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DCIT-3 (2) Versus KDA Enterprises Pvt. Ltd.

2015 (4) TMI 9 - ITAT MUMBAI

Validity of Gift of Dividend - It was submitted by assessee that all the donor companies are shareholders of Reliance Industries Limited and received 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 submitted that the Gift is in the nature of capital receipt and is not .....

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G of the I.T Act and holding that a company can make gift, without appreciating the fact that these are specific provisions stipulated by statute for specific purposes and therefore, the same cannot be applied in generality and to the facts under consideration? - Held that:- The companies are competent to make and receive gifts and natural love and affection are not the necessary requirements. The only requirement for a gift by a corporate entity to another corporate entity is that they are .....

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E Court]. - All the donor companies and the assessee are authorized by their Memorandum and Articles of Association for giving and receiving gifts. Proper resolution in the Board Meeting have been passed by all the four companies for making the gift to the assessee and assessee, has also accepted the said gifts by way of adopting a resolution in the meeting of Board of Directors. Therefore, the element of gifts i.e. delivery, donative intent-4 and acceptance by the donee are present in the .....

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are not substantially interested are taxable and, therefore, it is clear that the Income-tax Act, itself provides that companies can receive gifts, of course, gifts of only shares of certain kind received by certain category of companies are taxable. (The provisions of section 56(2)(viia) and (viib) are applicable w.e.f. 1/6/10 and 1/4/13 respectively). Therefore, it cannot be said that the assessee could not have received such gifts from other companies. It is also clear from the Transfer of Pr .....

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consider the gift of raw material being stock in trade received by a company and its taxability under the Act. The Hon'ble Supreme Court has held that the gift of stock in trade received constituted a capital receipt in the hands of an assessee and on its conversion to stock in trade the market value as on the date of receipt of gift has to be allowed as deduction against the computation of taxable profit. The Supreme Court thus held the gift received being capital in nature and hence not charg .....

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r the Companies Act to make / receive dividend as gift. - Section 122 of the Transfer of Property Act provides for making of a gift and permits transfer of moveable or immovable property but without any consideration. The shares or interest in a company is a moveable asset as per the Companies Act. Further as per section 5 of the Transfer of Property Act, a company is a living person, competent to transfer a property 88 per the Act and therefore the Transfer of Property Act permits a limited com .....

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ift 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 that they intend to transfer the dividend on shares of Reliance Industries held by them to the assessee donee as gift. Thus, the donative intent to transfer the dividend as gift is clear from the resolution passed by the donors. - With respect to acceptance by the donee, the assessee has duly passed a resolution in the meeting of sha .....

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s or any other person other than individuals and HUFs were not brought under the tax net. With the passage of time, it was realized that certain kind of transactions of transfer of certain kind of shares by certain category of companies only further need to 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 .....

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/s. 2(22)(e). Whereas, in the case under consideration, there is no common shareholding between the assessee and the other four companies who have made the gifts. Therefore, no addition can be considered in the case of the assessee u/s. 2(22)(e) of Income-tax Act. - Minimum Alternate Tax (MAT) - Computation of book-profit u/s. 115JB - Held that:- A.O. has made addition of the gifts received by the assessee to the income of the assessee, while computing the income u/s. 115JB also holding that .....

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ing the income u/s. 115JB, the items mentioned from (a) to (i) in explanation 1 to subsection 2 of section 115JB do not include any such item by which the book-profit is to be increased. Therefore, it cannot be added to the book-profit u/s. 115JB. Hence, the addition made by the A.O. to the book-profit of ₹ 161,86,77,034/- is deleted. - The amount of gift so received is neither taxable as income from other sources u/s. 56 nor as capital gain nor as income u/s.2(22)(e) nor u/s.115JB of .....

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appeal; "1.Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) was justified in deleting the addition of ₹ 161,86,77,034/- being receipt without consideration, without appreciating the fact that the same was covered under the ambit and scope of 'income' u/s 2(24) of the LT Act." "2.Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) was justified in deleting the addition of ₹ 161,86,77,034/-, without appreci .....

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CIT (A) was justified in holding the receipts without any consideration as "gift" in the absence of 'Natural Love and Affection' without appreciating the fact that 'Natural Love and Affection' is crucial element of any transaction to qualify as gift." 5.Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) was justified in relying on the provisions of section 25 of Companies Act and section 80G of the I.T Act and holding that a company can .....

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the ambit of definition of income as stipulated by law under section 2(24) of the I.T. Act 1961. " 7. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A)was justified in holding that provisions of Section 56(2) empower the assessee to receive so called corporate gift without paying any tax on it, without appreciating the fact that sec. 56(2) is exemplary and specific, which does not redundant the generality of the provisions of Section 56(1). " 8."Whethe .....

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to the above, if at any stage it is held that above receipts of ₹ 161,86,77,034/- were not to be taxable u/s 56(1) of the I.T Act, the deponent pleads alternate ground of appeal as hereunder: "Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) was justified in holding that receipt of ₹ 161,86,77,034/- by the assessee was not taxable u/s 28(iv) of the I.T Act, without appreciating the fact that same was covered under the ambit and scope of 'benefit .....

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und be set aside and that of the Assessing Officer be restored. 11. ―The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 2. Rival contentions have been heard and record perused. Facts in brief are that during the year under consideration i.e. F.Y.2008-09, assessee received ₹ 161,86,77,034/-, from four concerns and claimed it as gifts received from these concerns. The names and other details of the four concerns from whom the amounts hav .....

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44,222 4 Ornate Traders Pvt. Ltd. AAACO0856D 505, Dalamal House, Nariman Point, Mumbai 31,67,42,192 3. The assessee has claimed that the amount received are gifts received from the said four concerns. It is claimed that the amounts have been received directly from Reliance Industries Ltd. on account of the dividend receivable by the said four concern against their shareholding in Reliance Industries Ltd. It is on the directions of the four concerns that their dividend were directly credited to t .....

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, the assessee claimed that all the four donor concerns are also authorized by Memorandum and Articles of Association for making such gifts and the assessee company is also authorized for receiving such gifts. Accordingly, 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, assessee has claimed that these receipts are not taxable because these are capital receipts and any such gift is not .....

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these are genuine gifts and the amounts received are capital receipts which are not taxable. In support of its claim the assessee filed submissions dated 31/8/12, which are as follows: 1. The Appellant is a Private Limited Company incorporated under companies Act, 1956. The Appellant is engaged in the business of investment. The Appellant is regularly assessed to tax with Dy. Commissioner of Income Tax -3(2), Mumbai(hereinafter referred to as AO). The books of accounts of the Appellant are audi .....

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resentative of the Appellant attended from tune to tune and submitted the requisite details. Regular Assessment U/s 143(3) was completed by the A.o. vide his order dt.ll.11.2011 determining total taxable income at ₹ 178,47,63,054/- under normal provisions of the Act and book profit of ₹ 210,28,48,614 u/s 115JB of the Act. The addition made by the AO is disputed in appeal before your Honour. The brief facts relating to additions/ disallowances made by the AO and disputed in appeal are .....

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all the above four companies are Private Limited companies and are governed by their respective Memorandum and Articles of Associations.' The Memorandum of Associations of the Appellant and all the above tour companies provides for the receiving/giving of gift respectively. The Clause 30 of Memorandum of Associations of the Appellant 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 asse .....

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r 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 of tile company" "Resolved That pursuant to the provisions of Section 206 and other applicable provisions of the Companies Act, 1956, the Company do hereby instruct and authorize Relianc .....

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ter dt.19.06.2006 had given irrevocable instruction u/s 205 r.w.s. 206 of the Companies Act to Reliance Industries to pay dividend directly to the Appellant. The corresponding resolution was also passed by the Appellant at the Board Meeting held on 12.06.2008 accepting the gift. The extract of the resolution passed by the Appellant is as follow: "Resolved That the company do accept gift amounting to ₹ 44,50,38,399/- from Madhuban Merchandise Private Limited, the Transferor Company. Re .....

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companies in their respective extra ordinary general meetings and board meetings. Consequently, the Appellant received gift of ₹ 16.l,86,77,034/- from above four companies during the year, as under: Name of the Company Amount of Gift (Rs) Amur Trading Private Limited 42,90,52,221 Madhuban Merchandise Private Limited 44,50,38,399 Tresta Trading Private Limited 42,78,44,222 Ornate Traders Private Limited 31,67,42,192 Total 161,86,77,034 As the gift received by the Appellant from corporate bo .....

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es 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 Appellant. The receipt of dividend was debited to bank account and credited to Capital reserve Account of the Appellant. The Appellant submitted that the Gift is in the nature of capital receipt and is not required to be credited to 'Profit and Loss Account' of the Appellant. The .....

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lant filed detailed submission vide its letter dt.4.11.2011 before the AO during the assessment proceeding. However the AO for the reasons recorded in the. assessment order did not accept the contention of the Appellant and added gift received olR.s.161,86,77,034/- to the total income of the Appellant. The AO further added the amount of gift received of ₹ 161,86,77,034/- to the book profit u/s 115 JB of the Appellant. 3. In this connection the Appellant at the outset objects to the additio .....

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- received by the Appellant from Corporate bodies are in the nature of capital receipt and is not taxable under any of the provisions of the Income Tax Act - 1961. The Appellant submits that the Income Tax Act - 1961[hereinafter referred to as Act} is an act passed by the Parliament to levy tax on 'income' of an assessee. Thus what is subjected to tax under the Act is only the 'income' of the assessee and not each and every receipt of an assessee. The Appellant submits that where .....

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ll be charges for that year in accordance with, and subject to the provisions including provisions for the levy of additions income - tax of, this Act in respect of the total income of the previous year of every person; Provided that where by virtue of any provisions of this Act income - tax is to be charged in respect of the income of a period other than the previous year, income tax shall be charged accordingly. "(Emphasis Supplied) Thus as per section 4 of the Act income tax shall be cha .....

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submits that the charging section of the Act specifically provides for taxation of 'income' of an assessee. The Appellant therefore submits that for a receipt to be taxable under the provisions of" the Act it must necessarily be in the nature of an income or its taxability should have been specifically provided by the statute. The Appellant submits that Section 2(24) of the Act defines 'income: The definition of 'income 'provided in section 2(24) although an inclusive de .....

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the nature of "income" are not liable to tax under the provisions of the Act. The Appellant submits that gift of ₹ 161,86, 77,034/- received from corporate bodies are ill the nature of capital receipts. The gift received from corporate bodies do not come under the ambit of income as contemplated U/S 2(24) of the Act or any other provisions of the Act. The Appellant submits that gift received are a voluntary payments made by the donors to the Appellant. Neither the Appellant has a .....

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pital receipt not Hable to tax under the Income Tax Act. The Appellant further submits that as per section 14 of the Act, income of an assessee must be classified under the following heads of income viz "Salaries‖: "Income from house property': 'Profit and gains of business or profession", "Capital gain" and "Income from other sources". The Appellant submits that the provisions of the Act provides for what can be constituted/considered as income u .....

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me from business of the Appellant. The Appellant further submits that as the gift has no relation to any capital asset, the same can also not be considered as capital gain for the Appellant. With respect to income from other source, the Appellant submits that income of every kind which is not chargeable to tax under any head of income are subjected to tax under the residuary head of income j.e. income from other sources. However again what is subjected to tax under the provisions of section 56 i .....

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section was further narrowed down by raising the limit of receipt from ₹ 25,OOO/- to ₹ 50,OOO/-' with effect from 1.04.2006. The said section was amended from time to time by amending the limit of receipts and nature of transaction but the applicability of the said section was restricted only to an individual 0 Hindu Undivided Family. The Appellant therefore submits that when the legislature intended for bringing to tax net the gift received by an assessee it has specifically pro .....

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in the form of shares of an unlisted company without consideration or without sufficient consideration. Thus even after this amendment, shares of listed companies received as gift was not covered and accordingly not subjected to tax. The Appellant therefore respectfully submits that certain gifts are made taxable from time to time by various well thought and well intended amendments in the Act and all the definition regarding taxability of gift (i.e. receipt of assets without sufficient or with .....

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not chargeable to tax being capital in nature. In this connection the Appellant rely upon the following judicial pronouncements wherein the hon'ble courts have held that gift capital receipts without considerations are not in the nature of income and hence the same can not be charged to tax under the provisions of the Income Tax Act. 1) HH Maharani Shri Vijaykuverba Saheb of Morvi & Anr Vs. CIT [49 ITR 594](Bombay: "There is no doubt that under the Indian IT Act even payments, whic .....

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rofession, vocation or occupation may constitute "income" although if the payments were not made the enforcement thereof cannot be insisted upon. These payments constitute "income" because they are referable to a definite source, which is the office, profession, vocation or occupation. It could, therefore, be said that such a voluntary payment is taxable as having an origin in the office, profession or vocation of the payee, which constitutes a definite source for the income. .....

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but depends entirely on the whim of the donor, cannot fall in the category of "income". What we have to see, therefore, in the present case, is whether the payment made by the son Maharaja to the father Maharaja, though voluntary, could be regarded as having an origin in what might be called the real source of come. On the facts found in the present case, we cannot say that the payments would be referable to any such source. The Department has not been able to show any material on reco .....

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fits. It is comparable to the class of cases I have mentioned above where the business continues but by some overriding reason profit cannot be earned. The situation in the present case is, however, entirely different. Even if there was any doubt as to what exactly the payment of ₹ 5 lakhs represented, it is now laid at rest by the findings of fact that have been placed before us upon remand. The company itself has admitted that the payment was made as a personal gift to the assessee. It m .....

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the assessee could have received from an insurance company if it had a "consequential loss policy" of the nature described above. That being so, I think that the Tribunal had come to the correct conclusion that this amount of ₹ 5,00,000 was not a revenue receipt and could not be assessed fur taxation." 3) Lachit Films Vs. CIT [195 ITR 402]Gauhati): "In section 2(24) of the Income-tax Act, 1961, it is declared that "income includes" such and such which are enum .....

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ll be construed as comprehending what it signifies according to its natural import. In relation to a business undertaking, the word ''revenue'' connotes incomings of the undertaking which are products of the normal working of the undertaking. The giving of financial aid or subsidy is at the discretion of the Government. Therefore, the grants-in-aid received by the assessee, a producer of films, from the Government is a financial aid or subsidy given by the Government with a view .....

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the appellant applied for a grant for maintenance allowance nor the periodicity was conclusive. Regard had to be had only to the nature and quality of the payment. The appellant lost her right to the allowance under the Huzur order and, therefore, on an application by way of compassion, the payment was made. The mere fact that, after the order was made under section 15(J), it became an enforceable right was not relevant, There was no compulsion on the part of the Government to make the payment: .....

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der. The amounts received by the appellant during the financial years in question were capital receipts and, therefore, not income within the meaning of section 2(24) of the income tax Act, 1961. 5) CIT Vs. Ramdeo Samadhi !J60 ITR 179KRajasthan) "The ingredients of "income" are: (i) it must be a periodical monetary return, (ii)coming in with regularity or expected regularity, (iii) from definite sources, and (iv) excluding a receipt in the nature of a mere windfall. It is well-set .....

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ne source which should be an identifiable one may be an individual or an institution, or a body of people or any other source. 6) Mehboob Productions Private Ltd. Vs. CIT [106 ITR 758{Bombay}: "Income is a monetary return expected by the assessee for the labour and/or skill bestowed, and/or capital invested by him,' coming in from a definite source, which need not be a legal source, in the sense that the failure to pay the same need not be enforceable in a court of law: and excluding a .....

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l" is some unexpected receipt not in the contemplation of" the assessee and not directly attributable to or occurring by way of its business profits. On the other hand, where there was clear expectation, though small, of receiving such advantage or profit, then it cannot be properly regarded as windfall merely because the advantage of receipt is much more than could have been reasonably anticipated." While on the subject we submit that in the case of CIT Vs. Groz- Beckert Saboo Lt .....

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us held the gift received being capital in nature and hence no chargeable to tax: on the contrary the market value of gift received was allowed as deductible expense while computing the total taxable income. In view of our above submission and various judicial pronouncements relied upon the Appellant submits that the gift of ₹ 161,86, 77,034/- received by the Appellant from corporate bodies are in the nature of capital receipt not liable to tax under the provisions of the Income Tax Act. 4 .....

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nees. The Appellant submits that the above observations of the AO are self drawn conclusions/observations of AO without the authority of law. In this connection the Appellant submits that the Appellant and donors being Private Limited Companies are governed by the Companies Act. Section 82 of the Companies Act provides that shares in a company is a moveable asset. The section 82 of the Companies Act reads as under: "82. The shares or debentures or other interest of any member in a company s .....

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;Gift' the Appellant submits that the Income Tax Act does not define the term 'Gift'. Gift is defined under section 122 of the Transfer of Property Act - 1882, which reads as under: "122. "Gift" defined - "Gift" is the transfer of certain existing moveable or immoveable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf of the donee." Further section 5 of the Tr .....

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or body of individuals, whether incorporated or not, but nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by companies, associations or bodies of individuals." The Appellant therefore submits that section 122 of the Transfer of Property Act provides for making of a gift and permits transfer of moveable or immovable property but without any consideration. As submitted earlier the shares or interest in a company is a moveable ass .....

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ons of the Companies Act and Transfer of Property Act. The Appellant further object to the findings of the AO that prerequisite of gift is that it should be out of natural love and affection. The Appellant strongly submits that none of the provisions of the Acts reproduced hereinabove anywhere states that the gift should be out of natural love and affection. The Appellant submits that the only condition stipulated by the Act lor a gift is that it should be made voluntarily and without considerat .....

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e gift, the Appellant further respectfully submits that the statute even the taxing statue has recognized that the gift can be given by a company. In this connection the Appellant submits that the Gift Tax Act, 1958 (now repealed) provided as under: a) Section 2(iii) of the Gift Tax Act, 1958 defines ― (iii) "assessee" means a person by whom gift-tax or any other sum of money is payable under this Act, and includes- (a) every person in respect of whom any proceeding under this Ac .....

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d or not;" c) Section 2(vii) of the Gift Tax Act, 1958 defines "(vii) the expressions "company'; "Indian company" and "company In which the public are substantially interested" shall have the meanings respectively assigned to them under section 2 of the Income-tax Act " d) Section 2(17} of the Income-tax Act, 1961 defines "(17) "Company" means - (i) any Indian company, or (ii) any body corporate incorporated by or under the laws of a cou .....

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cial order of the Board to be a company Provided that such institution, association 01' body shall be deemed to be a company only for such assessment 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" The Appellant submits that the provisions of Gift Tax Act even though repealed clearly has recognized the company a Juridical person as a donor and ma.de it an assessable entity under the Act. The .....

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ut the order so as to draw a pre-meditated conclusion which are as under: 1) Page 7, para 6: "Since receiving a cash gift by a company from another set of companies is not only a very unusual and atypical but also a curious transaction. This sort of transaction is generally not heard of and raises serious doubts." The Appellant submits that the above observations of the AO are based on suspicion and surmises without there being any basis. Tile Appellant submits that an unusual transact .....

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case of Income Tax Officer Vs. Komal Kumar Bader [33 SOT 58](Jaipur) wherein the Hon'ble ITAT has held as under: "Only an Income can be taxed under IT Act and income is defined under s. 2(24). An asset cannot be termed as any sum as used in various sub-cls. of s. 2(24) or an 'income' and therefore, agriculture land which was gifted cannot be taxed as income. It is not covered by and heads of income given in s. 14 and therefore, neither agriculture land nor agriculture income is .....

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so establishes their friendship. Just because both are directors in one company and have business relationship cannot establish that some underhand consideration would have changed hands. It is long back held by the Hon'ble Supreme Court in the case of KP. Verghese that Revenue is to prove that some underhand consideration was paid. Similarly. making assumption will not prove the transaction sham. It is customary give gifts on birth of a child, marriage and other social or religious occasion .....

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whether or not a g1f't has been made, a) delivery. b) donative intent,' and c) acceptance by the donee." " The Appellant submits that all the above essentials stated by the AO are duly been fulfilled by the Appellant and all the four donor of gifts. With respect to delivery the Appellant submits that the dividend has actually been received by the Appellant in its bank account which conclusively prove the delivery of the gift from donor to donee i.e. the Appellant. With respect .....

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lution in the meeting of shareholder and board of directors duly conveying their acceptance to the gilt. The Appellant therefore submits that all the essential requisites of gifts stated by the AO in assessment order have in fact duly been fulfilled by the Appellant and no adverse conclusion can be drawn in the case of the Appellant. 3) Page 8, para 6.2: "From the above it can be said that a gift can only be between two living persons or natural persons. The sin qua non of the gilt is that .....

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and similarly donation is something given out of compassion. The giver and the recipient of the gift have to be persons who are bestowed with the feeling of love and affection. So, a company or 8 body corporate can never give or receive a gift. Gifts are generally given and received by Individuals. Similarly a company or a body corporate cannot generally receive a donation, because there can never be a cause of compassion or charity in the case of a company," The Appellant submits that the .....

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hat the natural love and affection is a condition for making a valid gift. The Appellant submits that observations of the AO with respect to natural love and affection as a condition for making a valid gift is without the authority of law and actually the law does not contains any such conditions. The Appellant submits that it has already submitted that various provisions of the Transfer of Property Act provides that the company is a living person and can validly transfer a property by way of gi .....

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ed by individuals etc. The Appellant submits that these observations of the AO clearly suggest that the AO has based his order solely on assumptions and surmises. The Appellant submits that when there is specific provisions in the Act with respect to treatment of gifts, no general conclusions can be drawn. The Appellant therefore submits that above observation of the AO clearly proves that the AO framed the assessment order in disregard to the provisions of the law on the subject and without bri .....

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bmits that it agree with the AO that section 25 of the Indian Contract Act, 1872 lays down that a contract without consideration is void except for an agreement In writing, registered under the provisions of Registration Act. The Appellant however submits that the AO has failed to take cognizance of the explanation to section 25 of the Contract Act. The Appellant submits that legislature has appended Explanation 1 to section 25 of the Contract: Act which reads as under: "Explanation 1.- Not .....

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t application of the provision in its right perspective. 5) Page 8, Para 6.4: "Further as far as gift of the property is concerned, section 122 of the Transfer of Property Act, 1882 requires that transfer of property by way of gift must be accepted by the donee and interalia such acceptance must be made during the life time of the donor and before the donee dies. The provisions using the word like death of the done are logically in the context of a living- individual or natural person and n .....

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sfer a property to another person. The Appellant submits that in view of section 5 of the Transfer of Property Act the above observations of AO is totally based on assumption and against the provisions of the law. 6) Page 9, Para 7: "No gift deed whatsoever has been executed. " The Appellant submits that the Memorandum and Article of Associations of the Appellant and all the four donor companies provides for power to receive and make gifts respectively. The gifts has been made by the d .....

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be prejudicial to the Appellant and moreso treating the gift as income of the Appellant under the Income Tax Act." 7) Page 9, Para 7." In legal term the act of gift cannot be said to be have been undertaken as the donee has not given express consent to receive the alleged gift." The Appellant submits that the above observation of the AO is erroneous and factually not correct. As stated earlier the Appellant has accepted the gift from the donors by passing an ordinary resolution in .....

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liable to tax. 6. The AO in. the assessment order has relied upon various judgments to tax the gift received of ₹ 161,86,77,034/- the Appellant from corporate bodies. The Appellant submits that the case law relied upon D.V the AO in assessment order is distinguishable on facts and no case law relied upon by the AO has any relevance to the case of the Appellant. The A 0 has relied upon the following decisions: 1) Sumati Dayal Vs. CIT [2141IRR 801](SC) In the case of Sumati Dayal (supra) th .....

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t up that amount: under such circumstances the hon'ble supreme court held that the income tax authorities are entitled to look into the surrounding circumstances to find out the reality. 3) CIT Vs. L.N Dalmia [207 ITR 89](Calcutta): In the case of L.N Dalmia the hon'ble high court found that the assessee generated a paper loss which is capable of carried forward and set off againt the future profit and thus would provide a cushion against the future gain. The Hon'ble High Court found .....

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med as revenue receipt liable to tax. The Appellant therefore submits that all the case laws relied upon by the AO in the assessment order has no relevance to the case of the Appellant and are distinguishable on facts. In view of our above submissions and various Judicial pronouncements relied upon, the Appellant submits that the gift of ₹ 161,86,77,034/- received by the Appellant from corporate bodies are in the nature of capital receipt and the same cannot be considered as income of the .....

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which has been disputed by the assessment the present appeal and made submissions vide letter dated 31/8/12 with paper-book. Whereas, while making assessment the A.O. has held vide para 8 of the assessment order as follows: "8. The transaction has been painted as a gift to escape taxation in the hands of the recipient. Apparently, the amount has been remitted to the assessee company without any consideration, but it is not possible. No one parts with even a penny without any consideration. .....

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t appears that there is cross holdings amongst the companies involved in the gift and the assessee which has impact on the transaction and further there was not sufficient time and resources available with the A. 0. to further inquire about the transaction and reach to a conclusion. Therefore, it is in the interest of justice that the case is remanded to the A.O. for further inquiry. Hence, the case is remanded to the A.O with the submissions and paper-book of the assessee filed on 31/8/12 with .....

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DER SINGH) Commissioner of Income-tax, (Appeals)-4, Mumbai. Copy to: 1. The A.O. -DG. -3(2), Mumbai, with the direction to submit the report as required, copy of the submissions and paper-book both dated 31/8/2012 are enclosed. 2. The assessee with the direction to co-operate in the remand proceedings before the A.O. Sd/- CIT(A)-4, Mumbai In response to the above letter of CIT(A), the A.O. sent the remand report dated 1/10/12, which is as follows: 1. "Comments and findings on the submission .....

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nner: "84. It is a curious paradox of our situation that while money for worthwhile investments and public purposes is in short supply, there is a great deal of unaccounted money circulating in the economy in search of further under-cover gains. What is more important, this social evil inherent in tax evasion gets doubly compounded as it necessitates greater and greater tax burdens on those who are law' abiding. Perhaps, the most important problem that faces us in regard to fiscal refor .....

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nest evader. (emphasis supplied With a purpose) . From the observations made by the Finance Minister regarding the evil of tax evasion in his statement in Parliament on the economic situation, on 16-12-1963. 1.1 In this background, the issues raised by the assessee, vide its submission made before CIT(A)-4, Mumbai are being analyzed as under: [Facts gathered during the Assessment Proceedings] 1.2 During the year under consideration, the assessee company has shown increase in the Capital Reserve .....

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, Mumbai 31,67,42,192 The above slim received by the assessee company has been credited directly to the capital reserve. The assessee company has not offered the above sum for taxation claiming it to be gift/capital receipt and hence has not routed through the profit & loss account. For treating the said receipt as gift transaction, during the course of assessment proceedings as well as before appellate proceedings, the assessee has furnished elaborate submissions. After going through said s .....

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facts of the case, therefore the undersigned does not think the same to be commented upon. 1.4 The second argument put forth by the assessee is about the legislation intent about taxability. In this regard, it has discussed section 4, 5, 2(45), 2(24) and 56(2)(v).(vu, (vii) of the I T Act. 1961, which are read as under: 1.5 While discussing section 2(24), the assessee itself has admitted that the definition of income provided in the said section is inclusive one and not exclusive. Reliance is pl .....

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Maharajkumar Gopal Saran Narain Singh v. CIT [1935] 3 ITR 237 (PC). No attempt has been made in the Act to define 'income' except to say that it includes certain things which would possibly not have been regarded as income but for the special definition. That, however, does not limit the generality of its natural meaning except as qualified in the section itself - Raghuvanshi Mills Ltd. vs. CIT [1952] 22 ITR 484 (SC)' The word 'income' as it is used in the Income-tax Act has .....

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Dooars Tea Co. Ltd. v. CAIT !J962} 44 ITR 6 (SC). Whatever income may include or mean, it is, however, clear that it does not include fixed capital or the realising of fixed capital by turning it into some other form of capital or money - Karanpura Development Co. Ltd. v. CIT [1962] 44 ITR 362 (SC). 1.6 In fact, income term in itself has a very exhaustive meaning. which can not be roped in to a particular definition or a section. The meaning of income has to be defined keeping in mind the surrou .....

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39;income' was not taxable because it was not explicitly mentioned in the definition of income. 1.7 In the light of above meaning of income, let us analyze the alleged gift received by the assessee. In fact, the assessee itself vide page no. 7 &8 of its submission has stated that the gift received are a voluntary payments made by the donors to the appellant. Neither the appellant has any legal right to claim the gift From the donor nor donors have any legal or contractual obligations to .....

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ake gift to any other person. Now as the meaning of gift has not been provided in the Income-tax Act, therefore the meaning' has to be borrowed from any other law or statute prevailing in land. As the Gift-tax Act has already been abolished, therefore the meaning of gift can not be borrowed from it. Here, it is pertinent to mention that gilt, has been defined in Transfer of property Act 1882.Section 122 of the Transfer of property Act 1882, defines gift as under: "Gift" is the tran .....

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iving being. To be very precise, lifetime word used in the above definition connotes to natural birth and death and not artificial creation of dissolution. This interpretation also finds strength from the second sentence where 'dies' is mentioned and company cannot die. In fact, the world has not been mentioned dissolution of company. Therefore love and affection has to be there.1.9 Dictionary defines 'gift' as "a voluntary transfer of property or of a property interest from .....

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usa mortis,means in contemplation of approaching death. 1.11 From the above definition, it can be logically concluded that a gift can only be between two living persons or natural persons. The sine qua non of the gift is that the transaction is without any consideration and out of natural love and affection. Since company is an artificial juridical person, so there cannot be any natural love & affection by a company or between companies. Hence, a transaction of gift cannot be said to be vali .....

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ifts are generally given and received by Individuals. Similarly a company or a body corporate cannot generally receive a donation, because there can never be a cause of compassion or charity in the case of a company. 1.14 Further gilt necessarily involves a contract because for a gilt to be valid and complete, it has to be accepted by the donee. Section 25 of the Indian Contract Act, 1872, lays down that a contract without consideration is void ab initio, except for all agreement in writing, reg .....

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during the life time of the donor and before the donee dies. The provisions using the word like the death of the donee are logically in the context of a living individual or natural person and not in the context of an artificial person. In view of the foregoing, it is not possible for a company to receive a gift. 1.16 Hence, on the basis of discussion above, it can be concluded that a company cannot be a donor or a donee of a gift since a company is an artificial juridical person and does not h .....

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d under the provisions of section 56. The section is as under: 56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14 items A to E. 1.18 Plain reading of above, clearly stipulates that income of" every kind, which is not chargeable to tax under any head of income are subjected to ta .....

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ions of section 56 of the I T Act, 1961. Further, for the sake of clarity, following judicial pronouncements are being quoted, which clearly mandates that any income which does not fall in any of the specified heads, then it will fall under the provisions of section 56. Section 56, being the residuary head of income, can be resorted to only H none of the specified heads is applicable to the income in question; it comes into operation only after the preceding heads are excluded - S. G. Mercantile .....

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.2) Act, 2004 w.e.f 01.04.2005 inserted clause (v) to sub-section (2) of section 56 ………………..' 1.21 In this regard it is to be mentioned that till 1988, since Gift tax Act was applicable, being direct tax in nature, therefore there was no need to have specific section for the purpose of taxability in the I. T Act. However, after the abolition of Gift Tax Act, as there was no tax on gifts, therefore, this was used as a colorable device to evade taxes, .....

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the above provision, the Legislature have only talked about individual and HUF; which is a possibility as the Legislature never thought that there can be any transaction between two companies, which is not a possibility at all and that too in the garb also celled 'gift: 1.22 Now as far as insertion of provisions of section 56(2)(viia) in the 1. T Act, is concerned, it is to be noted that the said provision was inserted in the Act in order to curb the practice of routing of unaccounted money .....

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ted by the assessee supporting his claim: Name of the case law Ratio Applicability in the case of assessee under reference 1 Applicability in the case of assessee under reference Section 4 of the Income-tax Act, 1961 [Corresponding to section 3 of the Indian Income-tax Act, 1922] Income - chargeable as - Assessment years 1950-51 to 1953-54 - Whether where a voluntary- payment is made entirely without consideration and is not traceable to any source, which a practical man may regard as real sourc .....

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the case is totally different with that of the assessee under consideration. Here, the relation between the Donor and Donee is that of son and father, wherein basic condition of natural love and affection is being fulfilled while in the case of assessee under reference there is no such relation and natural love and affection. Thus, the gift given by son to his father: will not tinder the criteria of taxable income, as provided in the I. T Act, 1961. In view of the above analysis; ratio of the c .....

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arried on - With outbreak of second world war company stopped functioning in Burma and no brokerage accrued to Kim thereafter - Assessee claimed compensation for loss of business during war period - Director of shipping company released ₹ 5 Jakhs to assessee "for loss of assets I and brokerage in Burma due to enemy action" - ITO held that ₹ 5 lakhs was income in assessee s- band' which was liable to be assessed - Tribunal held that payment was motivated purely by feelin .....

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the statuette and circumstance has been taken place. Second, both the donor and donee of the refereed case law have very long business relation, which is in the nature of broker and company. The claim of the broker of compensation. on account of loss due to World War and generous payment by the company is altogether different than that of the assessee under reference, wherein there is no transaction, what to say about business transaction. Therefore the ratio of the referred case, being differe .....

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s its income. On appeal, the Tribunal held that the grant-in-aid was a revenue receipt assessable in the hands of the assessee. It has already been elaborately discussed in the analysis made above that any grant or any such sum which has been provided by the government for social or better cause to benefit the society or public at large, will not be form of the income. In the referred case, since the credit sum is grant-in-aid, therefore, it would not be part of income. Such scenario is not ther .....

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ion Act, 1955, which was passed to abolish miscellaneous alienations of various kinds prevailing in the merged territories in Bombay. Under sub-section (1)(d) of section 15 of the said Act it was provided that a cash allowance could be paid as a compassionate payment notwithstanding the abolition of all alienations under section 4. The assessee continued to receive cash allowance as compassionate payment from 1-8-1956 on modified terms and the sanction of the same was conveyed to the assessee. F .....

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) came to the conclusion that the amounts received by the assessee during the relevant financial years were income within the meaning of section 2( 24) and could not heI regarded as capital receipts in the hands of the assessee. It, accordingly affirmed the view taken by the taxing authorities The case law quoted by the assessee only supports the stand taken by the undersigned by treating the above sum as income. 5 CIT vs. Ramdeo Samadhi 160 ITR 179 The word 'income' has been defined in .....

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pujari or priest used by the ITO was a misnomer. The descendants of R were not pujaris and priests in the sense these words were used. They were merely descendants of R lookir'r after and managing the Samadhi of R. Apart from that, R was not a deity, though he was considered by the persons of the locality as an incarnation of God because of the qualities possessed by him and when R was not the deity in that sense of the word, his descendants were not pujaris or priests. The amounts that were .....

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ised as an income, there should be its definite source which should be an identifiable one, may be an individual or an institution, or a body of people or any other source. However, there was absence of des- finite source of income in the instant case. Again, the last ingredient of income, i.e., income should not be in the nature of mere windfall was not satisfied in the instant case. The offerings that were made at the Samadhi of R by the devotees or pilgrims were made by thorn at the spur of m .....

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ifferent with that of the assessee under consideration. In the quoted case, the receipt/offerings made at the Samadhi or R by the devotees or pilgrims, were made by them at the spur of moment when they visited there. These offerings were because of affection or faith or belief, which is totally absent in the case of assessee under reference. Therefore, the case law relied by the assessee does not hold good. 6 Mehboob Productions Private Ltd. Vs. CIT 106 ITR 758 Section 4, read with sections 2(24 .....

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to assessee produce5rs payments appeared to be entirely at discretion of Government and exemption should be withdrawn by Government even without any default on part of assessee- in pursuance of said decision assessee recovered amounts from exhibitors and theatres on account of entertainment duty which was collected from viewers and claimed that said receipt was not liable to be included in its total income-There was nothing on record to show that assessee company had produced picture with sligh .....

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ve that any grant or any such sum, which has been provided by the government for social or better cause to benefit the society or public at large, will not be form of the income. In the referred case, since the credit sum falls in these criteria, therefore, it would not be part of income. Such scenario is not there in the case of assessee under reference. As the ratio of the case law cited by the assessee is different from that of the assessee under consideration, hence it can not be applied. 1. .....

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rtain goods free of cost, these goods consisted partly of raw materials and partly of semi-furnished needles. These goods were brought into books by making debit and credit entries under 'Wire & strip Gift A/c and 'Semi-Processed needles Gift A/c. The assessee utilized these goods in the manufacture of finished products and sold the same in the market and the sale proceeds received by the assessee were credited in the trading account maintained in the books of account of the business .....

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les: The net effect of these entries was that the profit of the assessee was reduced. The ITO took the view that the debit was wrongly made in the trading account since no monies were expended by the assessee in acquiring the raw materials and semi-finished needles, but they were received by way of gift from foreign collaborators and hence no amount was deductible in respect of the value of these goods. On appeals the AAC as well as the Tribunal also took the same view. On reference, the High Co .....

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p in collaboration with foreign company a factory for fabrication and manufacture of hosiery needles - It received certain goods free of cost from foreign company which consisted partly of raw material and partly semi finished needles - Assessee claim was that while calculating profits from sale of finished goods, value of said raw materials and semi finished needless were liable to be deducted ITO held chat Since no monies were expended by assessee in acquiring raw materials and semi finished n .....

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roducts in arriving at profits of assessee's business - Held yes - Whether, therefore, High Court was correct in acceptingassessee's claim - Held, yes 1.26' Above referred case law pertains to the assessment year 62-63 and has been pronounced by the Hon'ble Supreme COUl't long back in 1978, On going through the above judicial pronouncement, it may be worthwhile to mention that I T Act, 1961 came into force from A. Y 62-63 when the law was not exactly similar as on today's .....

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nder: a, Groz-beckert Saboo Ltd. received some raw material from collaborating foreign company (which has a definite role and pre-defined role in a joint venture) free of cost, while in the case of' assessee under reference there is no such collaboration Joint-venture/partnership or any other pre-defined relationship. Therefore relation between the doner and donee in the above referred case and in the case of assessee under reference is altogether different. b. In the case of Groz-beckert Sa .....

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e referred 4 companies or their shareholders" Therefore, the ratio of the above case can not be applied in the case of assessee under reference. c. The issue before the Hon'ble Supreme Court was that whether raw materials and semi finished needles were introduced in business and converted into stock, their market value on date of conversion would represent cost to business which was liable to be deducted from sale proceeds of finished products in arriving at profits of assessee's bu .....

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ent case is that at the point of time when the Hon'ble Supreme Court delivered its decision in above referred case, the provisions of Gift Tax Act were still applicable, therefore any gift received by any person was taxed under Gift Tax Act. However, after the abolition of the said act, every receipt which does not have a corresponding Liability is taxable, except in the case of close relatives, wherein the gifts are given out of natural love and affection, as provided in the section 50(2) o .....

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, 1961 have been laid down subsequent to 1-4-1989 only. 1.27 Now, as far as the issue raised by the assessee vide its submission (under Ii pro visions of section 56 (2), the gift received by the company does not find any place and the assessee claims that impugned sum is not taxable since it is a gift and it does not fall in any of the provision of section 56 (2) dealing with the taxability of gifts,), that there are 110 provisions in the income tax act, which prohibits that a company cannot rec .....

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tion to the done. As specified above, since only living being receive or advance gift, therefore restrictions were place in the statute that only close relative can give or receive gift, so that abuse of exemption provisions on account of gift transactions may be avoided. (ii) The argument is devoid of any merit because the law makers can make legislation on a probable and plausible transaction, as there not be any gift between companies, no legislation was made. 1.28 Further the assessee conten .....

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alue, it is proposed to amend s.56 to also include within its am bit transactions undertaken in shares of a company 'not being shares of a company in which public are substantially interested) either for inadequate consideration or without consideration where the recipient is a firm or a company (not being a company in which the public are substantially interested.)." (ii) The said amendment has been introduced to curb the specific practice of undervaluation of sale/purchase share/acqui .....

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x Act has since been repealed. 1.30 On account of above discussion, it is to he noted that as the amount received Is not in the nature of a gift or a capital receipt and otherwise also notwithstanding the exact nature and intent, it is an extraordinary item which is required to be credited to the profit and loss account in terms of Part 1101 Schedule VI of the Companies Act, 1956. It is an item of exceptional nature. JUDICIAL PRONOUNCEMENTS 1.31 Further a number of judicial pronouncements viz. S .....

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be assessee's income from undisclosed sources - On appeal. Commissioner (Appeals) and Tribunal affirmed order of Assessing Officer by recording finding of fact that there was no relationship between donors and assessee and there was no natural love and affection and in its absence, gifts could not be accepted to be genuine - Assessee challenged order of Tribunal on ground that she should have been allowed an opportunity to cross-examine donors who denied to have given gifts - Whether even if .....

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a. gifts but failed to establish that donor had means and gift was genuine and was given out of natural love and affection, amount received as gift was to be added to income of assessee - Held. yes Jaspal Singh v CIT/[159 Taxman 3061 1.32 Apart from the above, it is pertinent to mention that during the remand report proceedings, the assessee has submitted that in the case of doner company namely M/s Madhuban Merchandise Private Limited, Board of directors in their meeting held on 09.04.08 passed .....

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the Gompany, be and are hereby severally authorized to take all such other steps as may be necessary and/or incidental thereto to give effect to this resolution. In pursuance to above, the donor company vide its letter dtd. 19.06.2006 had given irrvocab1e instruction u/s 205 r.w.s. 206 of the Companies Act to Reliance Industries to pay to pay dividend directly to the Appellant. The corresponding resolution was also passed by the Appellant at the Board Meeting held on 12.06.2008 accepting the gi .....

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. It has been further submitted that similar pattern is there in all other donee companies also. This indicates that the donor had issued instructions for carrying out the alleged gift transaction much before the acceptance of the gift by the donee/recipient. Further, in the case of the assessee company, such alleged gift: transactions have also been noted in other years as well. 1.33 At this juncture, it would he relevant to mention that any credit which is found to be credited in the books of .....

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e, since credit entry is found to be credited in the books of the assessee, therefore, if any how the same can not be taxed under section 56, then it would be taxed under the provisions of section 68, which is read as under: "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the source and source thereof or the explanation offered by him is not, in the opinion of the 7-9[Assessing] Officer, satisfactory .....

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and report the impact of such cross holdings on the receipt of ₹ 161.86 crore claimed as gift by the assessee. 2.1 In this regard the details were called for from the assessee. On account of details received by the assessee, following analysis is being made. KDA ENTERPRISES PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of shares of ₹ 10 each 1 SMT KOKILABEN D. AMBANI( JTLY WITH GAYLORD INVESTMENTS AND TRADING CO. PVT. LTD. 9900 2 SHRI MUKESH D. AMB .....

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S.No. Name of Shareholder No. of share of ₹ 10 each 1. CAPABLE COMMERCIALS PRIVATE LIMITED 2. JOGIYA TRADERS PRIVATE LIMITED 124000 3. KUNDRAT INVESTMENT & LEASING (INDIA)(P) LTD. 124000 4. LAZOR DETERGENTS PRIVATE LIMITED 124000 5. ORNATE TRADERS PRIVATE LIMITED 124000 6. PURURAVA TRADERS PRIVATE LIMITED 123000 7. RASHI TRADING COMPANY PRIVATE LIMITED 124000 8. SAUMYA FINACE AND LEASING COMPANY PRIVATE LIMITED 133000 TOTAL: 1000000 ORNATE TRADERS PRIVATE LIMITED EQUITY SHAREHOLDING A .....

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reholder No. of share of ₹ 10 each 1. AMUR TRADING PRIVATE LIMITED 10000 2. LAZOR DETERGENTS PRIVATE LIMITED 10000 3. MADHUBAN MERCHNDISE PVT. LIMITED 9514 4. SAUMYA FINANCE AND LEASING CO.(P.) LTD. 9514 5. SHIKHAR TEXTURISING PRIVATE LIMITED 9514 6. SILKINA TRADING PRIVATE LIMITED 1533 TOTAL: 50075 TRESTA TRADING PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. os share of ₹ 10 each 1. AMUR TRADING PRIVATE LIMITED 1523952 2. ANUCHIT TRADERS PRIVATE L .....

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)(P) LTD. 1018096 4. LAZOR DETERGENTS PRIVATE LIMITED 1518100 5. MADHUBAN MERCHNDISE PVT. LIMITED 475000 6. SAUMYA FINANCE AND LEASING CO.(P.) LTD. 1299600 7 TRESTA TRADING PRIVATE LIMITED 570000 8. UNICOME TRADING ENTERPRISES PVT. LTD. 1299600 TOTAL: 7858400 KUDRAT INVESTMENT AND LEASING (INDIA) PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of ₹ 10 each 1. AMUR TRADING PRIVATE LIMITED 66200 2. JOGIYA TRADERS PRIVATE LIMITED 85000 3. LAZOR DETER .....

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TD. 6575 2. AMUR TRADING PRIVATE LIMITED 6574 3. CAPABLE COMMERCIALS PRIVATE LIMITED 6574 4. KUDRAT INVESTMENT AND LEASING (INDIA) P.LTD. 2378 5. MADHUBAN MERCHNDISE PVT. LIMITED 5926 6. TRESTA TRADING PRIVATE LIMITED 6574 7. SMT. K.D. AMBANI JTLY SHRI M.D. AMBANI 3900 TOTAL: 38500 SHIKHAR TEXTURISING PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of ₹ 10 each 1. AMUR TRADING PRIVATE LIMITED 444150 2. DAINTY INVESTMENTS & LEASINGS P. LTD. 253 .....

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AUMYA FINANCE AND LEASING CO.(P.) LTD. 440000 6. TRESTA TRADING PRIVATE LIMITED 814560 TOTAL: 6088000 PRATIKSHA FINANCE AND LEASING COMPANY PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of ₹ 10 each 1. AMUR TRADING PRIVATE LIMITED 321360 2. DAINTY INVESTMENTS & LEASINGS P. LTD. 1160900 3. KUDRAT INVESTMENT AND LEASING (INDIA) P.LTD. 1560000 4. LAZOR DETERGENTS PRIVATE LIMITED 1160900 5. MADHUBAN MERCHNDISE PVT. LIMITED 745940 6. TRESTA TRADI .....

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IVATE LIMITED 855380 9. UNICOM TRADING ENTERPRISES PRIVATE LIMITED 1377500 TOTAL: 10089000 RASHI TRADING COMPANY PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of ₹ 10 each 1. AMUR TRADING PRIVATE LIMITED 1097450 2. CAPABLE COMMERCIALS PRIVATE LIMITED 630000 3. DAINTY INVESTMENTS & LEASINGS P. LTD. 600000 4. LAZOR DETERGENTS PRIVATE LIMITED 1348050 5. MADHUBAN MERCHNDISE PVT. LIMITED 748050 6. SAUMYA FINACE& LEASING CO. P. LIMITED 1151000 .....

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56460 TOTAL: 33841700 AAKROSH INVESTMENTS AND LEASING PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of ₹ 10 each 1. AMUR TRADING PRIVATE LIMITED 985150 2. DAINTY INVESTMENTS & LEASINGS P. LTD 985150 3. LAZOR DETERGENTS PRIVATE LIMITED 985150 4. MADHUBAN MERCHNDISE PVT. LIMITED 915000 5. PURURAVA TRADERS PRIVATE LIMITED 329400 6. TRESTA TRADING PRIVATE LIMITED 985150 TOTAL: 5185000 ANUCHIT TRADERS PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/ .....

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ING PRIVATE LIMITED 5165486 2. KUDRAT INVESTMENT & LEASING (INDIA) P. LTD 5890000 3. LAZOR DETERGENTS PRIVATE LIMITED 6282144 4. MADHUBAN MERCHNDISE PVT. LIMITED 6282144 5. SAUMYA FINANCE & LEASING CO. PVT.LTD. 6282144 6. TRESTA TRADING PRIVATE LIMITED 3162000 TOTAL: 33063918 RHINO BAGS PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of ₹ 10 each 1. AMUR TRADING PRIVATE LIMITED 12000 2. ANUCHIT TRADERS PVT. LTD. 18000 3. LAZOR DETERGENTS P .....

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66144 6. SAUMYA FINANCE & LEASING CO. PVT.LTD. 301392 7. SWARAG TRADERS PRIVATE LIMITED 96720 8. TRESTA TRADING PRIVATE LIMITED 367536 TOTAL: 1934400 SWARAG TRADERS PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of ₹ 10 each 1. AMUR TRADING PRIVATE LIMITED 500000 2. ANUCHIT TRADERS PRIVATE LIMITED 1140000 3. CAPABLE COMMERCIALS PRIVATE LIMITED 1040000 4. LAZOR DETERGENTS PRIVATE LIMITED 1580000 5. MADHUBAN MERCHNDISE PVT. LIMITED 1656800 6. .....

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. 720000 7. TRESTA TRADING PRIVATE LIMITED 1065216 TOTAL: 5606400 2.2. On going through the share holding patter, it is evident that all the above donor companies have share holding in each other. Apart from these companies Amur trading Pvt. Ltd. Maduban Merchandise Pvt. Ltd. Tresta Trading Pvt. Ltd. and Ornate Traders Pvt. Ltd. there are another companies viz Lazor Detergents Pvt. Ltd. Rashi trading company Pvt. Ltd. Rhino Bags Pvt. Ltd., Saumya finace & leasing Co. Pvt. Ltd., etc, which ha .....

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analyze thoroughly the share holding of all the above mentioned, companies, then it is observed that the cross holding are such that ultimately the control is being exercised by Smt. K D. Ambani joinitly with Shri M. D. Ambani. Apart from them, all the share holders are corporate entities and if the cross-holding pattern is closely analysed then it is evident that in all these group companies the effective control is being exercised by Smt. K D. Ambani jointly with Shri M D. Ambani. 3. The thir .....

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ceedings, the assessee has conveyed any clear and distinct motive w.r.t transaction under reference. The exact nature and motive, best known to the assessee, has never been disclosed to this office. Apparently the motive behind this transaction is to transfer money from one Group Company to another without paying income tax. In fact, the motive behind the above transaction in the guise of gift transaction is nothing but to evade tax as it does not fall within the four corners of definition of gi .....

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f Income tax, 3(2) Mumbai' 4. The remand report was forwarded by the CIT(A) to the assessee and assessee filed rejoinder dated 18/10/12, which is as follows: "Rejoinder of the Appellant to the Remand Report 1. We refer to the copy of the remand Report dated 01.10.2012 of Deputy Commissioner of Income Tax-3(2) (hereinafter referred to as the A.O.) in the case of Appellant for A.Y.2009-10 provided to us by your honour for our comment. In this connection the Appellant submits that the AO i .....

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AO started his remand report by quoting the observation made by the then Finance Minister (FM.) as on 16.1-9. 1963 With respect to "Pro visions for countering tax-evasion" and "evil of tax-evasion . The Appellant submits that the opening remark of the AO is totally out of context and unwarranted. The Appellant submits that the observations of the F.M. quoted by the AO in his Remand Report are the statement of FM in Parliament with respect to unaccounted money circulating in the ec .....

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nt. The AO has not brought on record any material to suggest that Appellants case falls within the categories enumerated by the FM in his speech. It may be emphasised that the transaction under reference is tax neutral and by no stretch of imagination the same can be considered as tax evasion. The amount received by the Appellant without consideration was even otherwise not subject to tax in the hands of the donor companies as the same was the dividend exempt u/s. 10(34) of the Act. The donor co .....

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ssessing Officer In his remand report. The transaction is tax neutral and has no revenue effect. 3. Now coming to the observation of AO in the remand report, the Appellant submits that the main points of arguments of the A 0 can he summarized as under: 1) Gift can only he made and received by a Living person (i.e. human being.) and not by the Companies being artificial person. 2) There has to be natural love and affection between the person giving and receiving gift. 3) Receipt of money without .....

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d by the A0. In this connection the Appellant submits as under. 1) Gift can only be made and received by a living person (i.e. human being ) and not by the companies being artificial person: The AO in para 1.8, 1.9 to 1.16 and 1.27 of the Remand Report has observed that the gift can only be made and received by a living person (i.e human being) and not by the companies which is an artificial person. In this regard the AO relied upon the - definition of Gift provided under section 122 of the Tran .....

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erty Act clearly states that "living person" includes a company. The Appellant submits that the AO conveniently- ignored the provisions of the Transfer of Property Act to draw a premeditated conclusion against the Appellant. The Appellant therefore submits that these observation of the AO are grossly wrong and shall he quashed. 2.There has to be natural love and affection between the person giving and receiving gift The AO at para 1.11and 1.14 of the remand report repeated the same arg .....

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tten submission (refer page 24) that the legislature has appended Explanation I to section 25 of the Contract Act which reads as under: "Explanation I. - Nothing in this section shall affect the validity, as between the donor and donee, of any gift actually made." The Appellant therefore submits that Explanation I clearly provides that section 25 of the Contract Act is not applicable to the gifts made by the donor to the donee. The Appellant therefore submits that the arguments of the .....

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e AO. The Appellant at the outset submits that the Income MX Act - 1961 is an act passed by the parliament to ley tax on 'income' of an assessee. Thus what is subjected to tax under the Act is only the income of the assessee and not each and every receipt of an assessee. The Appellant submits that receipts which are capital in nature or does not fulfill criteria of an income, cannot be subjected to tax unless specifically provided under the Act like section 45, section 56(v) etc of the A .....

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ee and hence receipts of capital nature, unless specifically charged under the Act, are outside the ambit of the Income Tax Act. In this connection the Appellant strongly rely upon para 3 of its written submission (refer pages 5 to 15) wherein the issue has been discussed in detail. The Appellant therefore submits that the above observations of the AO is contrary to the provisions of the Act and intention of the legislature and shall be quashed. 4) Section_56(1) being residual taxing provision a .....

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bove finding/observations of the A 0. The Appellant submits that although section 56 is a residuary taxing provision, but what is chargeable u/s 56 is only a receipt in the nature of an 'income Any receipt which is not in the nature of income cannot be subjected to tax under section se(z) or section 5662, if not specifically provided therein. The Appellant submits that section 560) of the Act is made applicable only to the 'income of every kind" and not to each and every receipt. Th .....

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ied upon by the AO, the receipts by the assessee were undoubtly in the nature of an income and the questions before the courts was taxability of such income under particular head. On the Facts of those cases, the courts have held in these cases that these income which do not 12iil under specific head of income under section 14 item A to E, are chargeable to tax under the residuary provision i.e. u/s 56(1). However in the case of the Appellant the gift received by the Appellant is not in the natu .....

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any how the same can not be taxed under section 56', then it would be taxed under the provisions of section 68. The Appellant at the outset objects to the above statement of the AO. The Appellant submits that section 68 of the Act reads as under: "68. Where any sum is found credited in the books of an assessee maintained for anyprevious year, and the assessee offers no explanation about the Nature and source thereof or the explanation offered by him is not, in the opinion of the Assessi .....

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of the Appellant it has been clearly explained to the AO that the gifts were received from various corporate bodies and the same have been duly disclosed in the books of the Appellant. All the corporate bodies have confirmed to the making of gift and same have duly reflected in their books and audited accounts. The Appellant submits that the transactions and source has duly been explained to the AO. Even the AO neither in the assessment order nor in remand proceeding has doubted the nature or so .....

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failed to bring any material on record so as to prove that the gift received is an income which could be chargeable to tax under the Act. The Appellant therefore respectfully submits that, under such circumstances the AO is now making a half hearted attempt some way or the other to bring the transaction to the tax net even though it is not chargeable to tax under the Act. The Appellant therefore submits that this attempt of the AO shall be discouraged which was even not the ground of the AO at .....

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judgment in the case of Smt. Kusum Lata Thakral Vs. CIT [185 Taxman 2371 and Jaspal Singh Vs. CIT [158 Taxman 3061 to draw a conclusion against the Appellant With respect to the above Judicial pronouncements referred by the AO in his remand report. the Appellant respectfully submits that the above cases are distinguishable on facts and in law. The Appellant submits that in the above cases the creditworthiness of the donors were In doubt and the donor have specifically denied of having given gif .....

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The AO further tried to distinguish various case laws relied upon by the Appellant in its written submission on flimsy grounds. The Appellant submits that the case laws relied upon by the Appellant in its written submissions, lays down the principle on the concept of "income" i.e. what can be termed as income chargeable under the Income Tax Act-1961and vice versa. The Appellant submits that the ratio laid down in all the case laws relied upon by the Appellant in its written submission .....

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ppellant submits that the judgment in the Groz- beckert Saboo Ltd (supra) although is a old judgment but explains the concepts of 'income" The judgment is valid from decades and till date it is held to be a good law and never been distinguished or reversed by the Hon'ble Court. The AO further stated at pare 1.26(1) that "the two cases are not comparable on account of revenue impact involved in them also." The Appellant strongly objects to the above observations of the AC). .....

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o. The Appellant therefore submits that since the revenue involved in both the cases are not comparable cannot he a distinguishable 1ctor for application of the principal laid down by the Apex Court. 5. The AO further at pare 1.21 has observed that, 'Probably this is the reason/logic, why while framing the above provision, the Legislature have only talked about individual and HUF, which is a possibility as the Legislature never thought that there can be any transaction between two companies, .....

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the competence of the legislature. The Appellant respectfully submits that the legislature has made suitable legislations as and when required to give effect to its objective. The Appellant submits that gift by one corporate body to another is not an unknown transaction to the legislature or public at large. The Appellant submits that in the past the legislature has enacted the Gift Tax Act - 1958 ('although repealed since 1998) wherein it has recognized the Company i.e. a body corporate as .....

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to bring the gifts by one corporate body to another corporate body within the ambit of Income Tax Act, it would have certainly provided for the same in the statue itself The Appellant therefore submits that the above observations of the A 0 in remand report is solely based on assumptions, conjectures and surmises and has no hearing in deciding the case. As regards details of shareholding pointed out by the AO at Pare 2, it is respectfully submitted that none of the shareholders of the companies .....

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only one of the shareholder of shareholders of company giving gift can control all the companies. In any view of the matter this aspect of the AO's observation is not relevant to decide the issue in appeal as the taxability of the gift does not depend upon the shareholding pattern of a company. The facts of the case are summarised as under: 1. The Appellant and all four donors are Private Limited Company. 2. Reference of "during the lifetime of the donor" in Section 122 of the Tra .....

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Explanation 1 to Section 25 of the Indian Contract Act, 1872. c)Company was assessee under Gift Tax Act, (now repealed) d). Hon'ble Supreme Court approves the ratio and accounting treatment when Company receives gift in CIT Vs. Groz - beckert Saboo Ltd 1116 ITR 1251 4. The Appellant has received money without consideration and money being movable property the transfer is completed by delivery. 5. Only three essential elements determines whether or not gift has been made viz, a) delivery, b) .....

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ess of the donor companies are duly explained. 7. Amount received by the Appellant without consideration is a Capital Receipt and rightly credited to Capital Reserve Account and accordingly is not in the nature of income. 8. Section 56 is not applicable to the money received by a company without consideration. In view of our submissions and various judicial pronouncements relied upon, the Appellant submits that the gift of ₹ 161,86,77,0371- received by the Appellant from corporate bodies a .....

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the judgment of Hon'bie Karnataka High Court in the case of CIT vs. Nadatur Tour Holdings & Investment Pvt. Ltd., in support of its claim. All the affidavits and the Judgments were forwarded by CIT(A) to the A.O. vide letter dated 6/12/12 for report as follows; "Sub : Appeal in the case of KD.A. Enterprises Pvt. Ltd. - A. Y 2009-10 I.T-27/DC.3(2)/2011-12 The assessee has filed five affidavits, from a Director of KDA Enterprises Pvt. Ltd., and from directors of four other companies .....

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led by the assessee and the decisions of Hon ble Karnataka High Court and Hon'ble ITAT, Mumbai, relied by the assessee. 3. The above report may be filed on or before 14'12/12 le. the next date of hearing. Sd/- ( NARENDER SINGH ) Commissioner of Income-tax (Appeals)-4, Mumbai. Copy to: The Addl.CIT, Rg.3(2), Mumhai. Sd/- C.I.T.(A) -4,Mumbai." 5. In reply to the above letter of CIT(A) dated 6/12/12, the A.O. forwarded his comments vide letter dated 3/1/03, which are reproduced below: .....

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roceedings, which has been duly analyzed during the respective proceedings. The only difference between the details submitted before the assessing officer and (CIT (A) is that before assessing officer they have been submitted in letter format While before CIT(A), it has been filed in affidavit format in a stamp paper. 2. Now, as far as the issue w.r.t judicial pronouncement of Hon ble ITAT, Mumbai, in the case of D.P. World Pvt. Ltd. vs. DCIT and Karnataka High Court in the case of CIT vs. nadat .....

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(which is the owner of three residential flats at Hill Park) were gifted (by the shareholder) to ultimate holding company, so that case decided by the 1T47', no income accrue or arise because it is an internal matter between subsidiary and holding company. So in the cited case, whether it is gift or any other transfer, it hardly matter. There the Hon'ble Tribunal analyzed the facts that existed in the U K. and have approved action of Assessee on negative criteria that the department has .....

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circumscribed within the short perimeter of decision of GTA and section 476ii) of IT Act. In all fairness, a restricted interpretation should not cloud the present distinguishable case staring proper and equitable analysis. To be more exact in the disputed case before C'IT(A), the companies who were supposedly donor and donee are altogether two different and distinct corporate entities, where in the case of donor company a receipt of dividend exempted in its hand which may not be exempted s .....

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here is nothing of such sort." Thus the ratio of above judicial; pronouncement can't he applied in the case of assessee under reference. 3. Here it is to he noted when the gift has not been defined in any statue, the normal connotation used in the common life has to be taken. It is beyond comprehension that for any transaction to be of gift" in nature, the basic and foremost condition is that of 'natural love & affection" is absent. In the absence of this particular em .....

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gift" receipt. 4. In view of the above analysis, the decisions relied upon by the assessee company are rejected in to-to as the facts and circumstances of said cases is altogether different from that of the assessee under reference. Similarly affidavit filed by the assessee also contains nothing new, therefore, have not been commented. Yours faithfully Sd/- [ARVINN KUMAR) Deputy Commissioner of Income-tax 3(2), Mumbai. " 6. The comments of the A.O. were forwarded to the assessee and as .....

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ai ITAT, Di Bench in the case of DP World Private Limited and 2..Decision of Karnataka High Court in the case of Nad,9tur Holdings & Investments Private Limited. While differentiating the case laws relied upon by the Appellant, as regards decision of Mumbai ITA T, D' Bench in the case of DP World Private Limited he observed as under: 1. In the case of DP World Pvt. Ltd. vs. DCIT, the shares of company (which is the owner of three residential flats at Hill Park) were gifted (by the shareh .....

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nting three residential flats at Hill Park from M/s. British India Steam Navigation Co. (BISNCL) 2. Both assessee and Mts. .BISNCL are 100% subsidy of Peninsular & Oriental Steam Navigation Co., UK. 3. Peninsular & Oriental Steam Navigation Co., UK. is 100% subsidy of DP World Ltd., a Dubai. 4. In the light of the above fact, the /10 asked the assessee to explain why the receipt of the flats at Hill park should not be treated as income in its hand u/s. 56(1) of the Act. 5. The assessee f .....

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39;Income from other sources' u/s 56(7) of the Act. In view of the above facts, with due respect, it is submitted that the AO has proceeded on the basis of incorrect facts as the transaction in the instant case was not between ha/ding and subsidiary company but it was between two fellow subsidiary companies. The AO further proceeded to narrate that the decision is circumscribed within the short perimeter of decision of Gift Tax Act and Section 47(iii) of the IT Act. It is respectfully submit .....

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, con yen len tly ignored following observations of Hon'ble ITAA at Para 13 which is summarised as under: "There is no requirement in the Transfer of Property Act that a 'gift' can be made only between natural persons out of natural love and affection which means that as long as a donor company is permitted by its Memorandum /Articles of Association to make a 'gift it can do so. " Para 16 which is summarised as under: 'the definition given u/s 122 of the TPA has to .....

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given exemption in the hands of Appellant. It is respectful submitted that Dividend is source of fund out of which the gift is given as far as the companies giving gift is concerned. However, the Appellant has never claimed that the receipt is exempt as the same is dividend. The claim of the Appellant is that it has received gift and the same is capital receipt and is not subject to tax. Thus the claim of Appellant is- ' 1. It has received a gift (and not dividend) It is capital receipt (and .....

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nble High Court and facts of Nadatur Holdings & Investments Private Limited are as under: 1. Two Directors of the Nada cur Holdings & Investments Private Limited, i.e. NS.Raghavan and his wife Jamna Raghavan gifted 25000 shares of Infosys Technologies Limited. 2. The Assessee treated those shares as investment and on sale, computed income from Capital Gain. 3.The Assessing Officer by his order dated 24-2-2003 has assessed the same as income from profit and gain of business. 4. While doin .....

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gift is in accordance with law and there is no bar for the Directors gifting their holdings in favour of the Company. 2. The finding of the Assessing Authority that the gift is not genuine is totally contrary to law. After noting the observation of CIT(A), it held that: There is no bar for gifting the equity shares to its company As per the definition of gift, the gift means transfer by one person to another of existing moveable or immoveable property made voluntarily and without consideration .....

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lant in its books of account,' hence being a capital receipt the same is not taxable under the provisions of the Income Tax Act. Further the gift received has correctly been credited to capital reserve account and the same cannot be added to book profit u/s 115JB of the Act in absence of any such adjustment specifically provided in the section." 7. After considering assessment orders, remand reports and the rejoinders filed by assessee, the CIT(A) deleted the addition made on account of .....

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the transaction 5.1 The identity of all the four concerns who have made gifts to the assessee is given along with their name, PAN, address and other detail and, therefore, the identity of these concerns is proved. Even the A.O. has not disputed the identity of any of these concerns. With regard to source or capacity also there is no dispute, because assessee has received these gifts, directly on account of the dividends of donor companies from Reliance Industries Ltd., as per the directions of .....

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nt and it is further held that the assessee has ulterior motives, whereas, the exact nature or motive behind the transactions are not ascertainable with the limited time and resources available to the A.O. The A.O. has also claimed that the companies are not capable of giving gifts, because there is no love and affection which is required for gift transactions. It is also claimed that the gifts are not evidenced by deeds and they have not been accepted. These issues are discussed as follows: 5.3 .....

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eas, it has been properly accounted for and necessary taxes paid, therefore, there is no case of introducing unaccounted money in the books of account of the assessee-company. Even otherwise, more doubt or suspicion cannot be the basis for making any addition or rejecting the claim of the assessee. Doubt and suspicion may lead to inquiry or investigation and, therefore, A.O. should have brought out facts or evidences contrary to the claim of the assessee on record, either during assessment proce .....

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, assumptions, surmises, doubts or misconceptions, as has also been held by Hon'ble judicial authorities in many cases, out of which few are as follows:- (i)Omar Salay Mohamed Sait. vs. CIT - 37 ITR 151 (SC). (ii) Bhogilal H. Patel vs. CIT - 74 ITR 692 (Born). (iii) German Remedies Ltd. vs. DCIT- 285 ITR 26 (Born). (iv) Lalchand Bhagat Ambica Ram vs. CIT 37 ITR 288 (SC). (v) Dhakeshwari Cotton Mills Ltd. vs. CIT- 26 1TR 775 (SC). (vi) Gordhandas Hargovandas & Anr. vs. CIT - 126 ITR 560 ( .....

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motive behind the transaction because of limited time and resources available, whereas, the case was remanded to the A.O. and an opportunity was again given with the specific direction to find out the nature and motive behind these transactions or gifts, whereas, A.O. could not find out any other motive behind such transactions and. merely claimed in the remand report that assessee has not furnished any clear and distinctive motive with regard to these transactions and the exact nature and moti .....

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ransfer of money from one company to another without payment of tax, but in case of gifts the asset is naturally transferred from donor to donee and taxes will be levied as applicable and therefore, there is nothing wrong or unusual in the gift transactions of the assessee. Therefore, in view of the facts and circumstances of the case it cannot be said that there is any other motive behind these transactions other than gifts. 5.5 The A.O. has held that these transactions cannot be treated as gif .....

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ying the gifts. Assessee has also filed its affidavit for certifying the receipt of gifts. Receipt of gift as well as making of gift are authorized by respective Memorandum and Articles of Association of the companies and the assessee. Gifts have been accepted by the assessee by adopting a resolution by the Board of Directors. Therefore, it cannot be said that these amounts are not gifts merely on the basis that there are no gift deeds or acceptance. 5.6 Coming to the two issues, whether compani .....

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wn order as CIT(A). The issues involved in this case were similar to the issue involved in the case of the assessee under consideration. In brief the facts of D.P. World's case are that one company gifted three flats by way of gifting shares of the concerned housing society to another company and both the companies were subsidiary of a third company, whereas, there was no business transaction between the donor and donee companies. The A.O. rejected the claim of gift and assessed the value of .....

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income from other sources, nor under the head business income u/s. 28(iv) and held that the receipt is a capita]. receipt not taxable. Besides relying on the judgment of Hon'hle ITAT in the case of D.P. World Pvt. Ltd., because the facts of the cases are similar, the ossessee has further claimed that the decision is binding on the CIT(A)4, Mumbai, because it pertain to the same charge of CIT(A)-4, Mumbai. Therefore, the relevant portion of the Hon'hle ITAT on the issue of requirement of .....

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ions which are not treated as transfers for the purposes of Sec. 45 of the Act. Sec. 47(11.) of the Act relates to transJi of a capital asset under a gift, will or an irrevocable trust. The following issues arise in the application of Sec. 4761i.) of the Act in a corporate reorganization involving transfer of shares of an Indian Company without consideration (a) Since the term "Gift" is not defined in the Act, which Jneanin4' should be ascribed to it and (b) Can a company being a c .....

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worth and includes the transfer or con version of any property referred to in section 4 deemed to be a gift under that section. Transfer of property for inadequate consideration was Inter alia treated as deemed as gill. This is similar to section 56((vii.)(vjia) or-the I. T Act which under certain circumstances, treat the difference between the fair market value of the movable property (including shares of closely held company) and the consideration for the transfer as in come from other source .....

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hall affect any law for the time being in force relating to transfer to property to or by companies, associations or bodies of individuals. 12. Section 122 of the TPA dealing with gift, defines the same as transfer of certain existing movable or immovable property, made voluntarily and without consideration, by one person, called the donor to another called the donee and accepted by Cr on behalf of the donee. 13. A perusal of the aforesaid provisions of the TPA indicate that there do not seem to .....

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transferable in the manner provided by its Articles of Association. 14. Now the question arises whether the meaning of gift' as per Gift Tax Act could be imported for the purpose of Sec. 4761i) of the Act. In the case of CIT Vs Sliyam NarainMehrotra (1981) 122 ITR 313 (Cal), the High Court inter alia observed that the expressions similar to Sec. 47(i11) of the Act was present in the erstwhile Sec. 12B of the Indian Income Tax Act, 1922 i.e. even before the GTA came into force. This observat .....

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16. Considering the above discussion, the definition given u/s 122 of the TPA has to he accepted, meaning thereby that meaning of gift reflect non- element of love and affection. Therefore, gift of shares of an Indian Company by a foreign company without consideration has to be treated as gift within the meaning of Sec. 476U) of the Act. 17. It would not be out of place to mention that a combined reading of Sec. 82 of the Companies Act, Section 5 and Section 122 of the TPA suggest that a company .....

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" In view of the above discussion and decision of Hon'ble ITAT it is clear that the companies are competent to make and receive gifts and natural love and affection are not the necessary requirements. The only requirement for a gift by a corporate entity to another corporate entity is that they are authorized to do so by their Memorandum and Articles of Association. As mentioned earlier the assessee and the donor companies are authorized in this regard for receiving and making gifts res .....

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giving or receiving gifts. (ii) M/s. SET]ndia Private Limited 3 ITR 454 (Mum) (Trib): In the said case, the SET (supra) had received gift from its parents company, the said gift has been held to he non -taxable as it was in the nature of capital receipt. (iii) Essar Technologies [ITA No 1 79,Mum/20051. The Hon 'Mc Mumbai ITA T has not challenged the validity of one corporate gifting to another. (iv)CIT Vs Ste warts & lloyds of India Ltd. 165 ITR 416 ('Gal): The Hon 'bin High Cou .....

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) and 56(2)(viib), gift of certain kind f shares received by a company in which the public are not substantially interested are taxable and, therefore, it is clear that the Income-tax Act, itself provides that companies can receive gifts, of course, gifts of only shares of certain kind received by certain category of companies are taxable. (The provisions of section 56(2)(viia) and (viib) are applicable w.e.f. 1/6/10 and 1/4/13 respectively). Similarly section 80G allows deduction to companies a .....

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by companies. Even the present Income-tax Act by way of Section 56(2)(viia) and 56(2)(viih) provides that gifts of certain in of shares are taxable in the hands of certain category of companies. The donations and charities are made and allowed to all type of companies Even deduction u/s 80G of income tax Act is allowed on account of donation to companies These charities and donations, which are allowed to companies, are nothing but gifts. Even the Companies Act allows companies with charitable .....

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the Board Meeting have been passed by all the four companies for making the gift to the assessee and assessee, has also accepted the said gifts by way of adopting a resolution in the meeting of Board of Directors. Therefore, the element of gifts i.e. delivery, donative intent-4 and acceptance by the donee are present in the transactions of gifts received by the assessee. Therefore, in view of the above discussion, submission of the assessee, case laws and in particular the decision of Hon'b .....

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, but it has already been held that these are valid gifts. But it is still relevant to discuss the nature of the gifts. The Rifts received by the assessee are admittedly not arising during the course of business or profession of the assessee. They are not out of any compulsion on the donors. They are not on account of compensation for any source of income or any other transaction. There is no other element of income in the receipts by the assessee from the said four companies. In the case of D.P .....

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f CIT vs. Groz-Beckert Saboo Ltd. 116 'TR 125 (SC). Therefore, the receipts of these gifts by the assessee are capital receipts. This view is also supported by the following case laws as claimed by the assessee:- 1) 11H. Maharani Shri Vijay kuverba Saheb of Morvi & Anr Vs. CIT [49 ITR 594](Bornbay): 2).CIT Vs. Pran Jiban Jaitha [52 ITR 108] (Calcutta): 3)Lachit Films vs. CIT [195 ITR 402] (Gauhati): 4) Padmaraje R. Kadambande Vs. CIT 195 ITR 877]'Supreme Court): 5) CIT Vs. Ramdeo Sam .....

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d u/s. 2(22)(e) of I.T. Act or as unexplained cash credit u/s. 68 of the I.T. Act or under any other provisions of the I.T. Act, for which discussion is made as follows: 6.1 (a.) - Taxation u/s. 56 of I.T. Act as gift or as income from other sources: The issue may be considered for taxation u/s. 56 of I.T. Act with reference to 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 "inco .....

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ead "income from other sources" because it was found not taxable under any other head of income, therefore, assessed under the residuary head of income, "income from other sources." 6.2 Taxability of gift u/s. 56 of I.T. Act: Corning to the first aspect of taxability of the gifts, after the Gift Tax Act, 1958, is repealed in 1998, there was no tax on gifts either on the donor or on the donee in any form under the Income Tax Act or any other Act. it is only with the amendment .....

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e taxable and any other gift received by any company through any other mode, i.e. cash, cheque, listed shares or other kind of properties, other than the said certain category of shares is not taxable till date, under any provisions of the Income Tax Act. Even the legislative history shows that gifts received by companies other than certain kind of shares by certain category of companies mentioned under section 56(2)(viia) and (viib) are not taxable under Income-tax Act or any other Act. During .....

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ted its intention that the gifts will be no more taxable under the Gift Tax Act, but nc corresponding change was made under the Income-tax Act and, therefore, taxability of gift remained outside the tax net for a long time until section 56(2) was amended for bringing tax on gifts received by individuals and HUFs with certain conditions with effect from 01.04.2005. Therefore, legislature again indicated its intention that certain gifts received by individuals and HUFs only will be taxed under the .....

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04.2013 respectively, but any other gift by companies or any other person other than individual and HUF still left outside the tax net. Therefore, the amount received by the assessee is not taxable as gift u/s. 56 of Income Tax Act or any other provisions of the Income Tax Act. 6.3 Taxability under the head "income from other sources" u/s. 56 of I.T.Act and (b) - u/s. 28(iy) of IT. Act: The A.O. has assessed it under the head income from other sources. A similar issue has already been .....

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ITAT has held that such gifts are neither taxable u/s. 28(iv) of Income Tax Act nor under the head income from other sources" uls. 56 of Income Tax Act. As discussed and decided above the gifts are in the nature of capital receipts and, therefore, they are not taxable as income unless such gifts are made taxable specifically by way of special provisions, as has been made in case of individual/HUF gifts and certain other gifts u/s. 56(2)(v), (vi). (vii), (viia) and (viib) of I.T. Act. Sectio .....

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duary head of income. U/s. 28(iv) also certain kind of receipts which may appear to be in the nature of gifts have been made taxable, i.e. any benefit or perquisite whether convertible into money or not and arising from business or the exercise of a profession. Therefore, such perquisite, benefit or receipt which arises from the business or from exercise of a profession can only be taxed u/s. 28(iv). In the case of the assessee, admittedly, there is no business relation or business transaction b .....

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portion of the decision is reproduced below: "19. The A 0 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 La'. C1T(A) has made the addition UJS. 2860 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.281iv1 of the Act relied upon by the CI Ti [Al .....

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id to be a case ofanv benefit or perquisite arising from business. The contention of the La'. Departmental Representative that by the said - transaction the assessee has derived benefit and such benefit has arisen from the business connection of the donor and the donee, cannot be accepted as no direct nexus has been established by any tangible materiel brought 012 record by the La'. CIT IA I. Simply because both the donor and the donee happened to belong to the same group cannot ipso fac .....

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e AO. "56. Income from other sources.-(1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head Income from other sources" if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E." A plain reading of the above provision show that not every receipt is taxable under the head 'Income from other sources but only those which can be shown as 'Income 'ca .....

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n on or after the 1st day of September, 2004, 'hut before the 1st day of April, 2006, the whole of such ―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 .....

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the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property ; (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration : Provided that where the stamp duty value of immovable property as referred to in sub- clause (b) is disputed by the assessee on grounds mentione .....

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urther strengthened the provisions of sec. 56121 by making the " fallowing amendments: viia) where a firm or a company not being a company in which the public are substantially interested, receives, in any person or persons on or after the 1st day of June, 2010, any property, being shares cia company not being a company in which the public are substantially interested, - (i) without consideration, the aggregate fair market value of wl;ich exceeds fifty thousand rupees, the whole of the aggr .....

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or the purposes of this clause, "fair market value" of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii); The above amendment covers the issues involved in the present appeal but the legislature in its wisdom made it applicable for the transactions effected after the 1st day of June,2010. Certain lacuna may have still remained to be addressed therefore the .....

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consideration for issue of shares is received-(i) by a venture capital undertaking from a venture capital company or a venture capital find or l(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 iii accordance with such method as may be prescribed ; or (ii) as may be substantiated by the company to the s .....

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n the facts of the case, in our humble opinion the transaction involved in the present appeal is nothing but a Gift and thus it is a capital receipt not taxable under the alleged provisions of the Act. Therefore, the Assessee Succeeds and Revenue fails. Issues involved in this ground are decided in favor of the assessee and against the Revenue." Therefore, in view of the above discussion and decision of Hon ble ITAT in case of D.P. World (supra), the gifts received by the assessee are capit .....

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ayment and the genuineness of the transaction. Therefore, in the case of the assessee also, it is expected from the assessee to prove all the three elements. The identity of the donors and the source/capacity are not in dispute and they have been admitted as explained, as discussed earlier in this order. The assessee has claimed these receipts as gifts and there is no other contrary fact on record, therefore, there can be no other doubt in accepting the genuineness of the transactions also. It h .....

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l the three elements. This view is also supported by the decision of Hon'ble M.P. High Court in the case of CIT vs. Metachem industries 245 ITR 160 (MP), where it was held that once the assessee explained the credit standing in the name of its partners, then it is open to the A.O. to undertake further investigation, but assessee cannot be asked further evidences. Hon'ble Gawahati High Court has held in the case of Khandelwal Constructions vs. CIT 227 ITR 900 (Gau) that before rejecting t .....

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l shareholder with 10% interest in the company or to a concern in which such substantial shareholder has substantial interest (20%) is taxable to the extent of accumulated profits u/s. 2(22)(e) of Income-tax Act. Therefore, it is necessary to examine whether the amount paid by the four companies to the assessee company can be covered u/s. 2(22)(e) of income Tax Act. It is all the more relevant because A.O. has discussed and described in detail in the remand report, shareholding pattern of the as .....

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ntitled 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 .....

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e of such concern. From the above definition and discussion. it is clear that there has to be an advance or loan given by a company to a. substantial shareholder with 10°/s interest or to a concern in which such shareholder is holding not less than 20% of the voting power/shares for taxing such loan u/s. 2(22)(e). Whereas, in the case under consideration, there is no common shareholding between the assessee and the other four companies who have made the gifts. Therefore, no addition can be c .....

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beneficial shareholders of the company from whom the payment have been received. Same is the decision of Hon'ble ITAT in the case of ACIT vs. Bhaumik Colours Pvt. Ltd. 118 lTD 15. Similar view has been confirmed by Hon'ble Bombay ITAT in the case of Universal Medicares Ltd. 190 Taxman 144, which has been confirmed by Hon'ble Bombay High Court. Similar is the decision of Hon'ble Delhi High Court in the case of CIT vs. Ankit.ech Pvt. Ltd. ITA No.462 of 2009, order dated 11/5/11. Th .....

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only, whereas, presently there does not exist any such provision under which such gift by companies can be taxed. Therefore, until any such provision is brought under the I.T. Act on the same lines as has been brought u/s. 56(2) for individuals and HUE's and in case of certain kind of shares by certain category of companies, such receipts remain outside the tax net. 6.7 In view of the decision, discussion, submissions of the assessee, case laws and facts of the case, the receipts by the ass .....

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15JB, therefore taken together. 8. The facts of the case are that A.O. has made addition of the gifts received by the assessee to the income of the assessee, while computing the income u/s. 115JB also holding that it is credit to profit and loss A/c. as an item of exceptional nature, which has been objected by the assessee and the submissions of the assessee on this issue are as follows: "7. The Appellant further submits that as the gift received from corporate bodies are in the nature of c .....

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Appellant submits that Part II of schedule VI of the Companies Act sets out requirements as to Profit & Loss Account as per which the Profit & Loss Accounts: a) Shall be so made out as clearly to disclose the result of the working of the company during the period covered by the account: and b) Shall disclose every material feature, including credits or receipts and debits or expense in respect of non - recurring transactions or transactions of an exceptional nature. The Appellant submits .....

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nt which is in accordance with Part II and Iii of Schedule VI of the companies Act - 1956. The Appellant submits that the said Balance sheet and Profit & Loss Account are audited and approved by the Statutory Auditor. The same were adopted by the shareholders in Annual general meeting and filed with the Registrar of Companies. After such approval and adoption of the Balance Sheet of income, the AO is not the authority to correct the accounts under the companies Act. In view of above the Appe .....

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that while looking into accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with respect to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by the companies Act, scrutinized and certified by the statutory auditors, approved by the shareholders and filed before the Registrar of the Companies who has statutory obligation also to examine and be satisfied that the accounts of the company are maint .....

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Hon '5k Supreme Court in the case of Apollo Tyres(supra) thus observed as under. "The above speech shows that the IT authorities were unable to bring certain companies within the net of income-tax because these companies were adjusting their accounts in such a manner as to attract no tax or very little tax. it is with a view to bring such of these companies within the tax net that s. 115J, was introduced in the IT Act with a deeming provision which makes the company liable to pay tax on .....

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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 pro visions 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 &v the company in its general meeting and thereafter to be filed before the Re .....

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ompanies Act. In our opinion, reliance placed by the Revenue on sub-s. (1A) of s. 115J of the IT Act in support of the above contention is misplaced. Sub-s. (14) of s. 115J does not empower the AO to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate, according to us, is bodily lifted from the .....

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ould be that income which is acceptable to the authorities under the Companies Act. There cannot be two incomes one for the purpose of Companies Act and another fur the purpose of income- tax both maintained under the same Act. If the legislature intended the A0 to reassess the company's income, then it would have stated in s. 115J that "income of the company as accepted by the AO. In the absence of the same and on the language of s. 1151, it will have to held that view taken by the Tri .....

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it differently, the AO does not have the jurisdiction to go behind the net profit shown in the P&L a/c except to the extent provided in the Explanation to s.115J. "Based on these observations and findings, the Supreme Court has held that the AO while computing the income under section 115J has only the power to examine whether the books of accounts are certified by the authorities under the Companies Act as having been property maintained in accordance with the Companies Act. The AO th .....

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ment is required under that section to the books profit. The Appellant submits that in the case of the Appellant gift of ₹ 161,86,77,034/- received from corporate bodies are not credited to the Profit & Loss Account and hence no adjustment is required to the book profit declared by the Appellant u/s 115JB of the Act. Similar such issue has come up before the jurisdiction Hon ble Bombay high Court in the case of CIT Vs. M/s Akshay textiles & Agencies Pvt. Ltd [304 ITR 4011 wherein t .....

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) 249 ITR 597 (Bom) was not applicable? 2. Insofar as question "C' our attention is invited to the judgment of the Supreme court in Apollo Tyres Ltd. vs. CIT (2002) 174 CTR (SC) 521 . (2002) 255 ITR 273 (SC). The question framed therein which is similar to the question "C" has been answered in favour of the assessee and against the Revenue. In the light of that the question of law as framed would not arise." The Appellant further rely upon the decision of Hon ble Bombay H .....

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; Ors in [ITA No. 6293/Mum/2006 & others] wherein the Hon'ble Tribunal has observed as under. "2'l. Where the accounts are prepared and certified by the auditors, which in -turn are approved/adopted by the shareholders of the company and are filled before the Registrar of the companies, the Assessing Officer has no powers of disturbing the profits of business as held by the hon'ble Supreme Court in Appollo Tyres Ltd. Vs. CIT (5'upra.). Only power of the Assessing Officer .....

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JB of the Act. The grounds of appeal raised by the revenue are dismissed." The A in the assessment order relied upon the decision of Honble Hyderabad ITA T Special Bench in the case of Rain Commodities Ltd. Vs. DCIT[40 SOT 265] to drawn conclusion against the Appellant. The Appellant submits that the facts in the case of the Rain commodities Ltd. (supra) are exactly opposite to the facts of the case of the Appellant. In fact the decision in the case of Rain commodities Ltd (supra) supports .....

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in arising to it on account of transfer of assets to its 100 percent subsidiary company which was exempt u/s 4760. The AO thus in the case of Rain commodities Ltd (supra) proceeded to computing the book profit u/s 115JB by taking the profit shown by the assessee, as per Profit & Loss Account prepared in accordance with Part II and III of Schedule VI to the Companies Act - 1956. The Honble Tribunal on these facts held that no adjustment to book profit can be made except otherwise than that is .....

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uted u/s.115JB of the Act. The Appellant therefore submits that the facts in the case of the Appellant and that in the case of Rain Commodities Ltd (supra) are exactly opposite to each other. However in any view of the matter, the Appellant submits that the Hon ble Special Bench in the case of Rain Commodities Ltd (supra) has observed as under: 24. It is undisputed fact 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 .....

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. (3C) of s. 211 of the Companies Act, and further reported that the balance sheet and P&L a/c read together with the notes thereon, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted. As per audited P&L a/c, the assessee has included long-term capital gain. In the Notes on accounts, it is nowhere mentioned and claimed that though the long-term capital gain is inc .....

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s exempt under s. 4760 of the Act. It is due to fact that the assessee claimed deduction of long-term capital gain from book profit by virtue of being exempted income in the normal provisions of the Act and not because of the reason that the same was not includible in P&L a/c prepared under Part II and Part III of Sch. VI to the Companies Act. In the circumstances, when the assessee s themselves have included the capital gains arising from sale of subsidiary in the profit and loss the same c .....

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and laid before the company at its annual general meeting. Therefore whatever accounting policy adopted for the purpose of preparing the P&L a/c laid before the company should be adopted for computing book profits under s. 115JB. Capital gains on sale of shares were included in computing the profits presented before the shareholders and the same should also be included in computing book profits under s.115JB."(Emphasis Supplied) The Appellant submits that as can be observed from above, .....

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ift received by the Appellant of ₹ 161,86,77,034/- is a capital receipt and has correctly been credited to capital reserve by the Appellant in its books of account; hence being a capital receipt the same is not taxable under the provisions of the Income Tax Act, Further the gift received has correctly been credited to capital reserve account and the same cannot be added to book profit u/s.115JB of the Act in absence of any such adjustment specifically provided in the section." I have .....

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n this order, whereas, there is no requirement of Schedule VI to credit to profit and loss A/c. any capital receipt and, therefore, assessee has rightly taken them directly to the Balance-Sheet. Section 115JB does not prescribe any such item to be added to book-profit while computing the income u/s. 115JB, the items mentioned from (a) to (i) in explanation 1 to subsection 2 of section 115JB do not include any such item by which the book-profit is to be increased. Therefore, it cannot be added to .....

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appeal is general in nature and requires no separate adjudication. Hence, it is treated as dismissed. 14. Ground No.12: This ground of appeal is general in nature and requires no separate adjudication. Hence, it is treated as dismissed. 15. Ground No.13; This ground of appeal is general in nature and require no separate adjudication. Hence, it is treated as dismissed. 16. In the result, the appeal is partly allowed." 8. Against the above order of CIT(A) , the Revenue is in appeal before us .....

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is not taxable unless it falls under sec. 56(2); this was held so on a combined reading of Sec 82 of the Companies Act, Sec 5 and Sec 122 of the TPA. 10. As per ld. CIT DR this case however did not discuss computation of book profit u/s 115 JB . Further , this case only involved transfer of shares (which was held as per sec 82 of Company's Act 1956 to constitute movable property transferable in the manner provided by its Articles of Association), whereas in the instant case, the Assessee Com .....

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"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 or otherwise expedient and also to renumerate any person or introducing or assessing in any manner the business of the company subject to the applicable provisions of Companies Act 1956". 11. Ld. CIT (DR) vehemently argued that this receipt is not as per the Memorandum of Asso .....

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f ―any transfer of a capital asset under a gift, or will or an irrecoverable trust. Execution of a will involves a human agency. A gift by a corporation to a corporation (though a subsidiary or an associate enterprise, which is always claimed to be independent for tax purpose) is a strange transaction. To postulate that a corporation can give away its assets free to another even orally can only be aiding dubious attempts at avoidance of tax payable under the Act. 13. As per ld. CITDR, the .....

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der the head "income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E." Therefore, income which is not exempt i.e. not to be excluded from total income shall be chargeable under the Head income from other sources. Sec 56(2) reads as follows: "In particular ,and without prejudice to the generality of the provisions of sub-section(l) , the following incomes, shall be chargeable to income-tax under the head & .....

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uot; in an exhaustive manner. It is only illustrative. Further ,the onus of showing that a particular class of income is exempt from taxation lies on the assessee, which clearly has not been discharged in the instant case. 15. With reference assessee s reliance on the decision of the SC in the case of M/s Apollo Tyres, it was submitted by ld. DR that the SC held that while computing income under section 115J, Assessing Officer has been power of examining whether books of account are certified by .....

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her reliance was placed on the decision of the Special Bench, ITAT Hyderabad in Rain Commodities Ltd ( 20104 ITR (T) 551 Hyderabad SB) wherein it was held that AO, while computing book profit of a company u/s 115JB , has only power of examining whether books of account are certified by authorities under Companies Act, 1956, as having been properly maintained in accordance with Companies Act and the Assessing Officer can rewrite the P & L Account if it is discovered that P & L Account is .....

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ct whether any income is taxable or not under the normal provisions of the IT Act has to be added to the Book Profit as an extraordinary item as per accounting standard 5 II 8. Extraordinary items should be disclosed in the statement of profit and loss as a part of net profit or loss for the period. The nature and the amount of such extraordinary items should be separately disclosed in the statement of profit and loss in a manner that its impact on current profit or loss can be perceived". .....

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and requirements of Parts II and III of Schedule VI of Companies Act, 1956 it was to be credited to profit and loss account. 18. In view of above contentions, ld. DR submitted that the P & L Account shall be rewritten and book profit shall be increased by the exceptional item as per extant Accounting Standards; in this case the exceptional item is receipt from four companies of ₹ 161,86,77,034 and this shall be added to book profit for calculation of MAT u/s 115JB of IT Act. 19. On the .....

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ch they receive dividend income. The donor companies have given irrevocable instructions to the Reliance Industries to pay dividend directly to the assessee. It was further contended that accounts were prepared as per requirement of Companies Act, 1956, which had been audited and approved by the statutory auditor and also debited by the shareholders in the annual general meeting. As per ld. AR, no adjustment was required to be made to the book profit u/s.115JB on account of gift received by the .....

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. AR provisions of section 56(2)(v), (vi), (vii) and (viia) specifically covers the instances of gifts which are taxable under the provisions of the Act; and all other gifts received by an assessee other than those covered in above sections are not chargeable to tax being capital in nature. In this connection ld. AR relied upon the following judicial pronouncements wherein the hon ble courts have held that gift/ capital receipts without considerations are not in the nature of income and hence th .....

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reme Court in the case of CIT Vs. Groz- Beckert Saboo Ltd [116 ITR 125] wherein the Hon ble Supreme Court has an occasion to consider the gift of raw material being stock in trade received by a company and its taxability under the Act. The Hon ble Supreme Court has held that the gift of stock in trade received constituted a capital receipt in the hands of an assessee and on its conversion to stock in trade the market value as on the date of receipt of gift has to be allowed as deduction against .....

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have been received on account of the dividend of the donor companies from Reliance Industries Ltd., therefore, the Reliance Industries Ltd. have paid necessary dividend distribution tax on dividend distribution and, therefore, such money received by the Respondent is not unaccounted money, whereas, it has been properly accounted for and necessary taxes paid, therefore, there is no case of introducing unaccounted money in the books of account of the Respondent-company. Even otherwise, mere doubt .....

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of remanding the case to him. Therefore, A.O. could not refute the claim of the assessee on the basis of any contrary fact or evidence. Hence, the claim cannot be rejected merely on the basis of doubt and suspicion. The additions cannot be made or decision cannot be taken on the basis of suspicion, assumptions, surmises, doubts or misconceptions, as has also been held by Hon'ble judicial authorities in many cases, out of which few are as follows:- (i) Omar Salay Mohamed Sait vs. CIT - 37 ITR .....

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r attention was invited to the decision of Hon ble Supreme Court in the case of Parimisetti Seetharamamma vs. CIT (56 ITR 532), wherein it was held as under : "By sections 3 and 4, the Indian Income-tax Act, 1922, imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income liable to tax. In all cases in which a receipt is sought .....

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ome tax authorities are not entitled to raise an inference that the receipt is assessable to income tax on the ground that the assesse has failed to lead all the evidence in support of his contention that it is not within the taxing provision. Govindarajulu Mudaliar v. Commissioner of Income Tax [ 1958 ] 34 ITR 807 (S.C.) distinguished. Commissioner of Income Tax v. Calcutta Agency Ltd. [ 1951 ] 19 ITR 191 (S.C.) referred to. A conclusion recorded by the Tribunal by wrongly throwing the burden o .....

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the private secretary of S, and observing that she had failed to place before the income tax authorities all the evidence in support of her contention, the Appellate Tribunal held that what was given to the assesse by S was remuneration for services rendered or to be tendered : Held, (i) that the burden of proof was wrongly placed by the Tribunal on the assesse; (ii) on the facts, that the two circumstances relied on by the Tribunal did not establish that what was given by S to the assesse was .....

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companies are taxable. (The provisions of section 56(2)(viia) and (viib) are applicable w.e.f. 1/6/10 and 1/4/13 respectively). Similarly section 80G allows deduction to companies also on the donations received by the companies. Therefore, it cannot be said that the assessee could not have received such gifts from other companies. It is clear from the Gift Tax Act, 1958, now repealed that gifts were taxable in the hands of the companies also. It is also clear from the Transfer of Property Act t .....

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llowed on account of donations to companies. These charities and donations, which are allowed to companies, are nothing but gifts. Even the Companies Act allows companies with charitable purpose to be registered u/s.25 of the Companies Act and such companies are naturally allowed to accept gifts and donations. Therefore, the companies are competent to receive and make gifts. All the three requirements of a valid gift, viz. identity of the donor, capacity/source and the genuineness stands proved .....

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t in the transactions of gifts received by the assessee. 23. As per ld. AR the amount of gift was received was neither taxable under Section 56 nor u/s.28(iv) nor u/s.2(22)(e) of the I.T.Act. 24. With regard to AO s action for taxing the gifts as book profit u/s.115JB, the contention of ld. AR was that Part II of schedule VI of the Companies Act sets out requirements as to Profit & Loss Account as per which the Profit & Loss Accounts: a. Shall be so made out as clearly to disclose the re .....

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ceipt of gift from corporate bodies can be considered as receipt related to business. The gift received from corporate bodies are in the nature of capital receipt and hence rightly credited to capital reserve account which is in accordance with Part II and III of Schedule VI of the Companies Act - 1956. The Balance sheet and Profit & Loss Account of assessee are audited and approved by the Statutory Auditor. The same were adopted by the shareholders in Annual general meeting and filed with t .....

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nce was placed upon the judgment of Hon ble Supreme Court in the case of Apollo Tyres Ltd. Vs. CIT (255 ITR 273). In this case, the Supreme Court has observed that while looking into accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with respect to the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by the Companies Act, scrutinized and certified by the statutory auditors, approved by the shareh .....

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y auditors of the company as having been prepared in accordance with the requirements of Parts II and III of Sch. VI to the Companies Act" The Honible Supreme Court in the case of Apollo Tyres(supra) thus observed as under. "The above speech shows that the IT authorities were unable to bring certain companies within the net of income-tax because these companies were adjusting their accounts in such a manner as to attract no tax or very little tax. It is with a view to bring such of the .....

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s 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 .....

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he AO to re scrutinize this account and satisfy himself that these accounts have been maintained in accordance with the provisions of Companies Act. In our opinion, reliance placed by the Revenue on sub-s. (IA) of s. 115J of the IT Act in support of the above contention is misplaced. Sub-s. (IA) of s. 115J does not empower the AO to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to .....

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ates that income prepared in accordance with the Companies Act shall be deemed income for the purpose of s. 115J of the Act, then it should be that income which is acceptable to the authorities under the Companies Act. There cannot be two incomes one for the purpose of Companies Act and another for the purpose of income-tax both maintained under the same Act. If the legislature intended the AO to reassess the company's income, then it would have stated in s. 115J that "income of the com .....

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AO thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the AO does not have the jurisdiction to go behind the net profit shown in the P&L a/c except to the extent provided in the Explanation to s. 115J." 25. Reliance was also placed on the decision of decision of jurisdictional Hon'ble ITAT, Mumbai in the case of The DCIT Vs. M/s Arundhatl Traders Pvt. Ltd & Ors in [ITA No. 6293/Mum/2 .....

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its of business under the Explanation to section 115JB of the Act. The said adjustments are relatable to the profits and gains of business carried on by the assessee. Any gain arising on sale of investments, though taxable, may necessarily be not routed through Profit & Loss Account. We uphold the order of CIT(A) that no adjustments on account of gain on sale of units of mutual fund is to be made while working out the book profits under Section 115JB of the Act. The grounds of appeal raised .....

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ave also deliberated the judicial pronouncements referred by the lower authorities in their respective orders as well as cited by ld. AR and DR during the course of hearing before us with reference to the factual matrix of the instant case. From the record we found that assessee is a private limited company engaged in the business of investment. The return for the year under consideration was filed at ₹ 16.60 crores under normal provisions of Act and book profit of ₹ 48.41 crores und .....

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ed by their respective Memorandum and Articles of Associations.' The Memorandum of Associations of the assessee and all the above tour 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 compa .....

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r 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 of tile company" 29. Following is the resolution passed by the Board of Directors of donee companies : "Resolved That pursuant to the provisions of Section 206 and other applicable provisions of the Companies Act, 1956, the Company do hereby instruct and aut .....

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company vide its letter dt.19.06.2006 had given irrevocable instruction u/s 205 r.w.s. 206 of the Companies Act to Reliance Industries to pay dividend directly to the Appellant. The corresponding resolution was also passed by the Appellant at the Board Meeting held on 12.06.2008 accepting the gift. The extract of the resolution passed by the Appellant is as follow: "Resolved That the company do accept gift amounting to ₹ 44,50,38,399/- from Madhuban Merchandise Private Limited, the Tr .....

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ed by the other four companies in their respective extra ordinary general meetings. Thus, the assessee received gift of ₹ 161.86 crores from the above four companies. The gift so received was claimed as capital receipt, therefore, credited to capital reserve account in its books. 30. During the course of scrutiny assessment the AO raised query with respect to the gift received from corporate bodies. It was submitted by assessee that all the donor companies are shareholders of Reliance Indu .....

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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 of the assessee. The assessee therefore submitted that since the accounts are prepared as per the companies Act, no adjustment is required to be made to the book profit u/s115JB on account of gift received by the assessee. In this regard the assessee filed detailed submission vide its lette .....

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pt of the assessee, where the other receipts not in the nature of income are intended to tax, the legislature has specifically made provisions for taxability of such receipts in the statute itself like section 45, section 56(v), 56(vi), 56(vii) etc. Section 4 of the Act is the charging section which reads as under: "4. (1) Where any Central Act enacts that income - tax shall be charged for any assessment year at any rate or rates, income - tax at that rate or those rates shall be charges fo .....

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t of total income of an assessee. The Act defines the term ‗total income under section 2(45) which reads as under: "2(45) ―total income means the total amount of income referred to in section 5, computed in the manner laid down in this Act;"(Emphasis Supplied) Section 5 of the Act provides for scope of total income chargeable to tax in India on the basis of receipt, accrual and deemed to be received and accrued in India. In view of above the charging section of the Act spec .....

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ome in the nature of capital gains as per section 45, and gifts received as per section 56(2)(v), (vi), (vii) etc are included in the definition of income. Thus under the Income Tax Act only the receipts which are in the nature of ‗income are subjected to tax. Any other receipts which are not in the nature of ―income are not liable to tax under the provisions of the Act. 31. As per the provisions of law prevailing during the year under consideration, the gift received by one corporat .....

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. The gift received has nothing to do with the business of the assessee so as to constitute its income from business or a revenue receipt in the nature of income. 32. As per section 14 of the Act, income of an assessee is classified under the following heads of income viz ―Salaries‖, ―Income from house property‖, ―Profit and gains of business or profession‖, ―Capital gain and ―Income from other sources‖. Provisions of the Act provides for wha .....

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no relation to any capital asset, the same can also not be considered as capital gain for the assessee. With respect to income from other source, that income of every kind which is not chargeable to tax under any head of income are subjected to tax under the residuary head of income i.e. income from other sources. However again what is subjected to tax under the provisions of section 56 is income of revenue nature. The gift was always treated as non taxable capital receipt in the hands of the re .....

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ect from 1.04.2006. The said section was amended from time to time by amending the limit of receipts and nature of transaction but the applicability of the said section was restricted only to an individual or Hindu Undivided Family. Thus when the legislature intended for bringing to tax net the gift received by an assessee it has specifically provided so by enacting the law. As per section 56(2)(v) the gifts received by an individual and HUF only are made liable to tax. Thereafter for the first .....

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as not covered and accordingly not subjected to tax. However, certain gifts are made taxable from time to time by various well thought and well intended amendments in the Act and all the definition regarding taxability of gift (i.e. receipt of assets without sufficient or without any consideration) are inclusive and only those instance of gifts are required to be taxed and not all gifts. This is so, more particularly, because all gifts are capital receipt in nature and only certain gifts are mad .....

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H.H.Maharani Shri Vijaykuverba Saheb of Morvi & Anr. Vs. CIT, 49 ITR 594, held that gifts are capital receipts when consideration are not in the nature of income and,hence, same cannot be charged to tax under the provisions of Income Tax Act. 33. From the record, we found that the identity of all the four concerns who have made gifts to the assessee was given along with their name, PAN, address and other detail and, therefore, the identity of these concerns was proved. With regard to source .....

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he A.O. has observed in the assessment order and in remand report, that it is a dubious transaction and such gifts are used as means for bringing the unaccounted money into the books of the assessee by avoiding tax payment and it is further held that the assessee has ulterior motives, whereas, the exact nature or motive behind the transactions are not ascertainable with the limited time and resources available to the A.O. The A.O. has also observed that the companies are not capable of giving gi .....

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Ltd. have also paid dividend distribution tax, therefore, such money received by the assessee is not unaccounted money. The AO has not brought any evidence on record contrary to the claim of the assessee. Even during appellate proceeding, the CIT(A) has given opportunity to the AO, in the remand report also, the AO could not rebut the claim of the assessee on the basis of any contrary evidence on record. Hence, the claim of assessee cannot be rejected merely on the basis of doubt or suspicion. .....

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uch transactions and merely stated in the remand report that assessee has not furnished any clear and distinctive motive with regard to these transactions and the exact nature and motive is best known to the assessee. But merely blaming the assessee that it is not furnishing the correct motive is putting the cart before the horse. Whereas case of the assessee is that it has received these amounts as gifts, therefore, it is for the AO to bring on record any other contrary motive and if he fails t .....

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to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. Where however a receipt is of the nature of income, the burden of proving that it is not taxable, because it fall within an exemption provided by the Act, lies upon the assesse. Where the case of the assessee is that a receipt did not fall within the taxing provision, the source of the receipt is disclosed by the assessee and there is no di .....

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by the Tribunal by wrongly throwing the burden of proof upon the assesse cannot be regarded as binding upon the High Court in a reference under section 66 of the Income tax Act. The assesse explained that the jewellery and amounts of money received by her in the relevant years were gifts made by S. the Maharani of Baroda. Relying on the following pieces of evidence, viz. (i) her admission that she acted as the local agent of S for disbursing salaries to the servants of S, and (ii) that in a bil .....

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lish that what was given by S to the assesse was remuneration for services rendered or to be rendered; and that what the assesse received was not assessable to tax." 38. With regard to the AO s objection regarding gift deed, we found that the A.O. has held that these transactions cannot be treated as gifts because there are no gift deeds and because they have not been specifically accepted, whereas, there is no such legal requirement for making a gift. Even by simple delivery the gift can b .....

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d Articles of Association of the companies and the assessee. Gifts have been accepted by the assessee by adopting a resolution by the Board of Directors. After sending all these documents to the AO, the CIT(A) had called a remand report from AO, therefore, this is no violation of rule 46A also. Thus, it cannot be said that these amounts are not gifts merely on the basis that there are no gift deeds or acceptance. 39. Now, coming to the contention of AO that company cannot make a gift and that th .....

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g shares of the concerned housing society to another company and both the companies were subsidiary of a third company, whereas, there was no business transaction between the donor and donee companies. The A.O. rejected the claim of gift and assessed the value of such flats as declared in Wealth Tax return by the Respondent company, under the head 'income from other sources'. Whereas, CIT(A) found that it is not taxable under the head income from other sources, but held it taxable under .....

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the judgement of ITAT Chennai in the case of Redington (India) Limited, ITA No. 513/Mds/2014. The relevant portion of the ITAT order on the issue of requirement of natural love and affection and competency of companies to make gift are reproduced below: "8. It is not uncommon that transfer of shares between corporate groups takes place for internal reorganization. Such a transfer may trigger capital gains ramifications in India since the shares of an Indian company are situated in India and .....

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y without consideration: a) Since the term "Gift" is not defined in the Act, which meaning should be ascribed to it and b) Can a company being a corporate entity make a gift? 9. As gift is not defined under the Act, the Sale of Goods Act, Companies Act and the Indian Contract Act, a reference is made to the Gift Tax Act, 1958 ('GTA) and the Transfer of Property Act, 1882 ('TPA ). 10. GTA was in force with respect to gifts made till 1st October, 1998. Section 2 (xii) of the GTA .....

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ce between the fair market value of the movable property (including shares of closely held company) and the consideration for the transfer as income from other sources of the recipient of such movable property. 11. Section 5 of the TPA provides that transfer of property means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself and one or more other living persons, and "to transfer property" is to perform such act .....

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the donor , to another called the donee and accepted by or on behalf of the donee. 13. A perusal of the aforesaid provisions of the TPA indicate that there do not seem to be any restriction on the corporate transfer of shares by way of gift provided it is made voluntarily and without consideration. In other wards, there is no requirement in the TPA that a 'gift' can be made only between natural persons out of natural love and affection which means that as long as a donor company is perm .....

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the expressions similar to Sec. 47(iii) of the Act was present in the erstwhile Sec. 12B of the Indian Income Tax Act, 1922 i.e. even before the GTA came into force. This observation of the Honble High Court suggest that meaning of 'gift' as per GTA should not be imported for the purpose of Sec. 47(iii) of the Act. 15. Similar view has taken in the case of ITO vs. Buragadda Satyanarayan (1977) 106 ITR 333 (AO) and ACIT vs. Ranga Pai (1975) 100 ITR 413 (Kar). Although there are other deci .....

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ec. 47 (iii) of the Act. 17. It would not be out of place to mention that a combined reading of Sec. 82 of the Companies Act, Section 5 and Section 122 of the TPA suggest that a company can validly transfer the shares by way of gift, provided where Articles of Association of the donor company permits the same. In case of donor is a foreign company, the relevant corporate/commercial law of the jurisdiction where the donor is based needs to be considered. In the light of the above discussion, we h .....

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r the same. Applying the proposition of law laid down in the above decision to the facts of the instant case, we found that the assessee and the donor companies are authorized in this regard for receiving and making gifts respectively by their Memorandum and Articles of Association. The position regarding the competency of corporate entities to make and receive gifts has also been upheld in the following cases, : 1. CIT vs Groz-Beckert Saboo Ltd [116 ITR 125J. In this case, the appellant, a comp .....

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hallenged the validity of one corporate gifting to another. 4. CIT Vs. Stewarts & Lloyds of India Ltd. 165 ITR 416 (Cal): The Hon ble High Court has accepted the legality of the corporate gifts. 5. Deere & Co. AAR of 2010 dated 27 May 2011 6. Goodyear Tire and Rubber Company AAR 1006 of 2010) dated 2 May 2011. 7. Dana Corporation 321 ITR 178 (AAR) 8. Amiantit International Hondings Ltd. 322 ITR 678 (AAR) 9. Vodafone Essar (2011-TII-01-HC-Del-(A) 41. Furthermore, As per section 56(2)(viia .....

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not have received such gifts from other companies. It is also clear from the Transfer of Property Act that companies can receive and make gifts and there is no requirement of any natural love and affection for making or receiving a gift by companies. Even the Income-tax Act by way of Section 56(2)(viia) and 56(2)(viib) provides that gifts of certain kind of shares are taxable in the hands of certain category of companies. 42. The A.O. has assessed the amount of gifts received under the head &qu .....

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.e., "income from other sources. In the following judicial pronouncements wherein the hon'ble courts have held that gift capital receipts without considerations are not in the nature of income and hence the same can not be charged to tax under the provisions of the Income Tax Act. 1) HH Maharani Shri Vijaykuverba Saheb of Morvi & Anr Vs. CIT [49 ITR 594](Bombay: "There is no doubt that under the Indian IT Act even payments, which are voluntarily made may constitute "income .....

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quot;income" although if the payments were not made the enforcement thereof cannot be insisted upon. These payments constitute "income" because they are referable to a definite source, which is the office, profession, vocation or occupation. It could, therefore, be said that such a voluntary payment is taxable as having an origin in the office, profession or vocation of the payee, which constitutes a definite source for the income. What is taxed under the India IT Act is income fr .....

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not fall in the category of "income". What we have to see, therefore, in the present case, is whether the payment made by the son Maharaja to the father Maharaja, though voluntary, could be regarded as having an origin in what might be called the real source of come. On the facts found in the present case, we cannot say that the payments would be referable to any such source. The Department has not been able to show any material on record, from which such a conclusion can be drawn" .....

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e mentioned above where the business continues but by some overriding reason profit cannot be earned. The situation in the present case is, however, entirely different. Even if there was any doubt as to what exactly the payment of ₹ 5 lakhs represented, it is now laid at rest by the findings of fact that have been placed before us upon remand. The company itself has admitted that the payment was made as a personal gift to the assessee. It may have been calculated on the possible loss that .....

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company if it had a "consequential loss policy" of the nature described above. That being so, I think that the Tribunal had come to the correct conclusion that this amount of ₹ 5,00,000 was not a revenue receipt and could not be assessed fur taxation." 3) Lachit Films Vs. CIT [195 ITR 402]Gauhati): "In section 2(24) of the Income-tax Act, 1961, it is declared that "income includes" such and such which are enumerated therein. In section 2(24), grant-in-aid has .....

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according to its natural import. In relation to a business undertaking, the word ''revenue'' connotes incomings of the undertaking which are products of the normal working of the undertaking. The giving of financial aid or subsidy is at the discretion of the Government. Therefore, the grants-in-aid received by the assessee, a producer of films, from the Government is a financial aid or subsidy given by the Government with a view to encourage the film industry and is not a produc .....

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allowance nor the periodicity was conclusive. Regard had to be had only to the nature and quality of the payment. The appellant lost her right to the allowance under the Huzur order and, therefore, on an application by way of compassion, the payment was made. The mere fact that, after the order was made under section 15(J), it became an enforceable right was not relevant, There was no compulsion on the part of the Government to make the payment: nor was the Government obliged to make the paymen .....

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the financial years in question were capital receipts and, therefore, not income within the meaning of section 2(24) of the income tax Act, 1961. 5) CIT Vs. Ramdeo Samadhi !J60 ITR 179KRajasthan) "The ingredients of "income" are: (i) it must be a periodical monetary return, (ii)coming in with regularity or expected regularity, (iii) from definite sources, and (iv) excluding a receipt in the nature of a mere windfall. It is well-settled that in order to become a vocation, an activi .....

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be an individual or an institution, or a body of people or any other source." 6) Mehboob Productions Private Ltd. Vs. CIT [106 ITR 758{Bombay}: "Income is a monetary return expected by the assessee for the labour and/or skill bestowed, and/or capital invested by him,' coming in from a definite source, which need not be a legal source, in the sense that the failure to pay the same need not be enforceable in a court of law: and excluding a receipt "in the nature of" a mere .....

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e contemplation of" the assessee and not directly attributable to or occurring by way of its business profits. On the other hand, where there was clear expectation, though small, of receiving such advantage or profit, then it cannot be properly regarded as windfall merely because the advantage of receipt is much more than could have been reasonably anticipated." 43. In the case of CIT Vs. Groz- Beckert Saboo Ltd. [116 ITR 125] the Hon'ble Supreme Court has an occasion to consider t .....

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o tax on the contrary the market value of gift received was allowed as deductible expense while computing the total taxable income. In view of judicial pronouncements discussed above the gift of ₹ 161,86,77,034/- received by the assessee from corporate bodies are in the nature of capital receipt not liable to tax under the provisions of the Income Tax Act. 44. Now, coming to the observation of the AO with regard to the provisions of Section 82 of the Companies Act, the assessee and donors .....

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rovisions to receive/ make gifts respectively. Hence there in no impediment for assessee or donor companies under the Companies Act to make / receive dividend as gift. 45. Now, coming to the meaning of the gift, the Income Tax Act does not define the term 'Gift'. Gift is defined under section 122 of the Transfer of Property Act - 1882, which reads as under: "122. "Gift" defined - "Gift" is the transfer of certain existing moveable or immoveable property made volu .....

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and one or more other living persons; and "to transfer property" is to perform such act. In this section "living person" includes a company or association or body of individuals, whether incorporated or not, but nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by companies, associations or bodies of individuals ." 46. Section 122 of the Transfer of Property Act provides for making of a gift and permits trans .....

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he taxing statue has recognized that the gift can be given by a company. In this connection the relevant provisions of Gift Tax Act, 1958 (now repealed) provided as under: a) Section 2(iii) of the Gift Tax Act, 1958 defines "(iii) "assessee" means a person by whom gift-tax or any other sum of money is payable under this Act, and includes (a) every person in respect of whom any proceeding under this Act has been taken for the determination of gift-tax payable by him or by any other .....

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the expressions "company'; "Indian company" and "company In which the public are substantially interested" shall have the meanings respectively assigned to them under section 2 of the Income-tax Act" d) Section 2(17} of the Income-tax Act, 1961 defines "(17) "Company" means - (i) any Indian company, or (ii) any body corporate incorporated by or under the laws of a country outside India, or (iii) any institution, association 01' body which is o .....

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on 01' body shall be deemed to be a company only for such assessment 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 pr .....

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ctually 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 that they intend to transfer the dividend on shares of Reliance Industries held by them to the assessee donee as gift. Thus, the donative intent to transfer the dividend as gift is clear from the resolution passed by the donors. With respect t .....

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facts. In the instant case, the gift received by the assessee is in the nature of capital receipt duly supported by documentary evidence and hence cannot be deemed as revenue receipt liable to tax. Thus, all the case laws relied upon by the AO in the assessment order has no relevance to the case of the assessee and are distinguishable on facts. 51. We had gone through the decision relied on by the AO in case of Sumati Dayal Vs. CIT, 214 ITR 801(SC), wherein hon'ble Supreme Court has consider .....

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d that the income tax authorities are entitled to look into the surrounding circumstances to find out the reality. 53. In case of CIT Vs. L.N Dalmia [207 ITR 89](Calcutta), the hon'ble high court found that the assessee generated a paper loss which is capable of carried forward and set off against the future profit and thus would provide a cushion against the future gain. The Hon'ble High Court found that though the loss is a paper loss but it had a far reaching effect on the tax liabili .....

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ved 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 i .....

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eipt of gifts by an individual and HUF became taxable in the hands of the donee, whereas, gifts received by any other person remained out of tax net. Whereas, with the introduction of clause (viia) and (viib) in sub-section 2 of section 56 w.e.f. 1/6/2010 and 1/4/2013 respectively, gift of only shares of certain category of companies by certain category of companies have become taxable and any other gift received by any company through any other mode, i.e. cash, cheque, listed shares or other ki .....

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Gift Tax Act only and there was no provision for taxing gifts under the Income-tax Act. Therefore, gifts were not separately taxed under any provisions of the Income- tax Act during the period when the Gift Tax Act was in existence and the question of taxing the gifts separately under Income-tax Act, did not arise. When the Gift Tax Act was repealed in 1998, legislature indicated its intention that the gifts will be no more taxable under the Gift Tax Act, but nc corresponding change was made und .....

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d HUFs were not brought under the tax net. With the passage of time, it was realized that certain kind of transactions of transfer of certain kind of shares by certain category of companies only further need to 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 outsid .....

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as 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 income-tax under the head 'Profits and gains of business or profession", "(iv) the value of any benefit o .....

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onor and the donee, cannot be accepted as no direct nexus has been 'established by any tangible material brought on record by the Ld. CIT [A]. Simply because both the donor and the donee happened to belong to the same group cannot ipso facto establish that they have any business dealings. As we have held that it is a case of a valid gift which is to be treated as capital receipt in the hands of the assessee, in the absence of any specific provision taxing a Gift as a deemed business income, .....

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y of the heads specified in section 14, items A to E. " A plain reading of the above provision show that not every receipt is taxable under the head ' Income from other sources ' but only those which can be shown as 'Income ' can be brought to tax under this head , if it does not fall directly under other heads of income specified in sec. 14 of the Act. The legislature keeping in mind the Tax Planning done by the Tax Payers by resorting to Gifts , which cannot be termed as I .....

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ndments 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 consider .....

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xceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration: Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub -section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the .....

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er the 1st day of June, 2010, any property, being shares of a company not being a company in which the public are substantially interested, - (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; (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceed .....

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i) ; The above amendment covers the issues involved in the present appeal but the legislature in its wisdom made it applicable for the transactions effected after the 1st day of June, 2010. Certain lacuna may have still 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, fro .....

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rnment 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 shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or .....

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ceeds and Revenue fails. Issues involved in this ground are decided in favor of the assessee and against the Revenue. " 58. Now, we examine taxability of gift u/s.68 of the IT Act. Section 68 deals exclusively with the subject of cash credits and places burden of proof squarely on the tax-payer, where he either offers no explanation or his explanation is unsatisfactory as to the nature and source of such cash credits. In such cases, it is for the assessee to prove the identity of the person .....

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t in accepting the genuineness of the transactions also. 59. With regard to the taxability of gift u/s.2(22)(e), we found that Any loan or advance paid to a substantial shareholder with 10% interest in the company or to a concern in which such substantial shareholder has substantial interest (20%) is taxable to the extent of accumulated profits u/s. 2(22)(e) of Income-tax Act. It is all the more relevant because A.O. has discussed and described in detail in the remand report, shareholding patter .....

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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; …….. .....

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n by a company to a substantial shareholder with 10% interest or to a concern in which such shareholder is holding not less than 20% of the voting power/shares for taxing such loan u/s. 2(22)(e). Whereas, in the case under consideration, there is no common shareholding between the assessee and the other four companies who have made the gifts. Therefore, no addition can be considered in the case of the assessee u/s. 2(22)(e) of Income-tax Act. 61. The AO has also added the amount of gift received .....

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manner provided by the Companies Act, scrutinized and certified by the statutory auditors, approved by the shareholders and filed before the Registrar of the Companies who has statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In the case of Apollo Tyres the question raised before the Hon ble Supreme Court was: (i) Can an AO while assessing a company for income-tax under s. 115J of the I .....

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ng their accounts in such a manner as to attract no tax or very little tax. It is with a view to bring such of these companies within the tax net that s. 115J, was introduced in the IT Act with a deeming provision which makes the company liable to pay tax on at least 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 .....

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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 contemplated under the prov .....

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s made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate, according to us, is bodily lifted from the Companies Act into the IT Act for the limited purpose of making the said account so maintained as a basis for computing the company's income for levy of income-tax. Beyond that, we do not think that the said sub-section empowers. the authority un .....

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ded the AO to reassess the company's income, then it would have stated in s. 115J that "income of the company as accepted by the AO. In the absence of the same and on the language of s. 115J, it will have to held that view taken by the Tribunal is correct and the High Court has erred in reversing the said view of the Tribunal. Therefore, we are of the opinion, the AO while computing the income under s. 115J has only the power of examining whether the books of account are certified by th .....

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ssed 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 P .....

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he Act. 64. Similar issue has come up before the jurisdiction Honble Bombay high Court in the case of CIT Vs. M/s Akshay textiles & Agencies Pvt. Ltd (304 ITR 401] wherein the hon'ble Bombay High Court has held as under: "C. Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was correct in upholding the order of the CIT(A) in holding that the capital gains of ₹ 19,74,489 are not to be taken into account while computing the profits li .....

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avour of the assessee and against the Revenue. In the light of that the question of law as framed would not arise." 65. Similarly, Honble Bombay High Court in the case of Kinetic Motor co. Ltd. Vs. Dy. CIT (262 ITR 330) has observed that it is not open for the AO to make any adjustment to the book profits beyond what is authorized by the definition given in Explanation to section 115J of the Income Tax Act, if the accounts are certified by the auditors. The decision of jurisdictional Hon .....

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o Tyres Ltd. Vs. CIT (Supra). Only power of the Assessing Officer is to make: suitable adjustments to the profits of business under the Explanation to section 115JB of the Act. The said adjustments are relatable to the profits and gains of business carried on by the assessee. Any gain arising on sale of investments, though taxable, may necessarily be not routed through Profit & Loss Account. We uphold the order of CIT(A) that no adjustments on account of gain on sale of units of mutual fund .....

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corporate bodies of ₹ 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 .....

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red and give a true and fair view in conformity with the accounting principles generally accepted. As per audited P&L a/c, the assessee has included long-term capital gain. In the Notes on accounts, it is nowhere mentioned and claimed that though the long-term capital gain is included in the P&L a/c but it is not includible in the net profit in terms of provisions of Part II and Part III of Sch. VI to the Companies Act or the accounting principles accepted under the Companies Act. Hence, .....

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