TaxTMI 
TaxTMI 
2019 (3) TMI 686
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.... the transaction under capital gain provision after assigning the market value of the shares as the sales consideration. The reasons given by her for doing so are wrong contrary to the facts of the case and provisions of law. b. The CIT(A) erred in taxing the transaction of transfer of shares on the reasons being in the nature presumptions, assumptions and surmises and in contravention of the principles and provisions of law. c. The CIT(A) failed to appreciate that there is no provision in the Income-tax Act, 1961 (hereinafter referred to as "the Act") for substituting the fair market value of the shares as sale consideration for computing capital gains. d. Additionally, the CIT(A) failed to appreciate that the transfer of certain shares were made by the Assessee Company without consideration, being a transaction of gift and therefore cannot be regarded as transfer of capital asset for the purpose of capital gains taxation, as provided in section 47(iii) of Act. e. Additionally, the CIT (A) failed to appreciate that in the absence of consideration, the computation mechanism fails rendering the transaction non- taxable 2. Disallowance of ....
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.... clearly proves that the assessee company cannot take cover u/s 47(iv) of the Act, and the very creation of relationship of holding company and subsidiary company between colluding parties itself was part of a larger colourable device, as established by the A.O. in the Assessment Order." 2. "On the facts and circumstances of the case and in law , the Ld. CIT(A) erred in treating the transfer of shares as transfer of capital assets and directing the A.O, to compute Capital Gain as per the Act and erred in not considering that the transfer of shares of Dish TV India Ltd and WWIL has been correctly worked out by the A.O. at Rs. 57,90,33,060/- under "income from other sources" u/s 56(1) of the Income Tax Act instead of "NIL" consideration taken by the assessee." 3. "On the facts and circumstances of the case and in law the Ld. CIT (A) erred in deleting the entire disallowance made by A.O. u/s 14A r.w. Rule 8D of the Income tax Act, 1961, without appreciating the fact that even if entire finance cost has been disallowed u/s 36(i)(iii), disallowance @ 0.5 % of the average assets amounting to Rs. 1,52,13,1OO/- and direct expenditure has to be considered for disallowance ....
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....o have been transferred at nil consideration 57,90,33,060/- 3. Disallowance out of expenses u/s 37 - Rates and Taxes - Legal & Professional Fees 90,000 6,90,000 4. Further disallowance of interest u/s 36(1)(iii) 625,30,04,708/- 5. Further disallowance u/s 14A - Interest of Rs. 18,79,39,588 - Expenses of Rs. 1,39,57,015 20,18,96,603/- 6. Further addition u/s 68 on account of pref. shares issued at premium - premium amount 34,99,65,000 6. It was argued by Ld. AR that the assessee had filed the return of income declaring loss of Rs. 49,07,28,352/- as evident from the records. The assessee did not revise its return of income of the year hence figure of loss to Rs. 17,61,22,823/- taken by Ld. AO as per revised return of income is wrong hence assessed income computed is higher by Rs. 31,46,05,529/- (49,07,28,352 - 17,61,22,823/-). 7. With regard to addition of Rs. 57,90,33,060/- u/s. 56(1), we found that during the year the assessee sold/transferred listed shares of wire and wireless (India) Ltd and Dish TV India Ltd to their group concerns for total consideration of Rs. 85.80 Cr against book cost of Rs. 127.01 Cr and suffered loss on su....
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....i)) has been disallowed in the computation of total income. The assessee had excluded investments in subsidiaries for arriving at average value of investments to compute disallowance u/s 14A out of total expenses of Rs. 13,90,788/- (Rs. 9,09,401-4,81,387/-) incurred for the year as per profit and loss account. The assessee suo-moto disallowed Rs. 12,56,085/- u/s 14A and Rs. 1,34,703/- u/s 37/40 in the computation of total income hence entire expenses of Rs. 13,90,788/- The Ld. AO computed disallowances of Rs. 20,18,96,603/-u/s 14A of the Act as per Rule 8D as under on the basis of average value of investments including investments made in subsidiaries and without excluding Rs. 5.86 Cr disallowed u/s 36 (1)(iii). Particulars Amount in Rs. As per Rule 8D(i) - Direct interest cost 14,70,689/- As per Rule 8D(ii) - proportionate interest expenditure 26,81,32,612/- As per Rule 8D(iii) - Administrative expenditure computed at 0.5% of average investment (Total expenses claimed for the year Rs. Nil) 28,48,16,401/- Less: Disallowed in computation of total income (8,16,63,713/-+12,56,085/-) 8,29,19,798/- Total 20,18,96,603/- 10. A.O also made addition u/....
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....f the shares as selling price. The CIT (A), while upholding the stand of the Assessing Officer that the transactions are colourable device, held that the resultant profit should be taxed under the head capital gain. Aggrieved by the above findings, both the parties are in appeal, While revenue is contending that the gain is taxable under the head income from other sources, the assessee is contending that (i) the transaction is not colourable device, (ii) the selling price cannot be replaced by the market value and (iii) the sale of shares without price is a gift and not transfer u/s, 47(iii) of the Act. 14. The background facts of the transactions under consideration are as follows. During the year under consideration, the assessee has transferred the following shares. Sr. No. Particulars Purchaser No. of shares Cost of acquisition Sale consideration Gain/ (Loss) 1. Wire& Wierless India Ltd. Essel Corporate Resources P. Ltd. 1,03,31,658 1,96,31,05,502 NA (Gift) (19,63,01,502) 2. - - 1,28,26,555 2437,04345 NA (Gift) (24,37,04,545) 3. Esscl Business Process Ltd. 65,00,000 12,35,00,000 ....
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....uted for sale consideration and thereby made the addition of Rs. 57,90,33,060/-. His detailed reasonings can be summarized as under: (i) The assessee has very minimal paid up capital and has huge accumulated losses as well as borrowing. It has also advanced huge amounts to related parties and subsidiaries and have substantial investments in subsidiaries and group companies. (ii) The shares of assessee-company are held by the shareholders who are all family members. (iii) Certain details regarding the above transactions were called for, however, the same were not submitted by the assessee. (iv) There are several companies and entities in the group and similar transfer of shares have been carried out in many other companies. (v) The modus operandi of transfer of shares is same in all the group companies wherein the transferor becomes holding company of transferee and thereafter the shares worth crores of rupees are transferred at nil consideration, (vi) The inter se status of the companies keep on changing very quickly. The companies are amalgamated after receiving the shares of other group companies. The accounting treatment is g....
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....tion of gift cannot be brought to tax. It was also submitted that in the absence of selling price, the capital gain cannot be calculated and, hence, computation machinery falls. It was further contended that the market value cannot be substituted for sale consideration as there is no such provision in the Act. As regards the applicability of S. 56 of the Act, it was submitted that the gain arising out of transfer of capital asset cannot be brought to tax under the head income from other sources. 20. By the impugned the CIT(A) held that the transactions of transfer of shares were in the nature of colourable device. He was also of the view that the transaction of transfer of shares without consideration cannot be said to be gift. He found that certain field in the DEMAT siips have not been properly filled up to categorize the transaction as a gift nor any gift deed was submitted by the assessee. The CIT (A) also observed that the assessee has not furnished any evidence to establish that the transaction was a voluntary act of the donor. He distinguished the case laws relied upon by the assessee stating that the facts are different. 21. The ld, CTT (A) further observed that even ....
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....ourts as well as Supreme Court. In the case of the CIT v. Morarjee Textiles Ltd. (ITA 738 of 2014) (Bom.), on the facts similar to the present case, wherein the question posed was whether fair market value of shares transferred can be taken as sale consideration for computation of long term capital gain, the Hon'ble Bombay High Court held as under: "4. Regarding question no. (ii):- (a) The issue which arises herein for consideration is whether it is open to the Assessing Officer to substitute the 'full value of consideration1 received on sale of shares by its 'fair market value' in the subject Assessment Year. The impugned order of the Tribunal allowed the respondent-assessee's appeal by inter alia holding that the reliance by the Revenue on Section 2 (22B) of the Act is not justified. This is for the reason that there is no provision under the Act which would permit the Assessing Officer to substitute the 'full value of consideration' received on sale of shares by 'fair market value'. The only provision in the Act at the relevant time allowing substitution of consideration received by the market value was Section 50C of the Act. Section 50C of the Act deals only ....
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....a) on identical facts situation has been accepted by the Revenue, as no appeal from the same has been filed by the Revenue. (d) In the above view, the question as formulated does not give rise to any substantial question of law. Thus not entertained." 23. It was also argued by the Ld. AR that notional value of sale consideration can only be taken when it is specifically provided in the Act for e.g. section 50C of the Act which provides for a deemed full value of consideration. As per the ld. A.R. there is no such provision applicable in the present case and accordingly the fair market value cannot be taken as the sale consideration. 24. It was further argued that the transfer in the nature of gift are outside the purview of capital gain provisions. Transfer of shares, by way of gift, are exempt from the provisions of capital gain by virtue of provisions of Sec.47(iii) of the Act which read as under; Transactions not regarded as transfer. 47. Nothing contained in Section 45 shall apply to the following transfer : (i) .................... (ii)[******] (iii) any transfer of a capital asset under a fit or will or an irrevocabl....
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....he purpose of deciding the issue under consideration the court approved amalgamation cannot be found fault with. For this purpose, reliance is placed upon the order of the Kolkata Bench of the Tribunal in the case of Electrocast Sales India Ltd. v. DCIT (92 taxmann.com 85). (vii) It is not correct to say that the real purpose is to divide the business amongst family members. In any case, if the transactions are not in violation of any law or unreal the same cannot be disregarded. Further, when the ultimate recipient of gifted shares sells the shares, it would be subject to capital gain tax taking the cost of acquisition with reference to that of the previous owner as provided under section 49(l)(ii) of the Act, Accordingly, it is not even a case where the assesses has been able increase its cost of acquisition with a view to pay lower capital gains in future. We also observe that if the transaction is a colourable device, no cognizance of the same can be taken and consequently there is no question of charging any capital gain arising out of these transactions. (viii) The Assessing Officer has described in detail the transactions of share transfer of group companie....
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.... chargeable to income tax under any of the heads specified in section 14, items A to E. 28. The income from other sources is the last and residual head of income. A source of income which does not specifically fall under any one of the other four heads of income (viz, Salaries, Income from House Property, Profit and gains of business or profession, or capital gain) is to be computed and brought to charge under section 56 under the head "income from other sources". In other words, it can be said that the residuary head of income can be resorted to only if none of the specific head is applicable to the income in question and that it comes into the operation only if the preceding heads are excluded. However, the benefit accrued to the assessee in present case is in the capital field and can be brought to tax only under the head capital gain. Accordingly, the provisions of Sec. 56(1) cannot be resorted to. 29. As regards transfer of shares as gift, we observe that there is nothing that prohibits a company from giving or receiving gifts. There is no requirement of a gift deed. Only requirement is that it should be authorized by its Memorandum of Association. In the present case, a....
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....operty. This view has been held by the Hon'ble Mumbai Tribunal in the case of Nerka Chemicals Pvt. Ltd. v. DCIT [ITA 4423/M/2014] which held as under: "Further, the Coordinate bench of Tribunal in DCIT Vs KDA Enterprises (supra) held section 2(24) defines 'income'. The definition of 'income' provided in section 2(24) although an inclusive definition, but it specifically provides the income which are intended to be taxed under the provisions of the Act. Even the income in the nature of capital gains as per section 45, and gifts received as per section 56(2)(v), (vi), (vii) etc. are included in the definition of income. Thus under the Act only the receipts which are in the nature of 'income' are subjected to tax. Any other receipts which are not in the nature of 'income' are not liable to tax under the provisions of the Act. Section 5 provides for scope of total income chargeable to tax in India on the basis of receipt, accrual and deemed to be received and accrued in India. In view of above, the charging section of the Act specifically provides for taxation of 'income' of an assessee. For a receipt to be taxable under the provisions of the Act it must necessarily be in t....
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....d it was a case of transfer of off market inter se transfer between promoters. In this regard we observed that the SEBI (Substantial Acquisition of Shares and Takeover) Regulation, 1997 [hereinafter referred to as "SEBI Takeover Code"] requires public announcement on transfer of prescribed limit of shares. However, an exemption is provided where the transfer of shares is an inter se transfer between promoters. In the instant case, it is an off market inter se transfer of shares between promoters rather than simply mentioning gift which would invite doubts as to why public announcement was not made. Hence, to be more specific and claim exemption from public announcement of transfer, "off market inter se transfer of shares between promoters" was mentioned. Further, it is not a case where the assessee has ticked another option. The assessee has disclosed that the shares are transferred without consideration which is evident from the fact that no consideration amount has been mentioned in the slip as required. Moreover the fact that the Assesses had not ticked the option of "gift" in the transfer slip cannot change the character of the transactions. Further, it certainly cannot be conc....
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....of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E." From the above, we observe that income from other sources is the last and residual head of income. A source of income which does not specifically fall under any one of the other four heads of income (viz, Salaries, Income from House Property, Profit and Gains of business or profession, or capital gain) is to be computed and brought to charge under section 56 under the head "Income from Other sources". In other words, it can be said that the residuary head of income can be resorted to only if none of the specific head is applicable to the income in question and that it comes into the operation only if the preceding heads are excluded. Thus, it can be said that the residuary head of income can be invoked only if all the following conditions are satisfied. i. Income - There is an "income" [Section 2(24) read with section 4 and 5 of the Act] ii. Not covered by the other heads of income However, the benefit....
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....ar that the assessee submitted all the requisite details. 38. The Ld. DR also relied upon Para 3.3 to 3.6 to contest that the assessee undertook a modus operandi to transfer share of listed companies worth crores to a wholly owned subsidiary which ultimately get merged into other group concerns by which it is alleged that the assessee avoids capital gain tax. For this the Ld. DR relied on Para 10 at Pg 8 of the AO's order to contest that the assessee at first gifted shares of WWIL & DTIL to its wholly owned subsidiaries Essel Champs as gift. Essel Champs thereafter merged with PFT. It was alleged that the assessee had succeeded in avoidance of payment of tax by transferring shares of WWIL and DTIL, ultimately to PFT under the said modus operandi. 39. In this regard we observe that the facts relied upon by the AO at Para 10 relate to AY 11-12 and not to the relevant assessment year under consideration i.e. 2012-13 as is evident from Para 10.2 and 10.3. The transfer of shares of WWIL and DTIL to Essel Champs in the earlier year has no bearing on the present dispute. The assessee has been assessed to tax for AY 11-12 and the aforesaid transactions have been accepted. Further, it....
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.... Cr and closing balance of Rs. 184.16 Cr which inter alia includes share application money to Essel Sports Pvt. Limited, its wholly owned subsidiary and share application money to Mumbai Football Club Pvt. Ltd., a group concern, details of which are as under: Particulars As on 31.03.2011 As on 31.03.2012 Pan India Infrastructure Pvt. Ltd. 202.60 Cr 169.62 Cr Mumbai Football Club Pvt. Ltd 12.79 Cr 14.32 Cr 44. The Assessing Officer has made disallowance by disregarding the fact that the advances were made as a commercial expediency. From the record we found that during the course of the assessment proceeding vide letter dated 25.03.2017, the assessee has substantiated that the advances in the form of share application money were out of commercial expediency and therefore there was no occasion to disallow any proportionate interest expenditure. Before the ld. CIT(A), the assessee has reiterated its contentions as submitted before the AO. The CIT(A) rejected the assessee's submission and upheld the disallowance of interest. 45. We have considered rival contentions and carefully gone through the orders of authorities below, we have also deliberated on t....
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.... Mumbai Football Club is among 14 premier football clubs of India that participate in the professional I-League tournament under the aegis of the All India Federation. Mumbai FC is a venture of the Essel Group incorporated with the object to set up a football club, which includes development, training, coaching, marketing and managing football games/sports events. Further, it was to set-up infrastructure for sporting events on national and international levels which has potential advertisement and prize money revenue. To promote such activity, the Assessee invested in the aforesaid concern not only to finance the said activity but also participate in the returns it generates. Further, during the year under consideration, the Assessee advanced a further sum of Rs. 1.54 Cr. The said funds have been utilized only for business purpose. Thus, all the facts and circumstances clearly indicate that the advances were under commercial expediency. The Hon'ble Bombay High Court in the case of PCIT v. Sesa Resources [250 Taxman 182] has held that where assessee company borrowed funds and advanced same to its sister concern, since amount was neither a donation nor loan was given to an individual....
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.... that disallowance of interest of Rs. (26,81,32,612 - 8,16,63,713) but however held that since the entire interest stands deleted under section 36(l)(iii) or suo-moto disallowed by the assessee in return of income, no disallowance under 14 A read with Rule 8D was called for. As regards disallowance of expenses under section 14A read with Rule 8D, the CIT(A) held that since the assessee had claimed only a sum of Rs. 91,000/- in its return of income against which the assessee had suo-moto disallowed a sum Rs. 12,56,085/-, no further disallowance was warranted. The assessee's appeal is against the confirmation of disallowance of interest in principle and non-adjudication of the assessee's contention to delete the suo-moto disallowance under section 14A read with Rule 8D. The department is in appeal vide Ground 3 and 4 of their appeal contending that the disallowance under section 14A read with Rule 8D must stand irrespective of the fact that a) entire interest has been disallowed under section 36(l)(iii) of the Act b) no expenses have been claimed by the assessee in its return of income. In our considered opinion, the entire disallowance u/s 14A of the Act amounting to Rs. 28,48,16....
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....y Convertible Preference shares to PIIPL. By filing various documentary evidences, the assessee has duly explained the nature and source of receipt of money of Rs. 35,000 towards share capital and balance Rs. 34,99,65,000 towards share premium aggregating to Rs. 35,00,00,000/- received towards issue of OCPs by establishing the identity and creditworthiness of the subscriber PIIPL as well as the genuineness of the transaction. Consdiering the documents placed on record, the addition of Rs. 34,99,65,000/- under section 68 of the Act is unsustainable both in facts and law. 54. As per our considered opinion, the addition U/s 68 of the Act can be made only where the assessee is unable to establish the identity, genuineness and creditworthiness of the loan creditor/subscriber. In the instant case, we found that the share subscriber PIIPL is a regular assessee under the Act, regularly filling return of income. The return of income along with audited balance sheet of the share subscriber was filed before the lower authorities. The summary of the credit worthiness of the PIIPL can be drawn as under: Particulars Amt in Rs. Shareholder's Funds 55,63,45,266 Borrowed Funds ....
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....nsideration. Therefore, share premium is not chargeable to tax. Even if the share premium is excessive, the same cannot be taxed under the provisions of section 68 during the A.Y. 2012-13 under consideration, since the nature and source of the same stands fully explained. This contention is duly supported by the decision of the Mumbai Tribunal in the case of DCIT v. Varsity Education Management Pvt. Ltd. [ITA 6991/Mum/2016]. Accordingly, we direct the Assessing Officer to delete the addition made on account of share premium received by the assessee amounting to Rs. 34,99,65,000/-. 57. ITA No.2035/Mum/2017 58. In this appeal, Revenue is aggrieved for deleting disallowance made by AO u/s.14A r.w.Rule 8D. 59. Rival contentions have been heard and record perused. From the record we found that the assessee filed its return of income on 30.09.2013. declaring total income at loss of Rs. 17,59,098/- making no suo-moto disallowance under the provisions of section 14A read with Rule 8D. Assessment under section 143(3) of the Income Tax Act, 1961 was framed vide order dated 06.01.2016, making disallowance of Rs. 1,62,25,661/- under section 14A of the Act mechanically applying Rule 8D....