TaxTMI 
TaxTMI 
TaxTMI 
2024 (12) TMI 980
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....ought to have further appreciated that such benefit is on account of the conduct/management of the business of a closely held company by the assessee as a key promoter/ director and hence, the benefit, being non-monetary benefit, arising out of the business nexus is taxable in the hands of the assessee u/s 28(iv) of the IT Act. (iv)The learned CIT(A) ought to have appreciated that the assessee is a Promoter Director in M/s Alpha Villas P Ltd and 30,75,000 shares of the said company were allotted to the assessee at face value of Rs 10/- whereas at the same time the shares were allotted at a premium of Rs 350/- to other investors and therefore the assessee received benefit or perquisite out of allotment of said shares. (v) The learned CIT(A) ought to have further appreciated that such benefit is on account of the conduct/management of the business of a closely held company by the assessee as a key promoter/director and hence the benefit. being nonmonetary benefit, arising out of the business nexus is taxable in the hands of the assessee u/s 28(iv) of the IT Act. (vi) The learned CIT(A) ought to have appreciated that the assessee is a Promoter Director in Gilchrist Investments P....
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....enues Pvt. Ltd, M/s. Alpha Villas Pvt. Ltd and M/s. Gilchrist Investments Pvt. Ltd. During the previous year relevant to A.Y under consideration, the assessee derives income from house rent, capital gain and other sources being interest from Bank. The assessee filed his return of income on 8/8/2008 declaring total income of Rs. 28,78,260/-. The return of income was initially processed u/s 143(1) of the I.T. Act, 1961. Later on, the Assessing Officer reopened the assessment by issuing notice u/s 148 of the Act on 06/07/2012 for assessing the income on account of allotment of shares to the assessee by the above 3 companies of Rs. 10/- each at par as against the allotment of shares of these companies to M/s. Cornerstone Properties and Investments (P) Ltd at a premium of Rs. 350/- per share. The Assessing Officer while framing the assessment u/s 143(3) r.w.s. 147 of the Act made addition of Rs. 338,73,00,000/- representing the premium charged by these companies from M/s. Cornerstone Properties and Investments (P) Ltd, but benefit was given to the assessee for not charging any premium and assessed u/s 28(iv) of the I.T. Act, 1961. 5. The assessee challenged the action of the Assessing ....
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....rs through our group companies. Both the above concerns also were picked up because they belong to the above sectors. 4 Please explain the specific factors for making investment in both the above companies though there could be a variety of choice in the form of several other companies of similar type? Also how did you know that there was investment opportunity in these two companies because they are not listed companies? Ans: As the investments are made with the active guidance and directions of my elder brother, Shri N. Prasad, I have to check with him on this issue. Also, we have a team of five persons (including me) who are looking into investment opportunities and provide assistance to Shri Prasad. Regarding the specific factors and the knowledge of investment opportunity, I will check with my brother and my team and furnish a reply on this point in 2 to 3 days because I do not readily remember the specific points". (iii) From the above, it is clear that the assessee is actively engaged in the activity of floating investment companies and making prudent investments in such companies and also making large scale purchases in shares of profitable companies and realize good ....
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....aterial for the decision in the case, the same may kindly be admitted as additional evidence under Rule 29 of the ITAT Rules. (ix) It is also a fact on record that the jurisdictional Bench of Hon'ble ITAT in its decision dated 14/02/2018, confirmed the deletion of the addition made u/s 68 in the hand in the cases of M/s Alpha Villas Pvt Ltd and M/s Alpha Avenues Pvt Ltd for AY: 2008-09 in ITA Nos: 1413 & 1424/Hyd/2014. The Hon'ble ITAT held that the amount of Rs 350/- as share premium which is capital in nature and cannot be taxed in the hands of the said companies u/s 68. 8. All the three companies which allotted shares to the assessee are not start-up companies and they are into operation for about 3 years and on own admission earned huge sums on account of transfer of land on 18/04/2007. Therefore, the net worth of the three companies is high which merits the share premium of 350/. It is humbly submitted that between the date on which shares were allotted to the assessee (01/03/2018) and the date on which shares were allotted to M/s Cornerstone Property Investments Pvt Ltd (03/03/2018), there was not material change in the valuation of the shares of the said three com....
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....assessee in comparison to the fair market value of the shares at which allotted to 3rd person and the said benefit is an income of the assessee u/s 28(iv) of the I.T. Act, 1961. 11. On the other hand, the learned AR of the assessee has submitted that, it is a well settled proposition of law that, for any receipt to be taxed under the I.T. Act, 1961, it must have a character of income, as generally understood or defined in the Act and falling under the charging section. A receipt which is a capital receipt and not a revenue receipt, cannot be charged to tax. A receipt to be charged must squarely fall within the four walls of the charging section either directly or by a deeming provision enacted by the legislature. Except the specific deeming provisions for treating a receipt as income, there cannot be a fiction or Court can fill the gap in legislation. There is no room for any intendment under the fiscal statue except to look mainly at what is clearly said. Nothing has to be read in, nor to be implied, but one can only look fairly at the language used in the statue. Therefore, tax has to be levied, if the subject fall within the 4 corners of the provisions otherwise no tax can be i....
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.... KNB Investments Pvt Ltd, and the Bombay Bench of the Tribunal in the case of Rupee Finance and Management Ltd have held that there is no perquisite u/s 28(iv) when shares were allotted at concessional rates and the benefit if any is notional and is taxable on sale of shares as capital gains. Tribunal's decisions were upheld by the high courts. The perquisite should arise from business and not merely accrue. Unless shares are liquidated, no income would arise, though it may have accrued (AP High Court in case of KNB Investments). For a particular item to be charged as perquisite, the provider should have a corresponding liability or should incur expenditure. In this case since it is allotment, the conditions would not be met and hence, shares cannot be perquisite as held by the Hon'ble Supreme Court in case of Excel Industries. 14. Any perquisite to be taxed, there shall be valuation rules to define the Fair Market Value, Cost etc. If no rules are prescribed, the computation fails and hence taxation of perquisite is not possible as held by the Hon'ble Supreme Court in case of Infosys Ltd. In Bharat V Patel Case the Hon'ble Supreme Court reiterated its view and reje....
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....ile doing business. A benefit that is passed on by one party to another in addition to cost or sale price, is covered in this proviso as reported in the case of Softner Traders & Consultants Pvt Ltd of the Bombay Bench of the Tribunal. 16. The learned AR of the assessee further relied upon the following judgments: i) CIT vs. Excel Industries Ltd (358 ITR 2956)(S.C) ii) CIT vs. B.C Srinivasa Setty (128 ITR 294) iii) Income Tax Officer vs. Undavalli Constructions (191 ITD 749) iv) CIT vs. Infosys Technologies Ltd (Civil Appeal No.3725 of 2007) v) Add. CIT vs Bharat V. Patel (civil appeal No.24888 of 2015) (S.C) vi) ITO vs. Shreyans Investments Pvt. Ltd, 31 Taxmann.com 71 (Kol). 17. Relying upon the above cited judgments/decision, the learned AR of the assessee has submitted that prior to the amendment in the provisions of section 56(1)(x) w.e.f. 1/4/2017, receiving any property other than immovable property without consideration or a consideration which is less than the aggregate fair market value of the property is not taxable as per the provisions of the Act. Thus, the learned AR has contended that only after the amendment to section 56 and insertion of clause (x) w.e....
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....t was also noticed that the said M/s. Alpha Avenues Pvt Ltd., issued 4,16,666 shares at a premium of Rs. 350/- per share to M/s. Cornerstone Properties Investments Pvt Ltd. The Addl. CIT has conducted proceedings u/s. 144A in the case of M/s. Alpha Avenues Pvt Ltd during which assessee has justified the premium charged to M/s. Cornerstone Properties Investments Pvt Ltd. The assessee is a promoter director and also the family member which runs the business of M/s. Alpha Avenues Pvt Ltd., which is a closely held company. It can be said that M/s. Alpha Avenues Pvt Ltd is run by both the brothers Sri Nimmagadda Prakash and Sri Nimmagadda Prasad. Therefore, it is their sweat and hard work that brought business to the company which in turn resulted in issue of shares at a premium to other investors. Since the benefit of derived share premium by the company is on account of the conduct/management of the business by Sri N. Prakash i.e., assessee such a benefit is taxable in the hands of the assessee u/s. 28(iv) of the Act. It is also pertinent to note that net worth of the assessee M/s. Cornerstone Properties Investments Pvt Ltd does not merit purchase of shares at premium. Therefore. th....
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....clause (x) has been inserted. For the sake of ready reference, we quote clause (x) of sub-section 2 of section 56 as under: "56(2) I particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "income from other sources' namely:- (i) dividends; x x x x x x x x x (ix) ..xx xxxxxx (x) where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017,- (a)any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum; (b)any immovable property,- (A)without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property; (B)for a consideration, the stamp duty value of such property as exceeds such consideration, if the amount of such excess is more than the higher of the following amounts, namely:- (i)the amount of fifty thousand rupees; and(ii)the amount equal to [ten] per cent of the consideration: Provided that where the date of agreement fixing the amount of consideration for the tra....
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....ed to in sub-clause (iv) or subclause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10; or (IX) by way of transaction not regarded as transfer under clause (i) or clause (iv) or clause (v) or clause (vi) or clause (via) or clause (viaa) or clause (vib) or clause (vic) or clause (vica) or clause (vicb) or clause (vid) or clause (vii)[or clause (viiac) or clause (viiad) or clause (viiae) or clause (viiaf)] of section 47; or (X) from an individual by a trust created or established solely for the benefit of relative of the individual; *(XI) from such class of persons and subject to such conditions, as may be prescribed;" 21. Thus, the only provision to tax the receipt of a property other than immovable property without any consideration or for a consideration less than the aggregate fair market value of the property is provided under sub-clause(c) of clause (x) of subsection 2 of section 56 of the I.T. Act, 1961. Prior to insertion of this clause (x), there was no charging section to tax the receipt of property without consideration or for a consideration less than the aggregate fair market value of the property. Therefore, in the absence of any charging ....
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....importantly, that income accrues when there "arises a corresponding liability of the other party from whom the income becomes due to pay that amount." 20. It follows from these decisions that income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee. 21. In so far as the present case is concerned, even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement pass book, there was no corresponding liability on the customs authorities to pass on the benefit of duty free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is therefore not the income of the assessee. 22. In Godhra Electricity Co. Ltd. v. CIT, [1997] 225 ITR 746/91 Taxman 351 (SC) this Court reiterated the view taken in Shoorji Vallabhdas & Co. (supra)and Morvi Industries Ltd. (supra)....
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....s from a practical point of view." (See R.B. Jodha Mal Kuthiala v. CIT[1971] 82 ITR 570 (SC)). This Court took the view that the probability or improbability of realisation has to be considered in a realistic manner and it was held that there was no real accrual of income to the assessee in respect of the disputed enhanced charges for supply of electricity. The decision of the High Court was, accordingly, set aside. 27. Applying the three tests laid down by various decisions of this Court, namely, whether the income accrued to the assessee is real or hypothetical; whether there is a corresponding liability of the other party to pass on the benefits of duty free import to the assessee even without any imports having been made; and the probability or improbability of realisation of the benefits by the assessee considered from a realistic and practical point of view (the assessee may not have made imports), it is quite clear that in fact no real income but only hypothetical income had accrued to the assessee and Section 28(iv) of the Act would be inapplicable to the facts and circumstances of the case. Essentially, the Assessing Officer is required to be pragmatic and not pedantic."....
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....ithin the charging section. Otherwise, one would be driven to conclude that while a certain income seems to fall within the charging section, there is no scheme of computation for quantifying it. The legislative pattern discernible in the Act is against such a conclusion. It must be borne in mind that the legislative intent is presumed to run uniformly through the entire conspectus of provisions pertaining to each head of income. No doubt there is a qualitative difference between the charging provision and a computation provision. And ordinarily the operation of the charging provision cannot be affected by the construction of a particular computation provision. But the question here is whether it is possible to apply the computation provision at all if a certain interpretation is pressed on the charging provision. That pertains to the fundamental integrity of the statutory scheme provided for each head. 24. Since the transaction, in question, in the case of the assessee is acquisition of shares which is in the nature of investment, therefore, the benefit, if any, accrued to the assessee does not fall under the head "profits & gains of business or profession". The Hon'ble Supre....
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....e should be benefits or perquisites; and that (ii) that such benefits or perquisites should arise from the business or exercise of the profession. The expression 'arising from the business' essentially implies that the benefit or perquisite must be in the nature of a business receipt or revenue receipt. No matter how wide be the scope of Section 28(iv), the difference between a capital receipt and revenue receipt cannot be overlooked. In the case of Mahindra & Mahindra Ltd. v. CIT [2003] 261 ITR 501/128 Taxman 394, Hon'ble Bombay High Court has, in the context of this significant distinction between revenue and capital receipts, held that waiver of principal amount in respect of imports of plant and machinery could, by no stretch of logic, be treated as 'business income', and, therefore, as an income taxable under section 28(iv). One must bear in mind the fact that section 28 only refers to the "income" which can be charged to income tax under the head "profits and gains from business or profession", and, therefore, when a particular advantage, perquisite or receipt is not in the nature of income, there cannot be any occasion to bring the same to tax under secti....
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....e in the nature of income [except in a situations in which capital receipts are specifically included in the definition of income such as under section 2(24)(vi)], and unless it is in nature of income, it cannot be considered for taxation under section 28(iv). The reference to benefits which can be brought to tax under section 28(iv) for benefits 'arising from the business' also indicates that such benefit must be a business receipt, or revenue receipt, in nature. 8. To find out whether or not the benefit, even if that be so, is on capital account or revenue account, it is necessary to understand the nature of transaction which has resulted in, what the Assessing Officer, perceives as 'benefit to the assessee'. This was a case of amalgamation in the nature of merger, and an amalgamation in the nature of merger, in corporate parlance, is the process of blending of two or more companies into one of these blending companies, the shareholders of each blending company becoming substantially the shareholder of the company which holds the blended undertaking. The expression 'amalgamating company' is used for the 'blending company' which loses its existenc....
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....s benefited in a myriad ways by way of amalgamation", it does not lead to the conclusion that the benefit is in revenue field which alone can be treated as income and thus be considered for taxability under section 28(iv) of the Act. The onus is on the Assessing Officer to demonstrate that the receipt is of the revenue nature. 9. We have noted that the Assessing Officer's observations to the effect that 'business' under section 28 has a very broad meaning and may be used in different connotations" and that it includes adventure in the nature of trade, as also his reliance on Hon'ble Supreme Court's judgment in the case of Rajputana Textiles (Agencies) Ltd. v. CIT [1961] 42 ITR 743 (SC), wherein it was held that where from the very beginning, purchase of shares is made with the intention of selling them, at a profit, it is an adventure in the nature of trade. However, we are unable to see any merits in these arguments either. Whatever be the scope of expression 'business', an advantage has to be of income nature first, and when it is not of income nature, it cannot be brought to tax under the head profits and gains from business or profession. As regard....
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.... whether convertible into money or not, arising from business or the exercise of a profession ;" 6.1 The Ld.CIT(A) has discussed the issue of taxing the sum u/s 28(iv) in detail and held that the extra land received by the assessee on partition does not fall under the benefits received or accrued to the assessee during the course of carrying on the business in para No. 10 and 11 which reads as under : '10. I have perused the submissions of appellant, the information brought on record and the contention of the A.O. Considering the facts of the case in entirety, it appears that the A.O was erroneous in applying the section 28(iv) of the IT Act while making the addition on account of 'value of benefit arising from the receipt of land' by the appellant firm during the period of partition of the land under consideration. Section 28(iv) of the IT Act.1961 (1) "The plain reading of sec.28(iv) makes it clear that section 28 refers to the profits and gains& business or profession." It sets out the income which are chargeable to income-tax under the head profits and gains of business or profession and clause (iv) thereto states that the value of any benefit or perquisite,....
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....tem of accounting adopted, will certainly be includible in the assessable income of the assessee at that point of time. 11. Coming to the issue whether on the partition of land as a co-owner, arise any benefit or perquisite to the appellant-firm u/s 28(iv) of the Act as opined by the A.0, has to be ensured into. It is known from the foregoing that the assessee is not doing any business activity with the other firm - M/s Sai Infra, made a simple investment as a co-owner in land and got partitioned on 22-11-2013 and the partition was done on unequal shares only to ensure that none of the co-owners is subjected to any loss. Since the assessee-firm is carrying out business in real estate, keeping in view the future development, agreed/accepted to acquire, even though, there are slums abetting the land on west, south and east sides. During the transaction, no cash or benefit or perquisite was received neither by the assessee nor by the other firm, it was only a partition. After holding more than 34 months, part of land was converted as stock-in-trade and sold along with built up space in the form of residential apartments. Balance part of the land was sold as investment and the appell....
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....lue of any benefit or perquisite, whether convertible into money or not, arising from the business or exercise of a profession". It is thus clear that besides the profits and gains from business and profession carried on by the assessee at any time during the previous year, any other benefit or perquisite, whether convertible into money or not, is also chargeable to tax under this head of income. A plain reading of this provision shows two conditions precedents for such taxability i.e. (i) that there should be benefits or perquisites; and that (ii) that such benefits or perquisites should arise from the business or exercise of the profession. The expression 'arising from the business' essentially implies that the benefit or perquisite must be in the nature of a business receipt or revenue receipt. No matter how wide be the scope of section 28(iv), the difference between a capital receipt and revenue receipt cannot be overlooked. In the case of Mahindra & Mahindra Ltd. v. CIT [2003] 261 ITR 501/128 Taxman 394, Hon'ble Bombay High Court has, in the context of this significant distinction between revenue and capital receipts, held that waiver of principal amount in respect....
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....dgment in the case of CIT v. Seshasayee Bros. (P.) Ltd. [1996] 222 ITR 818/89 Taxman 13 wherein Their Lordships, after elaborately surveying the legal precedents on this issue, concluded that, "Thus, a combined reading of the above said judicial pronouncements would go to show that when a receipt is referable to fixed capital, it is not taxable, and it is taxable as a revenue receipt when it is referable to circulating capital or stock in trade". To sum up, unless it is a revenue receipt, it cannot be in the nature of income [except in a situations in which capital receipts are specifically included in the definition of income such as under section 2(24)(vi)], and unless it is in nature of income, it cannot be considered for taxation under section 28(iv). The reference to benefits which can be brought to tax under section 28(iv) for benefits 'arising from the business' also indicates that such benefit must be a business receipt, or revenue receipt, in nature." 6.3 In the instant case there is no dispute that the land in question was purchased as capital asset and remained as capital asset till the partition. No business activity was carried on by the co-owners and the ass....
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.... return of income it is seen that there was no business between the appellant and the three companies. As seen from the assessment record, the return of income of the appellant for the AY 2008-09 Consists of the following heads of income: (i)) Salary Income (ii) Income from house property (iii) Long Term Capital Gains (iv) Short Term Capital Gains (v) Income from other sources Hence, the provisions of Section 28(iv) cannot be invoked in the appellant's case. This view is supported by the decision of Gujarat High Court in the case of Bhavanagar Bone and Fertiliser Company Ltd (166 ITR 316) and followed by ITAT, Bombay in Rupees Finance and Management Pvt Ltd (120 ITR 539) and later approved by Bombay High Court. 9.3 A benefit/perquisite is either a liability or obligation in the hands of the provider, as held by the Supreme Court in the case of Excel Industries Ltd. (358 JTR 295). It was held that "income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee." I....