TaxTMI 
TaxTMI 
2023 (10) TMI 327
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.... assessing officer erred on facts and in law in assessing total income of the appellant Rs. 414,84,28,733 as against returned/ declared income of Rs. 9,68,74,129. Re: Special Audit under section 142 (2A) of the Act 2.0 That the special auditor erred on facts and in law in exceeding jurisdiction under section 142 (2A) of the Act in commenting on legal aspects/ implications of the transactions while issuing audit report and thus, the same is vitiated in law and liable to be ignored/excluded: from consideration. 2.1 That on the facts and circumstances of the case, the assessing officer/DRP erred in merely relying on the observations/ comments of special auditor without any independent application of mind in ignorance of the correct factual and legal: position and consequently, the impugned order passed is illegal and bad in law. 2.2 That on the facts and circumstances of the case and in law, the assessing officer erred in directing the special auditor to deal. with issues which were outside purview of latter's jurisdiction but forms part of 'assessment 4 to be conducted-by assessing officer himself, and thus the audit report and consequential assessment order so passed is bad ....
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....ed in adopting arbitrary higher interest rate of 8.84% p.a. for the purpose of computing aforesaid disallowance. Re: Sale of investment in shares of Aegon Religare Life Insurance Company Ltd ('ARLICL') taxed as business income instead of capital gains 5.0 That the assessing officer/DRP erred on facts and in law in re- characterizing gains arising on sale of shares/promoter stake in ARLICL as 'business income' [Rs. 392,77,49,391] under section 28 (va)/(iv) of the Act, as against 'capital gain' (long term Rs. 10,60,83,585 and short term- Rs. 38,12,53,581) offered by the appellant. 5.1 That the assessing officer/DRP erred on facts and in law in alleging that the appellant did not hold interest in ARLICL as shareholders' investment but was actively engaged in the business operation of the said company. 5.2 That the assessing officer/DRP erred on facts and in law in not appreciating that the investment in ARLICL is held by the appellant on capital account (as promoter stake) and not as stock-in-trade in the capacity of a trader, and consequential gain on transfer of such shares is assessable under the head ' capital gain'. 5.3 That the assessing officer/DRP further erred on fa....
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.... RSL as excessive without appreciating that the same being specified domestic transaction was duly reported in Form 3 CEB and was duly accepted to be at arm's length by the transfer pricing officer. 7.6 That the assessing officer erred in not correctly examining and deleting the disallowance despite binding directions of the DRP, which is in gross violation of the provisions of the Act. Re: Transfer Pricing Adjustment 8.0 That the assessing officer erred on facts and in law in making transfer pricing adjustment of Rs. 7,62,966 without considering the order dated 05,03.2021 passed by the Transfer Pricing Officer ('TPO') reducing the adjustment to Nil after giving effect to binding directions issued by the DRP. Re: Others 9.0 That on the facts and circumstances of the case and in law, education cess paid on total income and dividend distribution tax, should be directed to be allowed as deduction, in terms of the law clarified by the Bombay High Court in the case of Sesa Goa Ltd. vs. JCIT: 423 ITR 426 (Bom.) and other decision. 10.0 That the Assessing Officer erred on facts and in law in charging/ computing interest under section 234 B and 234 C of the Act." 3. The assess....
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....sessing Officer in understanding the accounts of the assessee, it has not yielded the desired results, thereby warranting the appointment of the special auditor. At this stage, we cannot hold that there is no co-relation between the aspects which require scrutiny and the terms of reference for the special auditor under the law. Petitioner can raise such objections at the appropriate stage. 25. In view of the afore-going observations, the Court is of the opinion that there is no infirmity in the order directing the special audit. The writ petitions have no merit, and consequently the same are dismissed. The assessees in both the petitions are directed to cooperate with the special auditor. There shall be no order as to costs." 8. Since, the matter has been adjudicated by the Hon'ble High Court, this ground no. 2 & 2.1 of the assessee is hereby dismissed. Ground No. 3 to 3.5 Ground No. 4.0 to 4.2 Long Term Capital Loss: Short Term Capital Loss: Interest Expenditure: 9. From the review of Computation of total Income submitted, the Assessing Officer observed that the assessee company claimed short term capital loss of Rs. 500 crores and long term capital loss of Rs. 344,....
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....by the assessee company, during the year under consideration, is also part of total investment made in its wholly owned subsidiary. Therefore, considering the amount of Rs. 5,19,61,760/- [2,29,40,00,000 * 8.84%, as computed by special auditor on page no. 64 of the special audit report in FORM 6 B] on funds being not utilized for wholly and exclusively for the purpose of the business but charged to the Profit & Loss account under Note No 24 'Finance Costs', is disallowed under Section 37 of Income Tax Act, 1961. Therefore based on the above facts and circumstances (i) short capital loss of Rs. 500 crores and long term capital loss of Rs. 344,26,75,159/- and (ii) proportionate interest expense amounting to Rs. 5,19,61,760/- under section 37 of the act are disallowed and added back to the total income of the assessee company. (Disallowance of short term and long term capital loss of Rs. 8,442,675,159/-) (Disallowance of interest expense of Rs. 5,19,61,760/-)" 11. The ld. DRP concurred with the findings of the TPO. The ld. DRP held that the funds invested by the assessee company in the RCML was not made for any business investment but to repay its associate company i.e. RHC....
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....deemable preference shares held by the appellant company. RCML accordingly filed scheme for reduction of 52,50,00,000, 0.001% Non-Convertible Cumulative Redeemable Preference Shares of Rs. 10 each fully paid-up aggregating to Rs.525 crores (face value) before Hon'ble Delhi High Court, which was approved on March 23, 2015 and thereafter, registered with the ROC on 8.5.2015. The Hon'ble High Court order is in the case of Religare Capital Markets Ltd. in which the assessee investments. 19. As a result of the order of the Hon'ble Delhi High Court, the value of the investment made by the appellant of Rs. 750 crores in the preference shares of RCML stood extinguished and became Nil and the assessee booked consequent capital loss on such investment. Such capital loss claimed by the assessee has not been accepted by the re venue authorities. The revenue authorities argued that the approval of the Hon'ble High Court in the case of RCML is on the issue of company affairs but not on taxation issues in the case of the assessee company REL. It was argued that the taxation issues have to be examined keeping in view the entire facts and circumstances in the case of the assessee. 20. For the sak....
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....n of Rs. 7,500,00,000/- was made in earlier year and written back in the year under consideration as per the order of Hon'ble Delhi High Court. Copy of order is enclosed as Annexure-3. Further, the provision of Rs. 2,294,000,000/- was created in the year under consideration however, the same was disallowed while computing the taxable income for the year under consideration. 3. The investment of Rs. 2,294,000,000/- was made by the assessee company in the year under consideration in the shares of M/s. Religare Capital Market Limited as per terms of agreement dated 13.02.2012 followed by its first amendment agreement dated 24.05.2012 and second amendment dated 28.03.2013 (enclosed as Annexure-2, Annexure-2(a) and Annnexure-2 (b) of point a above) The relevant clause i.e. clause 6 of the second amendment agreement dated 28.03.2013 is reproduced as under for your reference : "5 A On the effective date, REL undertakes to fulfill the financial commitments in full by agreeing to subscribe to Series D Preference shares amounting to Rs. 11,198,324,660 (Rupees One Thousand One Hundred Nineteen Crores Eighty Three Lacs Twenty Four Thousand Six Hundred and Sixty Only) at such terms As mutua....
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....e used by RCML to refund investment of Rs. 659 crores made by RHC in RCML preference shares along with redemption premium of Rs. 55 .60 crores which totals to Rs. 714.60 crores. 7. The Assessee company further made investment of Rs. 80.60 crores in financial year 2013-14 & Rs. 229.40 crores in financial year 2015-16 in RCML. 8. All value of investment made by the assessee company in RCML including investment shown in (7) above, were treated as permanently declined to NIL as and when made. This shows that the assessee company knows before making such investment, that value of its investment will be zero and through such investment, repayment were made to RHC only. 9. The investment of funds by the assessee company was not in accordance with guidance provided in its Memorandum of Association. 10. RCML (Mauritius) has shown investment of more than Rs. 580.74 crores in an entity established at British Virgin islands as on 31.03.2016, which shows that consequential assets of RCML and the assesses company stands recoverable. But the assessee company disclosed such investment as permanently declined to NIL. 11. No permission from RBI, income Tax Department and Enforcement Depart....
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....ese funds were utilized by RCML for clearing its financial commitments which got create d on account of its investment in its Mauritius subsidiary. Therefore, as established above, such investment is part of total investment of Rs. 1755.50 crores which were not used wholly and exclusively for the purpose of business of the company & accordingly, interest cost incurred by the assessee company is disallowed to the extent of utilization of funds in the such investments. During the year under consideration, the shareholder funds was Rs. 2539.97 crores and borrowed funds of Rs. 931.93 cr. & investment in subsidiaries are Rs. 3198.62 crores (net of provision). This shows that the shareholder funds were not sufficient to invest in subsidiary and borrowed funds were used for such investment. Therefore, the AO worked out the disallowance of interest cost as follows: Date of Investment No. of Days till 31.03.2016 Amount (in Rs.) interest cost @ 8.84% 21-Oct-15 162 4,99,99,900 19,61,750 30-Dec-15 92 2,24,40,00,100 5.00,00,011 Total 2,29,40,00,060 5,19,61,760 Therefore, the interest of Rs. 5,19,61,760/- on funds being interest expenditure not laid out or expended wh....
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....d significant decline in the investment banking business overseas, RCMIL incurred huge losses. This resulted in erosion of the net worth of RCMIL and consequently RCML made provision for diminution in the value of its investments in RCMIL and showed a loss of Rs. 1580.00 crores in its books of account as on 31st March, 2014. Consequently, the assessee company being the holding company of RCML also made provision for diminution in the value of the investment made by it in the shares of RCML. Due to such huge losses, RCML, the wholly owned subsidiary company of the assessee company, decided to reduce its share capital against the accumulated losses. RCML after discussion with board of directors and shareholders decided to carry out capital reduction by reduction, extinguishment and cancellation of fully paid up non-convertible redeemable preference shares held by the assessee company to the extent of Rs. 525 crores. The reduction of capital pursuant to section 100 of the Companies Act, 1956 was approved in the EGM of RCML on 22.10.2014. Subsequently, RCML, it is further submitted, had filed scheme for reduction of 52,50,00,000 0.001% Non-convertible Cumulative Redeemable Preference ....
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.... (a) and 1 (b) for your reference. Page No. 2 of the Submission dated 11.10.2019 - please refer Annexure- 2, 2 (a) and 2 (b). 1. A copy of the order of the Hon'ble Delhi High Court for the reduction in the capital investment made by the assessee company in RCML. Page No. 7 of the Submission dated 28.06.2019 - Please refer Annexure- 17. Page No. 2 of the Submission dated 11.10.2019 - please refer Annexure- 3. 1 A resolution passed in 2013 for infusing Rs. 1120 cr. by REL in RCML along with call letters received from RCML with respect to the outstanding amount on partly paid up preference share. Copy of the same is enclosed as Annexure- 2 & 2 (a) for your reference. Page No. 2 of the Submission dated 21st October, 2019 - Please refer Annexure- 1 and 1 (a). In pursuance of the aforesaid reduction of preference share capital which was effective from May 8, 2015, the assessee was constrained to write off the entire cost of investment in preference shares of its subsidiary company i.e., RCML aggregating to Rs. 750 crores in the previous year relevant to the assessment year 2016-17 i.e., the year under consideration. Further, since the reduction in preference share capital resulte....
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....ed losses. AO held that 1. RHC controlled the management and financial decisions of RCML including appointment of key managerial persons and investment decision by virtue of certain agreements. Thus, it has been presumed that investment made by RCML in RCMIL was controlled by RHC. 2. The capital reduction of preference share capital of Rs. 750 crores was undertaken by RCML in the absence of permissions/approvals from RBI, Income tax authorities and Enforcement department. In rebuttal to the aforesaid the assessee submitted that the conclusions sought to be drawn by the special auditor is base d on incorrect appreciation of facts and position in law as demonstrated hereunder: Investment duly accepted as genuine in past years In this regard, it is at the outset respectfully submitted that the entire capital loss of Rs. 844 crores claimed by the assessee was undisputedly in respect of investments made in RCML in the past assessment year(s) i.e., much prior to assessment year 2016-17 and such investments were duly accepted as genuine by the assessing officer after undertaking detailed verification in the year such investment was made as demonstrated here under: 1. In the ass....
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....pany has duly disclosed its investments in audited financial statements every year and all the transactions have been duly verified and assessed by the AO in AY 2012-13, AY 2013-14 and AY 2014-15 and after undertaking detailed verification, the investment was accepted as genuine and no adverse inference was drawn in any of the past assessment proceedings. It may thus be appreciated that once the genuineness of investment is tested in the year of acquisition, it is not open to the Revenue authorities to doubt the transaction in the year of transfer of such investment. In the present case, it is respectfully submitted that the genuineness of the investment having been accepted by the assessing officer after due verification in the year such investment was made i.e., in AY 2012-13 and 2013-14, it is now not open to deny the claim of loss on transfer of such investments, that too based on mere conjectures and surmises. Thus, on the aforesaid preliminary ground itself, the comments of the special auditor calls for being ignored from consideration and there remains no ground for denial of loss claimed by the assessee. Investment in RCML genuine Without prejudice to the above, it....
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....9) 6. Religare Capital Markets Corporate Finance Pte Limited (38,610,994) (2,668,609) The same facts are evident from the relevant extract of audited financial statements of entities mentioned above enclosed as Annexure(s)-12, (12a), (12b), (12c) (12d) and (12e). In order to meet the financial requirements of its wholly-owned subsidiary and other step-down subsidiaries, RCML was constrained to infuse funds in RCMIL. However, since RCML did not have sufficient own funds to cater to huge financial needs of its foreign subsidiary and its business, it was constrained to request the assessee i.e., its holding company and RHC to provide support in the form of capital funding/infusion. Copy of request letter(s) received from RCML is enclosed as Annexure-13. In pursuance of the aforesaid request and purely on account of compelling business expediency i.e., to protect the brand name of the group which would be severely affected if business operations of overseas subsidiary closed down, the assessee made investment in RCML in the form of preference share capital Further, the assessee also entered into tripartite agreement dated 13.02.2012 with RCML and RHC, the terms and conditions of....
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....753) 2015 -16 (6,173,547) The aforesaid losses, it is submitted, resulted in significant erosion in the net-worth of RCMIL and consequent decline in net-worth of RCML. As a result, RCML even made provision for diminution of Rs. 1165 crores in the value of its investments in RCMIL as on 31.03.2013 and showed a cumulative loss of Rs. 264.77 crores in its books of account as on 31st March, 2013. Consequently, the assessee company being the holding company of RCML also made provision for diminution in the value of the investment made by it in the shares of RCML. Copy of relevant extract of financial statements of RCMIL for the preceding financial years i.e. FY 2011-12 and FY 2012-13 is enclosed as Annexure(s) 18 and 19. In addition to this, certain other factors like slowdown in Indian economy, weak currency, high- inflation, low growth projections further led to decline in business opportunities resulting in significant losses to RCML. Therefore, in order to attract more business opportunities and better presentation of its books of accounts, RCML decided to write off its accumulated losses by reducing its share capital. Consequently, RCML, after obtaining approval of its Board....
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....o RCMIL along with copy of application made to RBI is enclosed as Annexure-28. iii) Copy of various reporting made to RBI is enclosed as Annexure-29; iv) Copy of No objection obtained from SEBI along with copy of application made is enclosed as Annexure-30. v) Relevant extract of financial statement stating holding of RCML as on 31.03.2012 is enclosed as Annexure- 31. It may be appreciated in this regard, that due to economic slowdown, the business of RCMIL, the wholly owned subsidiary of RCML, was adversely affected. In or der to meet the financial requirements of its step-down subsidiary, it was incumbent on the assessee, being the ultimate holding company, to infuse funds in RCML to revive business operations. Re (ii): Investment of Rs. 500 crores in preference shares of RCML in March, 2013: It is submitted that the aforesaid investment of Rs. 500 crores was made by the assessee pursuant to a tripartite agreement dated 13.02.2012 read along with amendment agreement(s) dated 24.05.2012 and 28.03.2013 entered between the assessee, RCML and RHC. The aforesaid investment was made in compliance with all the requirements of various authorities as is evident from the followin....
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....e director to the Board of RCML Relevant extracts of the schedule are re-produced as under: "7. Board of directors of RCML a. As long as any Series B Preference Shares are outstanding, RHC shall be entitled to appoint 1 (one) director on the board of directors of RCML, RHC shall also be entitled to appoint its nominee director on the audit committee of RCML. b. In the event RCML or REL breach the terms and conditions of this Agreement, RHC shall have the right, subject to the receipt of requisite regulatory approvals, in India or outside India, to remove and appoint the majority of the directors on the board of directors of RCML," - Thereafter, an amendment agreement dated 24.05.2012 was entered between the parties wherein it was agreed that in case of need of financial assistance, RCML shall require. REL i.e., the assessee to infuse capital and such contribution shall be used only for the purpose of repaying/re-financing of Financial commitments. It was further provided that RCML shall not make any contribution request to RHC for satisfying any of its financial commitments. The relevant extracts of the Clause 4A, inserted vide the amendment agreement is reproduced hereunde....
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....and Six Hundred and Sixty Only) at such terms as mutually agreed between REL and RCML at the time of issuance of such Series D Preference Shares. For the avoidance of doubt, it is hereby clarified that unless otherwise agreed in writing amongst the Parties, REL obligation to make capital infusion shall only be limited to the Financial Commitments and REL shall not be responsible for any new borrowings nor interest accrued on such new borrowings that relate to a period after September 30, 2011, unless such new borrowings are for the purpose of refinancing the Financial Commitments." Therefore, in accordance with the aforesaid amended agreement, the assessee was under an obligation to infuse funds in RCML, its wholly owned subsidiary company. However, due to inability of the assessee to infuse funds in RCML, RCML raised funds from RHC. The same facts is evident from the request for contribution made by the RCML to REL and subsequently on refusal of the aforesaid request, RCML has requested RHC for contribution. Copy of request letter(s) received from RCML is enclosed as Annexure-13 above. On perusal of the above, it may be noted that $ was the primary obligation, of the assessee,....
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....atter of fact, invested in preference shares of RCML, its wholly owned subsidiary which was duly supported by various documentary; (e) The funds infused by the assessee in RCML in the form of investment in preference shares of the said company was undisputedly, as also admitted by the special auditor, utilized by RCML to make investment in RCMIL, in order to revive its faltering business; (f) There was actual payment of consideration by the assessee to RCML and the shares were registered in the name of the assessee and duly reflected in the books of the assessee. The said facts have not been disputed by the special auditor;. (g) The capital reduction in preference shares by RCML was duly approved by Hon'ble Delhi High Court vide order dated 23.03.2015. (h) The capital reduction by RCML was on account of genuine bona-fide reasons, in so far as the performance of its wholly owned foreign subsidiary was significantly declining and was reporting consistent losses on a year to year basis. (i) The transaction of write-off of shares in RCML was undertaken after due approval from the board of the assessee and was duly supported by share transfer and the transaction was duly recor....
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....alue of investment by the assessee company in RCML is not based on facts and circumstances. Each of the aforesaid allegation of the special auditor is rebutted as under: Re (a): Investment made without intent of earning return In the special audit report, the auditor has alleged that the assessee made investment in RCML without the intent of earning any profit/return therefrom as the funds were ultimately infused by RCML into RCMIL, which was suffering huge losses. In rebuttal to the aforesaid, it is respectfully submitted that an assessee is free to conduct business in a manner most conducive/advantageous to the assessee. The Revenue cannot step into the shoes of the businessman and determine as to how the business ought to have been carried out. There is no bar under the Act prohibiting an assessee to run the business more efficiently and effectively. In simple words, it is entirely the choice of an assessee to determine as to in what manner business is to be run, transactions are to be undertaken to carry on the business in art efficient and profitable manner. Reference can be made to the decision of the Supreme Court in the case of Eastern Investment Ltd. vs. ITO 20 ....
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....as an arbitrary exercise, as given in the guidelines, is that it has the potential to create double taxation if the other tax administration does not share the same view as to how the transaction should be structured." The Revenue authorities, therefore, cannot, it is submitted, dictate to the assessee, the method/ manner of implementing a transaction nor can the Revenue re-write a legitimate, bonafide commercial transaction merely because incidental tax benefit results to the assessee. Reliance is further placed on the decision of the Delhi High Court in the case of Zaheer Mauritius vs. DIT: 270 CTR 244 (Del.) wherein debt instruments, including CCDs were upheld to be legally valid mode of investments. The Court relying upon the decision in the case of Vodafone (supra) concurred with the view that the transaction must be loo ked at as a whole, and not by dissecting it and that by applying the 'look at' test, the corporate veil could only be lifted when it was established that the transaction was overtly a sham. In the present case, the assessee, being the ultimate holding company, was obligated to support its subsidiary company(ies), i.e., RCML, RCMIL and all step down subsidia....
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....e income of FY 2013-14 2015-16 2,20,40,00,000 The provision was created in the FY 2015-16 and the same is disallowed while computing the taxable income of FY 2015-16 Computation of income highlighting the disallowance of the provision is enclosed as Annexure-33. With reference to the same, it is submitted that RCML is a wholly owned subsidiary of the assessee company. RCML is the holding company of RCM International (Mauritius) Limited. Under RCM international (Mauritius) Limited, there are other subsidiary companies which are engaged in the business of financial services. As per the audited financial statements of RCML for the year ended on 31st March 2016, RCML was incorporated in February 9, 2007 and obtained license as a broker and a full service investment banker from Securities and Exchange Board of India. RCML offered a comprehensive suite of services across investment banking and institutional equities. The investment banking operations provide equity capital markets and corporate finance clients worldwide. The institutional equities business specializes in equity research, sates and execution in emerging market equities. It had a presence in several emerging markets ....
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....he assessee in the shares of RCML was not genuine transaction. It was the pure decision of the assessee company whether to invest in a company or not. The revenue cannot dictate the assessee as to how to do business. In this regard, reliance is placed on the following authorities: - Re (b): Funds utilized for ultimate benefit of loss making concern of group; As elaborately discussed above, RCML is a wholly owned subsidiary of the assessee. Being the holding company, it was the obligation of the assessee to infuse funds in RCML to enable it to carry on its business operations and meet its financial obligations. Accordingly investment was made in RCML in order to facilitate revival of its step down subsidiary RCMIL, which was incurring huge losses on account of adverse foreign market conditions and permanent closure of business operations of RCMIL would have severely affected the brand name/image of the group as a whole. Further, in rebuttal to the allegation made by the special auditor, with respect to the utilization of funds for ultimate bene fit of loss making concerns of group, it is submitted that, the business is started by a businessmen considering the future profits from....
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....g) Ltd. e) RCM (Singapore) Pte. Ltd. f) RCM Corporate Finance Pte. Ltd. In view of the aforesaid, it is respectfully submitted that adverse conclusion drawn by the special auditor merely on the basis of fact that RCML has made investment in its loss making foreign subsidiary, without appreciating the business rationale behind making such investment is highly erroneous. Re (c). RHC allegedly controlled management a nd financial decisions of RCML As regard the allegation made by the special auditor that RHC controlled management and financial decisions of RCML including appointment of key managerial persons and investment decision the same is factually incorrect as explained here under: It is submitted that RHC made substantial investments of Rs. 1030 crore upto 31.03.2016 in RCML (out of which 809 crore was redeemed till 31.03.2016,) and merely in order to protect its investments, RHC was granted following rights: a) Right to appoint one director to the Board of RCML; b) Right to appoint its nominee director on the audit committee of RCML. c) In case of breach of the terms and conditions of the agreement, RHC has been given the right to remove and appoint majority of ....
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....approved by the shareholders in their wisdom, it cannot be said that the scheme itself is floated with the sole criteria of tax avoidance simply because it may have effect and result into avoidance tax. * The Bombay High Court in the case of Sadanand S. Varde Vs. State of Maharashtra 247 ITR 609 observed that after approval by a Company Court, a scheme of arrangement acquires statutory recognition. The aforesaid principle of law equally applies in case of scheme of capital reduction too, which too is duly approved by the High Court, Thus, no authority, much less the income tax department, has the right to tinker with the same. In so far as approvals, it is submitted that the RCML had obtained all requisite approvals from NSE and BSE is enclosed as Annexure -20 and 21 above. For the aforesaid cumulative reasons, it is respectfully submitted that the capital loss claimed by the assessee is genuine, being guided by pure business consideration and deserves to be allowed. Re (e): Mr. Shachindra Nath and Mr. Anil Saxena are common directors of RCML and RCML (Mauritius) The special auditor stated that Mr. Shachindra Nath and Mr. Anil Saxena are common directors of RCML and RCML (M....
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.... High Court in the case of RCML as per which, the value of shares issued to REL would have no value. Copy of order of Hon'ble Delhi High court is enclosed as Anneure-3 above. Thus, questioning the value of shares at nil and reduction in the investment made by the assessee company in RCML is incorrect. Secondly, the special auditor has stated that RCML (Mauritius) had an investment in Kyte Management Limited and thus, the net worth of RCML (Mauritius) cannot be considered as nil. In this regard, the copy of the audited balance sheet of RCML (Mauritius) for the financial year ended on 31st March, 2016 is enclose d as Annexure - 12 above. It should be appreciated that the net worth-of a company is the total of, the share capital as well as the reserves and surplus, However, in the case at present as per the audited balance sheet, the total of the share capital and reserve and surplus of the said company is in negative i.e. US $ 14,91,720/-. The special auditor has not considered the total balance sheet of the company but only considered a single figure. The total share capital and the reserve and surplus of the company has to be looked into to determine its net worth and not the sing....
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....investment banking business overseas, the busine ss interest of RCMIL running through various subsidiaries were severely affected. Therefore, in order to meet the financial requirements of its wholly-owned subsidiary and other step- down subsidiaries, RCML had, from time to time, infused significant amount of capital in RCMIL. However, since RCML did not have sufficient own funds to cater to huge financial needs of its foreign subsidiary and its business, therefore, RCML had, on multiple occasions, approached the assessee, its holding company and RHC with a request for capital infusion. As a result, apart from investment made by the assessee in RCML in past assessment years in various forms, a tri-partite agreement dated 13.02.2012 read along with amendment agreement(s) dated 24.05.2012 and 28.03.2013 was entered between the assessee, RCML and RHC, the terms and conditions of which have already been explained supra. However, due to inability of the assessee company to infuse funds in RCML in earlier assessment years, RHC, in accordance with the agreement, made substantial investment in RCML. However, such investment was subject to the condition that proceeds from any investment ....
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....on considering the business transactions and the losses incurred by the petitioner RCML (i.e. the subsidiary company of the assessee company) and reduced the capital of the petitioner company during FY 2015-16. The copy of Order of Hon'ble Delhi High Court is submitted as Annexure -3 above. Re: Investment in RCML out of interest-bearing loan funds Without prejudice to the primary contention that the investment of Rs. 229.40 crores made by the assessee in RCML was purely for business purposes, it is submitted that the presumption drawn by the special auditor that the investment made by the assessee in RCML was out of interest bearing borrowed funds is factually incorrect as explained hereunder. Investment made out of own fends The special auditor, in the special audit report, has alleged that the assessee has utilized interest bearing funds to make investment in its subsidiary in the form of subscription of preference share capital and thereby interest expense to the extent of Rs. 5,19,61,760 is disallowable. In this regard, as already discussed supra, it is submitted that the investment of Rs. 229.40 crores made by the assessee-company in RCML was wholly and exclusively for ....
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....sed the appeal of the assessee on the ground that the contention * now raised by the assessee before this Court was not raised before the Tribunal or the High Court, approved the contention of the assessee that, where interest free funds/ profits available with an assessee are much more than the borrowed funds, it should be presumed that in essence and true char acter the amounts were paid out of the profits of the relevant year and not out of borrowed funds. The relevant observations of the Court is extracted as under: "Having considered the rival submissions at the Bar, though we find considerable force in the arguments advanced by teamed counsel appearing for the appellant, but in the facts and circumstances of the present case, on going through the order of the Tribunal as well as the question referred by the Tribunal for being answered by the High Court and the arguments advanced before the Tribunal as well as in the High Court by counsel appearing for the assessee, it is not possible for us to hold that any such contention, as was advanced before this court by the assessee had in fact been advanced either before the Tribunal or before the High Court. The question whether a p....
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....le as deduction so long as it is established that such investment was made on account of commercial expediency. Further the expression "commercial expediency", as has been explained by Supreme Court in the case of S.A. Builders (supra), is an expression of wide import and includes such expenditure as a prudent businessman incur s for the purpose of the business, with the test of commercial prudency being examined from the point of view of the businessman. Reference, in this regard, may further be made to the following decisions wherein it has been held that no disallowance of interest is warranted in case where interest free funds are advance d to sister concerns out of commercial expediency or where there is a business justification for the same: * J K Woolen manufacturers v. CIT: 72 ITR 612 (SC) * CIT vs. Rockman Cycle Industries Ltd.: 176 Taxman 21 (P&H) * CIT vs. Dalmia Cement (P.) Ltd.: 254 ITR 377 (De l) * Regal Theatre vs. CIT: 225 ITR 205 (Del.) * CIT vs. Bombay Samachar Limited: 74 ITR 723 (Bom) * D & H Secberon Electrodes Pvt. Limited vs. CIT: 142 ITR 528 (MP)D & H Secheron Electrodes P. Ltd. vs CIT: 149 ITR 400 (MP) * Ram Kishan Oil Mills v. CIT: 56 ITR 18....
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....rt in FORM 6 B] on funds being not utilized for wholly and exclusively for the purpose of the business but charged to the Profit & Loss account under Note No 24 ' Finance Costs', is disallowed under Section 37 of Income Tax Act, 1961 . Therefore based on the above facts and circumstances (i) short capital loss of Rs. 500 crores and long term capital loss of Rs. 344,26,75,159/- and (ii) proportionate interest expense amounting to Rs. 5,19,61,760/- under section 37 of the act are disallowed and added back to the total income of the assessee company. (Disallowance of short term and long term capital loss of Rs. 8,442,675,159/-)" 22. During the hearing before us, the ld. DR argued based on the findings taken by the AO as well as the ld. DRP and also filed the arguments in writing which are as under: "2. The principal objection of the Appellant that the Revenue cannot take contrary stands in case of two assesses who are parties to the transaction. The Appellant states that the genuineness of the investments have been accepted in the hands of RCML for assessment year 2012-13 and 2013-14. 3. In this connection it is submitted that each assessment year is a separate assessmen....
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....rson taking decision are same in all companies and are interrelated. 5. Investment made by RCML in RCML (Mauritius) was controlled by RHC and the same was also made before funds were introduced as per agreement dated 28.03.2013 by the assessee company. 6. The Assessee company through amendment agreement dated 28.03.2013, invest Rs. 810 crores in RCML. These funds were used by RCML to refund investment of Rs. 659 crores made by RHC in RCML preference shares along with redemption premium of Rs. 55.60 crores which total to Rs. 714.60 crores. 7. The Assessee company further made investment of Rs. 80.60 crores in financial year 2013-14 & Rs. 229.40 crores in financial year 2015-16 in RCML. 8. All value of, investment made by the assessee company in RCML including investment shown in (7) above, were treated as permanently declined to NIL as and when made. The shows that the assessee company knows before making such investment, that value of its investment will be zero and through such investment, repayment were made to RHC only. 9. The investment of funds by the assessee company was not in accordance with guidance provided in its Memorandum of Association. 10. RCML (Mau....
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....g the investment of Rs. 229.40 crores in RCML which would otherwise results in earning of the interest income. The assessee company simultaneously created provision for diminution in the value of such investment there by reducing the value of investment to NIL. By no stretch of imagination this is a diminution of the value of the investment but such creation of the provision of the diminution of the value of the investment is nothing but an effective write off of the investment as done in the case of previous diminution of the value of the investment explained earlier with respect to Rs. 750 crores. These funds were utilized by RCML for clearing its financial commitments which got created on account of its investment in its Mauritius subsidiary. Therefore, as established above, such investment is part of total investment of Rs. 1755.50 crores which were siphoned off by assessee company through RCML, as such, not used wholly and exclusively for the purpose of business of the company & accordingly, interest cost incurred by the assessee company is disallowed to the extent of utilization of funds in the such investments. During the year under consideration, the shareholder funds....
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....as obligated to support its subsidiary companies likes RCML to revive their business operations. The Appellant seems to ignore the facts that RHC Holdings Pvt. Ltd. is also part of this multi-national group and it is its responsibility to support the step-down subsidiaries as much it is that of the Appellant. Therefore, the plea that this such a responsibility lies up only upon the Appellant is rather out of place. It is extremely clear that transaction has been so arrange d that RHC Holdings Limited is the ultimate beneficiary of this entire transaction leaving the assessee to suffer losses. It is not a transaction that answers the arm's length standard. 10. Therefore, it is humbly prayed that the addition made by the Assessing officer disallowing the long term and short-term capital losses be upheld." Sd/- (BHASKAR GOSWA MI) CIT(DR) 23. Rebutting the submissions of the Departmental Representative, the ld. AR filed their rejoinder which is as under: "1. The appellant is in receipt of written submission dated 28.06.2023 filed by the learned Department Representative (DR) in the captioned matter in respect of Ground of Appeal No. 3 to 3.5 - Disallowance of capital lo....
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....o enable RCML to expand investment banking business overseas through a wholly owned subsidiary company in Mauritius, i.e., Religare Capital Markets International (Mauritius) Limited ('RCMIML'). However, due to year- on- year losses incurred by foreign companies, slower economic growth and global financial crisis, the net worth of RCMIML was significantly eroded, which led to significant losses to RCML. Accordingly, after considering all facts and with the aim to reduce the losses, a scheme of reduction of share capital of RCML was sanctioned by the Delhi High Court, wherein, the High Court categorically took note of business rationale behind funds being invested. It was only after the capital reduction of RCML was sanctioned by the Hon'ble Delhi High Court that the appellant had written off its investment made in preference shares of RCML aggregating to Rs. 750 crore. In this regard, it is a trite law that scheme of reorganization sanctioned by High Court operates as a judgment in rem, binding on all stakeholders [refer Marshall Sons & Co (India) Ltd v. v. ITO: 223 ITR 809 (SC); Dalmia Power Ltd vs. ACIT: 420 ITR 339 (SC); Ponni Sugar (Erode) Ltd vs. ACIT: WP 12510 / 2004 (Mad)]....
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....ta of evidence to the contrary has been placed by the assessing officer or special auditor. In view of the aforesaid, the write-off of shares, as a consequence of the binding scheme sanctioned by the High Court after acknowledging the same to be between related parties, cannot be doubted . It is further submitted that the reliance on the provision of Transfer Pricing placed by the DR is, it is respectfully submitted, not relevant to the facts of the present case inasmuch as the said provisions apply only to international transactions or specified domestic transactions entered into between two or more associated enterprises. The transaction und er consideration i.e., capital loss arising on write- off of shares pursuant to the binding scheme of High Court, it is respect fully submitted, is not covered under the definition of either 'international transaction' or ' specified domestic transaction'. Being so, reference made to the TP provision for determining ALP is misplaced. That apart, the Id. DR has erred in conveniently shifting the burden on the assessee by alleging that it was the duty of the appellant to prove the genuineness. Be that as it may, it is reiterated that ....
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....his entire transaction, leaving the assessee to suffer losses. It is not a transaction that answers the arm's length standard. While making the said allegations, the Id. Dr, it appears, has not appreciated the structure of organizations. The observations made by the Id. Dr is based on incorrect factual premises and thus not sustainable. Kind attention in this regard is invited to the inter-company holding/relationship of entities which have entered into the transaction under consideration: On a perusal of the aforesaid structure, it will be appreciated that RHC Holding had a stake of only22% in the appellant company. It will thus be appreciated that RHC Holding, not being a majority shareholder of the appellant, was not obligated to support the step-down subsidiaries of the appellant. It was, in fact, the appellant' s responsibility to assist the subsidiaries inasmuch as the appellant was holding 100 % shares of RCML, which, in turn, held 100 % shares of the foreign subsidiaries. Further, as explained in detail in the written submissions, the funds were paid to RHC as repayment of commitments met by RHC for supporting RCML at request of the appellant. RHC was not the ult....
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....preferential shares which have been ultimately utilized by RCMIML. In total, the assessee made investments aggregating to Rs. 1755.55 Cr. in RCML from F.Y. 2008-09 to F.Y. 2015-16 which included the investments of Rs. 750 Cr. made in 0.001% non-convertible cumulative redeemable fully paid up preferential shares of RCML. Thus, this is a clear case of flight of capital from India to abroad and Indian entity incurring and claiming long term capital loss of Rs. 344.26 Cr. and short term capital loss of Rs. 500 Cr. 27. These entire operations of the assessee engender us to examine the concepts of tax planning vs. tax avoidance vs. tax evasion. Tax planning is a completely logical and legal way of minimizing one's tax liabilities by availing the benefits of all the provisions, de ductions, exemptions and treaty benefits provided under the Income Tax Act. It is a process of arranging the financial activities and transactions in such a way that it legally minimizes the amount of the taxes, the taxable entities required to pay. It is an acceptable legitimate practice which allows the taxpayers to use the Income Tax Act to their advantage while observing the due compliances with the Act. Ta....
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....own subsidiary are as under: S. NO. Name of Entity Loss incurred till 31.03.2016 (in USD) Losses Incurred during the year FY 2015-16 1. Religare Capital Market International Mauritius Limited. (405,662,933) (6,173,547) 2. Religare Capital Market (Europe) Limited. (118,197,000) (550,000) 3. Kyte Management Limited 9,940 (800) 4. Religare Capital Market (Hong Kong) Limited (486,499,354) (188,594,940) 5. Religare Capital Markets (Singapore) Pte Limited (22,170.043) (1,913,889) 6. Religare Capital Markets Corporate Finance Pte Limited (38,610,994) (2,668,609) 31. We have also gone through the tripartite agreement with the assessee with RCML and RHC. We have also gone through the forensic report in the case of the assessee submitted to SEBI which found out diversion of funds by the assessee. The relevant portion of the order of SEB I dated 14.03.2019 is reproduced as under: "1. Securities and Exchange Board of India (hereinafter referred to as "SEBI") received complaints, inter-alia, alleging financial mismanagement and diversion of funds in Religare Finvest Ltd. (hereinafter referred to as "RFL"), a subsidiary of Religare Enterprises Limited (hereinafter ....
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.... companies. RFL had submitted its reply to RBI (letter dated February 20, 2017) stating that it would be able to reduce the CLB portfolio by Rs. 100 Crores in the first quarter of FY 2017-18. However, the total CLB exposure increased from Rs. 1,846 Crores as on March 31, 2017 to Rs. 2,517 Crores, as on October 31, 2017. e) With regard to the aforesaid CLB, it was alleged that companies to whom loans have been given by RFL under CLB were not the actual users of loans and that they were primarily used as vehicles for usage of the funds by others as well as by various group companies of the promoters of REL. f) Further, the auditors of REL viz. Pricewaterhouse Coopers (Pw C) had qualified their opinion on the financials of REL for FY 2016-17 highlighting the amounts doubtful of recovery to the tune of Rs. 1,846 Crores and highlighted directions from the RBI dated January 27, 2017 regarding concerns over the corporate loan portfolio of RFL. 2. In order to find the ultimate utilization of funds of RFL, the entire transactions in the bank accounts of the companies and the promoter/ promoter connected entities needed to be examined in detail from FY 2008-09 to FY 2017-18. This requi....
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....zation transactions. All of these fixed deposits were pledged and made with specific business related purposes. Given that the fixed deposits placed with LVB were the only ones against which no lien was created and no business transaction was facilitated, it strengthens the concern that the fixed deposits were not created as part of normal business transactions. (e) Moreover, RJFL and REL were having banking relations with some of the largest banks in India, including State Bank of India, Punjab National Bank, HDFC Bank, Bank of India, ICICI Bank, among others. LVB is comparatively a small bank with total net worth (aggregate of Share Capital and Reserves & Surplus) of Rs. 1,763.59 Crores as on March 31, 2016. (f) Thus, as far as safety of the deposits is concerned, placing fixed deposits of Rs. 750 Crores at a single bank with relatively low net- worth is difficult to justify. Also, all the other FDs opened by RFL were with large sized banks. The choice of a much smaller bank for creating fixed deposits of such a huge amount against which it had not taken any loan itself or had not given it as security, raises doubts about its true purpose. (iii) The Notice nos. 24 and 25 (v....
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....see company knows before making such investment, that value of its investment will be zero and through such investment, repayment were made to RHC only. RCML (Mauritius) has shown investment of more than Rs.580.74 crores in an entity established in British Virgin Islands as on 31.03.2016. 33. From the entire events, it can be found that the funds invested by the assessee company in RCML was not made for any business investment but to repay its associate company i.e. RHC by routing of funds through RCML (Mauritius) and booked as loss in RCML (Mauritius) financial statements. The sole purpose of the investment in RCML is to take over the liability of RHC towards capital commitment or repayment of existing liability of RHC and investment made by the assessee company are treated as loss. We are in agreement with the submissions that anti-avoidance provisions provides that the primary onus lies upon the assesses to show that the transaction it related party is a arm's length such a nature that would be as carried between unrelated entities. The assessee states that it be the ultimate holding company was obligated to support its subsidiary companies likes RCML to revive their business o....
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.... 576,62,00,000 840,18,04,975 59,18,00,000 899,36,04,975 Cost on sale/expenses 23,35,62,021 20,95,90,947 2,39,71,074 23,35,62,021 Net Amount 371.47,42,141 10,60,83,585 38,12,53,581 48,73,37,166 38. In support of the aforesaid, the following documents have, inter alia, been placed on record before the revenue authorities: * Detailed working of capital gain/loss (refer pg 1367-1368 of PB Vol IV); * Detailed working of sale consideration (refer pg 1 369-1372 of PB Vol IV); * Copy of the original Joint Venture agreement dated 19.06.2007 read with Novation Agreement dated 23.05.2008 entered, inter alia, between the appellant with Aegon for investment in ARLIC (JV Agreement) (refer pg 1374-1485 of PB Vol IV); * Copy of the restated joint venture agreement entered by the appellant with Aegon for investment in ARLIC on 30.03.2013 (refer pg 1504-1531 of PB Vol IV); * Copy of the restated joint venture agreement entered by the appellant with Aegon for investment in ARLIC on 25.08.2014 (refer pg 1532-1569 of PB Vol IV); * Copy of first share purchase agreement entered into between the company & Benett Coleman & Co. Ltd. on 08.05.2015 (refer pg 1617-1646 of PB Vol IV);....
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.... nature of income arising from shares de pends upon the nature of asset, viz., whether the shares were held as "capital asset" or as "stock-in-trade". 5.12 The term 'capital asset' has been defined in section 2(14) of the Act as under: "'Capital asset' means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include-any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession;" 5.13 The term 'stock in trade' has not been defined under the Act. In general parlance ' stock-in trade' is understood as an asset, which is held with an objective to deal therein. 5.14 'Stock-in- trade' is something "in which" a businessman deals, whereas a 'capital asset' is something "with which" he deals. The essential characteristic of stock-in-trade is that it must be a commodity in which there is dealing as distinguished from a commodity with which the busine ss is carried on, viz., from the exploitation of which income is derived [see H. Mohammed & Co. vs. CIT 107 ITR 637 (Guj.)]. 5.15 The nature of asset, whether 'stock in trade' or 'capital asset' primarily depends ....
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....s.''(emphasis supplied) 5.18 The Gujarat High Court in the case of PCIT v. Ramniwas Ramjivan Kasat: 248 Taxman 484 (refer pages 19-22 of CLPB) after considering Circular dated 29.02.2016 {infra) was pleased to hold that in respect of listed shares and securities held for a period of more than 12 months immediately preceding date of its transfer, if the assessee desires to treat income arising from transfer as capital gain, same shall not be put to dispute by assessing officer subject to condition that stand taken by assessee in a particular year would be followed in subsequent years. 5.19 It has similarly been held in the following cases: * * Sutlej Cotton Mills Supply A gency Ltd: 100 ITR 706 (SC) * Karam Chand Thapar & Bros. (P) Limited v. CIT: 82 ITR 899 (SC) * CIT v. Rewashankar A. Kothari: 283 ITR 338 (Guj.) * CIT vs. Sahara India Housing Corporation Ltd: ITA No. 740/2009 (Del.) * ITO V. Rohit Anand: 34 SOT 42 (Del.) affirmed in 327 ITR 445 (Del.) * CIT v. Vinay Mittal: 208 Taxman 106 (Del.)- Departmental SLP dismissed * Jindal Photo Investment Ltd.: 334 IT R 307 (St.) (SC) * CIT v. Devasan Investment Pvt. Ltd.: 365 ITR 452 (Del) (Supreme Court....
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....SC)]. 5.25 Attention is further invited to the following decisions wherein gains on transfer of shares have be en held to be capital gains after taking into consideration the aforesaid CBDT Circulars dated 29.02.2016 and 02.05.2016: * * PCIT v. Ramniwas Ramjivan Kasat: 248 Taxman 484 (Guj.) * PCIT vs. Bhanupr asad D Trivedi (HUF): 87 taxmann.com 137 (Guj)- Revenue's SLP dismissed in 256 Taman 292 (SC); * Suresh Babulal Shah (HUF) vs. DCIT: 161 ITD 514 (Pune) * DCIT vs. Mahender Kumar Bader: 48 ITR(T) 596 (Jaipur) * Sh. Anil Kumar Goel vs. ACIT: ITA No. 3142/Mds/2016 (Chennai) * ACIT v. Sachin Tendulkar: 163 ITD 65 (Mum.) * ACIT v. Puran Associates Pvt. Ltd.: ITA. No.3078/Del/2011(Del. Trib.) Legal position applied to the facts of the present case; 5.26 The appellant is, undisputedly, engage d in business of financing and is not a dealer in various instruments of investments. Purchase of shares/ securities is not at all the business of the appellant company. 5.27 It is also a matter of record, that the appellant made investment in shares of ARLIC as long-term strategic investment. The intent of making such investment was not to trade there in but ....
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....h subsequent amendments)- refer pages 1396- 1397 of PB Vol IV. Trader shall not commit any such funding since the objective of the trader is short-term of earning gains/ profits by trading in shares. * Under the JV Agreement, there were substantive restrictions on transfer of shares including (refer clauses 17 to 21 of JV Agreement read with subsequent amendments) the following refer pages 1397- 1407 of PB Vol IV: - Transfer of shares was not permitted except in circumstances, specified (clause 17.1); - Shares can only be transferred subject to compliance of conditions prescribed in the JV Agreement and not otherwise (clause 17.2-17.3); - Transfer could not be made freely to anyone but to only eligible third parties which are prescribed in schedule to the JV Agreement (clause 17.2); - Transfer could be made after expiry of lock-in period of 9 year (subject to exceptions) (clause 18; - Specific exit mechanism had been prescribed and plain/ blanket sale was not permissible (clause 20); - If appellant seeks to transfer the shares, first right of refusal was with the AEGON (clause 21). * 2 year non-compete clause after exit from shareholding exists in the JV Agr....
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.... the other hand, in the case of securities held as stock-in-trade, valuation is required to be done as per Accounting Standard-2 on "Valuation of Inventories", which requires inventory to be valued at lower of cost or net realizable value. In terms of section 211 of the Companies Act, 1956, it is mandatory for every corporate-assessee to strictly follow the aforesaid accounting standards. The appellant has consistently followed the Accounting Standard 13 and value d the investments at cost and not at lower of cost or net realizable value. The accounting treatment followed by the appellant has always been accepted by the Revenue in the earlier year(s). Further, the Statutory Auditors in their Audit Report(s) over the years have also certified that the aforesaid accounting treatment to be correct, and has also been accepted by the Department. (g) In the audited profit and loss account, only net gain/loss on transfer of securities is shown, which is strictly in line with the method of re cognition of profits on transfer of capital investments. Had the shares/ securities been held as "stock in trade" and not as "investments", cost of purchases and s ales would have separately ....
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....pital gains and not business income (refer pages 40-49 of CLPB). 5.33 It has been held likewise by the Karnataka High Court in the case of CIT v. Nadatur Holdings and Investment (P) Ltd.: 210 Taxman 597. 5.34 The apex Court in the case of Ram N arain So ns (P.) Ltd. v. CIT: 41 ITR 534 held that where the shares were purchased for acquisition of managing agency, sale of some of the shares could not be treated as an adventure in the nature of trade to result in business income (refer pages 36-39 of CLPB). 5.35 The Delhi Bench of Tribunal in the case of Everplus Securities and Finance Ltd. vs DCIT: 101 ITD 151 held that investment in shares to acquire controlling interest did not mean that assessee was in the business of investment in shares. 5.36 In the case of Slocum Investment (P) Ltd. vs. DCIT: 106 ITD 1 before the Delhi Bench of the Tribunal, the assessee, being an investment company as defined by the objects clause of its Memorandum, had acquired shares of HCL Ltd., to acquire and retain controlling interest in the said company. The said shares were shown by the assessee-company in its books of account separately as investments and not stock-in-trade and the profit/l....
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....hares of ARLIC is to be allegedly assessed as business income under section 28(iv)/(va) of the Act. 5.41 The aforesaid allegation/observations are patently erroneous for the following reasons: 5.42 It is reiterated that the intention of the appellant in making investment in ARLIC was not for the purpose of carrying on insurance business but to co-promote a company as a joint venture with a foreign partner to carry on insurance business, with the underlying intent to enjoy return there from in the form of dividend and/or long-term appreciation in value of such strategic investment. It is submitted that the rights and privileges accorded to the appellant pursuant to the investment of 44% in ARLIC was merely incidental to acquiring controlling stake in the company and were merely in the nature of shareholder rights. 5.43 It is submitted that on account of majority shareholding in the JV, the appellant was provided with certain rights, including the power to nominate directors on the board of the JV Company, which merely constituted shareholder rights and nothing more. Such rights are normally given to the majority shareholder making substantial investments in any JV company. ....
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....both in corporate and tax laws. However, where the subsidiary's executive directors' competences are transferred to other persons/bodies or where the subsidiary's executive directors' decision making has become fully subordinate to the Holding Company with the consequence that the subsidiary's executive directors are no more than puppets then the turning point in respect of the subsidiary's place of residence comes about. ...................... 74..............The directors of the subsidiary under their Articles are the managers of the companies. If new directors are appointed even at the request of the parent company and even if such directors were removable by the parent company, such directors of the subsidiary will owe their duty to their companies (subsidiaries). They are not to be dictated by the parent company if it is not in the interests of those companies (subsidiaries). The fact that the parent company exercises share holder's influence on its subsidiaries cannot obliterate the decision-making power or authority of its (subsidiary's) directors. They cannot be reduced to be puppets. The decisive criteria is whether the parent company's management has such steering i....
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....ays accepted by the Department in the past years. Further, the rights and privileges allowed to the appellant was merely incidental to its acquiring shareholding in ARLIC and were merely in the nature of shareholder rights. The business of the investee/ARLIC cannot be regarded as the business of the appellant merely because the appellant may exercise certain shareholder influence. 5.47 The assessing officer/ special auditor have to tally failed to appreciate the aforesaid settled principles. In view of the aforesaid, it is respectfully submitted that the appellant has rightly declared the gains arising on transfer of shares of joint venture under the head 'Capital Gains' and the action of the assessing officer in recharacterizing the gains as business income calls for being reversed. Re: Section 28(va) and Sect ion 28(iv) of the Act - Not applicable 5.48 The assessing officer has applied provisions of 28(va)/(iv) of the Act to tax the gains on transfer of shares of ARLIC as business income. In this regard, it is submitted that the said sections are not applicable to the facts of the present case as explained hereunder: 5.49 Section 28(va) brings to tax any amount receiv....
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....rice was pre-decided and hence fee paid to CSS is being disallowed, which is patently erroneous and unsustainable for the following reasons: 5.57 The appellant had paid professional advisory fee of Rs. 21.30 crores to CSS in connection with transfer of shares of ARLIC in terms of the agreement entered into with CSS for their assistance in sale of shares of ARLIC. Copy of agreement between appellant and CSS is placed at pg 1750-1756 of PB Vol IV and copy of invoice is placed at pages 1749 of PB Vol IV. The same is thus clearly allowable as deduction while computing capital gains under section 48 of the Act, which aspect has not been disputed by the assessing officer. 5.58 Reliance in this regard is placed on the following decisions where in it has been held that expenses incurred in connection with transfer of capital asset are allowable as deduction for the purpose of computation of capital gains: * CIT vs. Shakuntala Kantilal: 190 ITR 56 (Bom.) * Gopee Nath Paul and Sons v. DCIT: 278 ITR 240 (Cal.) * Mrs. June Perret vs. ITO: 298 ITR 268 (Kar.) * ACIT vs. Shri Ajay Agarwal: ITA No.405 of 2011 (Agra Trib.) * AIG Offshore Systems Services Inc vs. A CIT: 175 ITD ....
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....g plan relation to sale of ARLIC shares; (c) Coordinating the data room and due diligence investigations of potential purchasers of ARLIC shares; (d) Evaluating proposals that are received from Potential Purchasers; and (e) Structuring and negotiating the sale terms etc. 5.64 Further, TDS has been deducted and de posited by the appellant on the payment made to CSS details of which are at pages 1757-1758 of PB Vol IV. 5.65 It is submitted that there is no legal bar on the assessee/ taxpayer seeking appropriate advice before or at the time of entering into a transaction and so long as expenditure is incurred in connection with the transaction undertaken, the same is allowable as expenditure. 5.66 The aforesaid clearly substantiate that the expenditure has been incurred in correction with sale of shares of ARLIC by the appellant and is allowable as deduction under section 48(i) of the Act. 5.67 Without prejudice, if the gains on transfer of shares of ARLIC is treated as business income, the said expenses are deductible in terms of section 37(1) of the Act." 42. We find that the assessee has continuously treated the same as investments in the balance sheet. We ha....
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.... and all other branded mate rial of the Company, provided that the Company shall not be required to remove the term "Religare" or its logo from: (1) any existing or executed customer agreements, policies, written customer communications, customer documentation or other like documents that are in existence as on and including the date of issuance of the fresh certificate of incorporation of the Company reflecting the removal of the term "Religare" from the name of the Company ("Name Change Date"); or (ii) non-customer facing records that are used in the ordinary course of business and for internal purposes only that are in existence as on and including the Name Change Date; and (z) change the name of the AEGON Religare Employee Benefits Trust ("EWT") such that the term "Religare" is no longer part of the name of the EWT, (ii) file the application for obtaining the approval from the IRDAI required for effecting the changes contemplated in Clauses 3.7(e)(1)(x). (y) and (2) no later than 15 (fifteen) days from the Execution Date, it being clarified that such application shall be filed separately from the application to the IRDAI for the IRDAI Approval and the Aegon IRDAI Approval....
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....der the ownership of the Company. The business/assets will be transferred to the purchaser. Liabilities The purchaser will assume all of the assets and the liabilities pertaining to the Company. The purchaser may exclude certain liabilities relating to the business. If the purchaser does assume certain liabilities, this usually results in a reduction of the purchase price. Business Contracts The contracts will remain with the company and do not need to be transferred. The contracts will need to be transferred to the purchaser by virtue of the company ceding and assigning such agreements to the purchaser . Employees As the employer of the employees (the company) remains unchanged, the employees will remain employees of the company. As the employees form part of the business (as a going concern) such employees will need to be transferred to the purchaser as the new employer. 48. In this case, the assessee has made investment in the shares over a period of 8 years and sold the shares to M/s Bennett Coleman & Co. Ltd. and the proceeds have been offered under the head "capital gains". 49. We have gone through the provisions of Section 28(va) and Section 28(iv) invoked by the....
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....f the aforesaid 8,445 NCDs issued, 3,372 NCDs were redeemed in the subsequent Assessme nt years) 2014-15 to 2016-17 as under: Particulars Total NCDs issued in AY 2013-14 NCDs redeemed in AY 2014-15 NCDs transferred in AY 2014- 15 NCDs redeemed in AY 2015-16 NCDs redeemed in AY 2016-17 Religare Securities Limited 3,000 1,240 and 100 Transferred to Peerless Mutual Funds - - - Standard Chartered Bank 5,455 - - 1,366 1,366 56. Thus, as on 31.03.2016, 4,483 NCDs were outstanding in the books of the assessee, against which interest @14% was provided as under: Particulars NCDs outstanding as on 31.03.2016 Interest on NCOs Religare Securities Limited 1,660 Rs. 30,33,19,164 Standard Chartered Bank 2 723 Rs. 28,01,34,122 Peerless Mutual Funds 100 Rs. 1,82,72,239 Total 4,483 Rs. 60,17,25,525 57. It was submitted that in the special audit report, the auditor has alleged that the effective interest paid by the assessee on NCDs issued to RSL was @ 18.27% p.a. as against yield rate of 14% p.a. paid to Standard Chartered Bank. On the basis of the above, the revenue authorities concluded that interest on NCDs issued to RSL is excessive or unreasonable to the exten....
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.....a. Total 300 Cr. .................... G. The company has pursuant to:- ................ Allotted fixed rate, secured, rated, listed redeemable Non-Convertible Debentures (NCDs) of the aggregate nominal value of Rs. 300,00,00,000/ - (Rupees Three hundred crores only) in Demat form for cash at para on private placement basis to the subscribers of the NCDs (hereinafter referred to as the "Debenture Holders" or "Debenture-holders") as under: Aggregate nominal value of NCDs (Rs. In crores) No. of NCDs Computation of interest and frequency on interest payment Deemed date of allotment Redemption/maturity date and put/call option dates Rs. 300,00,00,000 (Rupees three hundred crores only) 3000 Zero Coupon March 28, 2013 March 28, 2018 ........................." 60. It was submitted that thus the yield on 3000 NCDs issued to RSL was 14% p.a. only i.e., at par with NCDs issued to Standard Chartered Bank, as against 18.27% p.a. alleged by the revenue authorities. It was argued that the revenue authorities have failed to appreciate the concept of 'Zero Coupon Bond', which is explained as under: "4.10 A zero-coupon bond is a debt secur....
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....& advisory services. The TPO has taken following comparables: S. No. Company Name OP/OR 1. Indovision Securities Private limited 3.10% 2. BN Rathi Securities Limited 3.73% 3. Cholamandalam Securities Limited 4.32% 4. P P F A S Asset Mgmt. Pvt. Ltd. 11.19% 5. I C R A Management Consulting Services Ltd. 12.15% 6. Alankit Ltd. 16.75% 7. Aditya Birla PE Advisors Pvt. Ltd. 25.78% 8. Pushpak Financial Services Ltd. 30.41% 9. Inmacs Management Services Ltd. 44.36% OP/OR 35th percentile 3.15 11.19% 65th percentile 5.85 16.75% Median 12.15% 65. Accordingly, the Arm's Length Price of the international transaction is computed as follows: Operating Revenue 1258294931 OP/ Sales of Comparable (%) 12.15 % Arm Length Margin 152882834 Arm Length Cost D 1105412097 Cost shown by the Assessee 1190812222 Difference F 85400125 Proportionate Adjustment Difference 762966 66. The ld. DRP directed to delete Alankit Ltd., Indovision Securities Private limited, BN Rathi Securities Limited and Cholamandalam Securities Limited as they functionally dissimilar. We have also gone through the functions of other comparables whi....