TaxTMI 
TaxTMI 
2019 (10) TMI 1395
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....y completed u/s 143(3) of the Act on 27.12.2016 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,....
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....3,51,72,125 4 10. Ganjam Trading Co.Pvt.Ltd. 1,68,76,987 4 1,68,76,987 2 11. Delgrada Ltd. 1,01,90,293 2 1,01,90,293 1 Total 22,84,05,022 53 73,87,73,425 78 57,23,84,385 63 67,23,84,385 63 In F.Y. 2013-14, the Average 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 undersig....
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....e same are annexed herewith vide "Annexure [B]" to this note for ready reference: Name of Companies Relevant clause of MOA / AOA Assessee MOA -Part in - B, Clause 26 - Subject to the provisions of any Law for the time being in force, to make, receive and accept gifts in cash or of property of any kind. DMSPL MOA - Part B -, Clause 7- to make, receive and accept gifts in cash or of property of any kind. C. Disclosures filed to SEBI under regulation of SEBI (Substantial Acquisition of Shares and Takeover) Regulation, 2011 by DMSPL for disclosing 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 requir....
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....nsideration has to be treated as gift within the meaning of Sec.47(iii) of the Act. The relevant extract of the said judgment is as under: "17. It -would not be out of place to mention that a combined reading of Sec, 82 of the Companies Act, Section 5 and Section 122 of the TPA suggest that a company can validly transfer the shares by way of gift, provided where Articles of Association of the donor company permits the same. In case of donor is a foreign company, the relevant corporate/commercial law of the jurisdiction where the donor is based needs to be considered. In the light of the above discussion, we have no hesitation to hold that 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 a....
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....uidator Palai Central Bank Ltd. 150 ITR 539 (SC) Further attention is invited to the case of Amintit Interntionl Holding Ltd.. In re (322 ITR 678) wherein the Applicant had transferred shares of one 'AFIIL', an Indian Company to its wholly owned subsidiary 'ACHL', without consideration, the AAR held that since the full value of consideration was not capable of being computed, the computation mechanism failed and therefore no capital gain arose. Relevant extract of the said judgment is as under: Viewed from any angle, no profit or gain has accrued or arisen to the applicant by virtue of the transfer of shares to its subsidiary company, it is not possible to identify or pinpoint anything which has the 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 applica....
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....mitted that the full value of consideration for the purpose of capital gains taxation should be in fact the actual consideration received by the assessee. If there is no actual consideration, it is not permissible in law to substitute with fair value/ or estimated value of the property. The Supreme Court in the case of CIT Vs. George Henderson and Co. Ltd. (66 ITR 622) has held that the full value of consideration for the purpose of computing capital gain cannot be substituted with the market value of the asset transferred on the date of transfer. Relevant extract of the said judgment is as under: The expression full value of the consideration' cannot be construed as the market value but as the price bargained for by the parties to the sale. The 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 considerat....
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....e shares are gifted by the assessee company to its related party at NIL consideration, there cannot be any incidence of capital gains on the same. It is pertinent to note that the assessee had acquired the shares of Dish TV India Limited in Asst Year 2012-13 also at NIL consideration from Essel Corporate Resources P Ltd and Prajatma Trading Co. P Ltd. When the shares of Dish TV India Limited were purchased in Asst Year 2012-13 at NIL consideration by the assessee which were accepted by the revenue as genuine, then there is no reason to doubt the sale of same shares to its related party in Asst Year 2014-15 at NIL consideration pursuant to the consolidation of onshore media assets carried out by the assessee and its group. 6.1. We find that the assessee had submitted the facts before the ld AO explaining 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 asse....
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....ral love and affection are not necessary requirement. Only requirement for company is to make gifts as per respective memorandum and article of association, which authorize the company for the same. In the instant case, the assessee company is duly authorized by its MOA vide Clause 26 to making of such gifts and hence, the above transfer is a valid gift. Copy of MOA and AOA of the assessee enclosed for your ready reference. Further, 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. In absence of any specific provision in the legislature to tax such a receipt, same is not taxable under the Act either u/s 45 or 56 of the Act. Same is in the nature of capital receipt and hence, not liable to tax. Such transfer of shares without consideration 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 Commissione....
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.... Hence, considering the facts of the case and the above judicial precedents, shares transferred are not regarded as taxable transfer. c) The assessee further replied vide letter dated 16.12.2016 before the ld AO as under:- Point 1 a) Working of loss on sale of non-current investment Sale Consideration NIL Less: Cost of acquisition 1931284243 * 24574137 / 481786397 9,85,07,645 Loss on sale of shares (9,85,07,645) Point 1 b) Details of Non-current investment Equity shares of Dish TV India Ltd Quantity 457212260 Amount 1832776598 6.3. We find that the ld CIT specifically mentions in his show cause notice that the assessee had submitted the calculation for loss on sale of non current investment during the course of assessment proceedings, based on which, the ld CIT tries to draw a different conclusion. The aforesaid correspondences between the ld AO and the assessee clearly go to prove beyond doubt 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 subs....
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....rd a copy of co-ordinate bench decision of this tribunal in the case of Jayneer Infrapower & Multiventures (P) Ltd vs DCIT reported in 103 taxmann.com 118 (Mumbai Trib) dated 28.2.2019 in similar circumstances which was one of the group company of the assessee involved in the transfer of shares of Dish TV India Ltd by way of gift at Nil consideration to another concern , wherein the revenue had treated the entire arrangement as a colorable device and brought to tax a sum of Rs. 57,90,33,060/- by adopting market value of shares as sale consideration as against Nil consideration. In the said decision, the assessee therein had also contended in a similar way that (i) the transaction is not colorable device ; (ii) selling price of shares cannot be replaced by the market value and (iii) sale of shares without price is a gift and not transfer u/s 47(iii) of the Act. In the said decision, this tribunal relied on the decision of Hon'ble Jurisdictional High Court in the case of CIT vs Morarjee 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 capit....
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.... that the main argument of the ld DR before us was emphasizing the observations of the ld CIT in his order that the assessee by way of an arrangement had avoided the capital gains tax in the instant case by resorting to circular transactions of transfer of shares of Dish TV India Limited. The ld DR before us also argued that once the circular transaction by way of an arrangement in order to avoid tax loses the character of 'gift', then the provisions of section 47(iii) of the Act would not be applicable. We find that this aspect has been duly addressed by the co-ordinate bench decision of this tribunal in assessee's group company case in Jayneer Infrapower & Multiventures (P) Ltd vs DCIT reported in 103 taxmann.com 118 (Mumbai Trib) dated 28.2.2019 supra. Moreover, the other reasoning given by the ld CIT in his order that company is not a living person and there cannot be any natural love and affection with it and hence there cannot be any valid gift from the side of the company. All these aspects were also duly 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 2....
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....so have to resort to gifting of its shares to its employees under ESOP scheme, among others. 6.10. We hold that when transfer of shares by way of gift are done at Nil consideration, we are not able to comprehend as to the existence of colourable device thereon. In the group company case referred to supra, this tribunal in para 13 of its order had held that no loss was ever claimed by that assessee on transfer of shares. In the instant case, though the assessee had claimed the long term capital loss on transfer of shares of Dish TV India Ltd in the original computation of income, the assessee had filed revised computation of income before the ld AO withdrawing the said loss vide letter dated 24.11.2016 during the course of assessment proceedings. The ld AO however ignored the revised computation filed by the assessee by not taking any cognizance of the same while completing the assessment. Surprisingly, the ld CIT in his revision order u/s 263 of the Act does not even seek to set right the same by pointing out that the order of the ld AO is erroneous to that extent. However, in order to put a quietus to the entire issue and in order to ensure that the assessee should not be unjus....