AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (11) TMI 1005
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....tock 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') into the name of Sonali Estates Ltd ("Sonali" ). 2.2 On furt....
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.... 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, collectively known as "Poddar Group" was holding 12.86% equity share capital of the Company. Thus in total, the promoter group of GIL held 88.76% of the equity ca....
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....s 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 : Sl. No. Name No.of Shares (% Total Shares) 1. P & G 293.277 (0.9%) 2. Selling Poddar Shareholders 2.564.467(7.87%) Total 2,857,744(8.77%) (ii) Simultaneously with the execution of the Trade Agreement to be en....
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....he 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 the weighted average price at which the OFS is consummated. net of applicable brokerage, service taxes and securities transaction taxes. 12. The parties agree that Compensation shall be measured only on 6% (1,955, 100) of the total issued share capital of Gillete to be sold by SKP a....
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....y 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 Group; (ii) Offer for safe (OFS) 9GBP 7.87 % stake to be made by the Poddar Group to the public and of 0.90% to be made by the P&G Group; (iii) Amendment of Articles of Association of the Company so as to delete/modify/alter the respective Articles which confer special rights on the Poddar Group pursuant to the SHA as set out in the Notice; (iv) Payment o....
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.... 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 a revised proposal with SEBI in respect of the' Company's compliance with the MPS norms, In terms of-the revised proposal: i. Promoters of the Company would undertake an OFS for 8.77% (7.87% by) Poddar group and 0.90% by the P & G group) of the paid-up share capital held by them, This would reduce their share holding in the Company to 199%. ii. Once the OFS is consummated fully, prior agreements (SHA) between P & G and the Poddar gr....
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....tion 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 :- "119. Therefore, even if the amount of Rs. 200 Crore received by the assessee as Severance Compensation is deemed to be a capital receipt and even if it is understood that the Compensation was not to be received by the other members of the Group as held earlier in this Assessment Order, the said Compensation of Rs. 200 Crs would be taxable u/s 28(ii)(a) because of the specific provision in the Act for taxing such Compensation as clear from the discussion made in foregoing part of this as....
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....xempt 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 the materials available on record before the assessing officer during the assessment proceedings. The assessing officer has already discussed the issue in details with various grounds and alternatives grounds. The AO has elaborately mentioned the reasons for taxing the amount under various options. I agree with the views as taken by the AO. There is no doubt that the appellate has received huge amount from the company which is liable to be taxed and accordingly, the AO ha taxed the amount with alternative grounds to protect the interest of the revenue. The assessing office....
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....mpensation 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 Assessing Officer to tax the receipt in question. He argued that the ITAT cannot go beyond the issue of examining the applicability of Section 56(2) of the Act as the AO has not chosen to tax the amount in question under any other section of the Act. Nevertheless he proposed to make detailed submissions on all the sections discussed by the AO in his order. 21. At this stage, the Bench sought to know from the learned Special Counsel for the Revenue Mr.Girish Dave, as to whether he would support the order of the AO wherein, ultimately he chose to tax the receipt of Rs. 200 crores ....
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....i) 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 the ld. Sr. Advocate made oral and written submissions. The written submissions which sufficiently captures the oral submissions including replies to the submissions of the ld. Special Counsel for the revenue are extracted below :- " Section 28(ii}(a) is not applicable in the present case as the Appellant was not managing the whole' or 'substantially the whole' of the affairs of the Company- Section 28(ii)(a) reads as under- "28. The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession ''. (ii) any compe....
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....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 P&G. (iv) The Appellant was only a non-executive chairman and, hence, the Appellant was not looking after the management of the affairs of the company. The Appellant submitted that for section 28(ii)(a) of the Act to apply, the management of the company must almost wholly be done by the Appellant, which is clearly not the position in the present case. The Appellant submits that on the reading of the SHA, it is clear that the Appellant does not have the right to manage the whole or almost the whole of the affairs of the Company. The Appellant submitted that the revenue has also not pointed out any material to justify the finding that the company was being managed almo....
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....s 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 the aforesaid, the Appellant submitted that in any view of the matter, as the AO has accepted that the receipt of the compensation of Rs. 200 crores by the Appellant is a capital receipt (by himself not taxing compensation equivalent to Appellant's shareholding), the same is not chargeable to tax under section 28(ii)(a) of the Act. 4. Compensation of Rs. 200 Crore is not chargeable to tax as capital gains- The Appellant submitted that, although, as without prejudice finding the AO held that the compensation of Rs. 200 Crore is chargeable to tax under the head 'capital gains' being consideration for transfer of shares, the learned special counsel, appearing for the revenue conceded that the said amount cannot be charged to tax as "capital gains" for tran....
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....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 assessee and submitted that the main issue is whether the " Managing Director" appointed by the " Board of Director " , can be considered as managing the wholly or substantially the whole affairs of the company or whether the "Board of Directors" are managing the whole or substantially the whole of the affairs of the Indian company through the Managing Director. He once again took this Bench through the promoters agreement 1992 and the agreements dated 05.06.1992 and 18.01.1996. He also drew the attention of the Bench to the manner in which the assessee sought to evade compliance with SEBI regulations and the adverse order suffered from SAT and ultimately how the assessee and the company GI was forced to take steps to comply with the rules of the SEBI. 27. Further, he referred to non compete agreement dated 18th January....
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.... 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 order of the AO for his arguments that the amount is taxable u/s 28(ii) of the Act and alternatively and without prejudice that the amount in question can be taxed under the head 'Capital gains' u/s 45 of the Act. 30. On query from the Bench the ld. Special Counsel submitted that the ITAT being the final fact finding authority, has the power to initiate enquiry and arrive at the truth of the matter and argued that this bench of the ITAT can go into the issue of taxability of the above receipt under the head "income from business or profession" as well as under the head "capital gains", as the AO has concluded that the amount in question is taxable. 31. Heard rival contentions and on careful consideration of the facts and circumstances and on perusal of the papers on record and the orders of the authorities as well as the case laws we hold as follo....
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....essing 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 be assessed the Assessing Authority is entitled to have recourse to make a protective assessment. That being the position we are of the considered opinion that the Tribunal was not justified in holding that in the absence of the real owner and as the Assessing Officer was not aware as to who is the real owner of the income a protective assessment should not have been made and instead a substantive assessment has to be made." No doubt these case law refer to circumstances where, the Assessing Officer could not decide as to in whose hands the income is to be assessed. In our opinion the intention of the Courts and the propositions laid down in this line of cases would extend to this situation when the Assessing Officer is unsure as to which section could be applicable to a particular fact or situation or if he is of the opinion that the facts would warrant and attract mu....
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....tter 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 parties to the appeal. 61. Section 254(1) of the Act clearly stipulates that the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such Orders thereon as it thinks fit. The emphasis on the word 'thereon' sought to be placed by the learned counsel for the Assessee, Mr. Pardiwala on the basis of case laws relied upon by him as against the words 'as it thinks fit' is slightly misplaced. The emphasis while analyzing the powers of the Tribunal should be on the words 'as it thinks fit' rather than on the word 'thereon'. The word 'thereon' only relates to the 'subject matter' of the appeal in first part of the Sub-section (1) and therefore while the Tribunal is dealing with the subject matter of the appeal, it can pass any such relevant Order as it thinks fit, which would be rational, germ....
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.... 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 ideal and ethos of India, pursuit of Truth should be the guiding star of the entire justice system. For justice to be done, truth must prevail. It is truth that must protect the innocent and it is truth that must be the basis to punish the guilty. Truth is the very soul of justice. Therefore truth should become the ideal to inspire the courts to pursue. This can be achieved by statutorily mandating the courts to become active seekers of truth. It is of seminal importance to inject vitality into our system. Concern for and duty to seek the Truth should not become the limited concern of the Courts or Tribunals and adjudicating Authorities but should percolate down in other Executive wings of the State as well. 66. 'Truth' has a strange but a firm character of finding its way and coming out and revealing itself even though embedded at the bottoms of time periods and piles of papers bound through the chain of ....
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.... 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 with his group has valuable rights pertaining to the management of the company ISP. These rights are :- a) The assessee shall be the Chairman of ISP and in the event of his death or disability, only a surviving member of the assessee's family would be named as Chairman of the company, subject to consultation with Gillette. b) The managing director shall be nominated only after consultation with the assessee. c) The assessee shall be inducted as Director through direct nomination by Sonali. d) The managing director will in a timely manner consult the chairman on all matters to be placed before the Board and on other important decisions including those of policies and principles. e) The assessee, as Chairman, shall retain the same rights and privileges as he held on the date of share holder agreement (These rights and privileges may have to be specified) f) Gillette and the assessee would determine involvement of the assessee in p....