TMI Blog2018 (7) TMI 1805X X X X Extracts X X X X X X X X Extracts X X X X ..... ated by way of documentary evidence or in any of the manner to prove the genuineness and validity of transaction. Ld.Counsel has been harping that the shares held by assessee in a Public Limited Company was transferred in lieu of a family realignment, but failed to establish the relation of the alleged transferee company with that of assessee or any of the group/subsidiary companies. Further there is no agreement/document that has been executed between group companies forming part of family realignment. Assessee is thus directed to provide all necessary and relevant information/details to assist Ld. A.O., as called for, to his satisfaction, in determining correct nature of alleged transaction as per law. It is also directed that in the event assessee fails to provide any document as called for, in order to establish the genuineness and validity of alleged transaction, as has been submitted to be for a family realignment, Ld.A.O. may compute income in the hands of assessee as per law. On the contrary if assessee is able to prove to the satisfaction of Ld.AO regarding genuineness and validity of the transaction, no addition shall be called for. - Decided in favour of assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord. The additions/disallowances made are unjust, arbitrary, against the principles of natural justice and are also highly excessive. 11. That the documents, explanations filed by the assessee and the material available on record has not been properly considered and judicially interpreted. 12. That the AO and CIT(A) have grossly erred on facts and in law in passing the impugned order without affording a proper and sufficient opportunity to the appellant to be heard and submit evidence in its support. The order is passed in violations of principles of natural justice. All of the above grounds of appeal are without prejudice and are mutually exclusive to each other. The assesse craves leave to add, amend, alter and or modify the grounds of the appeal. 2. Brief facts of the case are as under: Assessee filed its return of income declaring loss of ₹ 97,82,122/- on 29/11/14. The case was selected for scrutiny and statutory notices were issued in response to which Representative of assessee appeared before Ld.AO and filed various details as required for. 2.1. Ld.AO from financial statements observed that assessee made following disclosure in its Note to the Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rving as under: 1. Considering the notes to accounts and reply of assessee company, it is observed that the assessee company holds 1,11,59,010 equity shares of M/s Jindal steel Power Ltd (JSPL ) as on 31/03/2008 for a value of ₹ 17,29,64,655/-. The company got five bonus shares for one share held in JSPL on 19/09/2009 making total investment as 6,69,54,060 equity shares having total value at ₹ 17,29,64,655/-. Further during the year under review, the assessee company purchased 4,50,000 shares of M/s Jindal Steel and Power Ltd. making total holding at 6,74,04,060.0ut of such holding, the company transferred 1,76,94, I 08 equity share of JSPL on 20/0312014 without any consideration to its sister concern namely M/s GiebeTrading Pvt Ltd by way passing a board resolution on 18/03/2014 and passing a special resolution in the extra ordinary General meeting held on 20/03/2014. 2. By way of transferring its investment of 1,76,94,108 shares to its sister concern without any consideration , the company not only reduced its investments to nil and booked losses of ₹ 17,29,64,655/- which were adjusted out of Reserves of company but also reduced its income to the extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property transferable in the manner provided by articles of the company. The AR of the Assessee company has not submitted anywhere that the transfer of the shares allegedly gifted was in the manner provided by the Articles of the Company. Or in other words it was not proved that the articles of association of company empower the assessee company to transfer its share without any consideration that too on oral understanding. Even in the board Resolution, authorizing the so called gift, there is no mention of any power derived from the articles of association, that too without any consideration and on oral understanding only. Without anything more, it is difficult to imagine any clause in the Article of Association of a company providing for gifting away the assets in the form of shares in another company without any consideration on oral understanding only. 5. The transaction also failed in the test of commercial expediency and business prudence. Companies being artificial persons into existence only for business or non-business purpose as mentioned in their constitutional documents. Companies do not have an existence beyond the law; therefore, they are a fiction created by law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on behalf of the appellant. The issue that arises for consideration is regarding taxation of capital gains on transfer of 1,76,94,108 shares of JSPL to GTPL, another company of the Group. It is the case of the appellant that the said 1,76,94,108 shares of JSPL were given as gift without consideration to GTPL pursuant to the internal family realignment of the larger O.P.Jindal group. It is accordingly, contended by the appellant that the said transaction is not covered by section 56(2)(viia) and is exempt from tax u/s 47(iii) of the Income Tax Act, 1961 (the Act). After considering all the facts and circumstances of the case, it is held that the AO has correctly observed that gift by a corporation to another corporation is a strange transaction as there cannot be a gift between artificial entities/persons. The submissions filed by the Appellant are considered and not found to be tenable. The case laws cited by the Appellant are distinguishable on facts. The AO has held that the transfer of shares of ₹ 489,30,83,023/- to M/s Giebe Trading Pvt. Ltd. is a transfer within the meaning of sec. 2(47) of the Act and is liable to be taxed u/s. 45 of the Act. The provision of Sec. 47 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mily realignment, transfer of shares was made as a gift to Giebe Trading Pvt.Ltd., which is exempt from capital gains by virtue of provisions of section 47 (iii) of the Act. He submitted that the shares continue to be held by Giebe Trading Pvt.Ltd., and no amount has been received by assessee. He therefore submitted that there was no question of taxation of any amount in the hands of the assessee. Ld.Counsel submitted that provisions of section 56 (2) (viia) are also not applicable since assessee has not received any shares as gift and that the recipient still holds the shares in its books of account and has not sold the said shares received as gift from assessee. 7.4. Ld.Counsel submitted that there is no prohibition under any law in assessee gifting shares held as investment, to another company. He submitted that natural love and affection is not a precondition for the purpose of making gift. He placed reliance upon provisions of section 5 of Gift Tax Act and section 122 of Transfer of Property Act, to support validity of transaction. He submitted that transaction was genuine and cannot be regarded as sham without any basis or evidence. 7.5. Ld.Counsel by placing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India) Ltd. vs. JCIT [2014] 49 taxmann.com 146 (Chennai- Trib.) 3. Dana Corporation, In re [2010] 186 Taxman 187 (AAR) 4. Amiantit International Holding Ltd., In re. [2010] 322 ITR 678 (AAR- New Delhi) 5. Deere Co., In re [2011] 337 ITR 277 (AAR) 6. CIT vs. Shoorji vallabhdas Co. [1962] 46 ITR 144 (SC) 7. CIT vs. Excel Industries Ltd. [2013] 358 ITR 295 (SC) 8. Ram Charan Das vs. Girjanandini Devi and Ors. AIR 1966 SC 323 9. CIT vs. Kay Arr Enterprises [2008] 299 ITR 348 (Madras) 10. CIT vs. R. Jayanthi (HUF) SLP (C) No. 9079/2008 11. CGT vs. K.N. Madhusudhan. GTA No. 2/2008 (KAR) 12. CIT vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. She submitted that alleged transfer of shares (held as investment by assessee), to another company without any consideration has lead to Nil investment in Jindal Steel Power Ltd., and has given rise to loss of ₹ 17,29,64,655/-, which has been adjusted out of reserves of assessee. 7.10. On behalf of revenue Ld.CIT DR raised serious question regarding the genuineness of the transaction. She adverted that the purpose of the transaction is also questioned. She submitted that by merely resolution passed by the Board of Directors of the assessee resolving assessee to voluntarily gift shares held by it in another Public Limited Company was deliberate act to couch the transaction for eliminating tax implications. She submitted that genuineness of gift set up by assessee has been seriously disputed by revenue wherein assessee is supporting alleged transfer on the basis of a board resolution. She submitted the nature of alleged transfer to be sham. 8. We have perused the submissions advanced by both the sides in the light of the arguments and the judicial precedents relied upon by both the sides. 8.1. The scheme of capital gains, as set out in Section 45 to 55 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s brought on record to establish if any gift deed was executed. In case of Redington India Ltd vs. DCIT (supra), issue under consideration before coordinate bench of this Tribunal was of a gift by assessee therein of shares of its wholly-owned subsidiary to another group company with an objective of raising funds for expansion of business as a part of corporate restructuring. It was observed by coordinate bench of this tribunal that the transfer of shareholding in wholly-owned subsidiary to another group company without any consideration was with the intention that post transfer, the transferee company would also be an wholly owned subsidiary. The issue raised by assessing officer therein was that such transfer could not be termed as gift for lack of natural love and affection and therefore would not be covered by exclusion under section 47 (iii) of the act. On perusal of the decision it is observed that the genuinity of the transfer of shares without consideration was not questioned by the authorities below and therefore this Tribunal decided that gift for the purposes of Gift Tax Act, 1958 qualifies a property in money or monies worth to be transferred to a person which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establish the genuineness of the transfer. Merely by stating that the transfer was effectuated in lieu of a family realignment is not acceptable without supportive documents in the eyes of law. Hon ble Delhi High Court in the case of CIT vs Goodyear Tire and Rubber Company (supra) has dealt with a case where revenue contended treaty shopping as according to revenue transfer was designed to evade tax. The facts of this case are that assessee therein was an American company was a promoter holding 74% shares of Indian company. Assessee also had a wholly owned subsidiary company in Singapore. In order to expand the role of Singapore-based company for the benefit of group entities within Asia Pacific region share contribution deed was executed to contribute voluntarily the 74% shares it held to the Singapore-based company. It was also contended that the shares of Indian company held by American company was capital asset. On this factual background Hon ble Authority of Advance Ruling decided that no consideration would accrue or arise to the applicant by transfer of shares and it cannot be presumed that by transfer of shares assessee would have derived any profit or gain. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uble as on the date of transfer because the shares that were transferred worth of listed company and NSE. 8.3. Further, other decisions relied on by Ld.Counsel are factually distinguishable and not applicable to the facts of present case. Thus entire list of decisions relied upon by Ld. counsel cannot rescue assessee from tax implication as those are factually different from that of the present as has been discussed above. 8.4. Under section 82 of Companies Act 1956, as it was applicable for the relevant assessment year, shares in a company is a moveable property, transferrable in the manner provided by its Articles of Association. Assessee has not shown/established the manner in which alleged transfer that has been effectuated, was authorized by its Articles. It is difficult to imagine Articles of Association of a company providing for gifting of assets in the company to another company by way of shares in a public limited company, unless it be one which has been set up for some purpose. Ld.A.O. had rightly raised question regarding the reality and genuineness of transaction, in addition to its validity. In fact when such transactions are entered into, involving assets subst ..... X X X X Extracts X X X X X X X X Extracts X X X X
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