TMI Blog2012 (6) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... nd assumption that the respondent assessee was not a 100% subsidiary of Sunair Hotels Ltd. This aspect will be examined by the tribunal. - ITA No. 562 of 2008 - - - Dated:- 1-6-2012 - MR. JUSTICE SANJIV KHANNA, MR. JUSTICE R.V. EASWAR, JJ. For Appellant: Mr. N.P. Sahni, Sr. Standing Counsel with Mr. Ruchesh Sinha, Advocate. For Respondent: Dr. Rakesh Gupta with Ms. Rani Kiyala, Advs. SANJIV KHANNA, J. Revenue in this appeal under Section 260A of the Income Tax Act, 1961 (Act, for short) impugns order dated 26th October, 2007, passed by the Income Tax Appellate Tribunal (tribunal, for short) in the case of Sunaero Limited, the respondent assessee. The appeal arises from the block assessment order for the period 1st April, 1990 to 21st November, 2000, as the respondent assessee was subject to search and seizure operation on 21st November, 2000. 2. We are required to decide the following substantial questions of law, which were framed vide order dated 11th November, 2011:- (i) Whether the Income Tax Appellate Tribunal was right in deleting the addition of Rs.21 crores made by the Assessing Officer under Section 45 read with Section 47(v) of the Income Tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but only if, (a) that other controls the composition of its Board of directors; or (b) that other (i) where the first-mentioned company is an existing company in respect of which the holders of preference shares issued before the commencement of this Act have the same voting rights in all respects as the holders of equity shares, exercises or controls more than half of the total voting power of such company; (ii) where the first-mentioned company, is any other company, holds more than half in nominal value of its equity share capital; or] (c) the first mentioned company is a subsidiary of any company which is that other's subsidiary. Illustration Company B is a subsidiary of Company A, and Company C is a subsidiary of Company B. Company C is a subsidiary of Company A, by virtue of clause (c) above. If Company D is a subsidiary of Company C, Company D will be a subsidiary of Company B and consequently also of Company A, by virtue of clause (c) above; and so on. (2) For the purposes of sub-section (1), the composition of a company's Board of directors shall be deemed to be controlled by another company if, but only if, that other company by the exercise of some power exercis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l has the same meaning as in sub-section (2) of Section 85. (6) In the case of a body corporate which is incorporated in a country outside India, a subsidiary or holding company of the body corporate under the law of such country shall be deemed to be a subsidiary or holding company of the body corporate within the meaning and for the purposes of this Act also, whether the requirements of this section are fulfilled or not. (7) A private company, being a subsidiary of a body corporate incorporated outside India, which, if incorporated in India, would be a public company within the meaning of this Act, shall be deemed for the purposes of this Act to be a subsidiary of a public company if the entire share capital in that private company is not held by that body corporate whether alone or together with one or more other bodies corporate incorporated outside India. 6. The Assessing Officer in the block assessment order dated 29th November, 2002, held that the assessee was not a wholly owned subsidiary of Sunair Hotels Ltd. He observed that during the course of search operations, material/documents seized contradicted the claim of the respondent assessee, that it was a wholly ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer. The said forms were purchased from Jain Book Agency (Sales), Connaught Place, New Delhi and as per the statement of Nabhi Kumar Jain and Meenakshi Mathur of Jain Book Agency, dated 28th February, 2001 these forms were printed and sold after May-June, 1998. The statement made by Nabhi Kumar Jain and Meenakshi Mathur have been quoted in the assessment order. (v) Two shareholders, i.e Robin Gupta and Radhika Prasad Dubey, in their statements had clearly stated that they had not signed the forms under Section 187C of the Companies Act. The statements of Robin Gupta and Radhika Prasad Dubey have been quoted in the assessment order. (vi) The Government Examiner of Questioned Documents had affirmed that the forms submitted under Section 187C were not signed by Robin Gupta and Radhika Prasad Dubey. (vii) Robin Gupta had denied that he was a nominee of Sunair Hotels Limited and stated that he was a shareholder in his individual capacity. (viii) Radhika Prasad Dubey in his statement stated that he had worked with V.K. Bindal Company, Chartered Accountant and had signed the Memorandum and Articles of Association but had no association with Sunair Hotels Limited. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. This would determine the real ownership of the respondent assessee. The payment of share capital was made by cheque and the copy of the receipt issued by the Registrar of Companies had been filed. This aspect was not controverted and denied by the Assessing Officer, while denying benefit under Section 47(v) of the Act. Section 187C of the Companies Act is a procedural provision and the requirement of the Companies Act cannot be imported and considered for examining whether conditions under Section 47(v) of the Act were fulfilled or not. As far as forgery of signatures and discrepancy in the minutes books was concerned, it was for the authorities under the Companies Act to take notice and action. However, having regard to the provisions of Section 47(v), this aspect was immaterial. Investment in the shares was made by the holding company, Sunair Hotels Ltd., and this position was reflected in the books of both the respondent assessee and Sunair Hotels Limited. Robin Gupta had not stated that he had made payment for 100 shares out of his own funds and had not shown or claimed ownership of shares in his balance-sheet. Addition of Rs.21 crores was treated as unwarranted and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cribers to its share capital. During the year 1994-95 M/s Sunaero Ltd. transferred the hotel development rights back to M/s Sunair Hotels Ltd. for a consideration of Rs.21 crores. This amount was declared to be the profits in the annual financial statement of M/s Sunaero Ltd. for the year ending 31.3.95. However, this amount was claimed to be exempt from Capital Gains Tax u/s 47(v) of the I.T. Act in the return of its income filed for A.Y. 1995-96. Whereas, under the section any capital gains arising out of transfer of capital assets from a wholly subsidiary company to its holding company is not liable to gain tax. As discussed hereinabove, the assessee from the above mentioned evidence was able to show that the holding company was holding the whole of the share capital of the subsidiary company and the payments towards the share capital of the assessee too was made by M/s Sunair Hotels Ltd. The AO without examining other six subscribers to the share capital, simply on the basis of the statement of Shri Robin Gupta has tried to establish that the shars of the company were held in the name of the 7 subscribers and not as nominee. On analyzing the statement of Shri Robin Gupta we fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown by him in his balance sheet indicating the ownership of the same. 14. For the reasons stated above we are of the opinion that in the existing facts and circumstances, the assessee has been able to establish that the capital gains of Rs.21 croresarising out of transfer of the capital assets from a wholly-owned subsidiary company to its holding company was not liable to capital gains tax as per the provisions of sec. 47(v) of Income Tax Act, 1961. Accordingly, the order of CIT(A) in this regard is upheld and grounds of appeals taken by the Revenue are rejected. 11. Before us, the Revenue has filed three paper books, Paper Book I, Paper Book II and Paper Book III. The respondent assessee has also filed a paper book. We are only entitled to refer and have examined the documents filed and available to the tribunal, when we examine the question of perversity. Of course, the orders passed by the Assessing Officer and the CIT(A) can be referred to. 12. In order to decide the issue in question, we would like to point out the contentions raised on behalf of the Revenue, which are as under:- (i) Sunair Hotels Limited was not a shareholder of the respondent assessee. It d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Questioned Documents, have been ignored and not given due credence. (x) The declaration under Section 187C was not filed in time, and in at least two cases, signatures were forged on the form filed with the Registrar of Companies. The reports and findings made by the Department of Company Affairs have been ignored. (xi) On the date when the shares were issued, the respondent assessee did not have a bank account and the payments were made in cash. There is nothing to show that the payments towards share application money were made by Sunair Hotels Limited. The ledger account of the respondent assessee in the books of Sunair Hotels Limited, relied upon, does not support the contention that the Sunair Hotels Ltd. had made payment for the shares. 13. Learned counsel for the respondent assessee has submitted and raised the following contentions:- (i) Appeal under Section 260A is maintainable only on substantial questions of law. Findings of facts cannot be re-appreciated. In the present case, there are concurrent findings of both, CIT(Appeal) and the tribunal in favour of the assessee. Reliance is placed on Janardhana Rao (M) vs. Joint CIT, (2005) 273 ITR 50 (SC), CIT vs. P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, 1993, shows that Sunair Hotels Ltd. wanted to incorporate its subsidiary. The agreement dated 17th June, 1993, between Sunair Hotels Ltd. and Aeroflot also discloses the intention to create a subsidiary. Letters dated 2nd May, 1995 and 31st May, 1995 written by Sunair Hotels Ltd. and the assessee to Ministry of Industries affirms and admits that the respondent assessee was a wholly owned subsidiary of Sunair Hotels Ltd. (vii) Ministry of Industry s letter dated 27th June, 1995, acknowledges that Sunair Hotels Ltd. was the holding company of the respondent assessee. This was also acknowledged in the Ministry of Industry s letter dated 24th May, 1995. Internal note of Law Department of NDMC also records that the respondent assessee was to be established as a subsidiary of Sunair Hotels Ltd. (viii) The entire fund for establishment and incorporation of the respondent assessee was provided/incurred by Sunair Hotels Ltd. Share application money of Rs.7,000/- was also recorded and shown in the balance sheet and books of accounts of Sunair Hotels Ltd. (ix) In the balance sheet of Sunair Hotels Ltd. as on 31st March, 1995 and 31st March, 1994, the assessee was shown as a wholly ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x) The delay in filing the forms has been condoned. The forms purchased from Jain Book Agency were filled up on the basis of earlier declarations taken on plain paper dated 23rd October, 1993. Thus, the aforesaid date was mentioned on the forms. This aspect, therefore, does not negate the respondent assessee s claim that it was a wholly owned subsidiary. (xx) Statement of Radhika Prasad Dubey does not support the department s case. 14. At the very outset, we may record that several issues and contentions raised by the appellant/Revenue and the respondent/assessee have not been recorded or dealt with by the CIT(Appeals) or the tribunal. These remain unnoticed and have not been adverted to, considered and evaluated. The tribunal has also not dealt with various legal issues and contentions raised by both sides. A reading of the order passed by the tribunal shows that same is cryptic as also factually wrong and incorrect on factual conclusions/findings recorded. 15. We have quoted Section 47(v) of the Act. To claim benefit under the said Section respondent assessee must be a wholly owned subsidiary of the holding company. Merely because the respondent assessee was a subsidiary o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------------ L E D G E R AS ON . 23/12/94 TIME 14.54.49 Pg. No. 29 Voucher No Date Narration Bill No. Bill Dt. Cheque No. Cheque Date Debit Credit Balance 65 15/10/93 DD FVR ROC P H FOR SUN AERO LTD. 38020.00 38020.00 66 17/10/93 PRDF CGHS TO VKB CO. FR REGIN OF SUNAERO LTD. 19480.00 57500.00 83 30/11/93 CHQ PD FR MOA PTG FR SUN AERO THRU TRANSASTA 832037 30/11/93 17500.00 75000.00 149 31/03/94 RECT FR ALLOT. OF 700 SH @ 10/- SUN AERO LTD. 7000.00 68000.00 18. The said ledger account would reveal that on 15th 17th October, 1993, two debit entries of Rs.38,020/- and Rs.19480/- were made as payments forwarded to the Registrar of Company for registration of the respondent assessee. The next entry of Rs.17,500/- is made on 30th November, 1993, as Cheque paid on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... air Hotels Ltd. had paid for the share capital by cheque. 20. Revenue has submitted that the respondent assessee has not denied but has accepted that Robin Gupta was the recorded shareholder. In his returns, Robin Gupta has not claimed or stated that he was a nominee of Sunair Hotels Ltd. Failure to mention the shares recorded/ standing in his name was a lapse and an error on the part of Robin Gupta. The Revenue submits that at best this is a neutral factor. But from the said factum, no inference or legal conclusion can be drawn that Sunair Hotels Ltd. was the beneficial shareholder. This was and would be an erroneous conclusion. 21. Normal presumption in law is that the registered shareholder holds the share in his own right and in his individual/ personal capacity. He does not hold shares as a nominee of a third person. It is the contrary which has to be proved by the party who claims or asserts that the recorded shareholder is a nominee. The onus is, therefore, on the party who claims to the contrary. The said party has to lead evidence sufficient in law to enable the authorities/tribunal to come to the conclusion that it/she/he has discharged the onus. The evidence should b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indings as recorded by the tribunal are contrary to the contention and plea raised by the respondent assessee before us relying upon the assessment order dated 2nd September, 1998, under Section 143(3). In view of the said factual finding, the respondent assessee cannot urge and argue that the transaction relating to transfer of hotel development right should be ignored and treated as non-existent/void. The finding of the tribunal is to the contrary. The tribunal has further recorded that the Assessing Officer did not examine the six other subscribers to the share capital. This is factually incorrect. The Assessing Officer had examined and even quoted, the statement made by one more subscriber namely Radhika Prasad Dubey. The tribunal has probably not examined and not gone through the statement of Radhika Prasad Dubey, which has been quoted in the assessment order itself. For benefit under Section 47(v), the subsidiary must be wholly owned subsidiary. Being a subsidiary is not sufficient. Thus even if one of the shareholders was not a nominee of the holding company, benefit under Section 47(v) has to be denied. 25. Thereafter, the tribunal has recorded that the question of rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act itself. Examination of exceptions may require factual elucidation and findings. This legal aspect may be raised by the Revenue on remand. 28. However, we do not agree with the observations of the tribunal that the question whether or not the respondent is a 100% subsidiary of Sunair Hotels Ltd., can be examined without reference to the provisions of the Companies Act or other enactments. The Act, i.e. Income Tax Act, 1961, deals with and relates to taxation of income. For the purpose of determining taxable income, provisions and parameters/stipulations have been made/prescribed in the Act. In a given case, however, the authorities under the Act (i.e. Income Tax Act) may have to examine provisions of other enactments, when required and necessary. The term subsidiary or wholly owned subsidiary have not been be defined in the Act i.e. the Income Tax Act. Therefore, reference is to be made to the other Acts and in this case, the Companies Act. Effect of the violation of Section 49 and 187C of the Companies Act is one aspect but the other issue, which has to be examined, is the evidentiary value and the effect when no such declaration was initially made and the subsequent fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounded the following principles: 25. We have discussed the authorities at great length, as some of the observations contained therein appear, at first sight, to render plausible the contention of the appellant, and it seems desirable that the true meaning of those observations should be clarified, lest error and misconception should embarrass and fog the administration of law. The position that emerges on the authorities may thus be summed up: (1) When the point for determination is a pure question of law such as construction of a statute or document of title, the decision of the Tribunal is open to reference to the court under Section 66(1). (2) When the point for determination is a mixed question of law and fact; while the finding of the Tribunal on the facts found is final its decision as to the legal effect of those finding is a question of law which can be reviewed by the court. (3) A finding on a question of fact is open to attack, under Section 66(1) as erroneous in law when there is no evidence to support it or if it is perverse. (4) When the finding is one of fact, the fact that it is itself in inference from other basic facts will not alter its character as on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding is one, if it is arrived at without any material or if it is arrived at or inference is made on material, which would not have been accepted or relied upon by a reasonable person conversant with the law. If the finding is based upon surmises, conjectures or suspicion and is not rationally possible. A factual conclusion is regarded as perverse when no person duly instructed or acting judicially could act upon the record before him, have reached the conclusion arrived at by the tribunal/authority [see CIT versus S.P. Jain, (1973) 87 ITR 370 (SC)]. 36. We are conscious that it has been observed that the order must be read as a whole to see whether the test of perversity is satisfied but in the present case when we apply the test expounded in Dhirajlal Girdharilal (supra) and Daulat Ram Rawat Mull (supra) and also read the order as a whole, we reach the affirmative opinion in favour of the appellant-Revenue. It is the aforesaid test, which has been applied by us in our conclusion recorded above. 37. In view of the aforesaid discussion, we answer the second question of law in affirmative, i.e., in favour of the appellant-Revenue and against the respondent-assessee. The first qu ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
