TaxTMI 
TaxTMI 
2019 (3) TMI 1860
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....ce of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules. Judicial decisions relied upon were carefully perused. 3. Before proceeding further, it would be pertinent to understand the facts of the case. 4. Vide deed of partnership effective from 26.05.2001, Shri A.C. Burman, Shri V.C. Burman, Shri G.C. Burman and Shri Chetan Burman entered into a partnership with profit sharing ratio 20:40:20:20 respectively. These partners decided to enter into a partnership for investing in equity capital of Joint Venture Company [JVC] proposed to be established in India for the purpose of setting up and carrying on the businesses of insurance, pension and long-term savings. Subsequently, Supplementary Partnership Deeds were executed on 07.11.2001, 29.10.2003 and 22.12.2011. 5. On 07.08.2001, a Joint Venture Agreement was entered into between M/s Commercial Union International Holdings Ltd [CUIH] and Dabur Invest Corp, the partnership firm referred to hereinabove. CUIH is a company incorporated in England and Wales. Later on, the name was changed to Aviva International Holdings Ltd. This joint vent....
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....e total amount of paid up share capital of the company (the "specified Proportion") and the shareholders shall subscribe for such additional shares in accordance with Clause 6.4 below. However, if an Annual Business plan for a year requires capital contribution by Dabur in excess of the amount ("Permitted Amount") which is aggregate of : (a) The amount required to be contributed by Dabur in that year in terms of the Five Year Business Plan, and (b) 30 percent of the amount set out in (a) above. the call by the Company for further subscription by the shareholders pursuant to this Clause 6.1 shall be subject to approval of the aforesaid Annual Business Plan by both shareholders. 6.2 Notwithstanding anything stated in Clause 6.1 above and elsewhere in this Agreement, the total financial commitment of Dabur towards the Company shall not exceed Rs. 237 Crores which constitutes 74% of Rs. 320 Crores, the proposed total paid up equity share capital of the Company. 6.2.1 [Not Used] 6.2.2 [Not Used] Provided further, Dabur's obligation to discharge its commitment under this Clause 6.1 is subject to CUIH, prior to Dabur ....
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....rs; (e) if a Subscription Request has been issued in terms of paragraph (d) above, the shareholder shall be obliged to subscribe to the requisite number of shares set out in the subscription Request within seventy five (75) days from the date of such Subscription Request. 6.5 Subject to Clauses 6.2, 6.4 and other terms of this Agreement, each Shareholder shall on or before the Payment Date pay in full for the Shares to be issued to it by way of cheque/ bank draft/ pay order or wire transfer to the credit of the Company at such bank in India as the Company shall designate in the Subscription Request is issued in terms of Clause 6.4 (e), the company, acting through its Chief Executive Officer, shall be entitled to invoke the Dabur Guarantee to the extent of the amount payable provided CUIH has subscribed to the shares as per the Subscription Request. In the event the Company invokes the Dabur Guarantee, it shall within thirty (30) days issue to Dabur the appropriate number of fully paid up Shares at par value for which such payment has been received by the company from the Bank. The company shall deliver to Dabur, share certificate (s) evidencing valid titl....
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....requires further financing, CUIH shall be obliged first to increase its shareholding in the paid-up capital of the company to the Revised Applicable Law Percentage by purchasing the required number of Shares from Dabur in accordance with the terms of this Agreement. After such subscribing by CUIH, the shareholders shall provide any further financing subject to clause 6.2, in proportion to their new shareholding ratio in the company. " 10. It can be seen from clause 6.10 of the agreement [supra] that in the event the applicable law % is changed to allow CUIH to hold more than 26% of the total equity share of the company and in the event the company at that particular point of time required further financing, CUIH shall be obliged to increase its shares holdings in the paid up capital of the company to the revised applicable law percentage by purchasing the required number of shares from Dabur Invest Corp in accordance with the terms of the agreement. 11. Composition of Board of Directors is given in clause 11 and the same read as under: "11. Board of Directors 11.1 Unless otherwise agreed by the shareholders, the number of directors of the company shall be te....
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....accede to this Agreement by execution of a Deed of Adherence in the form set out in Schedule 7 and shall accede or execute such other documents to which the Transferring Party is a party; 15 1.3 the transfer complies with the Articles and the Applicable Law'; 15 14 the Transferring Party shall procure that such Affiliate transfers back to the Transferring Party any Shares held by such Affiliate prior to it ceasing to be an Affiliate of the Transferring Party. 15. 1.5 notwithstanding the transfer by Dabur of its Shares to one or more Affiliates, CUIH agrees that Dabur shall always retain the rights to invoke the CUIH Option Price Guarantee and/ or the CUIH Subscription Price Guarantee in accordance with the terms of this Agreement on behalf of such Affiliates. However, no such Affiliates shall have the right to invoke either the CUIH Option Price Guarantee and/ or the CUIH Subscription Price Guarantee. 15.2 Any transfer of Shares in accordance with this Clause 15 shall be effected by the Transferring Party transferring such Shares as beneficial owner free and dear of all security interests other than those imposed by this Agreement or the Arti....
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....Percentage. The rights available to CUIH and Dabur under this Clause shall be exercised in accordance with the procedures set out in Schedule 6, 16.2 During the term of this Agreement and on each Option Price Payment Date, CUIH will pay to Dabur the Option Price on the total number of Shares held by Dabur at such Option Price Payment Date, failing which Dabur shall be entitled to invoke the CUIH Option Price Guarantee to recover such amount. The above Option Price shall be paid on each Option Price Payment Date to Dabur until: (a) all Shares held by Dabur other than the Retained Shares are sold and Dabur has received sale proceeds for such shares in terms of this Agreement: or (b) Dabur accepts the Retention Offer made by CUIH as per Clause 16.9.2.4 on all the Dabur Shares. 16.3 [Not Used] 16.4 [Not Used] 16.5 [Not Used] 16.6 The sale consideration received by Dabur pursuant to the exercise of the CUIH Option or the Dabur Option, shall always be the Market Value per each Share sold by Dabur provided that:- 16.6.1 in the event that the Market Value is lower than the Subscription /Price, CUIH shall also ....
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....ration 8(1) in Schedule 9) ; 16.8.3.2 If the Market Value is higher than the Subscription Price but lower than the Subscription Price plus the Option Price (to be calculated in accordance with Schedule 3), paid till date on such Shares, Dabur shall repay CUIH, within thirty (30) days of receiving the Market Value, an amount equal to the difference between the Market Value and the Subscription Price (see illustration B{2) in Schedule 9); 16.8.3.3 If the Market Value is equal to the Subscription Price plus (he Option Price received on such Shares, then Dabur shall repay CUIH the total Option Price (to be calculated in accordance with Schedule 3), paid till dale on such Dabur Shares within thirty {30) days of receiving the Market Value (see illustration 8(3) in Schedule 9); 16.8.3.4 If the Market Value is lower than the Subscription Price, CUIH shall pay to Dabur the difference between the Market Value and the Subscription Price simultaneous with Dabur offering its Shares as a part of the divestment process. Dabur shall retain the Option Price received by it on such Shares, (see illustration B{4) in Schedule 9). In the event, CUIH fails to pay the d....
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....l be effect in accordance with the procedures set out in Schedule 6B1. 16.9.2.3. Notwithstanding anything contained in Clause 13.3, CUIH may give a Sale Notice that it requires Dabur to divest to public some or all the Dabur Shares. Dabur shall be obliged to sell the number of Dabur Shares specified in the Sale Notice. In the event of divestment by Dabur of the Dabur Shares If :- (a) the Market Value realized by Dabur is higher than the Subscription Price plus the Option price received on such Shares, Dabur shall repay to CUIH within thirty (30) days of receiving the Market Value, the total Option Price ( to be calculated in accordance with Schedule 3), paid till date on such Dabur Shares( see illustration C(1) in Schedule 9); (b) If the Market Value is higher than the Subscription Price but lower than the Subscription Price plus the Option Price ( to be calculated in accordance with Schedule 3), paid till date on such Shares, Dabur shall repay to CUIH within thirty (30) days of receiving the Market Value, an amount equal to the difference between the Market Value and the Subscription Price ( see illustration C (2) in Schedule 9); (c) If the Mark....
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....otice and the Shareholders shall cooperate with the Company in this regard. 16.9.5 [Not Used] 16.9.6 Provisions applicable to Retained Shares The following provisions shall apply in relation to the Retained Shares and Shares which are treated as Retained Shares pursuant to Clause 16.9.2.4: 16. 9. 6. 1 Dabur shall repay the Option Price it has received it respect of the Retained Shares within thirty (30) days of expiry of the Ten Year Period. The amount to be repaid by Dabur to CUIH by way of Option Price shall be calculated in accordance with the formula set out in Schedule 3 16.9.6.2 The CUIH Option shall cease in respect of the Retained Shares; 16.9.6.3 CUIH shall cease to pay the Option Price on the Retained Shares after the Ten Year Period; 16.9.6.4 CUIH shall have pre-emptive rights over the Retained Shares in terms of Clause 16.9.7; 16.9.6.5 CUIH shall not be obliged to guarantee Dabur a minimum of Subscription Price on the Retained Shares and the CUIH Subscription Price Guarantee to that extent snail cease forthwith; and 16.9.6.6 any Third Party who purchases the Retained Share....
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....f its tag- along right under Clause 17.2.5, sells its Shares, Dabur shall repay CUIH the Option Price received by it (to be calculated in accordance with Schedule 3). Such repayment shall be in accordance with Clause 17.2.5 (b) Dabur shall repay the Option Price (to be calculated in accordance with Schedule 3) on Retained Shares in terms of Clause 16.9.6." 15. Transfer of CUIH shares is governed by clause 17 and the same reads as under: 17. Transfer of CUIH shares 17. 1 Transfer of CUIH Shares - During the Ten Year Period Subject to Applicable Law, if at any time during the fen Year Period CUIH decides to sell, transfer, alienate or otherwise dispose off, all and not less than all, of the CUIH Shares to a third party, CUIH shall do so in accordance with the procedure set out below: 17.1.1 CUIH shall give a notice in writing ("CUIH Offer Notice") to Dabur stating the price per share at which CUIH is willing to sell its shareholding. This price shall be one which has been given by an investment banker to CUIH as the indicative value which CUIH may receive in respect of its entire shareholding in the Company from one or more Thi....
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....CUIH is unable to divest its entire shareholding in the Company within one (1) year of the CUIH Offer Notice; or (b) Dabur has expressed its intention in terms of Clause 17.1.2(b), but CUIH is unable to complete the sale of the Shares held by Dabur within one (1) year of the CUIH Offer Notice. Then, within one (1) year of the date of the notice issued by Dabur under Clause 17.1.2, or such extended period of time as agreed by the Shareholders mutually, the Shareholders shali cooperate with each other to wind up Ihe Company subject to Applicable Law. The provisions of Clause 20.1 shall apply in relation to such winding up. 17.1.7 {Not Used] 17.1.8 If at any time during the Ten Year Period CUIH sells, alienates, and/or transfers any of the CUIH Shares without complying with the procedure set out in this Clause 17.1, Dabur shall be entitled to invoke the CUIH Subscription Price Guarantee. 17.1.9 If Dabur exercises its option in accordance with Clause 17.1.2(b) above, it shall within fifteen (15) days of exercising such option, provide CUIH with a power of attorney which shall be substantially in the form set out in Schedule 12. Subj....
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....n thirty (30) days of the date of its acceptance, against delivery by CUIH of the relevant share certificates/title documents and duly executed transfer documents Thetime limits set out in this Clause shall be extended by a period equal to the time taken for obtaining any approvals pursuant to Clause 17.2.3 17.2.3 Should the approval of any Government or regulatory authority be required by Dabur or the Third Party nominated by it for acquiring the CUIH Shares, Dabur shall make or procure an application to be made therefore within thirty (30) days of the date of notification of acceptance and pay or procure the payment of the price for the shares within thirty (30) days of the receipt or such approvals. If for any reason whatsoever such approval is not received within ninety (90) days of making the application, CUIH shall be at liberty to withdraw the offer. For the avoidance of doubt, if CUIH desires to transfer the CUIH Shares at any lime after withdrawing the offer, as aforesaid, the provisions of Clause 17 2 shall apply to such transfer. 17.2.4 If Dabur- (a) declines CUIH's offer as set out in the Offer Notice and allows CUIH to sell its Shares to ....
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....trati retain the Option Price received on such Gabur Shares (see illustration E{3) in Schedules). The sale of the CUIH Shares and the sale of the Dabur Shares shall take place simultaneously and both Dabur and CUIH undertake to each other that in the event that the sale of the other Shareholder's (i.e., CUIH/Dabur, as the case maybe) Shares does not proceed to completion for whatever reason, neither of them shall sell, transfer, alienate or otherwise dispose of any of their respective Shares. If Dabur exercises its option in accordance with Clause 17.2.5 above, it shall within fifteen (15) days of exercising such option, provide CUIH with a power of attorney which shall be substantially in the form-set out in Schedule 12. Subject to Applicable Law the power of attorney given by Dabur shall allow the attorney the ability to execute the required share transfer forms and sale & purchase agreement on behalf of Dabur" 16. Similarly, transfer of shares by Dabur is governed by clause 17A which reads as under : "17. Transfer of Shares by Dabur 17.A1 Transfer of Shares by Dabur - During the Ten year Period. Subject to Applicable Law, Dabur sha....
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.... permit Dabur-GGU to receive refundable Option price and to refund the amounts so received in terms of the JV Agreement dated 7th August 20uf. Yours faithfully, (M.R.Rangachari) Deputy General Manager 20. On 07.04.2002, the RBI amended the above mentioned letter as below: RESERVE BANK OF INDIA EXCHANGE CONTROL DEPARTMENT CENTRAL OFFICE BUILDING MUMBAI-400001. Ref. No. EC. 6030/1001-02.01.01/2001-02 17th April 2002 M/s. Dabur invest Corporation, Off Punjabi Bhawan, 10, Rouse Avenue, New Deihi 110 002. Dear Sirs, Acceptance of Option price from M/s. Commercial Union International Holdings Ltd. (CUIH) Please refer to the correspondence resting with our letter dated 15th April 2002 on the captioned subject. We hereby amend para 2 of our above letter dated 15th April 2002 to read as under: "We hereby permit Dabur Invest Corporation to receive refundable Option price from CUIH and to refund the amounts so received in terms of the JV Agreement dated 7th August 2001." Yours faithfully, (M. R. Rangachari) Deputy General Manager 21. As menti....
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....ngs Limited, UK by way of transfer of 23% shareholding currently held by Dabur Investment Corp. All remittances by the foreign collaboration shall be made as per the exchange rates prevailing on the day of remittance. The transfer / issue /pricing of the shares be as per RBI / SEBI guidelines as applicable. The approval is subject to the following conditions :- a. Compliance with the provisions of the Insurance Act, 1938 and the condition that Companies bringing in FDI shall obtain necessary license undertaking Insurance activities. b. Compliance with para 6.2.18.7.2 of the FDI Policy 2015 c. Compliance with the Indian Insurance Companies (Foreign Investment) d. The taxation of dividend, future capital gains on alienation of shares by the foreign investor, interest income and income of any other nature shall be examined by the field formation in accordance with the provisions of Income - tax Act, 1961 and DTAA applicable to the facts of the case. e. Claim of any tax relief under the Income Tax act or the relevant DTAA will be examined independently by the tax authorities to determine the eligibility and extent ....
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....fluent and emission standards as may be prescribed by the State Government in which the investee company/ project is located. 15. You shall ensure that your proposed investment approved vide this letter is in compliance with Prevention of Money Laundering Act, 2002 as amended from time to time. 16. You may now proceed, if needed to finalise the foreign collaboration agreement. This approval letter be made part of the said agreement to be executed between the investee company and the foreign collaborator and only those provisions of the agreement which are covered by this letter or which are not in variance with the provisions of this letter shall be binding on the Government of India or Reserve Bank of India. 17. The Administrative Ministries/ Departments is Department of Financial Services. 18. You shall file required documents of inward remittance with the Regional Office of the Reserve Bank of India within 30 days after issue of shares in terms of FEMA regulations notified by RBI> 19. A copy of the foreign collaboration agreement, signed by both parties shall be furnished to the following authorities: i. Reserve Bank of India....
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.... your application dated 23rd November, 2015 and the correspondence resting with the Authority on the captioned subject. 1. We are pleased to inform you that the Authority hereby grants approval under Section 6A of the Insurance Act, 1938 for the following:- i) Increase in foreign equity participation by Aviva International Holding Ltd. (AIHL) in Aviva Life Insurance Co. Ltd from the existing 26% to 49% through transfer of 461127000 shares from Dabur Invest Corp. to AIHL for a total consideration of Rs. 940 crores. 2. The approval is subject to the conditions as indicated below:- i) Your company shall file the amended Articles of Association to bring them in line with the amended JV agreement between promoters/ shareholders within a period of 30 days from the date of approval of the Authority. ii) Your company shall comply with the pricing guidelines issued by the RBI as applicable to the transaction of transfer of shares; iii) Your company shall ensure compliance with the conditions stated in the letter F.No.018(2016)/170(2015) dated 18th March, 2016 of FIPB, Department of Economic Affairs. iv) Your company shall comply....
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....ual Report as mentioned in A.Y 2005-06. A.Y 2008-09 27. Assessment was framed u/s 143(3) of the Act vide order dated 23.12.2010. During the course of scrutiny assessment proceedings, once again a query was raised about the joint venture agreement and receipt of option money and the said query was duly complied with once again by filing copy of joint venture agreement and the treatment of option money in the Annual Account was explained by way of Notes to Account as in A.Y 2005-06 adn2006-07. Assessment was accordingly completed. A.Y 2011-12. 28. Assessment was framed u/s 143(3) of the Act vide order dated 06.09.2013. Vide questionnaire dated 10.07.2013, the Assessing Officer sought certain details which were duly complied with. Vide submissions dated 03.09.2013 alongwith relevant documents which are exhibited at pages 221 to 243 of the paper book. Accounting policies and notes to the financial accounts are exhibited at pages 343 and 344 of the paper book and relevant notes to the account read as under: " II Notes TO THE ACCOUNTS 1. The firm has entered in to Joint Venture (M/s Aviva Life Insurance Co. Pvt. Ltd.) with Commercial Union International Hold....
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....ducted on interest paid to some persons as is evident from confirmation. 5. Justify increase/ decrease in unsecured loans. Furnish list of unsecured loan in the year, squared up during the year, amount and % of interest, TDS and closing balance. 6. Furnish of deduction inadmissible in terms of section 14 A r.w.s. 8D as the assessee has exempt income. 7. Statement of Barclays Bank and J. M. Financial Products Ltd. 8. Details of Option Price and TDS deducted. You are hereby required to attend my office either in person or by a authorized representative in writing on 03.12.2015. (VINOD KUMAR) INCOME TAX OFFICER WARD 46 (5), NEW DELHI " 30. After being satisfied with the reply of the assessee, assessment was framed u/s 143(3) of the Act vide order dated 09.02.2016. A.Y 2014-15 [year under consideration ] 31. Assessment was framed u/s 143(3) of the Act vide order dated 28.07.2016. The relevant notes to the accounts read as under: "II NOTES TO THE ACCOUNTS 1. The firm has entered in to Join Venture (M/s. Aviva Insurance Co. Pvt. Ltd.) with Commercial Union International Holding Limited England & Wales. 2.....
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.... Rs. 1581.81 crores which includes Rs. 246.84 crores during the year from Commercial Union International Holdings Ltd. as option money. The option money has to be adjusted against further reduction of share holding in M/s Aviva Life Insurance Co. Pvt. Ltd. by your firm in. favour of Commercial Union International Holdings Ltd. U.K. at a price to be determined at the time of transfer of shares. As per point No. 1 to the notes on accounts you have entered into a joint venture with Commercial Union International Holdings Ltd. in the name of is M/s Aviva Life Insurance Co. Pvt. Ltd. The AO examined the taxability of the option money received by you. In this regard, you are requested to furnish the following information:- 1. A copy of the joint venture agreement with Commercial Union International Holdings Ltd. for carrying out the business of M/s Aviva Life Insurance Co. Pvt. Ltd. 2. A copy of the balance sheet and the annual accounts of M/s Aviva Life Insurance Co. Pvt. Ltd. for A.Y. 2013-14, reflecting the share holding pattern. 3. A copy of the agreement vide which option money has been received you from Commercial Union International Holdings Ltd. U.K. ....
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.... of proceedings, the ld. PCIT asked the assessee to clarify and furnish details on various aspects of the transaction. All the clarifications and details sought by the ld. PCIT were duly replied by the assessee by filing related documents/ evidences. 34. After considering the detailed submissions, the ld. PCIT was of the opinion that the assessment orders for assessment years 2013-14 and 2014-15 are both erroneous and prejudicial to the interest of the revenue and the Assessing Officer was directed to complete such assessments afresh and examine the issues for assessment years 2013-14 and 2014-15 by gathering such details as may be necessary and conducting such enquiries as may be needed. 35. The observations of the PCIT can be summarised as under: (i) The PCIT held the assessee as a financer and a dummy stake holder, vying to get maximum guaranteed return on money applied. According to him, the option money on granting of first rights of stake purchase to CUIH and accretion in shares as composite income arising out of JV agreement, clearly fall under the head 'business income'. (ii) The ld. PCIT was of the opinion that he Assessing Officer has not raised an....
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....ation A (Hypothetical) Situation B (Assessee's case) Situation C (Hypothetical) Situation D (Hypothetical 1 Subscription price (SP) (Total 1483626000 shares) 10 10 10 10 2 Option Price (OP) received per share by assessee from AY 2003-04 to AY 17-18 (2480.48 crore 1,48,36,26,000) 16.71 16.71 16.71 16.71 3 Market value (MV) of 23% stake sale (46,11,27,000 shares) 100 20.38 10 0 4 Situation MV > SP + OP MV < SP + OP MV = SP MV < SP 5 How much assessee (DIC) has received from CUIH Rs. 16.71 per share on 74% stake + Rs. 100 per share on 23% stake Rs. 16.71 per share on 74% stake (i.e. Rs. 2480.48 cr.) + Rs. 20.38 per share on 23% Rs. 16.71 per share on 74% stake + Rs. 10 per share on 23% stake Rs. 16.71 per share on 74% stake + Rs. 0 per share on 23% stake 6 What will be refund from DIC to CUIH Or Payment from CUIH to Dabur Rs. 16.71 per share on 23% stake will be w&mded- RB (MV > SP + OP) Rs. 10.38 per share on 23% stake will be icfcitrefeaffed RE (Rs. 478.64 cr.) MV < SP + OP Dabur will retain OP t'Arin Dabur will retain entire OP. + Dabur will also receive from CUI....
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....hase of such shares are business expenses, but assessee has wrongly capitalized them and wrongly claimed indexation on them. (7) Assessee has also claimed some unrelated expenses paid as non-compete fees to Indusind Bank for not competing with "Aviva" in insurance business. This does not fall in business purposes of assessee and not allowable u/s 37. (8) Assessee has thus not paid taxes on "Option Price Money" received of Rs. 2480.48 crore nor it paid any taxes on share sale receipt of Rs. 940 crore in either AYJLQQ3-04 to AY 2016-17 or in year of divestment in AY 2017-18 by claiming them as capital receipts ;and claiming various unrelated expenses and claiming huge indexation on them. (9) Not only that the option price received on 51% stake i.e. Rs. 1470 crore in not offered to tax in any year and as per assessee it is not taxable till change of FDI policy and divestment of 51% even if it means non-taxing the same till perpetuity. 37. The ld. DR further highlighted on the following points" 1. Option price is a recurring annual receipt which is taxable in the year of receipt. As per schedule 1 of J.V. Agreement, assessee is receiving annually ....
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....esident, the said agreement stands examined in detail, even as no dispute or doubt with regard to the scope or meaning of its provisions is available on record, i.e., only with a view to ascertain the nature of the rights accruing to or vesting in the assessee per the same. The Agreement was found to unequivocally and unambiguously convey the right to receive the return on its investment (in shares) to ITA No28 3 2/ Mum/2 012 (A.Y . 2 008 -09 ) Mahindra Telecommunications Investment Private Limited vs. ITO the assessee-company and, further, that income therefore accrued to it in the same manner and to the same extent as the increase in the value of its' share holding in the investee-company, at a defined rate per unit of time over the holding period, which was further fixed at a minimum of three years or such lower time) as occasioned by the elimination of the Indian Government regulation on foreign equity holding levels. This is as the assessee had an irrevocable right to transfer, and the parent company (AT&T) an irrevocable right to acquire the assessee's shareholding in its Indian subsidiary (AT&T India) either to itself or through its affiliates (which have right to fi....
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....t present value, only to find further endorsement of the said view and, further, of not impacting the valuation (of the right to receive) or the accrual of the income in any manner. Even de hors the character of the arrangement as a financing arrangement or any other, the nature of the investment would not be of much consequence as long as there is accrual of income in the facts and circumstances of the case, i.e., by way of right to receive - a receivable, resulting in a debt, realizable even if in future. The right to receive, if construed as a right to receive in praesenti, it may be appreciated, would obliterate the difference between the 'right to receive' and 'due for payment'. Or, in fact, between 'accrual' and 'receipt', used in contradistinction, even as explained in Ashokbhai Chimanbhai (supra). It is only the realizability of the right accrued that is postponed to a later, defined date, signified as the due date, which is at convenient or agreed dates of time. It is only because the debt has arisen and accrued that it becomes liable to be realized, even if at a later date. That, in fact, forms the fundamental or the quintessential....
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....herefore matter even if (say) some management rights were also attached to the shareholding - which we observe as not. In our view - not. The investment is in a private company, shares in which are severely restricted for transfer, making it highly illiquid, i.e., but for the arrangement, in pursuance to which only in fact the investment in shares stands made. That is. considerable uncertainty would otherwise exist as to the realizability of the income. The income being also in agreement with the matching principle of accountancy, also judicially approved, is thus found to accrue from year to year, i.e., on time basis and, thus, for the relevant year. The same, further, is only by wav of business income, i.e., as assessed, on which we again observe no dispute; rather, the two returns ensuing on investment, i.e.. by wav of call option fee (returned and assessed as business income) and the annualized return (over the holding period), found to be para materia, forming part of an integrated revenue ITA No28 3 2/ Mu m/ 2 0 12 (A.Y . 200 8 -09 ) Mahindra Telecommunications Investment Private Limited vs. ITO model and, further, only in the nature of interest income as defined bot....
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....r was ~c~. at all examined or not properly examined. It may be mentioned that in most of the years from AY 1003-04 to AY 2017-18, issue was not scrutinized, but where ever it was scrutinized, either no queries »ere raised or no relevant queries or insufficient queries were raised. 'able is given below:- Name of Case- M/s Dabur Invest Corp. S. N 0. Year of Scrutiny Assessm ent u/s Query Raised on the issue of option price Reply of Assessee Whether case of no query or insufficient query Applicable Case Laws 1 143(3) 201415 No query asked No reply given No query Mala bar Industrial Co. Ltd v. CIT [2000] 109 Taxman 66/243 ITR 83 (Supreme Court) Rajmandir Estates Pvt Ltd Vs PCIT (2017) 245 Taxman 127 (SC), Shree Manjunathesware Packing Products & Camphor Works vs CIT (1998) 231 ITR 53 (SC) 4. CIT t/s Harsh J Punjabi [2012] 27 Taxmann.com 175 (Delhi)/[2012] 345 ITR 451 (Delhi) 5. Shankar Tradex Pvt Ltd Vs PCIT (ITA No. 2999/Del/2017) 2 201314 Vide notice u/s 142(1) dated 20/11/2 0 15, a single point query "Detail....
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..... Gee Vee Enterprises [1975] 99 ITR 375 (Del) Jeevan Investment and Finance Pvt Ltd Vs CIT City 1 Mumbai [2017] 88 Taxmann.com 552 (Bombay) DIT Vs Jyoti Foundation [2013] 38 Taxman.com 180 (Delhi) ITO Vs DG Housing Projects Ltd [2012] 343 ITR 329/20 taxmann.com 587/[2013] 212 Taxman 132 (Del) CIT \/s. Maithan International (High Court of Calcutta) Shankar Tradex Pvt Ltd Vs PCIT (ITA No. 2999/Del/2017) 5 2005- 06 utilization for As per the JV Agreement dated 7th Aug 2001, a copy of which is enclosed herewith, the money received is subject to various conditions and the sum is liable for repayment Insufficient Query Malabar Industrial Co. Ltd v. CIT [2000] 109 Taxman 66/243 ITR 83 (Supreme Court) Adi. CIT v. Gee Vee Enterprises [1975] 99 ITR 375 (Del) Jeevan Investment and Finance Pvt Ltd Vs CIT City 1 Mumbai [2017] 88 Taxmann.com 552 (Bombay) DIT Vs Jyoti Foundation [2013] 38 Taxman.com 180 (Delhi) ITO Vs DG Housing Projects Ltd [2012] 343 ITR 329/20 taxmann.com 587/[2013] 212 Taxman 132 (Del) 6. CIT....
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....rrive at a finding of fact as to an application or otherwise of mind by the assessing authority in the matter, making inquiry as warranted, while framing the assessment. "Merely asking a question which goes to the root of the matter and not carrying it further is a case of non-enquiry, if the query is not otherwise satisfied while responding to another query...Assessing officer after having asked a pertinent question of the method of valuing unlisted shares didn't pursue that line of enquiry. This was a case of non-enquiry and not inadequate enquiry. Therefore the order of the assessing officer was certainly erroneous and prejudicial to the revenue." Jeevan Investment and Finance Pvt Ltd Vs CIT City 1 Mumbai [2017] 88 Taxmann.com 552 (Bombay) "In the present case, therefore, there was failure on the part of the assessing officer to conduct necessary and required enquiries. Failure to conduct the said enquiries makes the assessment order erroneous and prejudicial to the interests of the revenue. The commissioner rightly exercised his revisionary power u/s 263 of the act" CIT Vs Harsh J Punjabi [2012] 27 Taxmann.com 175 (Delhi) /[2012] 345 ITR 451 (Delhi) ....
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....epresented in Management by their directors. * Than they were asked whether management ever reversed decision of CEO and to submit copy of Board Meeting. They failed to submit any such "Minutes of Board Meeting". * CUIH is running and controlling the company "Aviva" despite holding minority stake, which is against Government Policy on FDI and against larger public interest. Govt, did not allow 100% FDI in insurance sector because huge premiums are collected in insurance policies and their control in FDI may lead to misuse/diversion of funds outside India. * Therefore, apparent is not real. Reliance is placed on decisions in case of Durga Prasad More, Sumati Dayal and Mcdowells." 39. We have heard the rival submissions and have given thoughtful consideration to the orders of the PCIT and the issues raised by him for setting aside the assessment orders. As mentioned elsewhere, the initial year of transaction was 2001 when the Government opened the field for private parties also in the Insurance business. This is not the first year of transaction. The assessee has been receiving option money after the year in which it entered into a JV agreement with CUIH....
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....e. In fact, after approval from FIPB for increase in share holding by Aviva Life Insurance Pvt. Ltd., the assessee also got approval from IRDA authorities with regard to increase in share holding from 26% to 49% by way of transfer of shares from Dabur, though the transaction for sale of shares took place in subsequent assessment year. 45. The constitution of the assessee, JV agreement, JV company was examined by various government authorities as mentioned elsewhere, therefore, by no stretch of imagination the assessee can be termed as a 'Dummy Stake Holder'. According to the PCIT, when the composition of Board of Directors is dominated by the assessee, then, why the CEO is from CUIH. In our considered opinion, the PCIT cannot, and should not decide how an assessee should do its business. It is the prerogative of the Board of Directors to appoint its MD/CEO to run day-to-day functioning of the business. Any adverse view drawn by the PCIT in respect of composition of Board of Directors is baseless and not at all relevant. 46. It appears that the PCIT has not understood the JV agreement and has been carried away by drawing adverse inference from certain clauses of the JV agreeme....
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....shall be refundable at the time of transfer of shares by the assessee to CUIH and the manner and mode as well as quantum of refundable option price has been described in Article 16A r.w.s Schedule IX of JV agreement. 51. It is imperative to mention here that this JV agreement containing terms of refundable option price has been approved not only by IRDA, but also by RBI who is the authorised supervisory authority to control incoming and outgoing of foreign exchange. Needless to mention that approval has been granted by the RBI as mentioned elsewhere. 52. It is pertinent to mention here that the sale/transfer of 23% stake by the assessee to CUIH took place in F.Y. 2016-17 relevant to assessment year 2017-18. All the allegations made by the PCIT may be relevant for assessment year 2017-18 when the actual transfer took place. We do not find any merit in applying those allegations in assessment year 2013-14 and 2014-15 to make the assessment orders framed u/s 143(3) of the Act as erroneous and prejudicial to the interest of the revenue. Reliance placed on the judgment of the Tribunal in the case of Mahendra Telecommunication Investment Pvt. Ltd Vs. ITO 180 TTJ 434 is premature as....
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....son who paid that is relevant. More relevance attaches to the nature of the receipts in the hands of the person though in trying to find out the quality of the receipt, one may have to examine the motive out of which payment was made. The fact that the amount involved is large or that it is periodic in nature, has no decision bearing upon the matter whether it is a capital or income. 58. The Hon'ble Supreme Court at page 231 of the Report observed as under: "In determining whether this payment amounts to a return for loss of a capital asset or is income, profits or gains liable to income-tax, one must have regard to the nature and quality of the payment. If the payment was not received to compensate for a loss of profits of business the receipt in the hands of the appellant cannot properly be described as income, profits or gains as commonly understood. To constitute income, profits or gains, there must be a source from which the particular receipt has arisen, and a connection must exist between the quality of the receipt and the source. If the payment is by another person it must be found out why that payment has been made. It is not the motive of the person who pa....
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....ing officer in subsequent year, i.e. 2015-16, has taken a different view from the earlier officers. In our considered opinion, for the purpose of section 263 of the Act, the PCIT has to independently examine and prove that the orders passed by the Assessing Officer for A.Ys 2013-14 and 2014-15 are erroneous and prejudicial to the interest of the Revenue. 61. In the case of CIT vs. Escorts Ltd. in 338 ITR 435, the Hon'ble Jurisdictional Delhi High Court had the occasion to deal with the validity of order passed by CIT u/s 263 of the Act, wherein the CIT had prompted to take action on account of different view taken by the AO in subsequent year. The Hon'ble High Court noticed that similar transaction made in earlier year was treated genuine. 62. The question arose before the Delhi High Court whether the Department could reopen the assessment based on a fresh inference of transaction which has been carried on by the assessee and accepted in terms by Revenue for several preceding years by not challenging the order on the pretext of dubbing them as erroneous? 63. The Hon'ble Delhi High Court negatived the stand of Department and cancelled the order u/s 263 of the Act. The Hon'b....
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.... any enquiry because no further enquiry was necessary, more particularly when all the facts were before Assessing Officer. 66. In the case of CIT vs. Nirav Modi in 390 ITR 292, the Hon'ble Bombay High Court held that if a query is raised during the course of assessment proceedings and if the assessee responds to the said query merely because the said aspect has not been dealt in the assessment order, would not lead to a conclusion that the AO had not applied his mind. 67. The facts of the present case clearly reveal that the Assessing Officers, right from A.Ys 2005-06 to 2011-12, after going through the JV agreement and balance sheet and notes of accounts, filed by the assessee has taken a possible view. It has been held in various decisions that where the A.O has taken a possible view, the assessment order cannot be held as erroneous and prejudicial to the interest of revenue. 68. We find the Hon'ble Delhi High Court in the case of CIT Vs Sunbeam Auto reported in 332 ITR 167 has held as held as under: "12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our considerat....
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....rting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induces repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. [see Parashuram Pottery Works Co. Ltd. vs. ITO 1977 CTR (SC) 32 : (1977) 106 ITR 1 (SC) at p. 10]. ............... From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an ITO acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the CIT simply because, according to him, the order should have been written more elaborately This section does not visualise a case of substitution of the judgment of the CIT for that of the ITO, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circ....
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....going procedure, a company had produced 10,75,000 sets whose selling rates is inclusive of the reimbursement of the dyes cost. The purchase orders indicating the costing include the reimbursement of dyes cost are being produced before your Honour. Since the sale rate includes the reimbursement of dye cost and to have the matching effect, the cost of the dyes has been claimed as a revenue expenditure." 14. This clearly shows that the AO had undertaken the exercise of examining as to whether the expenditure incurred by the assessee in the replacement of dyes and tools is to be treated as revenue expenditure or not. It appears that since the AO was satisfied with the aforesaid explanation, he accepted the same. The CIT in his impugned order even accepts this in the following words : "AO accepted the explanation without raising any further questions, and as stated earlier, completed the assessment at the returned income." 15. Thus, even the CIT conceded the position that the AO made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the CIT was that the AO should have made further inquiries rather than accepting the explanatio....
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....n envisage that the CIT may call for the records and if he prima facie considers that any order passed therein by the AO is erroneous insofar as it is prejudicial to the interest of the Revenue, he may after giving the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify. The twin requirements of the section are manifestly for a purpose. Merely because the CIT considers on examination of the record that the order has been erroneously passed so as to prejudice the interest of the Revenue will not suffice. The assessee must be called, his explanation sought for and examined by the CIT and thereafter if the CIT still feels that the order is erroneous and prejudicial to the interest of the Revenue, the CIT may pass revisional orders. If, on the other hand, the CIT is satisfied, after hearing the assessee, that the orders are not erroneous and prejudicial to the interest of the Revenue, he may choose not to exercise his power of revision. This is for the reason that if a query is raised during the course of scrutiny by the AO, which was answered to the s....