TaxTMI 
TaxTMI 
2026 (2) TMI 1231
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.... (in short "Act"), by ld. CIT(A), Ghaziabad dated 31.08.2004. He observed that there were 7 office bearers of the society the details are reproduced at page 2 of the assessment order. 4. Further he observed that assessee has disclosed total receipts of Rs. 3,98,108/-, and revenue expenditure of Rs. 2,17,867/- and declared surplus of Rs. 1,80,241/- in their financial statement. He observed that the case was selected on the ground of transaction with the specified person under Limited Scrutiny. On perusal of the balance sheet, he noticed that the assessee has sold the agricultural land for Rs. 30,00,000/- to Shri Jagan Nanth Ganeshi Lal Bajaj Charitable Trust Samiti. He also observed that, assessee has also purchased 115000 shares of RPL Capital Finance Limited for Rs. 69,00,000/- from the private limited company namely M/s Rinkpi Finance & Consultants Pvt. Limited (RFCPL). The Assessing Officer has reproduced the Share Certificate in his order, and observed that the President, Shri Sanjeev Agarwal is also having shareholding in M/s Rinkpi Finance & Consultants Pvt. Limited, from whom assessee purchased 115000 shares at Rs. 60/- per equity shares, the fair market value works out a....
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.... As per Income Tax Act section 13 is applied when the income / property of the trust is used / applied during the relevant year, for the direct / indirect benefit of the author of the trust and other persons mentioned in section 13(3); hence it is necessary that there should be a benefit directly or indirectly to the persons covered u/s 13(3). Who is interested person U/S 13(3) For the purposes of section 13, the following are interested persons: a) The author of the trust or the founder of the institution ; b) Any person who had made a total contribution (up to the end of the relevant previous year) of an amount exceeding Rs. 50,000/- (substantial contributor) ; c) Any member of the HUF (or any relative of such member) where such author or founder or substantial contributor is a HUF ; d) Any trustee of the trust or manager (by whatever name called) of the institution : e) Any relative of such author, founder, substantial contributor, member, trustee or manager ; f) Any concern in which any of the persons referred to above has a substantial interest Who is Relative As per Explanation ....
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....r under consideration. 10. Further he observed that another member of the assessee society namely Shri Rashmi Kant Mittal is also a director in M/s Rinkpi Finance & Consultants Pvt. Ltd. and also observed that Sh. Rashmi Kant Mittal is also a director in M/s SE Finvest Private Limited, the M/s SE Finvest Private Limited has share holding of 17.10% in M/s Rinkpi Finance & Consultants Pvt. Limited. The member of the assessee society, Shri Rashmi Kant Mittal has also holds voting power of 17.10% in M/s Rinkpi Finance & Consultants Pvt. Limited through M/s SE Finvest Private Limited. 11. After considering the above observation, he came to the conclusion that assessee and another Director Sh. Rashmi Kant Mittal controls through other entities who are also hold shares in RFCPL and the detail share holding controlled by them consists of 37.84% as under:- 1 Jan Kalyan Samiti (Assessee) 14.18% 2 Sri Sanjeev Agarwal (HUF) 11.66% 3 M/s Shramika Buildcon Pvt Ltd. 12.00% 37.84% 12. With the above observation, he was of the view that provisions of Section 13(2)(e) of the Act are clearly applicable, the benefit of section 11 or section 12....
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....on of Rs. 69,00,000/- representing the investment in shares of M/s RPK Capital Finance Ltd. by the appellant society by invoking section 13(2)(e) of the Act. 3.1 That while upholding the above addition, the learned Commissioner of Income Tax (Appeals), has otherwise too failed to appreciate the factual substratum of the case, statutory provisions of law and as such, denial of exemption so made is highly misconceived, totally arbitrary, wholly unjustified and therefore, unsustainable. 15. At the time of hearing Ld. AR of the assessee brought to our notice detailed findings of the Lower Authorities and submitted as under:- Section 13(1) of the provides that nothing contained in section 11 or 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof, in the case of charitable institution any income thereof if any part of such income or any property of the trust or institutions is during the previous year used or applied directly or indirectly for the benefit of any person referred to in section 13(3) of the Act. Further, Section 13(2) of the Act provides without prejudice to the generality of the provisions of cl....
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....B read with Page 17 of PB) v) Amount Accumulated u/s 11(2) of the Act (E) = (C-D) (Though not claimed in the return, since there is exemption up to Rs. 2.5 lakhs) 1,14,891 (Page 17 of PB) (*) Agriculture income of Rs. 65,350/- was claimed as exempt income. A copy of acknowledgement of return of income along with its computation of income and audited financial statement for the financial year 2014-15 relevant to assessment year 2015-16 are placed at pages 2-19 of Paper Book. In other words, once there is effectively no claim of exemption u/s 11 and 12 of the Act, the entire basis cited above either to made an addition u/s 69 of the Act, or otherwise deny the claim of exemption u/s 11 and 12 of the Act is misconceived, misplaced; and ex-facie untenable. Further, even otherwise invocation of section 13(2) of the Act on the ground that, section 13(3) of the Act is applicable is also based on incorrect application of the provisions of the Act The provision invoked is section 13(3)(e) of the Act i.e. Shri Sanjeev Aggarwal hold more than 20% shareholding in M/s Rinkpi Finance & Consultants (P) Ltd. Factually Sanjeev Aggarwal who is the....
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....ticipate in any profits which the company may make in the future. That a shareholder acquires a right to participate in the profits of the company may be readily conceded but it is not possible to accept the contention that the shareholder acquires any interest in the assets of the company. The use of the word "assets" in the passage quoted above cannot be exploited to warrant the inference that a shareholder, on investing money in the purchase of shares, becomes entitled to the assets of the company and has any share in the property of the company. A shareholder has got no interest in the property of the company though he has undoubtedly a right to participate in the profits if and when the company decides to divide them. The interest of a shareholder vis-a-vis the company was explained in the Sholapur Mills case [1950] SCR 869 at 904. That judgment negatives the position taken up on behalf of the appellant that a shareholder has got a right in the property of the company. It is true that the shareholders of the company have the sole determining voice in administering the affairs of the company and are entitled, as provided by the articles; of association, to declare that dividend....
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....nies and other entities are viewed as economic entities with legal independence vis-a-vis their shareholders/ participants. It is fairly well accepted that a subsidiary and its parent are totally distinct taxpayers. Consequently, the entities subject to income-tax are taxed on profits derived by them on standalone basis, irrespective of their actual degree of economic independence and regardless of whether profits are reserved or distributed to the shareholders/participants. Furthermore, shareholders/participants, that are subject to (personal or corporate) income-tax, are generally taxed on profits derived in consideration of their shareholding/participations, such as capital gains. Nowadays, it is fairly well settled that for tax treaty purposes a subsidiary and its parent are also totally separate and distinct taxpayers. In such circumstances the assumption that M/s. Rinkpi Finance & Consultants (P) Ltd. is a specified person of section 13(3) of the Act since Sanjeev Aggarwal holds substantial interest in M/s. Rinkpi Finance & Consultants Ltd. is not accordance with law and therefore not tenable. Also, there is no valid basis to suggest that fair market value o....
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....f any share, security or other property is purchased by or on behalf of the trust from any person referred to in explanation 3, during the previous year for consideration which is more than adequate. As per the Explanation 3 a person shall be deemed to have a substantial interest in a concern in which he controls not less than 20% of the voting power, at any time during the previous year, owned beneficially by such person or persons. 18. From the above it is clear that there should be a transaction between the trust or society from the person referred u/s 13(3) of the Act. In the given case the person referred u/s 13(3) are 7 office bearers from whom the assessee should have directly purchased the above referred shares or through the entities wherein the above said office bearers controls or holds more than 20% of the voting power or having substantial interest in the above said concerns. In the given case we observed that none of the office bearers directly held more than 20% of shares or substantial interest in the Company RFCPL. We observed that Assessing Officer misunderstood the provisions of the section and the assessee held 14.18% and combined with Sanjeev Agarwal (HUF) w....