AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (3) TMI 1516
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....u/s14Ahastobemade irrespective of the fact whether any exempt income has been earned during the year by the assesse or not?" 2. "On the facts and circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the addition of Rs134,96,23,835/- made by the AO regarding the transfer of shares of listed companies of the group that took place during the relevant assessment year among various companies of the group and that the group represented a proper division of the vase business empire of the group among the family members of the larger promoter family; at a NIL, consideration by the assesse.?" 4. The brief facts of the case are that the assessee filed its return of income on 29.09.2012 declaring total income to the tune of Rs.6,20,567/- for the A.Y.2012-13. The assessee is a company incorporated with the object to carry on the business of dealing in Cinematographic Films. The assessment was completed on 31.03.2015 determining the total income to the tune of Rs.149,57,54,080/-. After making the addition/disallowance aggregating to Rs.149,51,33,530/- u/s 143(3) of the Act. In the assessment order, the AO raised the addition of Rs.134,96,23,835/- u/....
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....g the year under consideration. 49. For this purpose, reliance may be placed on the decision of the Hon'ble Delhi High Court in the case of Cheminvest Ltd v. CIT [2015] 61 taxmann.com 118/234 Taxman 761/378 ITR 33 overruling the Tribunal's decision relied upon by the AO holding as under: "In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression 'does not form part of the total income' in Section 14A of the envisages that there should be an actual receipt of income, which was not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A would not apply if no exempt income was received or receivable during the relevant previous year." The Hon'ble Bombay High Court in the case of Pr. CIT v. Rivian International (P.) Ltd. [IT Appeal No. 693 of 2015, dated 21-11-2017] has also held that if the assessee during the relevant year has not earned any tax-free income, the corresponding expenditure incurred cannot be taken into consideration for disallowance. 50.....
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....ing of the CIT(A) is not justifiable. However, on the other hand, the Ld. Representative of the assessee has strongly relied upon the order passed by the CIT(A) in question. The assessee acquired 12,78,98,710/- share of Zee News Ltd., by Essel Corporate Resources P Ltd (ECRPL) without consideration. The AO held that the transaction is a colourable device towards the evasion of tax, therefore, tax is leviable on the value of share in view of the provisions u/s 56(2)(viia). The assessee filed an appeal before the CIT(A) who deleted the addition stating therein that the transaction is not liable to be taxed in view of the provisions u/s 56(2)(viia) of the Act and in view of the provision u/s 28(iv) of the Act. The CIT(A) has given the following finding:- "207. It is a well settled legal position that a capital receipt is not liable for tax unless the statute makes a specific provision to bring the same to tax. Such provisions to bring capital receipts to tax are available in the statute in section 45 and in clauses (v), (vi), (vii) and (viia) of section 56(2) and the corresponding clauses in section 2(24) dealing with definition of income. It is therefore required to be exami....
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....appellant............................. 211. The above mentioned conclusion also finds support from Circular No. 2/2018 dated 15.02.2018 of the CBDT containing the Explanatory Notes to the provisions of the Finance Act, 2017 dealing with the rationale for insertion of clause (x) of section 56(2) of the Act. Clause (x) of section 56(2) has been inserted by the Finance Act, 2017 w.e.f. 01.04.2018 and the same has provided that the receipt of a sum of money or moveable property or immoveable property by any person on or after 01.04.2017 without consideration or for inadequate consideration in excess of Rs.50,OOOj-shall be chargeable to tax in the hands of the recipient under the head Income from Other Sources. The relevant part of the Explanatory Notes is reproduced as under: 33. Widening scope of Income from other sources 33.1 The provisions of section 56(2)(vii) of the Income-tax Act provided that any sum of money or any property which is received without consideration or for inadequate consideration (in excess of the specified limit of Rs. 50,000) by an individual or Hindu undivided family is chargeable to income-tax in the hands of the resident under the ....
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....geable to income-tax under the head Income from Other Sources and receipt of certain shares by a firm or a company in which public are not substantially interested is also chargeable to income tax u/s.56(2)(viia) in case such receipt is in excess of Rs.50,000/- and is received without consideration or for inadequate consideration. It has been clearly stated therein that the above provisions were applicable only in case of individual or HUF and firm or company in certain cases and therefore, the receipt of sum of money or property without consideration or for inadequate consideration did not attract these provisions in cases of other assesses. It has been stated that in order to prevent the practice of receiving the sum of money or the property without consideration or for inadequate consideration, a new clause (x) has been inserted in sub-section (2) of section 56 of the Income-tax Act so as to provide that receipt of the sum of money or the property by any person without consideration or for inadequate consideration in excess of Rs. 50,000 shall be chargeable to tax in the hands of the recipient under the head "Income from other sources" . 213. It is therefore clear from ....
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....News Ltd. at NIL consideration by the appellant during the year is chargeable to tax as income under the head business as per the provisions of section 28(iv) of the Act has been examined, though the AO has considered the same as income chargeable to tax under the head Income from Other sources u/s. 56(1) of the Act. The appellant was therefore requested during the appellate proceedings to explain why the provisions of section 28(iv) are not applicable to the facts of the appellant's case. 217. In response to the same, it was stated by the appellant in the written submission dated 28.12.2017 that the receipt of shares of Zee News Ltd. at NIL consideration by the appellant during the year is not taxable u/s. 28(iv) of the Act. It was stated that section 28(iv) specifies that the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargeable to tax under the head Profits & Gains of Business or Profession. It was stated that the benefit or perquisite should arise from the business for the same to be considered as income u/s. 28(iv) which means that the assessee must have performed some b....
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....pplicability of the provisions of section 28(iv) to the facts of the appellant case and the contentions of the AO in the remand report regarding the applicability of the provisions of section 28(iv) have been examined carefully. As per the provisions of section 28(iv), the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargable to income tax under the head "Profits and Gains of Business or Profession". The word "perquisite" normally connotes meeting the obligation of one person by another person either directly or indirectly or provision of some facility or amenity by one person to another person. Since the term "benefit" has been used along with the word "perquisite" in this section, both the words are required to be read together and they would draw colour from each other. Hence, the word "benefit" is also required to be understood as the facility or amenity given by one party to another party. 222. In the above mentioned case, the Hon'ble Tribunal held that the gift received by the assessee, who is a social reformer, from his followers cannot be considered as a benefit or per....
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.... that the benefit should arise from business. It would be seen that the advantage of receiving the entitlement originated from and was intimately connected with the business which the assessee was doing. In case the assesse would not have exported the goods under the Special Exports Promotion Scheme to the extent of the value mentioned therein, it would not have obtained the entitlements. It is thus clear that the entitlements sprang up or came into being because of the business which the assessee was doltiq. The dictionary meaning of the word "arise" given in the Chamber's Twentieth Century Dictionary as originate, to come into being, leaves no room for doubt that income from import entitlements had actually arisen from the assessee's business." 225. Considering the principles laid down in the decisions cited above, a benefit or perquisite should arise/originate from the business of the assessee for the same to be considered as income under the head business u/s. 28(iv) of the Act. The fulfilment of this condition requires that benefit or perquisite is received by the assessee as a consequence of performance of business activities by the assessee. The right to rec....
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....ll under the scope of advertisement expenditure which is subject to the limits as laid down in Rule 68. The AO has relied on these decisions to contend that if transfer of a capital asset in the form of corporate gift for the purpose of the business is allowed as a revenue expenditure, a gift received by a company can be treated as a revenue receipt in the form of a benefit arising from the business which is taxable u/s. 28(iv) of the Act. However, as mentioned above, these decisions have not laid down any legal proposition regarding the allowability of the transfer of a capital asset in the form of a gift as a revenue expenditure in the hands of the donor. These decisions have dealt with the expenditure incurred on the articles intended for the presentation to the customers for the purpose of promotion of the sales of the business. Moreover, it is a well settled legal position that the revenue/capital nature of the payment in the hands of the payer has no bearing on the revenue/capital nature of the same amount in the hands of the recipient. Further, it is seen in the present case that the transferor company has not claimed deduction for the value of the shares transferred by it a....
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.... transfer property" is to perform such act. In this section "living person includes a company or association or body of individuals, whether incorporated or not, but nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by companies, associations or bodies of individuals...... Section 122 of TOPA 122."Gift" is the transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person, called the donor, to another, called the donor, and accepted by or on behalf of the donee. Such acceptance must be made during the lifetime of the donor and while he is still capable of giving. If the donee dies before acceptance, the gift is void Section 123 of TOPA 123. For the purpose of making a gift of immovable property, the transfer must be effected by a registered instrument signed by or on behalf of the donor, and attested by at least two witnesses. For the purpose of making a gift of movable property, the transfer may be effected either by a registered instrument signed as aforesaid or by delivery. 2. A perus....
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....eld that as per the provisions of law prevailing during the year under consideration, the gift received by one corporate body from another corporate bodies do not come under the ambit of income as contemplated under section 2(24) or any other provisions of the Act. While referring and following the decision in DP World (P) Ltd (supra) it was further held that companies are competent to make and receive gifts and natural love and affection are not necessary requirement. It was held that the only requirement for company is to make gifts as per respective Memorandum and Article of association, which authorize the company for the same. Applying the proposition of law laid down in the above decision to the facts of the instant case, it is found that the assessee and the donor companies are authorized in this regard for receiving and making gifts respectively by their Memorandum and Articles of association." 9. In view of the said decision, the gift is not liable to be considered as Sham transaction. This view is also supported by the decision of the case assesee's group concern Jayneer Infrapower in which it is held that: - "14. The background facts of the transactions under....
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....rought to tax in view of the decision of the Hon'ble Supreme Court in the case of CIT v. B.C. Srinivasa Setty [1981] 5 Taxman 1/128 ITR 294. It was also submitted that the Assessing Officer cannot substitute the sale consideration by fair market value in the absence of any such provision under the Act. Reliance was placed upon the decisions of the Hon'ble Supreme Court in the case of CTT v. George Henderson and Co. Ltd, [1967] 66 ITR 622 and CIT v. Gillanders Arbuthnot & Co. [1973] 87 ITR 407 (SC). 17. However, the Assessing Officer did not agree with the submission of the assessee and held that the fair market value of the shares is to be substituted for sale consideration and thereby made the addition of Rs. 57,90,33,060/-. His detailed reasonings can be summarized as under: (i) The assessee has very minimal paid up capital and has huge accumulated losses as well as borrowing. It has also advanced huge amounts to related parties and subsidiaries and have substantial investments in subsidiaries and group companies. (ii) The shares of assessee-company are held by the shareholders who are all family members. (iii) Certain details regarding....
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....nsfer of shares made without consideration is gift and, therefore, the same cannot be taxed under the provisions of the Act. It was explained that the transaction was part of internal restructuring exercise carried out for consolidation/rationalization of various media assets. In support of this, the copies of Memorandum and Articles of Association as well as DEMAT slip of share transfers were relied upon. It was pleaded that the transaction cannot be considered as colourable device and the principle laid down by the Supreme Court in the case of McDowell and Co. Ltd, is not applicable. The order of the Mumbai Bench of the Tribunal in the case of DP World (P.) Ltd. v. Dy. CIT [2012] 26 taxmann.com 163/[2013] 140 ITD 694 was relied upon to contend that the transaction of gift cannot be brought to tax. It was also submitted that in the absence of selling price, the capital gain cannot be calculated and, hence, computation machinery falls. It was further contended that the market value cannot be substituted for sale consideration as there is no such provision in the Act. As regards the applicability of S. 56 of the Act, it was submitted that the gain arising out of transfer of capital ....
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....pursuant to internal restructuring exercise carried out by the assessee. Both the authorities have further erred in assigning the market value as a sale consideration for the purpose of determining the income. It is submitted that there is no such enabling provision under the Act to substitute the market value in place of actual consideration. As per ld A.R., the ld. CIT (A) has correctly held that the transfer of shares is a transfer of capital asset and the gain from which is chargeable to tax u/s. 45 of the Act. The computation of gain, for this purpose, is to be done as prescribed in S. 48 of the Act which provides for deduction of cost of acquisition from 'full value of consideration'. The phrase 'full value of consideration' has received the judicial interpretation in series of decisions by various High Courts as well as Supreme Court. In the case of the CIT v. Morarjee Textiles Ltd. [IT Appeal No. 738 of 2014, dated 24-1-2017] (Bom.), on the facts similar to the present case, wherein the question posed was whether fair market value of shares transferred can be taken as sale consideration for computation of long term capital gain, the Hon'ble Bombay High C....
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....pts the documents but only substitutes the consideration. Therefore, the issue is whether such substitution of full consideration received by fair market value of the asset is permissible. As held by the Tribunal at the relevant time there was no power vested in the authorities under the Act to substitute a full value of consideration received for sale of shares by fair market value in respect of stocks and shares. The power to substitute full consideration with fair market value in respect of shares came into the statute only on introduction of Section 50D with effect from 1st April 2013. Moreover, such a power under Section 50D of the Act is only to be exercised if the Assessing Officer comes to a finding that the consideration received is not ascertainable or cannot be determined. Moreover the decision of the Co-ordinate bench of the Tribunal in the case of MGM Shareholders Benefit Trust (Supra) on identical facts situation has been accepted by the Revenue, as no appeal from the same has been filed by the Revenue. (d) In the above view, the question as formulated does not give rise to any substantial question of law. Thus not entertained." 23. It was also argue....
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....ssue under consideration. In any case, if transfer or becomes the holding company of transferee company, the provisions of S. 47(iv) of the Act would be applicable and the capital would not be charged as per the provisions of the Income-tax Act. If there is no charge of tax as per the provisions of the Act, the Assessing Officer cannot complaint about the same. In any case, the violation of the pre-condition of S. 47(iv) of the Act invites the tax liability as prescribed u/s. 47A of the Act and, therefore, the transaction of transfer by holding company to subsidiary cannot be branded as colourable device. In any case, this is applicable to the case of group companies and not to the assessee as the transfer or under consideration is not by holding company to its subsidiary and consequently no benefit of S, 47(iv) of the Act has been claimed. (vi) The change in the inter se status of the companies is again irrelevant for the purpose of deciding the issue under consideration the court approved amalgamation cannot be found fault with. For this purpose, reliance is placed upon the order of the Kolkata Bench of the Tribunal in the case of Electrocast Sales India Ltd. v. Dy. CIT ....
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....arding transfer of shares from premier finance and Trading Co. Ltd., Jayneer Capital Pvt. Ltd etc. to Direct Media Solution P. Ltd etc. we refer and rely upon the submissions made hereinabove. (d) Zeel, Zee Learn, Essel Propack, Jayneer Capital Pvt. Ltd. etc .As in the case of companies referred to in the preceding paras, the allegation of the A.O is same in case of these companies. We refer and rely upon our observation made hereinabove. 27. In light of the above discussion, the transactions cannot be said to be colourable device and, therefore, the decisions relied upon by the A.O has no relevance. 9. In view of the said discussion and law relied by the assessee, we are of the view that the gift is not a colourable device to avoid the tax liability if any. It is also to be seen whether the same is liable to be taxed u/s 56(1) and 28(iv) of the Act or not: - "56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. From the above, ....
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....bstantially interested, shall have the meaning assigned to it in the Explanation to clause (vii); From the above, you may observe that the aforesaid provisions apply in a case where a company receives shares of private limited companies for without or inadequate consideration. In the present case, the assessee is the recipient of shares of a listed company. Accordingly, the provisions of section 56(2)(viia) cannot apply. In view of the above, the CIT(A)'s observations that the provisions of section 56(1) do not apply in case of transfer of shares should be upheld." 12. It speaks about the receipt of share from the Private Limited Company for without or inadequate consideration whereas in the present case, the assessee is the recipient of shares of a listed company so the provisions u/s 56(2)(viia) of the Act is not liable to be applicable. 13. So far as the applicability of Section 28(iv) of the Act is concerned. The section 28(iv) is as under: - "Section 28(iv) specifies that the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargeable to tax under the head ....
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.... receipt of shares of listed company was not in the nature a gift but as a result of a division of vast business empire of the group among family members involving an element of quid pro quo between the ultimate beneficiaries; 3. The CIT(A) grossly erred and exceeded his jurisdiction in giving a direction to the AO that the impugned transactions were taxable in the hands of the transferor though taxability of transferor was not a subject matter of appeal; 4. The CIT(A) has misdirected himself in as much as all his findings/ observations/directions in the order regarding the Transferor are extraneous to the subject matter of appeal and are beyond the jurisdiction of the CIT(A) thereby rendering that portion of the order illegal and all the said portions deserve to be expunged from the order. 5. Without prejudice, CIT(A) erred in holding that transaction under which the assessee received the shares of the listed company was a colorable device undertaken in a manner to avoid tax and taxable in the hands of the transferor without appreciating that: a) the transfer of shares even in the hands of transferor were exempt from capital gain tax in terms of....
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....ail v. Income-tax Officer, Salem [1963] 47 ITR 16 gave a very wide interpretation to that word, though it did not go so far as the Full Bench of the Allahabad High Court. Ramachandra Iyer J., ashe then was, speaking for the court, observed that the word "finding" in the proviso must be given awide significance so as to include not only findings necessary for the disposal of the appeal but also findings which were incidental to it. With respect, this interpretation also is inconsistent with the well-known meaning of that expression in the legal terminology. Indeed, learned counsel for the respondent himself will not go so far, for he concedes that the expression "finding" cannot be any incidental finding, but says that it must be a conclusion on a material question necessary for the disposal of the appeal, though it need not necessarily conclude the appeal. This concession does not materially differ from the definition we have given, but the difference lies in the application of that definition to the finding given in the present case. A "finding", therefore, can be only that which is necessary for the disposal of an appeal in respect of an assessment of a particular year. The Appel....
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....s he thinks fit. The expression 'may pass such orders in the appeal' was subject matter of consideration by various Courts. While deciding the appeal the Appellate Authority may give appropriate directions to the AO either in regard to the assessee in appeal before him or otherwise. However, these directions cannot travel outside the assessment year to which the appeal relates. In the same way the directions cannot relate to a third person, whose appeal is not pending before him. The policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage, as observed by the Hon'ble Apex Court in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1. In the instant case no addition was made in the hands of Smt. Kalpana VijaySarda though she has filed the return by specifying that she has purchased the property. At the same time it is not in dispute that the AO has taken a consistent stand that a sum of Rs. 16,51,000/- was paid for purchase of the said property but consciously took a view that she has no wherewithal to make such payment and hence no addition can be made under s....