TMI Blog2011 (10) TMI 703X X X X Extracts X X X X X X X X Extracts X X X X ..... addition of ₹ 17,39,43,000/- made by the Assessing Officer to the total income of the assessee within the meaning of section 28(1)(iv) of the I T Act. ii) On the facts and in the circumstances the cased ld CIT(A) has erred on facts in holding that Shri Ashish P Deora was appointed as director on 3.5.2005 and the observation of the Assessing Officer that Shri Ashish P Deora was a director in June 2002 is not correct. FOR ASSESSMENT YEAR 2005-06: i) The ld CIT(A) erred in law and on facts in deleting the addition of ₹ 40,45,80,000/- made by the Assessing Officer on account of long term capital gain on transfer of shares to M/s Reliance Infocom Ltd by the assessee company without appreciating the fact that since the share were not listed in the BSE or NSE on the date of sale, the value of shares as on 14.4.,05 has been determined on the basis of its rate of increase in the value from 16.9.02 to 16.3.06 on which date the shares were first listed in the stock exchange. ii) The CIT(A) has erred on facts in holding that Shri Ashish P Deora was appointed as director on 3.5.2005 and the observation of the AO that Shri Ashish P Deora was a director in June 2002 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s received by the assessee or his nominee and holding of one crore shares of RIC by the three companies was purely an interim arrangement and the said shares had to be returned to the transferor Ganesh Infrastructure Capital Fund(GICF). It was contended that the assessee did not receive any benefit from the exercise of his profession or there was no vesting of the property by invoking provisions of sec. 28(iv) of the Act r.w.s 2(24) (vd). Apart from the above, the assessee has also submitted that RIC was suffering losses, it was not paying any dividend and its shares were unlisted. The fare market value of the shares in question at the relevant point of time was at face value. It was submitted that the assessee had no business connection with GICF who had transferred the shares of RIC to the three companies. Finally, it was stated that the shares are to be transferred to the companies only on completion of the project and since the project could not be completed; therefore, the shares were returned to the transferor and no benefit accrued or received by the assessee or his nominee. 4.3 The Assessing Officer did not accept the contention of the assessee and treated the difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as came before the Tribunal and after considering the relevant facts, the Tribunal has held in para 6 and 7 as under: 6 We have considered the rival contentions and perused the relevant material on record. While making the addition of the premium of ₹ 14/- per share, the Assessing Officer has taken into consideration the directors' report. The Special counsel has also relied upon the directors' report which talks about the allotment of the basic telephone services in 16 out of 18 circles applied by RICL. It is pertinent to note that the directors' report is dated 16.8.2001, which is consequent to the grant of license to RICL for operating the basic telephone services on 20.7.2001. Thus, it is clear that the directors' report refers to the events consequent to the allotment of the shares on 2.4.2001 and particularly the developments of the grant of license of 16 telephone circles. Undisputedly, once the license for operating the basic telephone service in 16 circles was granted which cover the majority of the states of the country; hence, was an important development and certainly it has a positive effect on the value of the shares of RICL. Therefore, ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sight. Moreover, when net worth of RCIL was negative as on 31.3.2001, then the valuation of the shares on 2.4.2001 cannot be supposed to higher then what was in the month of Jan and Feb 2001. Hence, in our considered opinion that the Assessing Officer has misguided himself by taking into account the appreciation of the shares of RCIL on account of allotment of license and work done by RCIL for providing the basic telephone services in pursuant to the license while working out the valuation prior to all these development. 6.3 Further, when the assessee was not having any direct business relation or having any business or carried out any business with RCIL either in the past or during the year in question or in subsequent year then it cannot be said that there exist any business or profession relationship between the assessee and RCIL. RCIL and other Reliance group of companies are independent entities and even for taxation purposes, they are separate and independent persons; therefore, any business or professional relationship of the assessee with the RIL could not automatically create any business or professional relationship between the assessee and RCIL. Therefore, provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en to invoke s. 28(iv) and not to give a decisive finding as to whether s. 69 is applicable or not. We have to mention here that it is not the case of the Revenue that the assessee company has paid certain amount in excess of what is recorded in the books of account for the purchase of the shares. There is not even an allegation much less any evidence that the apparent consideration is not the real consideration. The only grouse of the Revenue authorities have is that the assessee company has purchased the shares at a price which much lesser than the market price. This, as already stated is not a disputed fact. Thus on these facts we hold that no addition is sustainable under s. 69. 8.3 This brings us to whether the difference in question can be considered as income under s. 28 (iv) ? The section reads as follows : 28. 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 or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. Circular explaining the provisions of new s. 28(iv) at cl. 82 states as foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In all the case laws relied upon by the Revenue have been discussed by us while narrating their arguments and in these cases the tax has been levied on the transferor and not the transferee. The effect of this section has been explained by the CBDT in the above cited circular and from this it is clear that, when an assessee purchases goods or assets at a price lower than the market price, under whatever circumstances, the same cannot be brought to tax under s. 28(iv). The section covers fringe benefits that are availed in addition to consideration earned in carrying out a profession or while doing business. A benefit that is passed on by one party to another, in addition to cost or sale price, is covered in this proviso. This is clear from the example quoted. In our humble opinion, this section cannot be invoked under the present facts and circumstances. 8.4 Be it as it may the co-ordinate Bench of the Tribunal (F-Bench, Mumbai) in the case of Helios Food Improvers (P) Ltd. (supra) held that s. 28 is a charging section and takes into account the receipts of specified categories of all incomes as well as the receipts which could be generally construed as income in the ordinar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of attracting provisions of s. 28(iv). At p. 320 it has observed as follows : After referring to various decisions, the Tribunal observed, these decisions make it abundantly clear that the benefit received or receivable by a person must be one which has intimate connection with business and even if such benefit is derived by way of bounty, nevertheless it would be taxable, if accrues to it or if received by it in the course of business or employment of office. In this case the Revenue has not demonstrated what is the business connection or the business done between the seller and the purchaser of the shares. No case has been made out that privilege or benefit or concession has been passed on by the seller to the buyer as part and parcel of a business transaction. A benefit has been assessed by the CIT(A). Mere purchase of shares by way of investment cannot be considered as business of the company though the objects of the company enable it to invest as well as deal in shares. As already stated there is no event which can be said to have resulted in accrual of income to the assessee. Thus on this factual matrix, mere purchase of shares, as an investment, with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the sub-section has no application in the case of a bona fide transaction, where the true consideration received by the assessee has been declared or disclosed by him. Sec. 50C, has come into the statute only w.e.f. 1st April, 2003 by Finance Act, 2002 and is not applicable to the impugned assessment years. Hence, for the period prior to the insertion of s. 50C no addition can be made by invoking the ratio of this section. The first appellate authority at p. 21 of his order has rightly observed that, what in fact never accrued or was never received cannot be computed as capital gain. He relied on the decision of Calcutta High Court in the case of CIT vs. Smt. Nandini Nopany (1998) 148 CTR (Cal) 522 : (1998) 230 ITR 679 (Cal). He rightly held that it is manifest that the consideration for the transfer of capital asset is what the transferor receives, in lieu of assets he parts with, i.e., money or monies worth and that the expression 'full consideration' cannot be construed as having reference to the market value of the assets transferred but refers to the price bargained for by the parties and it cannot refer to the adequacy of the consideration. He also rightly observed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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