TaxTMI 
TaxTMI 
2018 (11) TMI 1005
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....Exchange Limited ("BSE") and the National Stock Exchange of India Limited ("NSE"). The original promoters agreement was amended on 10th May, 1992 and 5th June, 1992. 3. "Indian Shaving Product" the listed company, engaged in the manufacture, marketing and distribution of shaving products under GILLETTE 7 O CLOCK and other brand names owned and licensed to ISP by Gillette. 4. On 10th July, 1996 a share holder agreement was entered into between "Sri Saroj Kumar Poddar" (SKP) and "Gillette company" (GI). The assesee, Mr. Saroj Kumar Poddar directly or through his nominees held approximately 17% of the paid up equity share capital, of the company " Indian Shaving Product" (ISP) and M/s Gillette Company (Gillete) held 51% of the paid up equity share capital of "ISP" on the date of signing of the share holder agreement (SHA). 5. We now extract from the share holder agreements, facts relevant to the issue on hand, for ready reference:- " SHAREHOLDERS AGREEMENT dt. 10/07/1996 2.Equity 2.1 SKP will endeavour within 2 years from the date hereof consolidate all shareholding in ISP controlled by* himself and his wife and male descendants ( SKP's Family&#....
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....ing the superintendence, control and direction of the Board) and of-this Agreement. . 3.6. The Managing. Director will consult in a timely manner with the Chairman on all matters to be placed on the Board agenda and on other important decisions including those of policy and principle. 3.7 *The Chairman shall retain the same rights and privileges as are current at the date hereof and shall have right of' access to all financial and other information on the company's activities as required in his role as Chairman and Director. 3.8 The. Chairman's involvement in planning processes, business reviews, investor relations, etc will be in accordance' with the guidelines to be agreed in writing from time to time between Gillette* and the Chairman. 6. In the year 2001, 'ISP' was renamed to "Gillette India Limited" ("the Company" or "GIL"). Thereafter in the year 2005, "Gillette USA" was acquired by "Procter and Gamble Company USA ("P&G")". The two promoter groups of "GIL" i.e. P&G was holding 75.9% of the share capital (equity) and the assessee alongwith individuals who were related to him and entities which were controlled by the assessee, collectiv....
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....e stock exchanges and the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations (Takeover Regulations") for the re-classification of the Continuing Poddar Group Members as part of public shareholders of Gillette and for P&G to sell certain equity shares of Gillette held by it in the OPS. 1. Current Shareholding Pattern of Gillette Sl. No. Name Shareholding 1. P&G 75.90% 2. SKP and its affiliates (Poddar Group) (Please refer to Schedule 2) 12.86% 3. Public 11.24% Total 100% 2.Steps involved in the Transaction P&G, SKP, the Selling Poddar Shareholders (who have agreed to reduce their shareholding to enable compliance with the SEBI Approval) and the Continuing Poddar Group Members, as existing promoters have agreed that the following steps would be undertaken to achieve compliance with minimum public shareholding requirements of Gillette : (i) For compliance with the SEBI Approval, the OFS would be undertaken by P&G, SKP and the Selling Poddar Shareholders, for the following quantity and in the following proportion, in compliance with the regulations prescribed by SEBI in this respect ....
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....r pursuant to the Articles and the SHA. Subject to compliance with the conditions set out in the SEBI Approval, all parties agree and 'acknowledge that payment of the Compensation will not require an open offer to be made under the Takeover Regulations. (vi) The deletion of articles listed in Schedule 5 from the Articles and the termination of the SHA shall be effective (a) after the OFS is completed and the sale consideration is received by SKP and the Selling Poddar Shareholders pursuant to the OFS and (b) upon SKP receiving the Compensation from P&G". "Calculation of Compensation 11. For the purpose of calculating the Compensation payable to SKP for termination of the SHA and the special rights incorporated in the Articles, P&G and SKP have mutually agreed that the measure of reasonable compensation payable for such termination is the difference between (i) the weighted average price per share received by P&G, SKP and the Selling Poddar Shareholders, collectively, for sale of their equity shares of Gillette to members of the public in the OFS ("Realisation per Equity Share"); and (ii) INR 3,000 per share. The Realisation per Equity Share shall be t....
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....nsuring compliance with the Minimum Public Shareholding (MPS) requirement (atleast 25% public stake) directed by the Securities & Exchange Board of India (SEBI) consequent to the amendments to the Securities Contracts (Regulation) Rules, 2010 (SCRR) read with the Listing Agreement. In terms of the said requirements, your Company was required to comply with the said MPS requirement by June 3, 2013, since the public shareholding in the Company was only 11.24% whereas the promoter groups namely the Procter & Gamble Group (P&G Group) and the Poddar Heritage Group (poddar Group) held 75.90%) and 12.86% stakes in the Company respectively. A proposal-in this regard which was submitted to $~lU was not accepted by SEl3I. and the same was also over- ruled by the Securities Appellate Tribunal (SAT). Thereafter due to the pro-active engagement of the promoters with SEBl, SEBI finally approved a proposal through Us letter dated September 25, 2013 (SEBI Approval), inter alia, involving the following steps: (i) Termination of a shareholders' agreement dated 10th July 1996 (SHA) between the P&G Group and Mt. S. K Poddar so as to remove the special rights enjoyed by the Poddar....
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.... of Association are being amended in connection with the Termination of the SHA, the amendment of the Articles of Association and the vacation of the positions as Directors of the Company of Mr. S. K. Poddar (Chairman) and Mr. Akshay Poddar shall be effective after .payment. of the above. mentioned severance compensation by the P&G Group to Mr. S.K Poddar. The public shareholding in the Company would resultantly increase to 25%, in compliance with the SEBI MPS requirements. The said severance *compensation would have no impact on the Company and would not impact the interests of the minority shareholders. . ' Mr. S.K. Poddar, Chairman and Mr. Akshay Poddar, Director are deemed to be interested in this item of business. The Board of Directors recommends the proposal for approval by the Members, by exercising their vote through the Postal Ballot." Portion of the ORDER of SEBI dated 10th February, 2014 in WTM/PS/76/CFD/FEB/2014 as under :- " 6. Pursuant to the interim order, the Poddar Heritage Group (the Poddar group. one of the promoter groups of the Company) vide letters dated August 23, 2013 and September 02, 2013, had made....
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.... exemptions claimed by the assessee regarding the Compensation received and underscoring the areas as to where the said compensation may be brought to taxation as per the provisions of the I T Act,1961, if the different contentions are made by the assessee at subsequent stages in a bid to save the said compensation from taxation. The purpose here is to underscore the fact that the said amount is taxable under different provisions of IT Act, 1961 even if assessee takes a different presumption and interpretation of said compensation in due course. This should not be taken as a plea by the assessee that since the same is being discussed as taxable under more than one heads, it is not taxable at all." 14. Alternatively and without prejudice to the above stand that the amount in question is taxable u/s 56 of the Act, the AO held that receipt in question was taxable u/s 28(ii) (a) of the Act. He held that the assessee was substantially managing "Gillette India" as the Chairman and his son being one of the directors that he had special rights as mentioned in SHA dated 10th January, 1984 and under the Article of Association of the company. 15. At para 119 page 66 he held as follows :....
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....tated above, it is a clear case of tax evasion by both the Assessee and the Group Companies and the Compensation received is taxable as "income from other sources" u/s 56 as per the discussion made in the earlier portions of this assessment order mentioned in para 70(vi) in the following manner : Shareholder % transfer Amount Taxability Assessee 0.69 Rs.10,72,26,107/- No Not taxable as per the above discussion Family Members of assessee 0.97 Rs.15,07,38,150/- No Not taxable as per the above discussion and exempt as received from relatives Group entities of Assessee 11.21 Rs.174,20,35,742/- Taxable under section 56 Total 12.87 Rs.200,00,00,000/- 17. Aggrieved the assessee carried the matter in appeal, raising various grounds before the ld. CIT(A). The CIT(A) has extracted the grounds raised by the assessee from pages 1 to 5 of his order and thereafter extracted the submissions of the assessee from pages 5 to 20 of his order and in one paragraph at the end of page 20 he held as follows :- "I have considered the submissions of the appellant as well as the assessment order framed in the light of ....
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....parate application is required to be filed u/s 29 of the ITAT Rules for admission of the same. He prayed that the department be allowed to defend the order of the ld. CIT(A) and to refer to the paper book filed by it. 20. The learned Senior Counsel Shri J.D.Mistry, without prejudice to the above stated objections, started his arguments on merits, by taking the bench to the facts of the case. He submitted that the AO ultimately chosen to tax the assessee by invoking section 56(2) (vii) of the Act and holding that Rs. 25.79 crore(approx) out of Rs. 200 crores of the severance compensation received is not taxable and that only Rs. 174 crores (approx.) is only to be taxed. He further submitted that the AO has alternatively discussed a number of possibilities of bringing the amount in question to tax u/s 28(ii)(a) of the Act or alternatively u/s 45 of the Act. He submitted that the AO has not acted on these possibilities and had not based his assessment of income on these sections and hence these sections cannot be invoked by the revenue at this stage. He filed elaborate written submissions on the issue of taxability of the severance compensation u/s 56(2) of the Act, applied by the ....
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.... receipt in question cannot be brought to tax u/s 56(2)(vii) of the Act and hence nothing survives and that the appeal of the assessee has to be allowed. He contended that, though the AO, in an elaborate order, considered various possible Sections based on which the receipt in question can be brought to tax under Income Tax Act, 1961 ultimately, the receipt was brought to tax only u/s 56(2)(vii) of the Act and not under any other section in the Act. His contention is that once the "Special Counsel" has given up the departmental stand that the receipt in question is taxable u/s 56(2)(vii) of the Act, then no other section can be brought into play or relied upon to bring the receipt in question to tax by the revenue before the Tribunal. He argued that the ITAT has to adjudicate the correctness of the final basis/ground taken by the AO to tax the receipt in question. 24. Alternatively and without prejudice to the above the learned Senior Counsel submitted that, as the AO has brought to tax only an amount Rs. 1,74,20,35,742/- the Tribunal cannot bring to tax the amount in excess of the same, as the ITAT has no power of enhancement. 25. Without prejudice to the above submission th....
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....total share. This would clearly show that the management of the company was with P&G and not the Appellant. (ii) Under clause 3.3 of SHA (Pg 2) the managing director was to be nominated by Gillette. Further clause 3.5 of SHA (Pg 3) provided that the managing director will have management of whole of the affairs of the company subject to applicable provisions of the Companies Act. The chairman i.e. the Appellant will only be consulted by the managing directors on issues relating to policy and principle. Therefore, it is clear that the company-was being managed by the managing director which was the nominee of P&G and not the Appellant. In fact. Appellant had also submitted a letter from Company Secretary of Gillette that at all times managing director was always appointed by Gillette and different MD from time to time Further, clause 3.1 of SHA (Pg. 2) provides that only 2 directors of the board of 7 directors would be appointed by the Appellant, including the Appellant himself. Therefore, of the board of directors of the Company, on the contrary, the 5 directors in the board of directors were appointed by P&G, and hence the board was always controlled by ....
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....done anything further. The message from the non executive Chairman in the annual accounts does not mean that the Appellant is managing the Company. (iii) Similarly. having a separate office space by itself is also an irrelevant factor to decide on the issue of management of the Company. 2. The receipt must be of income character even to come within section 28(ii)(a)- The Appellant submitted that even for a compensation to be charged under section 28(ii)(a) of the Act, it must be a revenue receipt and not a capital receipt. The Appellant submitted that section 2(24)( (v) provide that any sum chargeable to income tax under clause (ii) of section 28 will come within the ambit of income. As clause (ii) of section 28 falls under the chapter profits and gains of business or profession. the same would only include a receipt which is revenue in nature and not a capital receipt. Reliance is placed by the Appellant on the following decisions- (i) CIT Vs. David Lopez Menezes (336 ITR 337)(Bo01) (ii) Carnival Investment Ltd Vs. ITO (ITA 568/Ko1/2011) affirmed by Calcutta High Court in ITA 160 of 2013 dated June 18, 2018 In view of ....
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....econdly. the Appellant submitted that the amount received by the Appellant under the non-compete agreement has already been held to be a capital receipt by the decision of the jurisdictional High Court of Calcutta in the case of ClT v Saroj Kumar Poddar [151 Taxman 153 ]. There has been no breach of the said agreement and hence there is no question of any further consequence flowing from the said agreement. 4. Thirdly. the Appellant submitted that, under the non-compete agreement the Appellant had taken an 'obligation not to compete' and not a right' and had received the compensation for the same. Therefore, the Appellant submitted that there is no question of receiving compensation for giving up an obligation. Therefore, the question of correlating the compensation of Rs. 200 crores received by the Appellant with the non-compete agreement is wholly erroneous and bad in law. Hence, the Appellant submitted that the compensation of Rs. 200 crores received by the Appellant cannot even be charged to tax under the head' capital gains." 26. The Learned Special Counsel for the Revenue, Sri Girish Dhave on the other hand, opposed the contentions of the ....
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.... the Chairman has reported on the performance of the company year after year and hence it would be wrong to conclude that he was not managing "substantially the whole of the affairs" of the company. He argued that the bench should draw any inference from the SHA and Articles of Association. He submitted that the assessee is a "key management personnel" of the company GI and that he has given up those rights by way of Termination Agreement and Severance Agreement, for a price. He referred to the following decisions in support of his contention that the assessee is a key management personnel:- a) Ramchandiram Mirchandani vs The India United Mills AIR 1962 Bom 92 b) CIT Kerala vs M/s Alagappa Textile (Cochin )Ltd. (1980) 1 SC 214 ; c) R.B.Seth Multanimal and Sons vs CIT, U.P. AIR 1953 All 31. We would refer to these case law if necessary. 29. He submitted that the term "Income " under the Act is a inclusive definition and that this section deems every receipt to be income and if the assessee seeks to claim that a particular receipt is not income, the burden is on the assessee to prove its claim that a particular receipt is not income. He relied on the ....
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....ases where it appears to the income-tax authorities that certain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie it appears that the income may have been received either by A or B or by both together, it would be open to the relevant income-tax authorities to determine the said question by taking appropriate proceedings both against A and B. That being so, we do not think that Mr. Nambiar would be justified in resisting the enquiry which is proposed to be held by respondent No. 1 in pursuance of the impugned notice issued by him against the appellant. Under these circumstances we do not propose to deal with the point of law sought to be raised by Mr. Nambiar. In the case of CIT vs. Ram Chand Tilli Works (2013) [2013] 35 taxmann.com 80 (Allahabad), it was held as follows:- "If the Assessing Officer has doubt about the genuineness and veracity of the claim made by the person, who has filed the return in that event he will be well within his rights to make a protective assessment. We may mention here that in the case of doubt or ambiguity about real entity in whose hands a particular income is to....
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....e by which he claimed that the remittance by the Assessee Company to its Mauritius Holding Company could not be taxed as dividend, forgetting the aspects relating to Clause (e) of Section 2(22) of the Act and therefore the said directions were within the subject matter or the issues raised by the Assessee and making a direction to hold an enquiry into the aspect of fair market value of shares cannot be said to be beyond the subject matter of the appeal. The said directions cannot be said to be per se amounting to taxability of the said payITA No.1695/Kol/2017 Shri Saroj Kumar Poddar A.Y.2014-15 24 out by the Appellant Assessee as 'Dividend' but the same would depend upon the nature of enquiry to be conducted by the Assessing Authority and findings arrived at in pursuance of the said direction. The power to remand including for conducting an enquiry in the aspect of the matter which was not earlier adjudicated upon by the lower Authorities, cannot, in our considered opinion, be questioned by the Assessee or the Revenue. 60. The words "as it thinks fit" employed in Section 254 of the Act is only bound by the requirement of giving an opportunity of being heard to the ....
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....ters on the powers of the Tribunal as is sought to be canvassed before us that the Tribunal could not have exceeded the grounds raised before it by the Appellant Assessee. The Appellant may be either Assessee or Revenue before the Tribunal and the Tribunal has also powers to allow fresh ground of appeal or allow the other party to the appeal to file its cross objections and even suo motu pass appropriate Orders 'thereon' and therefore the words 'as it thinks fit' in our opinion, confer wide powers upon the Income Tax Appellate Tribunal to pass such Orders on the subject matter of appeal 'as it thinks fit' whether the issue is raised by either party to the appeal or not. The Tribunal is not bound to decide the appeal in a particular or narrower manner or limited to the grounds raised in the appeal before it. The confines or boundary limit is only "subject matter" of the appeal. 64. The powers of the Tribunal are not limited or circumscribed by the grounds raised before it and any order on the subject matter of appeal can be passed if it is found to be necessary, expedient and relevant by the learned Tribunal. 65. Truth being the cherished id....
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....per by way of making or causing to be made a "further inquiry" in exercise of the power under Section 250(4). This approach not having been adopted, the impugned order of ITAT, and consequently that of CIT (Appeals), cannot be approved or upheld." 36. Applying the proposition of law laid down in this case, to the facts of the present case, we are of the considered opinion that we have the power to examine the action of the Assessing Officer in holding that, the receipt in question can also be brought to tax u/s 28(ii)(a) of the Act and u/s 45 of the Act. There is no bar under the statute to the powers of the Tribunal to remand the matter back to the file of the Assessing Officer or to the file of the ld. CIT(A) with or without directions. 36.1. With these observations, we now examine the applicability of Section 28(ii)(a) of the Act. The ld. CIT(A), in this case has not adjudicated the various contentions raised by the assessee. In our view he has not applied his mind to the issues on hand nor considered the law on the matter and has in a summary and cryptic manner dismissed the appeal of the assessee. What is clear from the facts of this case is that, the assessee along w....
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....tely for extinguishment of special rights, in addition to termination of the significant control and say of the assessee and its group in the affairs of the management of GI. In our view, the ld. CIT(A) should have examined whether such extinguishment of rights in management falls within the ambit of taxability under the head capital gains i.e. Section 45 of the Act. This is not done. Even the arguments of the assessee that the receipt in question is not taxable u/s 28(ii) of the Act, has not been dealt by the ld. CIT(A). The finding of the Assessing Officer is that, the assessee manages substantially the whole of the affairs of GI. The ld. Counsel for the assessee argues that the rights that the non-executive Chairman has, does not tantamount to managing the whole of the affairs of the Indian company or substantially the whole of the affairs of the Indian company. 37.1. The term "substantially" has not been defined u/s 28 of the Act. We find the term "substantially" in Section 2(22)(e), Section 40(A)(2)(iv)/(v)/(vi) and in explanation to Section 73 of the Act. The term "substantial" as per the Oxford Large Print Dictionary means "of considerable amount, intensity or....