TaxTMI 
TaxTMI 
2019 (10) TMI 1395
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.....2016 determining total loss of Rs. 9,85,38,256/- after making disallowance u/s 14A of the Act to the tune of Rs. 1,56,966/-. Later this assessment was sought to be revised by the ld CIT u/s 263 of the Act by treating the order framed by the ld AO as erroneous in as much as it is prejudicial to the interests of the revenue. Accordingly, a show cause notice was issued by the ld CIT as under:- Office of the PRINCIPAL COMMISSIONER OF INCOME TAX - 6, Room No. 507: 5th floor, Aayakar Bhavan, Maharshi Karve Road, Mumbai 400020 No. Pr.CIT-6/263/Direct Media/2017-18 30th October, 2017 The Principal Officer. M/s. Direct Media Distribution Ventures Pvt Ltd, 135, Continental Buiiding, Dr. Annie Besant Road, Mumbai-400018 Sir, Sub: Notice u/s 263 of the I.T.Act, 1961 in the case of M/s Direct Media Distribution Ventures Pvt. Ltd for A.Y. 2014-15-Reg.- In this case assessment was completed u/s 143(3) of the I T.Act, 1961 on 27.12.2016 determining total loss at Rs, (-} 9,85,38,260/- against total less as per return of income of the assessee of Rs. (-) 9,86,95,222A. There has been only one addition of Rs. 1,56,966/- u/s 14A. During the course of assessment proceedings,....
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.... Market Price of Dish TV share was Rs. 54.61 per share. The claim of the assessee that it had gifted the shares of M/s Dish TV India Ltd. to M/s Direct Media Solutions P. Ltd. and no capital gains arose in this case was accepted by the AO as such and no enquiry was made in this case during the assessment proceedings. I, therefore, hold that assessment order passed by the A.O, u/s 143(3) of the Act on 27.12.2016 is erroneous and prejudicial to the interest of the revenue and take appropriate corrective measures as contemplated u/'s 263 in respect of the assessment order passed on 27.12.2016. If you have any objection to this proposed action, you are requested to send your objections within two weeks of receipt of the letter, failing which undersigned would provisions of the law, if you intend to avail a personal hearing, then you may attend this office on 16/11/2017 at 11.30 AM." 4. The assessee replied before the ld CIT that the transfer of shares was done as a measure of administrative convenience as a result of changing business dynamics. The above arrangement was carried out in compliance with the relevant corporate law and other requirements evidenced as under:- "To ....
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....ing intense transfer of shares from the Appellant without any consideration DMSPL has duly informed SEBI in terms of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 that it had acquired shares of Dish TV by way of an Off market Inter-se transfer of shares without any consideration. The copies of the disclosures filed with SEBI are annexed herewith vide "Annexure [C] In view of the above, we submit that the transaction of gift was a genuine transaction undertaken as a part of the business exigency discussed aforesaid and in compliance with the relevant legal requirement. In DIT v. Copal Research Limited (2014) 371 ITR 114 (Delhi HC), on the issue of tax avoidance, the Delhi High Court held that the taxpayer's transaction was not structured primarily for the purpose of tax avoidance. This was on the basis that the taxpayer had sufficient commercial reasons for carrying out the transaction in that manner. The Gujarat High Court in the case of Vodafone Essar Gujarat Ltd. Vs. Department of Income-tax (24 taxmann.com 323) (Guj.) held that in a scheme of arrangement in the form of demerger where telecom companies falling under same group transfe....
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.... a company can gift shares and such transaction may appear as 'strange' transaction but cannot be treated as "non-genuine" transaction. " The Mumbai Tribunal in the case of DCIT Vs. KDA Enterprises (P.) (171 TTJ 1) Ltd. has held where an assessee received certain amount from 'R' Ltd. on account of dividend receivable by four concerns against their shareholding in 'R Ltd., since there was no dispute about genuineness of transaction because receipt of amount was duly authorized by respective Memorandum and Articles of Association of assessee and donor companies, it was to be regarded as gift and therefore it is neither taxable as income from other sources under section 56 nor as capital gain. The relevant extract of the said judgment is reproduced as under: The said principle has been upheld even by the Authority for Advance Ruling in the case of Deere & Co., In re (337 ITR 277). Relevant extract is produced as under: The learned counsel for the applicant on the other hand has argued that there is no element of love and affection attached to the gift. According to ordinary meaning, "gift" means a thing given willingly to someone without payment. The learned ....
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....e characteristics of profit or gain or any consideration which is capable of being valued in present. The income in the sense of profit and gain should be real but not hypothetical income. The income may be in cash or in kind and need not necessarily be pecuniary in nature. Even then, the alleged consideration for which the shares are to be transferred should be capable of being evaluated on commercial and accounting principles. The possibility of applicant-transferor improving its overall business by virtue of reorganization and the mere possibility or chance of the applicant making better returns in the near or distant future as a consequence of reorganization can hardly be regarded as a consideration accruing or arising to the transferor when it has no right to receive a definite or an ascertainable amount or benefit from the transferee. A capital gain cannot arise on the basis of uncertain and indefinite future contingencies or hypothetical and imaginary estimations. There is really no effective answer from the revenues side to the question as to what is the valuable consideration that has accrued or arisen to the transferor and how it can be converted into money's worth fo....
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....e dictionary meaning of the word full' is "whole or entire, or complete". The word full' has been used in this section in contrast to 'apart of the price'. The words full price' means 'the whole price' Clause (2) of section 12B of 1922 Act itself clearly suggests that if no deductions are made as mentioned in sub clause (ii) thereof, then that amount represents the full value of the consideration or the full price. When deductions are made as specified in sub clauses (i) and (ii), then that amount does not represent the full value. The expression 'full value' means the whole price without any deduction whatsoever and it cannot refer lo the adequacy or inadequacy of the price bargained for. Nor has if any necessary reference lo the market value of the capital asset which is the subjectmatter of the transfer. Even, the Bombay High Court in the case of CIT Vs. Texspin Engg. & Mfg. Works (263 ITR 345) (Bom,) following the aforesaid decision of the Hon'ble Supreme Court and the Mumbai Tribunal in the case of Nariman Point Building Services & Trading (P.) Ltd. Vs. CIT (54 SOT 7) has held that the full consideration cannot be substituted by the ma....
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....laining the purpose of acquisition and transfer of shares of Dish TV India Limited at Nil consideration and had explained that the arrangement was done for commercial reasons due to internal restructuring exercise and not done as a measure of tax avoidance. We find from the perusal of the balance sheet of the assessee as on 31.3.2014 under Schedule 7 Non-Current Investments that the assessee had reflected as under:- Quoted Investments (valued at cost) 457212260 equity shares of Dish TV India Limited of Re 1 each fully paid up Rs. 183,27,76,598/- (Market Value Rs. 2382,07,58,746) (320074575 shares are pledged for loan taken by other related parties) During the year the company had transferred 24574137 equity shares of Re 1 each fully paid up of Dish TV India Limited to its related party, Direct Media Solution Private Limited at Nil Consideration to consolidate onshore media assets including shares of the listed companies. The above disclosure was made in the audited financial statements and this balance sheet was very much available before the ld AO at the time of assessment proceedings. 6.2. We find that the correspondences between the ld AO and the assesse....
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....deration is in the nature of gift and the gift of shares is not a taxable transfer as per provisions of Section 47(iii) of the Act. To support our contention, we would like to invite your kind attention to the Hon'ble Mumbai ITAT's decision in case of DP World (P) Ltd. vs. Deputy Commissioner of )' Income-tax - 2(1) [140 ITD 694 (2013)] wherein Mumbai ITAT has held that transfer of shares without monetary consideration is nothing but a gift and it is a capital receipt - not taxable under the provisions of Section 56(1) and Section 28(iv). Further, recently, the Chennai bench of the Income-tax Appellate Tribunal (the Tribunal) in the case of Redington India Limited (the taxpayer) has held that transfer of shares in a subsidiary, by way of a 'gift1, is not taxable as capital gains under section 45 of the Income-tax Act, 1961 (the Act). Moreover, such a gift is eligible for exemption under section 47(iii) of the Act. It is further heid that under section 48 of the Act, the computation mechanism failed where shares were transferred without consideration. Hence, the Jaddition made on such basis has been deleted by the Hon'ble ITAT. The above view has also been ....
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....bt that the ld AO had made due enquiries regarding the issue of loss on sale of non current investments during the course of assessment proceedings and the ld CIT in the instant case is only trying to substitute his own opinion in the place of opinion already framed by the ld AO. This substitution of opinion by the ld CIT cannot be done by exercising revisionary jurisdiction u/s 263 of the Act . Reliance in this regard is placed on the decisions of Hon'ble Jurisdicitonal High Court in the case of CIT vs Gabriel India Ltd reported in 203 ITR 108 (Bombay) dated 15.4.1993. 6.4. We also find that the assessee had filed a detailed reply dated 24.11.2016 before the ld AO which is part of the paper book filed before us and reproduced hereinabove explaining the purpose of transfer of shares at Nil consideration , factual and legal position thereon together with its act being in consonance with its Memorandum and Articles of Association . We find that the assessee had also placed reliance on several decisions including Mumbai Tribunal, Chennai Tribunal and two Supreme Court decisions in support of its legal arguments. When the assessee had duly explained that the transfer of shares by way ....
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.... Textiles Ltd in ITA No. 738 of 2014 dated 24.1.2017 wherein it was held that fair market value of shares transferred cannot be taken as 'full value of consideration' for computation of long term capital gains. The tribunal finally held that transactions carried out cannot be said to be colourable device and therefore by no stretch of imagination, the gain could be taxed under the head income from other sources. It also held that the gift of shares need not be by way of a gift deed and it should be authorized only by the Memorandum of Association of the company. In the instant case before us, we find that the gift of shares by the assessee company is duly authorized by its Memorandum of Association vide clause 26 as is mentioned by the assessee in the written submission dated 24.11.2016 filed before the ld AO which is not controverted by the revenue before us. The aforesaid tribunal decision also took note of section 5 of Transfer of Property Act which reads as under:- 5. In the following sections "transfer of property" means an act by which a lving person conveys property, in present or in future, to one or more other living persons, or to himself and one or more other living p....
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....y addressed by this tribunal in the aforesaid group company's case in Jayneer Infrapower & Multiventures (P) Ltd vs DCIT reported in 103 taxmann.com 118 (Mumbai Trib) dated 28.2.2019 by making proper reference to relevant provisions of Transfer of Property Act. Moreover, we find lot of force in the argument of the ld AR that once the assessee receives the shares of Dish TV India Ltd by way of gift, it obtains absolute right vested with it on the impugned shares. Hence it is at liberty to transfer those shares either with or without consideration to any other person. Hence the argument of the ld DR in this regard that assessee company had received the shares on gift in earlier years and had transferred the said shares by way of gift during the year which is a colourable device is completely devoid of merits. On the contrary, we find that assessee company receiving shares by way of gift in earlier years and transferring some of its shares during the year to another related person strongly supports the internal restructuring exercise carried out by the assessee and its group. This proves the intention of the assessee and its group to carry out the transactions within the legal framewo....