TaxTMI 
TaxTMI 
2016 (8) TMI 1419
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....ivate Limited (NCPL) is nothing but a device to avoid tax in so far as it involves transfer of capital assets of the firm by way of distribution for the ultimate benefit of partners and accordingly, the same is taxable under section 45(4) read with section 48 of the Act. 2.2. On the facts and in the circumstances of the case and in law, the CIT (A) erred in not issuing a show cause notice and consequently violating the principles of natural justice by not providing an adequate and reasonable opportunity of being heard. 3. On the facts and in the circumstances of the case and in law, the CIT (A) also erred in holding that the fair market value of shares of UPL and UEL gifted by the appellant to NCPL is taxable in the hands of the partners of the appellant firm under section 28(iv) as a benefit arising in the course of business in proportion of share of profit / loss of each partner as per the partnership deed. 4.1. On the facts and in the circumstances of the case and in law, the CIT (A) erred in confirming the action of the AO in holding the aforesaid transaction of gifting of UPL and UEL shares to NCPL as a colourable device to avoid tax by applying the decision of the Supre....
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.... carried the matter in appeal before the first appellate authority. 3. During the proceedings before the first appellate authority, after considering the submissions of the assessee, CIT (A) disapproved the AO‟s line of assessment ie computation of long term capital gains u/s 45(1) r.w.s 48 of the Act and confirmed the addition for other reasons. He proceeded to dismiss the appeal of the assessee eventually by holding that the said share transfer transaction attracts the provisions of section 45(4) read with section 48 of the Act. Alternatively, according to the CIT (A), the provisions of section 28(iv) of the Act apply to these share transactions. In the impugned order, CIT (A) underlined the fact that the Transfer Agreement does not refer to the expression "gift". Further, CIT (A) also mentioned that the transfer of shares is a part of colourable device and applied the ratio of the judgment in the case of McDowell & Co. Ltd (supra). Further, Ld CIT (A) is of the view (para 5.3.4 of his order) that the word „gift‟ as appeared in section 47(iii) of the Act should be understood as the gift between two biological persons only and not the present ones which are betw....
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....isions of section 45(4) of the Act are not applicable to the facts of the case. To justify the same, Ld Counsel for the assessee submitted that this is not a case of dissolution of the firm whereby the profits are transferred by way of distribution of capital assets to the partners. Further, Ld Counsel for the assessee mentioned that the facts of the case are that the firm holds certain shares of UPL and UEL and the same are transferred voluntarily to NCPL without any consideration. Assessee firm continues to exist and it is not dissolved and profits or gains never arose to the partners by transfer of capital asset by way of dissolution of the firm. Therefore, as per the Ld AR subsection (4) to section 45 of the Act has no application to the facts of the present case. In this regard, Ld Counsel for the assessee brought our attention to the relevant provisions. Further, relying on the Ahmedabad High Court judgment in the case of M/s. Prakriya Pharmachem vs. ITO in Special Civil Application No.20492 of 2015, dated 18.1.2016, Ld Counsel for the assessee submitted that this firm is one of the 17 concerns who similarly gifted shares, like the present assessee, by entering into the ident....
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....rsons specified in section 2(31) of the Act. For that proposition, he brought out attention to the proviso to section 47(iii) of the Act where the provisions refer to a company gifts are specified. Further, he also relied heavily on the orders of the Tribunal in the case of DP World (P) Ltd vs. DCIT (2013) 140 ITD 694 (2014) and the decision in the case of DCIT vs. KDA Enterprises Pvt Ltd (2015) 39 ITR (Trib.) 657 (paras, 27, 31 and 39 of the said Tribunal‟s order are relevant) to support the view that the gifts are given by all the persons. 8. We have heard both the parties and perused the orders of the Revenue Authorities and the case laws cited before us. It is informed to us that there is no cross appeal in this case by the Revenue. The Assessing Officer invoked the provisions of section 45(1) r.w.s 48 of the Act for taxing the transaction of transfer of shares. The AO‟s approach in invoking the provisions of section 45(1) of the Act was not approved by the CIT (A) as there was no aspects payment received by the assessee. He confirmed the addition by invoking the provisions of section 45(4) of the Act and alternatively the provisions of section 28(iv) of the Act we....
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....rs are not transferees of the shares of UPL / UEL held by the firm. There is no case for valid application of the provisions of subsection (4) of section 45 of the Act. Considering the above facts, we are of the opinion, there is no case for invoking the provisions of section 45(4) of the Act. As such, CIT (A) dismissed the applicability of the provisions of subsection (1) of section 45 of the Act considering the absence of "full value of consideration". Therefore, the provisions of subsection (1) & (4) of section 45 of the Act have no application to the impugned transactions. These arguments of the Ld AR for the assessee are allowed. Relevant findings of the Revenue (AO / CIT (A)) stand reversed. 11. We have also perused the relevant recitals and the clauses from the „transfer agreement‟ and find relevant to extract the same as under: Recitals: "A...... B. transferors on their own volition desires to transfer the above Equity Interests to Transferee without consideration in terms of money or kind.." Clause 1.1 reads as under,- 1.1 Contribution of equity interests. Upon the terms and subject to the conditions set forth in this Agreement as of (4.pm) on the Eff....
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....he Tribunal in the case of DP World (P) Ltd 140 ITD 694 and KDA Enterprises P Ltd 68 SOT 349 are relevant for the legal proposition that the gifts transferred by the Indian company to the foreign company constitutes a valid gift and the transfer is an exempt transfer u/s 47(iii) of the Act. Further, we accept the Counsel‟s proposition that share transfer by way of gift is allowable u/s 56(2)(viia) & 56(2)(viib) of the Act. 13. Similarly, we analyse the provisions of section 28(iv) of the Act. These provisions imply the arising of any benefit / perquisite to the assessee-firm. On facts of the present case, we find, there is no such any benefit or perquisite to the assessee firm by transfer of shares of UPL and UEL to NCPL. Assessee is the transferor and gained nothing in the process. It is the finding of the CIT (A) that the assessee did not receive any consideration. 14. Considering the above, we are of the opinion, there is no case for invoking the provisions of the said sections in the present case. Accordingly, the order of the CIT (A) is required to the reversed. Thus, the grounds no. 2 to 4 raised by the assessee are allowed. 15. Ground no.1 relates to the allowabilit....