1. Issue of shares by assessee company for consideration other than cash: a) Without prejudice to the af....
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....Transfer of assets to wholly owned subsidiary is not transfer as per section 47(vib): Without prejudice, the ld. AO has also not appreciated the fact that the transfer of debentures by a demerged company to the resulting is not transfer as per clause (vib) of section 47 if the resulting company is an Indian company. 9. We have heard the rival submissions and have gone through the entire material on record and written synopsis filed by both the parties. We have examined the Balance Sheet of CHPL and the assessee company and find that the current asset of Rs. 72,23,63,000 includes debenture application money pending allotment and, therefore, is shown as current asset. As per the order of the Hon'ble Delhi High Court the current asset of the said amount appearing in the schedule of property would stand transferred to the assessee company. This factual finding of the Ld. CIT(A) is correct and we endorse the same. Even otherwise, the Assessing Officer has not been able to show what these current assets of Rs. 72,23,63,000 represent if they are not OCDs. Therefore, the issue involved according to us is of a sum of Rs. 128 crores of OCDs transferred subsequent to 31.03.2009 t....