AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2020 (6) TMI 770
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....bmitted that the matter should be remanded to the Settlement Commission for fresh consideration. 3. The learned Additional Solicitor General has submitted that the Settlement Commission failed to deal with the contentions of the Department on the issue with regard to the valuation of the rights of Shaw Wallace and Co. Ltd. (SWCL) that it had in its subsidiaries. According to him, the Settlement Commission misconstrued and misapplied the provisions of section 47 of the Income-tax Act, 1961. He has submitted that SWCL and its subsidiaries entered into sham and collusive transactions. The transactions cannot receive the benefit of the provisions of section 2(47)(ii) of the Act of 1961. He has highlighted the fact that SWCL had three subsidiaries at the material point of time, namely, Primo Enterprises Private Limited (PEPL), Primo Distributor Private Limited (PDPL) and Shaw Wallace Financial Services Ltd. (SWFSL). He has submitted that Shaw Wallace Breweries Limited (SWBL) was also one of the subsidiary company of SWCL. SWBL offered, issued and allotted 12,34,122 preferential shares to PDPL. At the time of issue and allotment of such preferential shares, SWCL had the right to subscri....
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.... to MBL for a sum of Rs. 270 crores is again a relinquishment of rights of SWCL over the issue by SWBL in favour of RRITCPL. RRITCPL being a subsidiary of SWFSL is a step down subsidiary of SWCL. 6. The learned Additional Solicitor General has referred to section 81 of the Companies Act, 1956 and submitted that a shareholder of a public company is entitled to subscribe to the further issue of share capital of the company, in proportion to the shares held by the shareholders by the company unless the articles provide otherwise and unless, in a general meeting of the shareholders by requisite majority provide otherwise. In the present case, SWCL was holding 100 per cent. equity shares of SWBL when SWBL issued shares to PDPL. In terms of section 81 of the Act of 1956, SWCL was entitled to subscribe to the further issue of share capital of SWBL which SWCL relinquished deliberately allowing it to be issued in favour of PDPL. 7. The learned Additional Solicitor General has relied upon S. R. Chockalingam Chettiar v. CGT [1968] 70 ITR 397 (Mad) and submitted that the right of subscribing in the further issue of share capital of a company, upon further issue of capital being made by such ....
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....294 (SC) on the aspect of section 158BB of the Act of 1961. According to him, when the Department brought to the notice of the Settlement Commission such unaccounted income at the hands of the assessee, the Settlement Commission ought to have decided thereon in view of the provisions of the section 45E of the Act of 1961. 11. Alluding to the aspect of bogus commission of Rs. 6.05 crores, the learned Additional Solicitor General has submitted that the Department came across evidence of payment of commission during search operations. SWCL was given an opportunity to explain the documents which the Department came across. SWCL could not afford any reasonable explanation. The Settlement Commission ought to have taken that into consideration also. 12. Referring to sales promotion through Super Distributors, the learned Additional Solicitor General has submitted that again during the search operations at the office premises of SWCL, the Department came across evidence in respect of payments by way of commission to sale promoters. Subsequent investigation, surveys and statements of such connected persons established that the payments were bogus. The Settlement Commission ignored such as....
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....[FB] and an order of the Income-tax Appellate Tribunal rendered in Emami Infrastructure Limited v. ITO I. T. A. No. 880/ Kol/2014 in support of such contentions. He has submitted that the Income-tax Appellate Tribunal at Kolkata, has followed the ratio laid down in Petrosil Oil Company (supra). According to him, the purpose of exemption in section 47(iv) is to exclude specified transfers from the ambit of transaction, when the transfer is to an entity, which is wholly owned subsidiary. According to him, the purpose of transfer of capital asset within a group is necessary for changing business needs of the group and ought not to attract tax when no person outside the groups benefits. On such logic, exemption under section 47(iv) is available to SWCL. 17. Without prejudice to the foregoing contentions, the learned senior advocate appearing for respondent No. 2 has submitted that renunciation of rights in favour of RRITCPL is exempted under section 47(iii) of the Act of 1961 as a transfer without consideration is a gift covered under section 47(iii). According to him, admittedly, no consideration was received by respondent No. 2 for renunciation of the rights in favour of RRITCPL. 1....
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....axed under section 45 and that indirect transfers are not covered within the ambit of section 45 of the Act of 1961. He has drawn the attention of the court to the fact that transfer to MBL by SWFSL was in the financial year 2003-04 relevant to the assessment year 2004-05 which assessment year was not before the Settlement Commission. Therefore, according to him, a Department cannot rope in such transaction for the purpose of evaluating the tax liability of SWCL. 20. The learned senior advocate appearing for respondent No. 2 has submitted that SWFSL had offered capital gains arising of the transactions of shares of RRITCPL to MBL for the assessment year 2004-05. Such capital gains were accepted by the Department as taxable in the hands of the seller. Therefore, it is not open to the Department to urge that the same amount is also chargeable to tax at the hands of SWCL. According to him, the Department is seeking to tax two different entities for the same transactions twice. The learned senior advocate appearing for respondent No. 2 has drawn the attention of the court to the fact that the writ petitioner did not challenge the transfer of shares by PEPL to MBL. 21. Referring to s....
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....ecision, and the impugned decision not being prejudicial to the writ petitioner, the writ petition should be held to be not maintainable. According to him, even if there is a wrong interpretation of a statute in the impugned order, the same does not come within the ambit of challenge before the High Court under writ jurisdiction. In support of such contention, he has relied upon Jyotendrasinhji v. S. I. Tripathi [1993] 201 ITR 611 (SC), Swamina International Pvt. Ltd. v. ITSC (IT & WT) [2017] 398 ITR 103 (Cal) and DIT v. ITSC [2017] 398 ITR 23 (Cal). That apart, the learned senior advocate appearing for respondent No. 2 has submitted that the writ petitioner is guilty of unexplained delay. The impugned order is dated March 6, 2007 while the writ petition was filed on July 2, 2010 that is after a period of more than three years. The writ petition does not contain any ground justifying the delay in filing the writ petition. Therefore according to him, the writ petition should be dismissed. 23. On March 11, 2004, respondent No. 2 as the assessee filed a petition before the Settlement Commission for the block assessment years 1987 to 1997 and for the broken period from April 1, 1996 t....
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....86,004 rights shares in SWBL in 2002-03. 28. By reason of the relinquishments of such rights, the shareholding of SWCL in SWBL stood reduced to 50 per cent. SWCL therefore lost the right of composition of the board of directors of SWBL and any subsidiary of SWBL consequent upon the shareholding of SWCL in SWBL standing at 50 per cent. In 2003-04, the shares in SWBL held by PEPL and RRITCPL were transferred to MBL at a consideration of Rs. 566 crores. Consequent upon transfer of such shares, the shareholding of SWCL in SWBL stood reduced to 50 per cent. According to the Department, the relinquishment of rights by SWCL in SWBL, the merger of PDPL into PEPL and the relinquishments of rights of SWCL in SWBL in favour of RRITCPL are taxable incidents. SWCL undertook the mechanism of SWCL relinquishing its rights in its subsidiaries and ultimately transferring the shares to MBL so as to avoid the tax incidence on SWCL illegally. The Department has contended that notwithstanding the relinquishment of the rights happening in favour of the subsidiaries or the step down subsidiaries of SWCL the transactions attract tax at the instance of SWCL as the net result of the transactions is sale of....
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....erms "subsidiary company" under the Companies Act, 1956 can be imported into the Act of 1961. 31. The Gujarat High Court in Kalindi Investment (P.) Ltd. (supra) has held that there was no justification for applying the provisions of the Companies Act, 1956 while interpreting the provisions of clause (iv) and clause (v) of section 47 of the Act of 1961. The Income-tax Appellate Tribunal, Kolkata Branch has noted the views of the Gujarat High Court in Kalindi Investment (P.) Ltd. (supra) and of the Bombay High Court in Petrosil Oil Co. Ltd. (supra) and chose to follow Petrosil Oil Co. Ltd. (supra). 32. In the facts of the present case, when SWCL was relinquishing its shares, the allotting and subscribing companies were subsidiaries or step down subsidiaries of SWCL. The transactions being limited to that extent, possibly, the Department would not have had a case to argue. The transactions did not stop with SWCL relinquishing its shares in its subsidiary and step down subsidiaries. In fact, these relinquished shares were ultimately sold of to MBL for a valuable consideration. The relinquishment of rights by SWCL and allowing a merger to take place are mechanisms to create an entity ....
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....eme Court was answered by finding that the actual contract price paid was obscure and its import could not be determined. The Supreme Court directed the Appellate Tribunal to rehear the appeal and record a clear finding as to what was the actual price received. 35. Again the contention of respondent No. 2 relying upon Vodafone International Holdings BV (supra) that control is an interest arising from holding a particular number of shares and that the same cannot be separately acquired or transferred is required to be considered in the given facts and circumstances of the present case. S. R. Chockalingam Chettiar (supra) has held that the right to obtain a specified number of rights shares under section 81 of the Companies Act, 1956 in a fresh issue of capital is a tangible right and is not interest in future property but is existing property as defined in the Gift-tax Act, 1958. 36. The fact that SWFSL offered capital gains arising out of the transactions of shares of RRITCPL to MBL for the assessment year 2004-05, ipso facto, does not absolve SWCL from its tax liability in the event, it is found that SWCL brought about an entity to be transferred to a third party by the mechanis....
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....ility of respondent No. 2 if there be any. 40. By the impugned order the Settlement Commission has overlooked the evidence produced before it so far as transactions relating to M/s. Amrit Engineering, commission sales promotion through Super Distributors, and payments made to Tirupati Enterprises are concerned. S. Ajith Kumar (supra) and Smt. C Sabira (supra) have held that reliance can be placed on evidence discovered during the search and seizure as also evidence which is relatable to the evidence unearthed during the search and seizure. The Settlement Commission ought to have considered the evidence placed by the Department with regard to such transactions of the assessee as they relate to the block assessment period before the Settlement Commission on the strength of the ratio laid down in the authorities noted in this paragraph. The Department has sought to bring on record evidence relating to the transactions that the assessee had on such accounts. Such evidence relates to the block assessment period under consideration by the Settlement Commission. Such evidence have a material bearing on the issue as to the quantum of tax that the assessee is liable to pay during the asses....