TaxTMI 
TaxTMI 
2018 (2) TMI 2148
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....ly Revenue also raised that the same is taxable under section 28(iv) of the Act. Further, the Revenue's grievance is that the same should be added while computing the income under section 115JB of the Act to the book profit. For this issue the Revenue has raised the identical grounds and facts and circumstances in both the years are also identical. Hence, we will take the facts and grounds from AY 2010- 11 in ITA No. 5118/Mum/2015. The grounds raised by Revenue in AY 2010-11 reads as under: - "1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 161,86,77,034/- being receipt without consideration, without appreciating the fact that the same was covered under the ambit of and scope of "income" u/s. 2(24) of the IT Act, 1961 especially when receipt was from a group company and the overall objective of the group was to do business and earn profits?" 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition of Rs. 161,86,77,034/- without appreciating the fact that a so called gift by a one corporation to another corporation though a g....
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....ndum and Articles of Associations. The Memorandum of Associations of the assessee and all the above four companies provides for the receiving/giving of gift respectively. The Clause 30 of Memorandum of Associations of the assessee provided as follows: "To make and/or receive donations, gifts or income to or from such persons, institutions or Trusts, whether in cash or any other assets as may be thought to benefit the company or any other object of the company 'w otherwise expedient and also to remunerate any person or corporation introducing or assisting, in any manner the business of the company subject to the applicable provisions of Companies Act, 1956." Similarly clause 21 of Memorandum of Associations of Madhuban Merchandise Private Limited (one of the above four donor company) provides as follows: "To make and/or receive donations, gifts or income to or from such persons, institutions or Trusts and in such cases and whether of cash or any other assets as may be thought to benefit the company or any other objects of the company or otherwise expedient and also to remunerate any person or corporation introducing or assisting, in any manner the business o....
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....nd the treatment in books of accounts of the assessee and its taxability. In response, the assessee filed all the relevant details before the AO during assessment proceeding. The assessee stated that all the donor companies are shareholders of Reliance Industries Limited and receives dividend income from Reliance Industries. The donor companies had given irrevocable instructions to Reliance Industries to pay dividend directly to assessee. The receipt of dividend was debited to bank account and credited to Capital reserve Account of the assessee. The assessee argued that the Gift is in the nature of 'capita' receipt and is not required to be credited to Profit and Loss Account'. It claimed that it has prepared its books of accounts as per the requirement of the Companies Act - 1956 and same has been audited and approved by the statutory auditor and also adopted by the shareholders in Annual general Meeting. It was stated that since the accounts are prepared as per the companies Act, no adjustment is required to be made to the book profit u/s 115JB of the Act on account of gift received by assessee. But the AO did not accept the contention added gift received of Rs. 161,86,77....
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....ilarly the assessee company has also passed a resolution by the board of directors for receiving the gifts. It was also claimed that all the four donors were 19 authorized by Memorandum and Articles of Association for making such gifts and the donee assessee company is similarly authorized for receiving such gifts. The assessee claimed that the identity of the donor companies, their source of funds for gifts and the nature of transaction are clearly established. Therefore, the receipts were not taxable because they were capital receipts. The assessing officer had held that the receipts could not be categorized as gifts or transactions which are specifically exempt from taxation nor could they be considered as dividend income in the hands of the assessee. The Assessing Officer had, therefore, taxed the amount as income from other sources and made the addition of Rs. 1,61,86,77,034/- to the returned income of the assessee. Furthermore, the amount was also added to the book profit u/s. 115JB of the Income Tax Act. 5.6 The Ld. Commissioner of Income Tax (Appeals) had deleted the above additions and Hon'ble ITAT dismissed the Departmental appeal against the order of Commiss....
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....not possible for a company to receive a gift". Hon'ble ITAT has dealt with this issue at para 39 of the above mentioned order and stated that the issue is squarely covered by the decision of the coordinate bench in the case of O.P. World Pvt. Ltd., vs. DCIT - ITA No. 3627 and 3841/Mum/2012, Mumbai 'D' Bench, order dated 12/10/2012. In para 40, the Hon'ble ITAT observed "we hold that companies are competent to make and receive gifts and natural love and affection are not necessary requirement. Only requirement for company is to make gifts as per respective memorandum and article of association, which authorize the company for the same. 7. Gifts as income from other sources : The assessing officer has discussed this from para 5.5.2 to 5.5.8. The Hon'ble ITAT has given its findings at para 43 of its order wherein it has referred to CIT vs. Groz Beckert Saboo Ltd. - 116 ITR 125 (SC). It has held that gifts received from corporate bodies are in nature of capital receipt not liable to tax under the provisions of the Income Tax Act. 8. Essential elements in determining whether or not a gift has been made The Hon'ble ITAT at para 49 says that there are three e....
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.... 5.9 As can be seen from the facts of the instant case, the issues involved and the circumstances to be examined are identical to those which were before Hon'ble ITAT in its decision in ITAT Order No. 2662/M/2013 dated 11/3/2015 which has been extensively referred to above. I find that the Assessing Officer has not brought any new findings of fact or question of law that would differentiate the instant case from the one already adjudicated by the Hon'ble ITAT. In the absence of such factors of differentiation, ratio laid down by the Hon'ble ITAT has to be respectfully followed. 5.10 Accordingly, grounds of appeal 2 to 5 are allowed and the Assessing Officer is directed to delete the addition of Rs. 161,86,77,034 as income from other sources. 5.11 Similarly, grounds of appeal 6 & 7 are allowed. The addition of Rs. 161,86,77,034 for the purpose of book profit u/s 115JB is deleted.'" 8. We find from the Tribunal exactly on identical facts and circumstances in ITA No. 2662/Mum/2013 for AY 2009-10, in assessee's own case vide order dated 11-03-2015 has extensively dealt with this issue and finally deleted the addition while computing under normal provisi....
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.... year or assessment years (whether commencing before the 1st day of April, 1971 or on or alter that date) as may be specified in the declaration" 48. We are aware of the fact that provisions of Gift Tax Act, even though repealed, clearly has recognized the company a Juridical person as a donor and made it an assessable entity under the Act. It is amply clear that the legislature in its wisdom wherever thought fit has provided by even through taxing statutes that a Company can make/receive gift. Thus, the observations of the AO in assessment order are erroneous and without any authority of law. 49. Three elements are essential in determining whether or not a gift has been made, a) delivery. b) donative intent,' and c) acceptance by the donee. All the above essentials stated by the AO are duly been fulfilled by the assessee and all the four donor of gifts. With respect to delivery of gift, the dividend has actually been received by the assessee in its bank account which conclusively prove the delivery of the gift from donor to donee. With respect to intent of donor, all four donors have passed a resolution in the meeting of shareholders and board of Directors th....
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....acts of the above cases and the question of law decided by the Hon'ble courts has no application to the assessee's case. 55. The AO has assessed the amount of gift so received as income from other sources u/s. 56 of the I.T. Act. Taxation of gift u/s. 56 of I.T. Act as income from other sources, may be considered with reference to the following two aspects: i) whether gift received by the assessee company is taxable as gift u/s. 56 of the I.T. Act and ii) whether such gifts are taxable under the head "income from other sources" as the residuary head of income, because it may not be taxable under any other head of the income. The A.O. has assessed it under the head "income from other sources" holding that assessee has failed to prove that the amount received is exempt from taxation. Though no specific reason has been given by the A.O. for assessing it under the head income from other sources, but it is clear from the discussion and decision of the A.O. that it has been assessed under the head "income from other sources" because it was found not taxable under any other head of income, therefore, assessed under the residuary head of income, "inc....
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....be taxed and accordingly the - legislature brought provisions of section 56(2)(viia) and 56(2)(vilb) of Income-tax Act in the statute with effect from 01/06/2010 and 01.04.2013 respectively, but any other gift by companies or any other person other than individual and HUF still left outside the tax net. 57. This issue has also been discussed by ITAT in the case of D.P. World Pvt. Ltd. (supra) and it has been held such gifts are capital receipts and they are not taxable either under the head income from other sources or section 28(iv) of Income Tax Act. The relevant portion of the decision is reproduced below :- "19. The AO has applied the provisions of Sec. 56 and treated the value of the flats as income under the head 'Income from other sources' and the Ld. CIT(A) has made the addition u/s. 28(iv) of the Act by treating the Stamp Duty value as income from profit and gains from business and profession. 20. We have carefully considered both the provisions. Let us first examine the provisions of sec.28(iv) of the Act relied upon by the CIT(A). "28. Profits and gains of business or profession. --The following income shall be chargeable to in....
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....any person on or after the 1st day of September, 2004, ***but before the 1st day of April, 2006, the whole of such sum:" However such amendment did not take care of the transactions involved in the instant case. The legislature further brought amendments as under: (vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009,-- (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, - i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property; ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration ; (c) any property, other than immovable property, -- i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property....
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.... remained to be addressed therefore the legislature did not stop here but went on to make further amendments by inserting clause (viib) as under . (viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received- i) by a venture capital undertaking from a venture capital company or a venture capital fund ; or ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf. Explanation.-- For the purposes of this clause,- (a) the fair market value of the shares shall be the value- (i) as may be determined in accordance with such method as may be prescribed ; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of sha....
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....are substantially interested, of any sum, (whether as representing a part of the assets of the company or otherwise) [made alter the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; ........ ......... Explanation 3, - For the purposes of this clause; a) ―concern" means a Hindu undivided family, or a firm or an association of persons or a body of individuals or a company; b) A person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous, beneficially entitled to not less than tw....
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....east 30 per cent of its book profits as shown in its own account. For the said purpose, s. 115J makes the income reflected in the companies books of accounts as the deemed income for the purpose of a assessing the tax. If we examine the said provision in the above background, we notice that the use of the words "in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act" was made for the limited purpose of empowering the assessing authority to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, an AO under the IT Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinised and certified by statutory auditors and. will have to be approved by the company in its general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures ....
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....ed in the Explanation to s. 115J." 62. Respectfully following the decision of the Hon'ble Supreme Court as discussed above, we hold that the AO while computing income u/s.115J has only power to examine whether the books of accounts are satisfied by the authorities under the Companies Act as having been maintained in accordance with the Companies Act. 63. Thus, the AO has limited power of making increase or reduction as provided in the Explanation to the said Section. Furthermore, the Explanation to section 115JB of the Act is applicable only if the item of expense or income is debited or credited to the Profit & Loss Account. However, when the item of expense or income is not debited or credited to the Profit & Loss Account, Explanation to section 115JB of the Act cannot apply and hence no adjustment is required under that section to the books profit. In the case of the assessee gift of Rs.161,86,77,034/- was received from corporate bodies were not credited to the Profit & Loss Account and hence no adjustment is required to the book profit declared by the assessee u/s 115JB of the Act. 64. Similar issue has come up before the jurisdiction Hon'ble Bombay high Court....
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.... made while working out the book profits under Section 115JB of the Act. The grounds of appeal raised by the revenue are dismissed." 66. In the instant case, undisputed facts are that the assessee has prepared Profit & Loss Account as per Part II and III of Schedule VI of the Companies Act and considered the same profit as base for computing the book profit u/s 115JB of the Act. However the AO did not accept the contention of the assessee and proceeded to add gift received from corporate bodies of Rs.161,86, 77, 034/- in the nature of capital receipt to the book profit computed u/s 115JB of the Act. 67. It is also not disputed that the long-term capital gain earned by the assessee is included in the net profit determined as per P&L a/c prepared as per Part II and Part III of Sch. VI to the Companies Act. In other words, it is not the case of the assessee that the capital gain earned by the assessee was not included in the net profit determined as per P&L a/c of the assessee prepared under the Companies Act. As per the audited accounts of the assessee, the statutory auditors have reported that amongst others, that in their opinion, the P&L a/c and the balance sheet....