TaxTMI 
TaxTMI 
2024 (7) TMI 1371
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (JV) between Hero Group and Honda, Japan, with the Hero Group and Honda ( here in after also referred as 'parties') holding 26% equity each, pursuant to shareholder agreement dated 26.12.1983 ('JV Agreement'). The parties, agreed to participate in manufacture, assembly, import, sale and service of motorcycles and parts thereof in India with technical assistance of Honda. The JV Agreement dated 26.12.1983, had certain restrictions related to the management and existence of the JV company on the parties qua (a) right to transfer/ sell/ assign shares held in the JV company, without any prior consent of the other (b) arrangement of funds to meet requirements of JV company ; (c) right to terminate the JV in certain cases. Further, restrictions vide Article 11 of JV agreement were placed on the JV Company and the Indian Partners in the said JV agreement by which the Indian Partners were prohibited to directly/ indirectly engage in the manufacture, sale or distribution of any motorcycles and other two-wheelers. Subsequently, vide Memorandum of Understanding (MOU) entered into on 12th July 1999 [referred also as '1999 MOU') the Indian partners permitted Honda to establish its subs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....v) allowed to develop and sell new models of motorcycles and scooters; (vi) allowed to freely export motorcycles (other than License B products) to any country across the globe with restriction on use of brand "Honda" in case of export to new overseas distributors. 2.3 The 26% stake held by Honda in HHML (JV) was agreed to be taken over by Hero Group through erstwhile Hero Investment Pvt. Ltd. (HIPL/ assessee /appellant). Accordingly, the appellant (representing Hero Group), in an off-market deal on 22.03.2011 acquired 5.19 crore equity shares, representing 26% stake in HHML, from Honda at a mutually negotiated price of Rs. 739 per share, for a total consideration of Rs. 3,841.83 crores being paid to Honda, on which due tax was deducted and deposited as per the provisions of section 195 of the Act. 2.4 The case of assessee is that to acquire the aforesaid shares, apart from utilizing the accumulated reserves and surplus available with the appellant, interest bearing borrowed funds were sourced through issue of secured Non-Convertible Debentures (NCDs) to the tune of Rs. 2900 crores, which were secured against the shares of HHML. Further pursuant to the acquisition of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessment order dated 29.12.2018 at total income of Rs. 3650,88,16,576, after making addition of Rs. 3644,85,20,063 under section 28(iv) of the Act, alleging the same to be "benefit" accrued to the appellant on acquisition of 26% stake in HHML from Honda, at discount. On first appeal, the CIT(A), vide impugned order dated 28.03.2023, agreed to the contentions of the assessing officer in toto and dismissed the appeal of the appellant for which the assessee is in appeal here in Tribunal. 4. On hearing both the side, it is pertinent to observe that the grounds as raised by appellant/ assessee, bring forth the precise controversy, on facts and law, between the parties and for convenient discussion same can be concised in the form of following two issues:- Issue No. 1: Whether the reassessment order dated 29.12.2018 lacked valid 'reason to believe that income of the appellant had escaped assessment' in terms of absence of tangible material and beyond the scope of first proviso to section 147 of the Act, inasmuch as there was no failure on part of the appellant to fully and truly disclose all material facts relating to the impugned transaction? Issue No.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and submitted that during the discussion, the CIT(A) has questioned the share transfer agreement dated 22.1.2011 being in violation of the shareholder's agreement of 1983 regarding termination of JV in terms of transfer of share by terminating party at the market price. The terms and condition of the framework agreement 1983 provided purchase and sale of share at fair market price. Reliance is placed byLd. DR on findings of CIT(A) at page no. 63 and para no. 7.6, that during the course of post survey enquires, the appellant was called upon to furnish various documents related to the negotiation between the transacting parties namely HIPL, HHML and M/s Honda Japan. It is noted by the AO that the appellant was able to provide only a few documents and had not provided crucial documents relating to negotiation and determination of payments for concession allowed by the parties including the reason for allowing appellant a 50% discount on purchase of share of M/s HHML during the year under consideration. 6. Now in regard to issue no. 1, it is settled proposition of law that under the scheme of the Act, the assessing officer can initiate proceedings under section 147 of the Act o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a plain reading, should demonstrate that such a reasonable belief could be formed on some basis/ foundation and had in fact been formed by the Assessing Officer that income has escaped assessment. No such reasonable belief can be inferred from the purported reasons to believe recorded. [Para 13] The words "reason to believe" indicate that the belief must be that of a reasonable person based on reasonable grounds emerging from direct or circumstantial evidence and not on mere suspicion, gossip or rumor. The "reason to believe" recorded did not refer to any material that came to the knowledge of the Assessing Officer whereby it could be inferred that he could have formed a reasonable belief that amount in question had escaped assessment. ..... In view of the above, the reassessment proceedings initiated pursuant to the notice issued under section 148 are hereby quashed. [Para 15]" 8. Now coming to the facts of present case, the broad allegations made by the assessing officer in the reasons recorded, which forms the basis of impugned proceedings are: i. It has been alleged by AO that benefit by way of discount in purchase of shares had been extended by Ho....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was to be in lieu of grant of concession by the assessee / Hero Group to Honda permitting the latter to independently carry on business in the field of manufacturing two wheelers in India. For the aforesaid conclusion, support was drawn by AO from clause 17.10 of the Share Purchase Agreement- "No objection for future business". iv. AO, records in the "reason to believe" that this was new information coming to the knowledge of Revenue, and the facts whereof were not fully and truly disclosed by the assessee. v. The assessing officer has further tried to justify the reopening on the premise that following issues raised during the course of survey/ post survey enquiries remain to be answered by the assessee- (i) authorization to Board of Directors in AGM permitting issue of shares to foreign investors at premium was not provided; and (ii) entire 26% stake was sold by Honda to HIPL/ assessee and not to BCIPL who was also another major shareholder in HHML. 9. As we examine the reasons recorded by the assessing officer available at page 653 to 673 of paper book, we find that what the AO, harps upon, as 'reasons to believe', was not on the basis of any tangib....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was obliged to make public announcement of existing 20% stake and thus fairly contended that acquisition of high stake (26%+20%=46%) in HHML was not lucrative to third-party investor as still the third party would be an equal partner with the Hero Group, holding only 26%. 9.4 Then the price of Rs. 1439 (approx.) quoted at the stock exchange, as taken by AO, was for Hero Honda Motors Ltd., a JV, with substantial brand value, having developed its reputation/ brand over a period of more than 25 years, however, the new Company HMCL, would have to prove its mettle all over. So how fair it would have been for a investor is stock exchange to buy a share of HHML at Rs. 1439. The market perception, about capability of new company, due to exit of Honda, would have certainly been open to different sentiments. Taking notice of fact that during the subsistence of the JV Agreement, HHML was benefitted by the technical know-how for manufacture of two wheelers from Honda, the exit of Honda, from JV, was likely to raise lot of apprehension on HHML's ability to sustain further in the competitive market. This was to be further complicated with the competition that Honda would put to HHML, post ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hares Rs. 1439 of the JV company was not comparable with the price paid to Honda for acquisition of shares. 9.7 We are of view that the AO, and so also ld. DR, has got swayed by misinterpretation of Clause 14 of JV Agreement. The same provided for inter se sale- purchase of shares between the JV Partners at fair market value. This clause 14.6 of the JV agreement, was to be effective only in the event that the agreement was terminated by virtue of certain specified contingencies as contemplated in clauses 14.2, 14.3 or 14.5(a) or (b) or (c). It was in those circumstances that the terminating party was vested rights to require the other party to purchase their stake/ shares at the then current fair market price. However, to our understanding, as there was termination of agreement by a mutual decision and not due to triggering of any of the aforesaid default clauses, the clause 14.6 was not applicable. We appreciate the contention of Ld. Sr. Counsel that Section 62 of the Indian Contract Act, 1872, enables the parties to a contract to mutually modify the terms of the original contract, so substitution of original recital, of method of valuation of shares, at time of exit, from fair....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n investors before or after the acquisition of shares of HHML. Ld. Sr, Counsel has drawn our attention to the FIPB application dated 03.01.2011, available at pages 417 to 424 of paper book, which was filed before the actual acquisition of shares of HHML from Honda. It was submitted that the facts relating to the MoU dated 16.12.2010 and the aforesaid proposed acquisition were fully disclosed and the permission for foreign inward remittance was sought keeping in mind the valuation of the appellant company post such acquisition. Thus on unsubstantiated allegation the transaction is questioned. 11.2 Ld. Sr. Counsel submitted that even otherwise, the decision to consummate the transaction at the earliest was commercially prudent for the appellant as the purchase price was to be computed on the basis of average of weekly high or low of the quoted price of preceding nine business days prior to date of transfer. Being so, since the acquisition price was dependent on the volatile quoted price of shares prior to transfer date, the appellant in order to avoid any future volatility in price, decided to close the transaction as early as possible. It was submitted that since all the announce....
X X X X Extracts X X X X
X X X X Extracts X X X X
....57 to 258 of paper book); (b) arrangement of funds to meet requirements of JV company (Article 9 available on pages 59 to 261 of paper book); (c) right to terminate in certain cases (Article 14 available on pages 265 to 271 of paper book). 12.2 Ld. Sr. Counsel has submitted that all the said restrictions which related to the management and existence of the JV Company, were equally placed on the Indian partner as well. No restrictions on carrying on independent business operations by Honda in India was placed in the aforesaid initial JV Agreement. Ld. Sr. Counsel has cited certain clauses of the JV agreement, where restrictions are placed on the JV Company and the Indian Partners. We consider it appropriate to reproduce the same here under: "1. Article 5.1 of the agreement restricted the JV company to directly/ indirectly sell/ export the products or parts to any country where Honda was present. 2. Article 5.2 provided that the company could only export the Products, viz, motorcycles that too only through Honda, to countries other than countries where Honda or its subsidiaries/ affiliates had any licensing arrangement. 3. Article 5.5 to 5.7, which provi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....so as to prove discounting of shares accordingly. Parties to any agreement, are supposed to protect their vital interests and in a bargain, one party is always bound to end up with some advantage, but the same cannot be, called a willful concession, so as to be part of the consideration, itself, under the agreement. The AO has in fact fallen in error in putting assessee under an onus to prove that no concession was given. Thus the failure of appellant to not furnish any documents/ communications/ correspondences in respect of negotiations with Honda relating to the deal, cannot be basis to draw inferences of concession being granted to Honda. 12.5 On the contrary, the benefit came to share of assessee as after termination of JV, the Hero group was permitted to use technology owned by Honda in respect of manufacture of Licence 'A' products in perpetuity. 13. We can also conveniently discuss here the allegations of AO as made during assessment with regard to non-submission of authorization to Board of Directors in AGM for issue of shares at premium to foreign investors. It is submitted by Ld. Sr. Counsel that the said allegation is factually incorrect as during the course of su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2) of the Act. What is relevant is that Section 147 of the Act authorizes an assessing officer to assess or reassess income chargeable to tax if he has reason to believe that the income for any assessment year has escaped assessment. The proviso to the aforesaid section, places fetters on the powers of the assessing officer to initiate reassessment proceedings beyond the period of 4 years from the end of the relevant assessment year, where the assessment has been completed under section 143(3) of the Act unless income has escaped assessment by reason of the failure of the assessee to disclose fully and truly all material facts necessary for assessment. 17. The settled proposition of law being that where there was no failure on the part of the assessee to truly disclose all material facts and it was only a question of drawing an inference from these facts, reopening of assessment beyond the four years period is invalid. Reliance in this regard can be placed on following judgments, as cited by Ld. Sr. Counsel. 1. CIT v. Foramer France: 264 ITR 566 (SC) 2. Purolator India Ltd: 343 ITR 155 (Del.) 3. CIT v. Motor & General Finance: 184 Taxman 465 (Del.) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng Policies and Notes to Accounts' under the head 'Disclosures of transactions between the company and related parties and the status of outstanding balances as on 31.03.2011', investment of Rs. 3846,71,62,378 has duly been highlighted. 4. In the cash flow statement for the year ending 31.03.2011, the category of 'Cash flow from Investment Activities' also captures the purchase of investments by the appellant during the relevant year. 5. As stated by the assessing officer in the reasons recorded, the appellant had partly financed the said acquisition by issue of Short Term Non- Convertible Debentures (NCDs). The details of such NCDs were also disclosed in the balance sheet. 6. Schedule C Loan liability captures the details of NCDs which are stated to be secured against equity shares of Hero Honda Motors Limited. Notes to accounts at around No. B(11) also states the details of issue of such NCDs during the relevant year. 6. Clause (xvii) to Annexure to auditor's report discloses that appellant has raised funds by issuing NCDs of Rs. 2900 Crores which was utilized for long term investment in equity shares of Hero Honda Motor....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2010-11 and 2011-12, which, as per Ld. Sr. Counsel were available in the public domain and duly examined by the assessing officer. 20.4 Ld. Sr. Counsel has then referred to certain disclosures to various Government and statutory authorities like SEBI/RBI/Stock Exchanges, as illustrated hereunder: 1. Permission sought by Honda from RBI. 2. Letters by appellant to investee company (HHML) in compliance with SEBI Regulations for proposed takeover of shares from Honda 3. Letters by appellant to BSE and NSE in compliance of SEBI Regulations 4. Reports to SEBI and enquires conducted by SEBI 20.5 Ld. Sr. Counsel has submitted that most importantly, the aforesaid transaction of acquisition of shares by erstwhile HIPL (appellant) from Honda was duly disclosed, monitored and examined by the various tax authorities. He refered to the fact that on 9th March 2011, the Income-tax Officer, Ward 1(2) International Taxation, New Delhi issued notice under section 133(6) of the Act to appellant (available at page 156 of paperbook) to furnish various details/information, including, inter alia: Details of payment of sale consideration and tax deduction thereon;....
X X X X Extracts X X X X
X X X X Extracts X X X X
....itten by the appellant to the Additional Director of Income-tax (Hqtr.), International Taxation, duly informing about deduction of tax aggregating to Rs. 811.20 crores under section 195 of the Act out of payments to be made to Honda. In July 2011 the CBDT announced that Hero Group had paid Rs. 811 crores as capital gains tax while buying 26% stake from Honda. It was categorically mentioned by the CBDT that the entire tax was deducted and paid at the highest rate by the Hero Group who did not seek any tax concession. 20.10 Ld. Sr. Counsel submitted that that all the details/ documents relating to the aforesaid transaction of acquisition of shares by the appellant was already available with the Tax Department inasmuch as Honda had filed an application, seeking determination of tax rate on the capital gains accrued to Honda before the Authority for Advance Ruling, copy of which was available to the Department. 21. Ld. Sr. Counsel has then submitted that the issue was examined by the assessing officer during course of assessment proceedings as during the course of original assessment proceedings, the appellant vide reply dated 16.01.2014 [available at pages 171-175 of paperbook],....
X X X X Extracts X X X X
X X X X Extracts X X X X
....667/- and Rs. 39,07,88,18,578/-respectively." 21.2 First para at page no. 5 of original assessment order under section 143(3) of the Act reads as under: - "The assessee has earned income from various sources which are as follows: - Sr. No. Category of income Amount % of total income 1. Dividend 1,12,30,77,807 91.80% 2. Interest 6,23,24,731 5.09% 3. Sale/Purchase of shares 3,78,25,154 3.09% Total 1,22,32,27,692 100% Apart from the dividend income the assessee has also earned capital gains from sale and purchase of shares to the tune of Rs. 154 /- The investment pattern of the assessee-company clearly shows that the investments of the company during the year is 100% in shares to the tune of Rs. 39,07,88,18,578/-. Moreover investment in shares have also been made in many companies other than group companies." 22. Ld. Sr. Counsel has emphasized that in the original assessment order passed under section 143(3), the assessing officer specifically made disallowance under section 14A on the ground that the assessee had incurred expenses in relation to investments, resulting in exempt dividend income.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....matter of inference drawn by the assessing officer and beyond scope of proviso to section 147 of the Act as following were in knowledge of AO:- (i) the price at which shares were purchased (Rs.739 per share) was duly disclosed in the accounts and accompanying documents; (ii) the basis on which the price was calculated was evident from Share Transfer Agreement filed during the course of original assessment; (iii) the fact that such shares were purchased at discount to the stock market quotation was evident from the aforesaid basis/formula; (iv) the stock market quotation as on the date of transaction was available in the public domain; (v) the alleged concession made available to Honda (in lieu of discount in price as alleged by the assessing officer) is a non-existent fact, for which no evidence has been brought on record by the assessing officer. 26. Having considered the aforesaid contentions and material relied, by Ld. Sr. Counsel, we observe that when objections against re-opening, dated 06.06.2018, were filed before the AO as available at page 675 of the paper book, the assessee had taken specific pleas, as taken before us also, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of this case, the expenditure relatable to exempt income were disallowed u/s 14A." 26.2 In the light of the aforesaid, when we consider the contentions of the ld. Sr. Counsel, we are of the considered view that the agreement of share purchase dated 22.01.2011 was very much brought into the knowledge of the AO at the time of assessment itself. In this regard, we find that while question of examining issue under section 14A of the Act, the AO had called for information regarding cost incurred in relation to NCD, which was submitted by the assessee by letter dated 16.01.2014 as follows:- "16.01.2014 Sir, The Asst. Commissioner of Income Tax, Circle - V, Ludhiana Reg: M/s Hero Investments Pvt. Ltd. Asstt.Year: 2011-12 With reference to our further discussion, it is submitted as under: 1. The assesses company has claimed an amount of Rs. 2.51 Crores, as a deduction u/s 57 expended wholly and exclusively for earning interest income taxed under the head ''Income from Other Sources". The above amount relates to interest cost incurred in relation to NCD's issued during the year. The company had issued t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n assessee's case for A.Y. 2007-08. The NCD was issued with the purpose of purchasing the shares of M/s. Hero Honda Motors Ltd, as per share transfer agreement dated 22.01.2011. Copy of agreement is enclosed as "A". The interest earned on ICD's and FDR's has been shown as Income from Other Sources since many years and offered to tax @30% being the same applicable to business income. 9. Reconciliation between opening investment & closing investment is enclosed at Annexure-II. 10. The B/F capital loss is in relation to AY 2005-06 & 2009-10. Annexure giving break up is enclosed as per Annexure-III. The C/F losses has been done and shown in all computations from year to year as also evident from the current year's computation already on record. 11. Statement containing income generated from holding of investments and its treatment in the computation of income tax is enclosed at Annexure- IV. 12. Details of Tax Credit u/s 115JAA of as hereunder:- AY MAT Credit Available MAT Credit Utilised in Asstt. Year 2011-12 MAT Credit C/F 2007-08 67,08,332 67,08,332 TOTAL 67,08,332 67,08,332 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es, will be 10% (plus surcharge and cess) of the amount of capital gains as per the proviso to section 112(1) of the Act." 26.8 We are of considered view that the instances of disclosures to various government and statutory authorities and tax authorities cited before us sufficiently establish that the assessee was not acting in any surreptitious manner in regard to the share purchase transaction. Rather, as it appears to be a case where an Indian enterprise was not selling its stake to a foreign enterprise, but, purchasing the stake of a foreign enterprise of the stature of Honda. Which certainly must be looked upon as a sign of growing and strengthening of India as a emerging economy, for which, Hero group must have been eager to take credit and thus the information was not kept close to heart but shared at large. So much so that based on 'media reports' only a notice dated 09/03/2011 was issued to the assessee by Director of Income Tax (International Taxation)-1, New Delhi, to examine the purchase of 26% stake in Hero Honda Motors Ltd. by Hero Investment Pvt. Ltd. from Honda Moto Company Ltd., Japan, and information u/s 133(6) of the Act, was called on the following questionn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted 12.06.2017 the transaction of acquisition of shares came into the cognizance of the AO. 26.10 Though generally speaking information in public domain cannot be considered to be one to be always in the knowledge of the AO so as to take cognizance of all of it during the assessment proceedings, but, when a transaction of the nature under consideration is reported by the assessee to prominent authorities of the Department like Investigation Wing, International Tax Division and CBDT or AAR, then, the AO should be validly presumed to be aware of these information in public domain because the AO is not only an adjudicators, but also an investigator and in quite many assessments they exclusively rely upon the information available in public domain for completing the assessments or reopening. So to say that before the aforesaid letter of PrCIT the AO was completely unaware of the disputed transaction, would be giving too much leverage to ignorance of AO, which should not be, on principles of rules of prudence. 27 Thus, the AO had opportunity to examine all the terms and conditions of share transfer. It is not justified on part of AO to say that though all these relevant informatio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ment order, addition of Rs. 3644,85,20,063 under section 28(iv) of the Act has been made alleging the same to be "benefit" accrued to the appellant on acquisition of 26% stake in HHML from Honda at alleged discount of 50%. It has been alleged that the discount offered by Honda to appellant on acquisition of shares in HHML was in lieu of/payment for concession granted by appellant to Honda in the form of right/ license to manufacture motorcycles in India which was allegedly not available to Honda earlier. The said alleged benefit has been added to income of the appellant under section 28(iv) of the Act. 29. Further, we will like to go into the merits of issue and at outset observe that in the determination of issue no. 1, in favour of assessee, we have concluded that there was no case of discount or concession, as alleged by the AO. So on those two count, there cannot be any alleged, benefit attributed to the assessee. Still for completeness, we intend to further examine the sustainability of reasons given by AO, to make addition u/s 28(iv) of the Act. In the impugned order, the assessing officer has alleged that one-time lump-sum license fee of Rs. 2151.80 crores paid by HHML to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by Honda. Moreover, no arrangement between HIPL and HHML to the said effect has been brought on record by the assessing officer. Ld. Sr. Counsel contended that it is settled law that the apparent is real unless the contrary is proved and the burden to prove the contrary is on the person, who alleges so and reference was made to the Hon'ble Supreme Court judgement in CIT vs. Daulat Ram Rawatmull [1973] ITR 349 (SC)]. 30. We find substance in the arguments as it was incumbent upon the assessing officer to lead evidence to conclusively establish that (a) shares of HHML were sold by Honda to HIPL at a discount; (b) such (alleged) arrangement of selling Shares at a discount was in lieu of HHML paying one time license fee to Honda, and (c) there existed a tacit understanding / arrangement between HIPL and HHML whereby HHML agreed to pay Honda one time license fee in order that Honda sold shares of HHML at a discount to HIPL. Pertinent to note is that the issue whether the aforesaid license fee paid by HHML was at arm's length was specifically examined by the transfer pricing officer of HHML for assessment year 2011-12. The TPO after detailed examination, expressly accepted such pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., while, on the other hand, it has been alleged that said discount offered by Honda to HIPL on acquisition of its stake in HHML was compensated by HHML by payment of Rs. 2151.80 crores of license fee to Honda. Being so, the stand of the Department qua the aforesaid alleged discount is contradictory and self-defeating. 31. In view of the aforesaid facts, we are of considered view that without establishing a nexus or linking price paid by the appellant to Honda for acquisition of shares held by Honda in HHML and the license fee paid by HHML, a distinct legal entity to Honda for use of technology, on mere assumptions, conjectures and surmises, the conclusion of alleged 'benefit' for the purpose of Section 28(iv) of the Act is drawn. 31.2. This assertion of AO is well countered by the fact that in fact due to exit the Hero group had acquired right to use technology of Honda for manufacture of Licence 'A' product for perpetuity. So actually Hero group was a gainer. 32. Even otherwise it is doubtful that provision of Section 28 of the Act, including sub-clause (iv) could be applied by the AO. Ld. AR has contended that Section 28 of the Act, is applicable only to tax income arisi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct shares acquired from Honda are held as capital asset and not as stock in trade, as can be gauged from the fact that under the original JV Agreement with Honda had acquired shares, in HHML in 1983, which were held over a period of approximately 25 years as capital asset/investment, without any dilution / trade therein. Then in the audited financial statement of the appellant prepared since inception, the appellant has shown shares and securities as "Investments". Sales and purchase of shares are not credited/ debited to the profit and loss account. Further shares have always been valued at cost and not on NRV, based on Accounting Standard- 13 relating to 'Investments'. The income as shown by the appellant in its profit & loss account for the relevant year, under Schedule-G, is in the nature of investment income from long term investments. The appellant held shares in HHM as a 'promotor' holding substantial interest. The appellant, in order to acquire / strengthen its management rights in HHML, acquired shares from Honda and, therefore, these shares were acquired for the purposes of controlling/management interest in the company and not for trading therein. 35. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... proceedings also held that acquisition of shares which were held as investments at cost price which was lower than the book value computed as per net worth of the companies, did not give rise to any business income taxable under section 28(iv) of the Act. 36.2 Attention was also invited to the decision of the Mumbai Bench of the Tribunal in the case of Rupee Finance & Management (P.) Ltd. v. ACIT: 120 ITD 539. Ld. Sr. Counsel has submitted that in that case, the assessee, an investment company, acquired shares for a group company to retain/ reorganize the controlling interest in the investee at a price much lower than the market price (with a lock-in period of 3 years). The assessing officer sought to tax, inter-alia, difference between the market price and cost price as benefit under section 28(iv) of the Act in the hands of purchaser assessee. CIT(A) affirmed the order of the assessing officer. On further appeal, the Tribunal held that purchase of shares as investments below the market price could not be brought to tax under section 28(iv) of the Act as the benefit had not arisen to the assessee as part of any business transaction with the seller of such shares. 36.3 It wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....view of section 28(iv) of the Act. In the impugned order, benefit arising to the appellant is alleged to be monetary in nature inasmuch as, according to the assessing officer, the appellant had in effect paid Rs. 7484 cores for acquisition of shares and received Rs. 3644 crores from Honda in lieu of concessions, such that net payment of Rs. 3838 crores was made by the assessee to Honda for acquisition of additional 26% stake in HHML. Being so, benefit that arose to the assessee was, as per the Revenue, admittedly in money terms/ monetary shape. 38. Ld. Sr. Counsel has submitted that it is well settled that for invoking provisions of section 28(iv) of the Act, benefit received must be in some form other than in shape of money. Reliance in this regard in this regard is placed on the decision of the Hon'ble Supreme Court in the case of CIT v. Mahindra and Mahindra Ltd.: [2018] 302 CTR 213 wherein it was held that section 28(iv) of the Act is not applicable qua monetary benefits. Then the Mumbai Bench of the Tribunal decision in the case of DCIT v. Pidilite Industries Ltd.: [2019] 107 taxmann.com 91 (Mum.) is relied where it is held that Discount received by assessee on buyback ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ss or profession shall be chargeable to income-tax under head 'profits and gains of business or profession". Thus, to be taxable under this head the benefit or perquisite should arise from business or profession of the assessee. 41. In the present case, the issue arises that whether the impugned discount on the transaction can be treated as benefit or perquisite of the business. We observe that in general parlance discount would mean there is some instant benefit in terms of price paid by purchaser to the market price or price otherwise quoted by another seller. It means lower cost of acquiring anything when compared to market price. It is absolute benefit in the hands of purchaser. But, when discount as a 'benefit' to fall under deemed business income for the purpose of section 28(iv) of the Act, is concerned, it has a special meaning. Here the discount is not the absolute benefit but becomes relative to time when the income accrues. In that sense the discount as benefit u/s 28(iv) of the Act in case of shares will be the benefit, purchaser will be entitled upon sale in the future. The discount on purchase would mutate into benefit u/s 28(iv) when the difference in actual p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....siness or profession, however, Hon'ble Supreme Court, while interpretating scope of section 28(iv), as it was before the amendment made in section 28(iv) by Finance Act, 2023, has held in the case of CIT v. Mahindra and Mahindra Ltd. [2018] 302 CTR 213 that section 28(iv) of the Act is not applicable to monetary benefits. The relevant extracts of the judgment are reproduced as under: "12. The first issue is the applicability of Section 28 (iv) of the IT Act in the present case. Before moving further, we deem it apposite to reproduce the relevant provision herein below:- '28. Profits and gains of business or profession. The following income shall be chargeable to income-tax under the head "Profits and gains of business profession",- ** (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; ** ** 13. On a plain reading of Section 28 (iv) of the IT Act, prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of ....