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2016 (4) TMI 127 - ITAT DELHI

2016 (4) TMI 127 - ITAT DELHI - TMI - Addition u/s 56(2)(vi) - status of AOP OR individual or HUF - Held that:- Section 2(31) defines "person" as including (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not,(vi) a local authority, and (vii) every artificial juridical person, not falling within any of the preceding sub-clauses. It is palpable from the definition of `person’ as given in .....

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8377; 50,000/- can fall within the ambit of section 56(2)(vi) of the Act only if it is received by an individual or HUF. Since the assessee in question is an AOP and not any individual or HUF, who received a sum of ₹ 1.60 crore without consideration, such a receipt in our considered opinion cannot be included in its total income within the framework of section 56(2)(vi). We, therefore, set aside the impugned order on this score and order for the deletion of this addition. - Decided in favo .....

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a lacuna in the provision which has been lawfully exploited by the assessee by transferring shares held as long-term capital assets through off market transactions resulting into genuine loss and thus escaping the rigor of the exemption provision contained in section 10(38), which would have otherwise disentitled it to claim set off and carry forward of such a loss. The AO has held these off-market sale transactions as a colorable device and tax avoidance scheme adopted by the assessee to evade .....

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fall within the ambit of section 10(38) because of non-payment of STT. Overturning the impugned order on this issue, we direct the allowing of carry forward of loss - Decided in favour of assessee - ITA No. 1880/Del/2014 - Dated:- 1-4-2016 - Shri R. S. Syal, AM And MS Beena A. Pillai, JM For the Petitioner : Shri Hiro Rai, Advocate & Shri Dharan V. Gandhi, Advocate For the Respondent : Shri P. Dam Kanunjna, Sr. DR ORDER Per R. S. Syal, AM This appeal by the assessee is directed against the .....

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u Hari Dalmia and Shri Parag Dalmia. As per the Trust Deed, the beneficiaries of the Trust are Shri M.H. Dalmia, Smt. Abha Dalmia, Shri Gaurav Dalmia, Smt. Sharmila Dalmia, Smt. Kanupriya Somani, Km. Devanshi Dalmia, Master Aryman Hari Dalmia and Km. Ananya Priya Dalmia with their respective spouses and children. The assessee filed its return showing income from house property, short-term capital gain and long-term capital gain. The assessee declared to have received a gift of ₹ 1.60 crore .....

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regard, the assessee was found to be admittedly a beneficiary trust assessed in the status of AOP and, hence, neither a firm nor a company. The AO further noticed that the assessee received a gift of ₹ 1.60 crore through cheque from Mrs. Abha Dalmia, which was not a property. As the transaction of gift was executed on 18.9.2009, i.e., prior to the date of 1st June, 2010, the AO held that the claim of exemption by the assessee u/s 56(2)(vi) was not acceptable. After analyzing the provision .....

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e facts of the instant case. In this regard, he found that the assessee was neither an individual nor HUF, which was the first condition for making gift exempt in the hands of the recipient. As regards the second condition, he noticed that the donor was a close relative, being wife of Shri Mridu Hari Dalmia and mother/granddaughter of other beneficiaries. He accentuated that none of the persons mentioned actually received the said gift and it was the AOP alone who was recipient of the amount. Th .....

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n addition for the sum of ₹ 1.60 crore. The ld. CIT(A) echoed the action of the AO in this regard. The assessee is aggrieved against confirmation of the addition. 3. We have heard the rival submissions and perused the relevant material on record. The AO invoked the provisions of section 56(2)(vi) for coming to the conclusion that the amount of gift received by the assessee from Mrs. Abha Dalmia was not exempt under this provision and hence chargeable to tax. He satisfied himself as regards .....

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h the caption Income from other sources. Sub-section (1) of this section provides that 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. Then comes subsection (2) of section 56 which provides in particular and without prejudice to the generality of the provisions of sub-section (1) that .....

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2009, the whole of the aggregate value of such sum: Provided that this clause shall not apply to any sum of money received- (a) from any relative; or (b) on the occasion of the marriage of the individual; or (c) under a will or by way of inheritance; or (d) in contemplation of death of the payer; or (e) from any local authority as defined in the Explanation to clause (20) of section 10; or (f) from any fund or foundation or university or other educational institution or hospital or other medical .....

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ndant or descendant of the spouse of the individual; (vii) spouse of the person referred to in clauses (ii) to (vi); 5. A bare perusal of the above provision indicates that where any sum of money exceeding ₹ 50,000/- is received without consideration by any individual or HUF, in any previous year from any person or persons, the whole of the aggregate value of such sum shall be chargeable to income-tax under the head Income from other sources . A cursory glance at the opening line of sub-se .....

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be by an individual or HUF; and (iv) Such receipt by individual or HUF should be from any person or persons within the designated period. 6. It is on the cumulative satisfaction of the above conditions that the amount received becomes chargeable to tax u/s 56(2)(vi). Then, there is a proviso to this provision which forbids the applicability of the charging provision under certain circumstances enshrined in clauses (a) to (g). Explanation to this proviso gives meaning to the term relative , which .....

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ceipt of money in excess of ₹ 50,000/- is satisfied. The second condition is that such amount should be received without consideration. This condition is also satisfied because the assessee trust received a sum of ₹ 1.60 crore from Smt. Abha Dalmia as gift, which is obviously without any consideration. The fourth condition about the receipt of such amount from any person or persons before the designated date is also satisfied. Now we espouse the third condition as per which the recei .....

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son, not falling within any of the preceding sub-clauses. It is palpable from the definition of person as given in section 2(31) of the Act that AOP is a person different from an individual or a HUF. Even if an AOP consists of some individuals, the status of such a group of individuals remains as that of AOP , in the same way in which when some individuals enter into partnership, the body which comes into existence is called a Firm . The AO has rightly admitted the status of the assessee as an A .....

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efore, set aside the impugned order on this score and order for the deletion of this addition. 7. The only other issue which survives in this appeal is against the confirmation of disallowance of loss of ₹ 1,86,86,461/-. The facts apropos this issue are that the assessee suffered a long-term capital loss of ₹ 1.86 crore on share transactions, which amount was carried forward for future set off. Apart from that, the assessee also earned short-term capital gain, the taxability of which .....

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h resulted in long-term loss of ₹ 1.86 crore. It was noted that the assessee did not pay any Securities Transaction Tax (STT) on these transactions of sale of shares to Shri M.H. Dalmia and Smt. Abha Dalmia. He found that the assessee claimed to have transferred these shares through off-market sale on loss. Since the persons to whom such shares were sold happened to be the trustees and also the beneficiaries of the assessee trust, the AO came to hold that such off-market sale transactions .....

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uch transfers were made. These quotations have been reproduced on page 5 of the assessment order. The AO observed that the shares were sold at the Closing price rather than the Highest price of the day . The assessee s contention that the shares were transferred on the respective dates from the demat account of the assessee trust to the demat accounts of the buyers, who made payment of the requisite sale consideration through banking channel, did not convince the AO to accept the genuineness of .....

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uch loss by holding it as bogus. The ld. CIT(A) approved the view taken by the AO on this issue. 8. We have heard the rival submissions and perused the relevant material. The AO has disallowed the loss amounting to ₹ 1.86 crore by treating the transactions of sale of shares by the assessee to its trustees as sham and tax avoidance device. The question which looms large for our consideration is to decide whether or not the transactions of sale of shares by the assessee to Shri M.H. Dalmia a .....

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n off-market transaction of transfer of shares is not per se illegal or void. Genuineness or otherwise of any transaction can be tested on the touchstone of a host of factors, which are not exhaustive. Coming to the facts of the extant case, we find that albeit these were off-market transactions to beneficiaries/trustees of the assessee trust, but, the sale consideration is equivalent to the closing sale rate of these shares on the respective dates. The AO has opined that the transactions ought .....

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ance Communications Ltd., quotation as on 7.12.2009, being the date of sale, had the highest price of ₹ 182/- as against the closing price of ₹ 178.95. It is further noticeable that the lowest quotation of Bajaj Hindustan Ltd. on that day was ₹ 47.50; that of Tata Consultancy Ltd. at ₹ 660/-; and that of Reliance Communications Ltd. at ₹ 175.85. We fail to understand any logic behind the AO considering the highest rates as relevant and ignoring the lowest or the ope .....

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the assessee trust to the demat accounts of the transferees. It is further undisputed that payment of sale price was made by transferees which was credited to the bank account of the assessee trust. All these facts amply indicate the genuineness of the off-market sale transactions entered into by the assessee with its beneficiaries. 9. The AO has harped on the fact that if the transactions had been made through recognized Stock Exchange, then the STT would have been payable and resultantly the .....

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n a company or a unit of an equity oriented fund or a unit of a business trust where- (a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force; and (b) such transaction is chargeable to securities transaction tax under that Chapter : 10. A perusal of sub-section (38) reveals that any income arising from the transfer of long-term capital asset, being an equity share etc., is exempt from tax .....

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"profits and gains" represent "plus income", whereas losses represent "minus income". In simple words, both the positive (gains) and negative (losses) are species of the genus of income . 11. We have noticed that section 10(38) is an exemption provision and not a deduction provision. Income from an exemption provision does not at all enter into computation of total income. If there is a positive income, such income is ignored and thus excluded from taxation and if t .....

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ision, the positive income from the designated source first enters into computation of income, but is then deducted in terms of the eligibility of deduction. In the like manner, if there is a negative income from that designated source, then such loss after entering into computation of income becomes eligible for set off against the other positive incomes subject to other relevant provisions. Here again the principle of equality applies. The essential difference between an exemption and a deduct .....

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that the loss of eligible unit was wrongly set off against the normal business income of the assessee by noticing that section 10B, as it now stands, is not a provision in the nature of an exemption but provides for a deduction and the loss sustained by the unit eligible for deduction under section 10B could be set off against the normal business income. 12. Coming back to our context, we find that section 10(38) is an exemption provision. This exemption provision states that any income arising .....

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qualify for set off and carry forward. In order to fall within the purview of section 10(38), it is sine qua non that STT must have been paid on the transaction of sale of such equity share held as long-term capital asset. It is undisputed that STT is payable in respect of transactions carried through a Stock Exchange, which are called on-market transactions. If there is some off-market transaction, namely, which is undertaken without involvement of a Stock Exchange and is directly between the .....

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