Subscription   Feedback   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Articles Highlights TMI Notes SMS News Newsletters Calendar Imp. Links Database Experts Contact us More....
Extracts
Home List
← Previous Next →

Asst. Commr. of Income Tax 9 (1) , New Delhi Versus Softnet Traders & Consultants P. Ltd.

2011 (10) TMI 703 - ITAT MUMBAI

ITA No. 3070 & 3071/Del/2008 - Dated:- 25-10-2011 - Pramod Kumar (Accountant Member) And Vijay Pal Rao (Judicial Member) For the Assessee : Panjaj Toparani/Usha Dalal For the Revenue : Vinod Joshi/B Jaya Kumar ORDER Vijay Pal Rao (Judicial Member) These appeals by the revenue are directed against the separate orders dated 3.7.3008 and 4.7.2008 of the CIT(A) for the AY 2003-04 and 2005-06 respectively. 2. The revenue has raised the following grounds in these appeals: FOR ASSESSMENT YEAR 2003-04: .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ector 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 increa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Mum/2007 and reproduced as under: 4. During the course of assessment proceedings, the Assessing Officer came to know that 1 crore shares of M/s Reliance Infocomm Ltd (RIC) were allotted @ ₹ 1/- per share) to three companies as per the details below: Name of the company No. of shares allotted Dt of allotment M/s Fairever Traders & Consultants P Ltd 3,400,000 16.09.2002 M/s Soft-net Traders & Consultants P Ltd 3,300,000 16.09.2002 M/s Prena Auto Pvt Ltd 3,300,000 16.09.2002 4.1 The A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

inside the commercial buildings/cooperative societies and to obtain permission from the societies to provide broadband services. As an incentive to achieve the steep task of obtaining right of way and building permission of 50000 building at a heavily negotiated price and within the stipulated time, he was to receive 1 crore shares of M/s RIC. Since the RIC has allotted 32.02 crores of shares of the face value of ₹ 1/- per share to M/s Reliance Communication Infrastructure Ltd (RCIL) at a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

r 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, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ror 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 of ₹ 52.71 per share as the benefit arising on transfer of these 1 crore shares at par and taxed on substantive basis in the hands of the assessee. At the same time, the Assessing Officer was of the view that it will be taxed on protective basis in the hands of the three recipients companies. 4.4 On appeal, the CIT(A) dele .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

l contention and relevant material on record. It is pertinent to note that 1 crore shares of RIC were allotted to three companies namely (i) M/s Fairever Traders & Consultants P Ltd (ii) M/s Soft-net Traders & Consultants P Ltd and (iii) M/s Prena Auto Pvt Ltd, on face value of ₹ 1/- at part subject to the condition that the assessee has to execute the job of laying of optic fibre cable by achieving the target of at least 50000 buildings within the stipulated period. It may note th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ions, the shares could not be transferred but once the transaction of transfer was not there and ultimately the shares were returned back at the same price then, no benefit whatsoever neither accrued nor received by the assessee or the companies in which the assessee is a director. Therefore, on these fact itself it can safely said that the conditions as postulate u/s 28(iv) are not fulfilled and therefore, provisions of sec. 28(iv) cannot be invoked in the hands of the assessee. 6.1 Moreover, i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lks 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

by the Sr counsel for the assessee that prior to 2.4.2001, RCIL have already issued the shares through allotment at par i.e. ₹ 1/- each in the month of Jan and Feb 2001. On both these occasions, the shares were allotted at ₹ 1/- per share. Similarly on 2.4.2001, 65 crores shares were again allotted by RCIL to seven allottes as per the details of the allotment reproduced by the Assessing Officer at page 2 of his order as under: Name of the assessee No. of shares allotted (in crores) .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

this order in the foregoing paragraph no.5.1. Thus, it is event that the Assessing Officer has taken into account the allotment price of the shares of RCIL on 2.11.2002, 9.9.2003. It is to be noted that when the RCIL was allotted the license for operating the basic telephone services and also started the work for providing the services, the allotment in Nov 2002 and Sept 2003 was subsequent to the said development and therefore, the appreciation of the value of the shares a natural consequence .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ng 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 bu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ove discussion, we hold that the value estimated by the Assessing Officer of the shares of RCIL on 2.4.2001 @ ₹ 15/- per share is highly unrealistic, arbitrary and without any acceptable basis but on the basis of some future events, which could not influence the value of the shares prior to the date of such development. Accordingly, we do not find any error or illegality in the order of the ld CIT(A)." 7. We further note that the Tribunal in the case of n Rupee Finance & Managemen .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

uestion referred to above, can be brought to tax in the hands of the assessee company under s. 28(iv). 8.2 We take up third and fourth issues first. Sec. 69 reads as follows : "69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offer .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the books of account. Under s. 69 only such value of the investments may be deemed to be the income of the assessee for the financial year, if they are not recorded in the books of account. Thus s. 69 is not applicable in this case. The first appellate authority possibly realising this difficulty has chosen 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

.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 follows : &qu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nding amendment has been made to s. 2 (24), including the value of such benefit or perquisite in the definition of the term 'income' vide new sub-cl. (va) inserted in s. 2(24) by s. 4(c)(i) of the Finance Act, 1964. 83. The effect of the above-mentioned amendment is that in respect of an assessment for the asst. yr. 1964-65 and subsequent years, the value of any benefit or amenity, in cash or kind, arising to an assessee from his business or the exercise of his profession, e.g., the valu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the assessee and the benefit the assessee derived. The assessee in this case purchased certain shares at a certain price and was required to hold these shares for a period of three years. It is not in dispute that this was an investment made by the assessee company hence irrespective of the fact as to whether these investments were made in pursuance of the MoU or not, we are of the consideration opinion that such investments cannot be said to be a benefit arisen out of the business of the asses .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

as the receipts which could be generally construed as income in the ordinary sense. But the fact remains that all the receipts mentioned in s. 28 are inherently of income nature except in case of receipt under a given amount of insurance policy. It also states that s. 28(iv) refers to any benefit or perquisite and this means that such benefit or perquisite should be in the nature of income from the very beginning or it must have characteristics of income before it becomes chargeable at a later .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

viding such facility or concession knows that whatever is being done is irretrievable to him, as it has been granted to a person as a privilege or right of that person. Thus, it was concluded that the word 'benefit' has to be interpreted in the same manner, that is, at the time of execution of the business transaction one party should give to the other party an irretrievable benefit or advantage, as an obligation or facility or a concession. In our opinion, only if the seller had incurre .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ot also be deemed as income under s. 28(iv) as it is neither benefit nor perquisite that has arisen to the assessee from the business or in the exercise of a profession. The Hon'ble Gujarat High Court in the case of CIT vs. Bhavnagar Bone & Fertiliser Co. Ltd. (1987) 59 CTR (Guj) 116 : (1987) 166 ITR 316 (Guj) has upheld the Tribunal's finding that there must be a nexus between the business of the assessee and the benefit which the assessee has derived for the purpose of attracting p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

strated 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 s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

us this issue is decided in favour of the Revenue and against the assessee." 8. In view of the above discussion and the order of the coordinate Bench of the Tribunal, we do not find any merit in the appeal of the revenue and accordingly uphold the order of the CIT(A)." As viewed by us in the connected case (supra) that no addition can be made under section 28(iv) then the addition made on protected basis in the hand of the assesee is not sustainable and accordingly we uphold the order .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ld not result any capital gain. 7. We further we note that in the case of Rupee Finance & Management P Ltd, the Tribunal in para 13.1 has held as under: "13.1 As already held in the order of Rupee Finance & Management (P) Ltd. there is no allegation much less, any evidence to show that these assessees before us have received monies in excess of amounts of sale consideration recorded and disclosed in the transaction for the sale of shares. The first appellate authority has rightly no .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of proving such understatement of consideration is on the Revenue and that 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 sectio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

what is new what is new
  ↓     bird's eye view     ↓  


|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version