TaxTMI 
TaxTMI 
2019 (12) TMI 1179
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....ear 2009-10. Since issues involved in all the appeals are common arising out of identical set of facts, therefore, same were heard together and are being disposed of by way of this consolidated order. 2. As a lead case, we are taking up the appeal of M/s. Simpson Unitech Wireless P. Ltd. (ITA No.1953/Del/2014) and our finding given therein will apply mutatis mutandis for all the appeals. In various grounds of appeal, the assessee has challenged the addition of Rs. 548,55,00,000/- by holding that assessee has received benefit u/s.28(iv). 3. The facts in brief are that M/s. Simpson Unitech Wireless P. Ltd. was incorporated on 21.10.2008 and hence this was the first year of operation of assessee-company. The assessee had declared loss of Rs. 21,456/- in the return of income filed on 06.10.2010. Ld. Assessing Officer noted that the nature of business activity was as under: "To promote & establish companies, funds, associations or partnerships for providing telecom networks and to run and maintain telecom services like basic/fixed line services, cellular/wireless/mobile services and as SPV to make investments by way of loans or subscription to equity shares or other secur....
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....h Wireless Pvt. Ltd. which was the listed Public Ltd. Company. Somewhere in January/February 2008 all UW Companies applied to the Department of Telecommunication (DOT), Ministry of Communication and Information Technology, Government of India for grant of United Access Services Licenses (UASL). The DOT issued Letter of Intent (LOI) stating certain conditions on January 10, 2008 and post compliance of which UASL Agreement would be assigned. After complying with the conditions of LOI, all UW Companies executed UASL Agreement with DOT on 28 and 29 February, 2008 for different service areas. Thus, these eight companies got allotted spectrum by DOT under UASL of 2G Licenses. 6. Considering the scale of the proposed operation of the telecom business and also the capital intensive nature of the said business, these telecom companies proposed infusion of fresh funds through fresh issue of share capital. In order to meet subsequent capital requirements of telecom operations in accordance with the Government Policy, i.e., a foreign investor could hold up to 74% stake in Telecom Companies operation in India these companies invited foreign telecom companies. Interest was expressed by the Te....
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....0 82,50,000 8. On 30.01.2009, the said SPVs raised a secured loan in the form of compulsory convertible debentures (CCD) from a subsidiary of Unitech Ltd. and in terms of the CCD Agreement, it was agreed that the lender would have the option to call upon the SPVs to issue fresh share capital to convert the amount representing the debentures, into equity share capital. On 28th October, 2008, the assessee entered into a Subscription Agreement with Telenor Group for acquisition of 60% stake in UW companies. Later on, the subscription agreement was modified by another agreement dated 16th March, 2009 whereby the telecom companies made fresh allotment of shares having face value of Rs. 10/- to Telenor Group at a premium of Rs. 169.73 per share resulting in equity shareholding of Telenor Group at Rs. 67.25% in such telecom companies. The details of share allotted by the telecom companies to the Telenor Group for the sake of ready reference are tabulated as under: Name of the telecom Companies No. of Shares allotted Allotment Price Face Value Premium Total price Unitech Wireless (North) Pvt. Ltd. 1,31,03,306 179.7312 10 169.7312 235,50,72,912 U....
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....of the assessee was to make investment in telecom business. He also observed that both transactions between the telecom companies and M/s. Telenor happen simultaneously and they were marked similarities between the two transactions. He also took note of the following facts from two transactions: "While assessee got the shares from M/s Unitech Limited, M/s Telenor purchased the shares from the telecom companies directly. Shares were purchased by the assessee from M/s Unitech Limited at a price of Rs. 10/- per share, i.e., Face Value, However, shares were offered by the telecom companies to Telenor, Singapore at a premium of Rs. 159/- in addition to the face value of Rs. 10/-. Actual market value of such shares, as apparent from the rate at which equity was raised from Telenor comprising face value of Rs. 10/- plus share premium of Rs. 159/- per share. Such transaction is the true indicator of the market value of the shares of the Eight Telecom Companies. Thereafter, Assessing Officer held that assessee made a 'killing' by getting a chance to purchase share of telecom company at just a face value even when owing to the fact that telecom company had USAL,....
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....ng part of the Audited Balance Sheet of the appellant company for the relevant assessment year and particularly the 'Related Party Transactions', the shares have been acquired by the Appellant Company from M/s Unitech Limited for Rs. 34,50,00,000/- for which the appellant company issued equivalent - 3,45,00,000 Compulsorily Convertible Debentures (CCDs), at par convertible into fully paid equity shares, having a face value of Rs. 10/- amounting to Rs. 34,50,00,000/- to M/s Unitech Holding Ltd., a related party, Even all the 10,000 equity shares of the appellant company are held by Mr. Ramesh Chandra & Mr. Sanjay Chandra i.e 5000 each, who happened to be the promoters and majority shareholders in M/s Unitech Ltd. (67.67%). Similarly M/s Unitech Holding Ltd is also a 100% owned subsidiary of M/s Unitech Ltd. Therefore, owing to the fact that M/s Unitech Ltd., a related party with common management, held majority stake in the telecom companies and therefore, being in the privileged position, the assessee company was sold such shares by M/s Unitech Limited at just the face value, the benefit is in the shape of difference in value of two prices i.e. the price by the assessee for....
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....aper Book-I) Schedule 1 1.4) At the time of conversion of CCDs. Unitech shall at its sole option have a right to purchase the entire issued and paid up share capital of the company from its existing shareholders at par value. 3. Annual Report of Unitech Limited for the F.Y. 2008-09 (pages 14 to 24 of the Paper Book-I) In January 2009, the company transferred 7% of its stake in Unitech Wireless to three associate companies, namely Cestos Unitech Wireless Pvt. Ltd., Simpson Untiech Wireless Pvt. Ltd. and Acorus Unitech Wireless Pvt. Ltd.. to fulfil the conditions precedent for investment under the subscription agreement. However the com pan \ continues to hold economic interest in Unitech Wireless through compulsory convertible debentures and options in the three associate companies Further, in order to show that sale of shares of Appellant Company and subscription of shares of telecom companies by Telenor group are not comparable; he submitted a detailed comparative chart, which is reproduced hereunder: Basis of Difference Shares of 8 Unitech Wireless Companies held by Cestos, Simpson and Acorus Shares of 8 Unitech Wireless Companies held by Telenor Dat....
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....forcement of pledge. Telenor was having sufficient funds and expertise in telecom sector. Since Telenor was having management control of 8 Unitech Wireless Companies, it was controlling utilization of subscription amount received by 8 Unitech Wireless Companies. There was no risk attached to the shares held by Telenor. Since the shares held by Telenor were not pledged with the lenders, there was no risk on the shareholding of Telenor. Basis of Difference Shares of 8 Unitech Wireless Companies held by Cestos, Simpson and Acorus Shares of 8 Unitech Wireless Companies held by Telenor Purpose Shares were acquired by 3 companies to comply with pre-condition prescribed by Telenor for investment in 8 Unitech Wireless Companies (conversion to private limited companies from public limited companies), failing which no investment would have received from Telenor and there was a significant business risk as stated above. There was no business risk for Telenor when it subscribed the shares of 8 Unitech Wireless Companies. 13. Thus, he pointed out that these are two independent transactions with distinct objectives. First transaction is the sale of 75% shareholding in 8 W....
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.... • The investments were made by the appellant company with an intention to invest in telecom companies as an investor. It does not and cannot mean that, the assessee is carrying on any business even as a business of investing in companies. Any gain on investment or disinvestment may result into income and, it is only when it is found that, such investment are being made on a regular basis, having the traits of business, it could be stated that it is engaged in the business or carries on a business. It is only when it is found and established that, assessee is making investments not as an investor but in the course of business and it holds investments as stock-in-trade, only then it can be stated that, such an assessee is carrying on any business. There is a conceptual difference between business of holding of investments and, carrying on of business. The profits and, gains, must arise or accrue in the course of business and, not in the business of holding of investments. Mere having acquired the shares as an investment when it purchased shares from a public limited company at face value, it cannot be alleged that, there arose any benefit or perquisite to the appe1lant co....
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....le in the year of receipt." It held in para 21 that, "the benefits represents at the best, a hypothetical income which may or may not materialize and its money value is therefore not the income of the assessee." In arriving the aforesaid conclusion, their Lordships relied on the following judgments of the Hon'ble Supreme Court: ii) 46 ITR 144 (SC) CIT vs. Shoorji Vallabhdas and Company iii) 82 ITR 835 (SC) Morvi Industries Ltd. vs. CIT iv) 158 ITR 102 (SC) State Bank of Travancore vs. CIT v) In the above judgment, it is clearly stated that income tax cannot be levied on hypothetical income. The income tax is a tax on real income and there cannot be a tax if income does not result at all. In the said case the court took the view that, the probability or improbability of realization has to be considered in a realistic manner and it was held that there was no real accrual of income. vi) It is submitted that in the instant case, all that had happened was that, the assessee had purchased shares @ Rs. 10/- per share of eight Unitech Wireless Companies tor telecom companies), that is, at the same rate at which these shares had been acquired by ....
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....to the above it will be important to mention here that there is a specific provision in the Act has been introduced i.e. Section 56(2)(viia) to tax transactions after June 1, 2010 which is less than fair market value. It is evidently clear that this provision is not applicable in the present case as the instant transaction happened prior to June 2010 and even otherwise as per this provision the tax can only be levied in the hands of recipient company. Accordingly it is submitted that the Ld. AO has completely erred in replacing the actual consideration received by the company with the notional value which according to the Ld. AO ought to be received. Both the AO and CIT (A) have not rebutted any of the basic and fundamental submissions duly supported by case laws. He thus submitted that no benefit arose to the appellant company by purchasing the shares, what to say of any benefit or perquisite under section 28(iv) of the Act. It is submitted that the appellant company had purchased 3.45 crores shares at Rs. 10 per share from M/s Unitech Ltd. of 8 telecom companies for an aggregate consideration of Rs. 34.50 crores under share purchase agreement dated 25.10.2008 and therefore, both ....
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....A) in para 8.1.14, owing to the fact that M/s Unitech Ltd, a related party with common management, held majority stake in the telecom companies and therefore, being in the privileged position, the assessee company was sold such shares by M/s Unitech Ltd at just the face value, the benefit is in the shape of difference in value of two prices, i.e., price by the assessee for acquisition of shares and the price including premium by M/s Telenor, Singapore has accrued to the assessee in the process of assessee company's stated business of making investment in telecom companies of its own group. Hence, provisions of section 28(iv) are applicable in this case. M/s Acorus Unitech Wireless (P.) Ltd. filed writ petition W.P. (C) No. 1954 of 2013 challenging I.T.A. No.1953, 101/DEL/2014 & 2075 & 2989/DEL/2017 29 reopening u/s 147 of I.T.Act. Hon'ble Delhi High Court held as follows: "20. Therefore, primary fuels in this ease - that lead to the AO's satisfaction - have been spell-out in this case in the reasons recorded by the AO. These fads are. at the very' least, capable of supporting the inference that the sale of shares to the petitioner in this case from Unitech ltd. was....
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....on 28(iv) as receipt in hands of debtor/assessee are in form of cash/money and it also cannot be taxed as a remission of liability under section 41(1) as waiver of loan does not amount to cessation of trading liability. In the case of assessees, there is no issue regarding cessation of liability as in the case of CIT Vs Mahindra And Mahindra Ltd. (ii) In para 17 of the order, Hon'ble Supreme Court held as follows: "17. To sum up, we are not inclined to interfere with the judgment and order passed by the High court in view of the following reasons: (a) Section 2H(iv) of the IT Act does not apply on the present case since the receipts of Rs. 57, 74,064/- are in the nature of cash or money. (b) Section 41(1) of the IT Act does not apply since waiver of loan docs not amount to cessation of trading liability. It is a matter of record that the Respondent has not claimed any deduction under Section 36 (1) (iii) of the IT Act qua the payment of interest in any previous year. " 20. He further submitted that in the case of assessees, benefit has been received in form other than money. Moreover, it is not a case of cessation of liability. The de....
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....nal was wrong in upholding deletion made by AAC. iii. CIT Vs Nagesh Knitwears (P.) Ltd. f20121 22 taxmann.com 309 (Delhi)/[20121 210 Taxman 145 (Delhi)(MAG.)(2012) 345 ITR 135 (Delhi), where Hon'ble Delhi High Court held that premium received on sale of export quota by exporters of readymade garments is not covered by any of clauses i.e., clause (iiia) to (iiic) of section 28 and therefore, cannot be included while computing deduction under section 80HHC. iv. CIT Vs T.V. Sundaiam Iyengar & Sons Ltd. T19961 88 Taxman 429 (SC)/f19961 222 ITR 344 (SQ/pl9961 136 CTR 444 (SC), where Hon'ble Supreme Court held that amount representing unclaimed credit balances written back to profit and loss account by assessee during assessment year under consideration, could be treated as assessee's income and liable to be taxed. v. Solid Containers Ltd. Vs DCIT f20091 178 Taxman 192 (Bombay)/r20091 308 ITR 417 (Bombay)/r20091 222 CTR 455 (Bombay), where Hon'ble Bombay High Court upheld addition where assessee had taken a loan from 'P' during previous year for business purposes which was written back in relevant assessment year as a result of consent terms arrived....
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....ecom companies. Further Telenor subscribed for fresh equity shares of the wireless companies in four tranches starting from 20.03.2009 to 10.02.2010 at a price of Rs. 179.73 per share. The entire transaction to acquire investments in 8 UW Companies from M/s. Unitech Ltd. was to facilitate the investment by Telenor Group in the eight companies without transferring the economic interest in M/s. Unitech Ltd. The allegation of the Assessing Officer was that there is a similarity of transaction between the acquisition of shares by the assessee companies under SPVs of 8 Unitech Wireless Companies; and the shares acquired by Telenor of the same 8 wireless companies. However, despite the fact that there was time gap between the acquisition of share by three companies and subscription of share by the Telenor, but the major difference as culled out from the fact are that, firstly, the shares which were acquired by the three assessee companies were pledged with the lenders at the time of acquisition for securing the credit facility availed by M/s. Unitech Wireless Companies; whereas share issued to Telenor were not pledged and were free from encumbrance. Secondly, the Telenor had acquired con....
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.... not apply where the receipts are in the nature of cash or money. Here, the assessee company was formed not either for carrying on any telecom business or business for investing in companies. It has held the shares of 8 UW companies as an investment in order to facilitate the Telenor Group to acquire majority stakes in the 8 UW Companies. It is not a case here that investment has been made on regular basis having the trait of business, albeit the shares were held as investment. If the assessee has acquired the shares as an investment from a public limited company at a face value, then it cannot be held that there arose any benefit or perquisite to the assessee company in terms of Section 28(iv). If at all, the Revenue was of the opinion that the value of the shares held by the assesseecompany of the 8 telecom companies were are less than the market value, then the only provision in which it could have been scrutinized or examined was under a deeming provision of Section 56(2)(vii)(a), which provision has brought in the statute w.e.f. 01.04.2013. Apart from that, assessee has not acquired the share in lieu of some benefit or perquisite albeit has made the actual payment in money for....
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....te to the assessee company. If there is any dispute regarding the valuation which is to be added, the same would be applicable under the deeming provision of Section 56(2)(vii)(a) which provision was not applicable in the present assessment year. Here, the assessee company had purchased 3.54 crore shares at Rs. 10/- per share from M/s. Unitech Ltd. of 8 telecom companies for an aggregate consideration of Rs. 34.50 crores under share purchase agreement dated 25.10.2008 and any subsequent allotment by such 8 telecom companies independently to Telenor at Rs. 179 per share cannot be the basis to hold that there is any benefit or perquisite arising from business carried on by the assessee company. In a worst case scenario if there is any benefit the same benefit would be of M/s. Unitech Ltd. which held the shares of 8 telecom companies from whom the three companies have purchased the shares. It would be also relevant to mention that Ld. CIT (A) in one of the assessee company which is also impugned before us, i.e., M/s Acorus Unitech Wireless Pvt. Ltd., held at page 22 para 11, that the benefit if at all in these transactions actually accrued to Unitech Ltd. and to favour Sri Ramesh Chan....