TaxTMI 
TaxTMI 
2019 (3) TMI 686
X X X X Extracts X X X X
X X X X Extracts X X X X
....ning 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 interest amounting to Rs. 57,25,64,708/- u/s 36 (l)(iii) of Act a. The CIT(A) erred ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....diary 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 u/s 14A r.w. Rule 8D." 4. "On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the disallowance of Rs. 2,09,73,983/- u/s ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ii) 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 such sale/transfer which was disallowed by the assessee in the computation of total income. The Ld. AO observed that the assessee has transferred these shares at Nil consideration under colorable device to evade taxes. Hence, the Ld. AO computed the in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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/s 68 of the Act amounting to Rs. 34,99,65,000/-. In this regard we found that during the year the assessee has allotted 350 optionally convertible preference shares to Pan India infrastructures Pvt. Ltd. at Rs. 10 Lacs per shares having face value of Rs. 100 at premium of Rs. 9,99,900/- pe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat 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 12,35,00,000 - 4. Essel Busines process Ltd., 1,00,00,000 19,00,00,000 19,00,00,000 - 5. -"- 2,71,73,445 51,62,95,455 51,62,95,455 - Total 6,68,31,658 1. Dish TV India Ltd., Esstl Corporate Resources Pvt Ltd., 10,32,125 1,74,619 2,81,97,655 2,80,23,486 2. Premier ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....embers. (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 given as per the Court approved scheme. (vii) Although the stated purpose of restructuring is consolidation of media assets or business, the real purpose is to divide the business amongst the family members. This has been done after getting the legal stamp of approval. (viii) Some of such instances of share transfer of group companies have been described, wherein the transaction of shares of Zee News Ltd (para 4.1), Dish TV (para 5.1), Wire & Wireless India Ltd. (City Cable) (para 6.1), Zeel (para 7.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 if the claim of assessee that transaction is covered u/s. 47(v) of the Act is correct, it has violated S. 47A of the Act since Essel Corporate Resources P. Ltd. has ceased to be the holding company of the assessee. He has pointed out that there are certain transactions of receiving the shares from the group companies and giving the shares to the group companies. According to him, these transactions are interconnected to each other. According to the CIT (A), these are exchange of shares and, therefore, the market value of shares have been correctly taken by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 with substitution of full consideration received by 'fair market value' in respect . of land and/or buildings. The impugned order makes a reference to Section 5OD of the Act which provides for substitution of full value of consideration received/accruing on a transfer of a capital asset being substituted by a fair market value. However this came into force only with effect from 1st April 2013. Therefore it cannot he relied upon for the subject Assessment year. The impugned order of the Tribunal further placed reliance upon the decision of its Co-ordinate bench in the case o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rket 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 irrevocable trust; 25. Reliance was placed on the decision of the Hon'ble Gujarat High Court in the case of the Prankriya Pharmacem v. ITO (238 Taxman 185) wherein it was held that in case where an assessee gifted its shares to its sister concern, such transaction would fall within the ambit of Sec 47(iii) and therefore such a transaction is exempt from capital gain. Accordingly, the transfer made as gift without consideration are not taxable under the provisions of capital gains. 26. Now we deal with specific objections raised by the A.O. (i) As regards the size of capital and huge losses and borrowing, we observe that this fact h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rovided 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 companies. As per out considered view this is not relevant for the purpose of deciding the issue. However, to put at rest any possible doubt the same is discussed herein below, (a) Zee News Limited The allegation of the Assessing Officer is regarding transfer of shares from Churu Trading Co. P. Ltd., Ganjam Trading Co. Pvt, Ltd., etc. to 25FPS Media P. Ltd. In this regards, we observe that transfers have taken place in a legitimate ways and there is no illegalities involved. The Assessing Officer has merely complained that the ownership of M/s. Zee News Ltd has been shifted from one group of shareholder to another but how this is impermissible or resulted in evasion of lawful tax lia....
X X X X Extracts X X X X
X X X X Extracts X X X X
....crued 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, although there is no gift deed, the transfer without consideration as gift are authorized by the Memorandum of Association as is evident from clause 36 of Memorandum at Pg. 95 of PB-I. 30. The provision of section 5, section 122 and section 123 of the TOPA which read as under: Section 5 of TOP A "5. In the following sections "transfer of property" means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself and one or more other living persons; and "to transfer property" is to perform such act. In this section "living person includes a company or association or body of individuals, whether incorporated or not, but nothing herein contained shall af....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 the nature of an income or its taxability should have been specifically provided by the statute. Under the Act, what is subjected to tax is only the 'income' of the assessee and not each and every receipt of the assessee, where the other receipts not in the nature of income are intended to tax, the legislature has specifically made provisions for taxability of such receipts in the statute itself like section 45, section 56(v), 56(vi), 56(vii) etc. It was also held that as per the provisions of law prevailing during the year under consideration, the gift received by one corporate body from another corporate bodies do not come under the ambit of income as contemplated under section 2(24) or any other provisions of the Act. While referring and following the decision in DP World (P) Ltd (supra) it was....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 concluded that the transaction would tantamount to exchange merely because of non-ticking of the options in the transfer sleep. Hence, the observation of the CIT(A) are on wrong appreciation of facts. 32. As per our considered view the transfer of shares, by way of gift, are exempt from the provisions of capital gain by virtue of provisions of section 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 transfers:- (i) any distribution of capital assets on the total or partial partition of a Hindu undivided family; (ii)[******] (iii) any transfer of a capital asset under a sift or will or an irrevocable trust: The Hon'ble Gujarat High Court in the case of the Prakriya Pharmacem v. ITO [238 Taxman 185] held t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing 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 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 section 56(1) cannot be resorted to. We may also refer to the provisions of section 56(2)(viia) of the Act which reads as under: (viia) where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010-[but before the 1st day of April, 2017], any property, being shares of a company not being a company in which the public are substantially interested,- (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (ii) for a consideration which is less than the aggregate fair market value of the propert....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 is not clear as to how the assessee has avoided tax by adopting the above modus operandi since direct gift by assessee to PFT would also be exempt. Further, when the ultimate recipient. PFT 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(1)(ii) of the Act. Accordingly, it is not even a case where the assessee has been able increase its cost of acquisition with a view to pay lower capital gains in future. 40. In this regard it is appropriate to bring on record that the ld. DR fails to appreciate that scheme of amalgamation would be approved by the High Court only after ensuring that the same is not prejudicial to the interest of its members or to public interest. Merger scheme approved by the High Court having in mind larger public interests cannot be disturbed by the revenue merely because the assessee has obtained tax....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 the judicial pronouncements referred by the lower authorities in their respective orders and cited before us by the ld AR and the ld DR. We found that the assessee is registered NBFC and for the purpose of its business it invests strategically into various entities. The AO in his impugned order has failed to appreciate that the aforesaid advances in the nature of share application money were done with a view to gain from investments in different ventures. The aforesaid advances were made to acquire promoter/controlling interest and to facilitate the Assessee's business interest. It may be pertinent to note that strategic advances to acquire controlling/promoter interest in the form of share application money stands on a different footing than regular advances. In the case of a strategic advance to acquire controlling interest, the Assessee gains from appreciation of equity share value of the investee company. If interest is charged this would go to reduce the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h 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 or to a director for his personal use, same would be presumed to be advanced for commercial expediency, thus no disallowance could be made U/s 36(l)(iii) of the Act. 46. Even though, the Tribunal in assessee's own case for the A.Y. 2008-09 and 2009-10 had set aside the issue for fresh adjudication, however, during the year under consideration, all the facts are on record. Considering all the facts and circumstances of the case during the A.Y. 2012-13 under consideration as discussed above, we hold that the investment was made as a commercial expediency. Accordingly, we direct the Assessing Officer to delete the disallowance of interest. 47. The Assessing Officer has also disallowed the assessee's appeal ground 3 related to disallowance of interest of Rs. 18,64,68,899/- under section 14A read with Rule 8D and Non adjudication of additional claim for deletion of suo-moto disallowance under section 14A read with Rule 8D of Rs. 8,29,19,798/- 48. Rival content....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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. 28,48,16,401/- (including the suo-moto disallowance of Rs. 8,29,19,798) should be deleted since the Assessee has earned no dividend income during the year under consideration. 49. For this purpose, reliance may be placed on the decision of the Hon'ble Delhi High Court in the case of Cheminvest Ltd v. CIT (378 ITR 33) overruling the Tribunal's decision relied upon by the AO holding as under: "In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression 'does not form part of the total income' in Section 14A of the envisages that there should be an actual receipt of income, which was not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A would not apply if no exempt income was received or receivable during the relevant previous year." The Hon'ble Bombay High Court in the case of PCIT v. Rivian Internatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wer 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 & Other Liabilities 1039,36,10,991 TOTAL A VAIL ABE FUNDS 1094,99,56,257 Amount given to the Applicant Company 35,00,00,000/- It is well established that in cases prior to AY 2013-14, the assessee is not required to prove source of source of funds received since the proviso to Section 68 of the Act requiring to do so was introduced w.e.f 01.04.2013. For this purpose, reliance can be placed on the decision of the Hon'ble Bombay High Court in the case of CIT v. Gagandeep Infrastructure Pvt. Ltd. [ITXA 1613 of 2014] and PCIT v. Veedhata Tower Pvt. Ltd. [ITXA 819 of 2015]. With regard to allegation of genuineness of the transaction, we observed that since all the funds have been remitted through a proper banking channel duly recorded in the books of account and financials of the Company, there cannot be any doubt on the genuineness of the transaction. A copy of the bank statement of the Assessee was submitted to establish the same. The Assessee even submitted the relevant board resolution, register of members and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as 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. 60. By the impugned order, CIT(A) deleted the disallowance after observing as under:- It is found that the AO has not specifically noted any expenditure that has to be incurred for the purpose of investment. The AO has worked out the disallowance u/s 14A mechanically. The Assessee has suomoto disallowed the major portion of the expenditure u/s 36(l)(iii) & u/s 37 of the Act. Further, it is found out that, during the year, the assessee has not earned any dividend income during the year. Therefore, in the view of Hon'ble High Court of Punjab & Haryana decision in the case of Lakhani Marketing Inc. (49 taxmann.com 257) and Hon'ble High Court of Allahabad decision in the case of M/s Shivam Motors (P) Ltd (55 taxmann.com262. Wherein it is held that unless and until, there is receipt of exempt income for concern assessment years, section 14A cannot be invoked. 61. Against above order of CIT(A), revenue is in further appeal before us. 62. We have considered rival contentions and found that issue with regard to disallowance u/s.14A r.w. Rule 8D, wh....