AI Drafter 
TaxTMI 
TaxTMI 
2025 (8) TMI 755
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.....06.2022 at a total income of Rs. 6,15,26,94,300/-. In the course of assessment, the Assessing Officer had made an addition of Rs. 538.40 Crores under Section 68 of the Act in respect of sale consideration of shares of e-infochips Limited. Further, the Assessing Officer had also denied exemption under Section 11 and 12 of the Act as claimed by the assessee. 3. Aggrieved with the order of the Assessing Officer, the assessee had filed an appeal before the First Appellate Authority which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was partly allowed. 4. Now, both the Revenue as well as the assessee are in appeal before us. We will first take up the appeal of the Revenue for adjudication. ITA No.1205/Ahd/2025 filed by the Revenue 5. The only ground taken by the Revenue in this appeal is as under: - "1. Whether on the facts and in circumstances of the case, Ld. CIT is justified in deleting the addition u/s.68 of the I.T. Act, 1961 of Rs. 5,38,40,00,000/- being sale consideration of E-Infochip Limited shares received from M/s. Arrow Electronics India Pvt. Ltd., Bangalore." Submission of Revenue 6. Shri Alpesh Parmar, Ld.....
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....,40,00,000/- i.e. Rs. 673/- for each of 80,00,000 number of shares and dividend of Rs. 68.65.36,000/-. The assessee offered for tax the Capital Gain on transfer of these shares but simultaneously claimed exemption u/s.11(1A) in view of investment made as per one of the modes prescribed for availing exemption by investing net sale consideration into fixed deposits with a scheduled bank. (v) The receipt of the corpus donation was shown in the audited Balance Sheet of the assessee. The gain on sale of said equity shares was also shown in the audited Income & Expenditure Account. Further, the investment in Fixed Deposits of banks was also reflected in the audited Balance Sheet. 7. Shri Alpesh Parmar, the Ld. CIT-DR submitted that in the course of assessment, the Assessing Officer had made enquiry in respect of sale consideration of Rs. 538.40 Crores received by the assessee on sale of shares of e-Infochips Limited. The Assessing Officer had found that there was no justification for sale of shares of e-Infochips Limited at a price of Rs. 673/- per share against cost of Rs. 7.18 per share only to the previous owner. Further, fair market value of these unquoted shares was Rs. ....
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....an 500 shareholders (including Government of Gujarat related Company GVFL) was sold to Arrow. The Ld. Sr. Counsel submitted that the sale of shares of e-Infochips Limited to Arrow was a publicly acknowledged event and sale of 80 lakh shares held by the assessee was not an isolated transaction. As regarding sales consideration of Rs. 538.40 Crores, the Ld. Sr. Counsel explained that the source of money utilised for purchase of equity shares of e-Infochips Limited was duly explained before the Assessing Officer as well as before the Ld. CIT(A). The Ld. Sr. Counsel strongly supported the order of the ld. CIT(A) on this issue, who had carefully examined the facts and the evidences brought on record and, thereafter, had allowed relief to the assessee. Our Findings and Order 9. We have carefully considered the rival submissions. Prima facie, the invocation of provision of section u/s 68 of the Act in respect of proceeds received by the assessee in respect of sale of shares is not found correct. There is no dispute to the fact that a sum of Rs. 538.40 Crores was received by the assessee trust on account of sale of 80,00,000 shares of e-Infochips Limited to Arrow. The gift of shares ....
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....e appellant trust has received Rs. 5,38,40,00,000/- only, as consideration for sale or in exchange of transfer of 80,00,000 number of equity shares of "e-Infochips Ltd.". The AO did not controvert that after the sale of 80,00,000 equity shares, the appellant trust continued to be the owner of those equity shares. The sale of 80,00,000 equity shares, during the year, of "e-Infochips Ltd." has not been deputed by the AO in any manner. - The appellant has discharged his primary onus regarding the above transaction; which could not be otherwise contradicted by the AO by bringing on record any document or evidence to conclude that the source of the fund, received as sale consideration, has not been explained. The irregularity with regard to compliances on the part of the M/s. Arrow Electronics India Pvt. Ltd. as pointed out by the AO do not prove that source of the fund is unexplained, and for that the appellant trust cannot be held responsible. In case of any failure with compliances as observed by the AO, penal action under IT Act, if necessary, is required to be taken or initiated against Arrow Electronics India Pvt. Ltd. only. - The Appellant contested that, the tr....
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....ee had not only established the genuineness of the transactions but also brought on record evidences to establish the creditworthiness of the buyer. Merely because the fund was received from Mauritius based Company "Components Agent Asia Holdings Limited", the transactions cannot be held as in-genuine. Hon'ble Supreme Court had held in the case of Vodafone International Holding BV v. Union of India [2012] 17 taxmann.com 202/204 Taxman 408/341 ITR 1 that there was nothing wrong if the funds for making FDI by Mauritius companies/individuals had not originated from Mauritius but had come from investors of third countries. In view of this judgement, the Revenue's contention that funds for purchase of shares had come not from the assessee but from its holding company in Mauritius, so as to treat the creditworthiness and genuineness of the transaction as doubtful, has to be rejected. Further, it was not a case of solitary transfer of shares of e-Infochips Limited by the assessee trust but more than 500 shareholders of e-Infochips Limited had transferred their shares to Arrow on identical price of Rs. 673/- per share. When the sale transactions made by Shri Pratul Krishnakant Shroff, ....
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....cording to the Assessing Officer, the term "education" denoted systematic instruction, schooling or training given to the young and preparation for the work of life and it also included primary education. The Assessing Officer found that the assessee Trust was not engaged in providing any systematic education and was neither running any educational college/school/institution or providing any degree/diploma etc. to the students. According to the Assessing Officer, the assessee was only training and providing assistance to certain teachers and students of Government Schools who were already taking education from Government Schools and such activities cannot be considered as part of education. The Assessing Officer held that since the assessee was not imparting any education, its activities cannot be considered within the definition of 'charitable purpose' as per Section 2(15) of the Act. This apart, the Assessing Officer had given the following reasons for denying the exemption under Section 11 & 12 of the Act claimed by the assessee: "1. In this case, the assessee has not shown donation of Rs. 3,56,62,500/- in appropriate Column 4(ii) of Part B-TI of ITR, 2. The as....
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....lectronics Inc. (USA) for acquisition of e-Infochips Ltd., where Shri P.K. Shroff was having controlling stake 15.11.2017 Acceptance of Letter of Interest by Shri. P.K. Shroff 17.11.2017 Transfer of 80,00,000 number of equity shares of e-Infochips Ltd. in the form of corpus donation to the appellant trust 12.12.2017 Funds were transferred from Components Agent Asia Holding Ltd., Mauritius to Arrow Electronics India Pvt Ltd. 20.12.2017 & 22.12.2017 Transfer of 80.00.000 equity shares by the appellant trust to Arrow Electronics India Pvt Ltd, which is wholly owned subsidiary of Arrow Electronics Inc. (USA) 09.01.2018 Application of fund claimed for charitable purposes by investing the net sales consideration (Rs.532,65,60,000/-) in specified assets with a scheduled Bank within 6 months Exemption claimed u/s.11(1A) of the I.T. Act, in the return of income filed 15. From the above chronology, the Ld. CIT(A) held that the corpus donation of 80,00,000 shares of e-Infochips Limited to the assessee trust was made with an objective of avoiding payment of tax by the trustee on capital gain arising on transfer of 80,00,000 equality shares of e-Infochips Lim....
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....isions of Section 13(1)(c) of the Act can be applied in respect of transactions as notified in Section 13(2) of the Act. He submitted that the provisions of Section 13(3) of the Act have to be read jointly with provisions of Section 13(1)(c) and Section 13(2) of the Act. The Ld. Sr. Counsel contended that the Ld. CIT(A) had not invoked the provisions of Section 13(2) of the Act. He explained that the transaction of the assessee was, in fact, not covered at all, in any of the clauses of Section 13(2) of the Act. Therefore, the provisions of Section 13(1)(c) of the Act were not applicable in the case of the assessee. In this regard, he has placed reliance on the following decisions: - 1) Shree Kamdar Education Trust vs. ITO 74 taxmann.com 253 (Hon'ble Gujarat HC) 2) CIT vs. Insaniyat Trust, 173 ITR 248 (Hon'ble Gujarat HC) 3) Sera Foundation vs. ITO (Exemption), 26 taxmann.com 126 (ITAT-Delhi Bench) Submission of Revenue 18. Per contra, Shri Alpesh Parmar, the Ld. CIT DR has taken us through the facts as recorded by the Ld. CIT(A). He submitted that the fact that the tax on capital gain on sale of 80,00,000 shares donated to the assessee trust, was av....
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....n, any income thereof- (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in subsection (3), such part of income as referred to in sub-clauses (i) and (ii): Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution : Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) ....
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....of the trust or institution is diverted during the previous year in favour of any person referred to in subsection (3): Provided that this clause shall not apply where the income, or the value of the property or, as the case may be, the aggregate of the income and the value of the property, so diverted does not exceed one thousand rupees; (h) if any funds of the trust or institution are, or continue to remain, invested for any period during the previous year (not being a period before the 1st day of January, 1971), in any concern in which any person referred to in sub-section (3) has a substantial interest. 21. There is no denial to the fact that Shri Pratul K. Shroff, the trustee who had made donation of 80,00,000 shares to the assessee Trust, was included in the definition of "persons referred to in clause (c) of subsection (1) and sub-section (2)" as given in section 13(3) of the Act. As per the provisions of Section 13(1)(c) of the Act, if any part of income enures or any income or any property of the trust is used or applied directly or indirectly for the benefit of any person referred in Section 13(3) of the Act, then the assessee will not be eligible to ....
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....vested the funds received on sale of shares in any concern in which the trustee Shri Pratul K. Shroff had a substantial interest. Since the transaction of the assessee was not covered in any of the clauses as specified in Section 13(2) of the Act, the invocation of provisions of Section 13(1)(c) of the Act, to deny the exemption under Section 11 & 12 of the Act, was not proper. 22. Hon'ble Gujarat High Court in the case of Shree Kamdar Education Trust vs. ITO (supra) had an occasion to examine the mischief of Section 13(1)(c) of the Act. The observation of the Hon'ble High Court is found to be as under: - "8. This brings to the element of diverting the income of the trust to the trustees and near relatives. Section 11 of the Act grants exemption to income from property held for charitable or religious purpose subjects to fulfilment of condition contained therein. Section 13 of the Act, on the other hand, pertains to cases where Section 11 would not apply. As per clause(c) of sub-section (1) of section 13, nothing contained in section 11 shall operate so as to exclude from the total income of the assessee being a trust for charitable or religious purpose or a charitable ....
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....ee, shares of Mawana Sugar Limited and Siel Limited were received as corpus donation. These shares were sold and the amount received was credited to the bank statement as corpus fund. The assessee's conduct of selling the shares was branded as colourable device. The co-ordinate bench of Delhi Tribunal had held that only the form of asset was changed from shares to cash and the original corpus donation remained as it is, in the hands of the trust. Further, the proviso (iia) to section 13(1)(d) of the Act required the trust to dispose of its holdings in the form of shares within one year from the date of its acquisition. Therefore, the transaction cannot be held as colourable device. In the present case also, the shares received as donation from the trustee were required to be sold within a period of one year. The assessee trust has merely converted its corpus donation of shares into cash and this transaction cannot be held as a colourable device. The sale proceeds of the shares were not utilised for the benefit of the trustee Shri Pratul K. Shroff and, therefore, there was no occasion to invoke the provisions of Section 13(1)(c) of the Act. 26. In view of the above facts and disc....