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2014 (10) TMI 693 - AT - Income TaxPiercing the corporate veil - Application of section 2(22)(e) and 56(2)(vi) - Realignment of the assets between family - Whether the realignment of the assets between the family members/HUF will give arise to taxable income U/s. 2(22)(e) and 56(2)(vi) or any other provisions of the Act – Held that:- For understanding the true nature of the transactions, the corporate veil of the intermingled companies in the transactions needs to be pierced - In the case of the Public Limited company M/s. SKM Egg Products Export (India) Ltd., only the equity shares of M/s. SKM Egg Products Export (India) Ltd., held by M/s.SKM Animal Feeds and Foods (India) Limited were transferred to Shri SKM Shree Shivkumar and not any assets held by the company were transferred, therefore the issue of piercing the corporate veil of this company will not arise and also being a public limited company, that may not be permitted - In the case of both the other companies, the entire shares are held by the family members only - on piercing the corporate veil of both these companies; it becomes clear that all the transactions intermingled were due to the family settlement arrived at either pursuant to Arbitration Award or oral agreements - various higher judiciaries have also validated the oral agreements in the case of Family/HUF partial or total partition. When there is any distribution of assets pursuant to family arrangement or HUF partial/total partition, such transactions will not amount to transfer of asset attracting tax liability in the hands of the recipient under the provisions of the Act - on piercing the corporate veil with respect to the two private limited companies viz. M/s.SKM Animals Feeds and Foods (India) Ltd., and M/s. SKM Siddha and Ayurvedic Medicines India Pvt Ltd., the entire intermingled transactions can be seen only as the family settlement arrived at through Arbitration Award amongst Hindu family members - Further there are no transfers of assets with respect to the public limited company M/s.SKM Egg Products Exports (India) Ltd. - Therefore, considering the facts and circumstances of the case the provisions of section 2(22)(e), 2(24)(iv) or Sec.56(2)(vi) cannot be invoked - the addition made by the AO which is further sustained by the Ld. CIT (A) on account of deemed dividend U/s. 2(22)(e) of the Act and income from other sources U/s. 56(2)(vi) is to be deleted – Decided in favour of assessee.
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