TMI Blog2016 (9) TMI 1493X X X X Extracts X X X X X X X X Extracts X X X X ..... but they are not the subject matter of appeals before him. Therefore, we order for deletion of such direction. Therefore, further, we direct the AO to delete the addition on this account. Gift and its taxability u/s 56(2)(vii) - transaction of gift of UPL and UEL shares to NCPL as a colourable device - HELD THAT:- The assessee is the donor and not the receiver as per the transfer agreement honoured by the revenue authorities. Therefore, in our view the said provisions are not applicable to the facts on record. CIT's conclusions relating to the indirect transfer of benefit suffers from the lack legislative support in any form. Therefore, we direct the AO to delete the addition on this account. The donor and donee of the benefit are the same. On this factual matrix, we do not find any indirect benefit unfairly accrued to the assessee-individual. Even if the transfer is not bonafide, we find it is case of donating share with right hand and receiving the benefit from the left hand of the same individual. In our view, the conclusion of the CIT(A) is far stretched and unsustainable. Therefore, the allegation of colourable device and applying the judgment of the Apex Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 115-O; (iii) gift and its taxability u/s 56(2)(vii) of the Act; and (iv) transaction of gift of UPL and UEL shares to NCPL as a colourable device. 3. Briefly stated relevant facts are that the assessee is an individual and filed the return of income declaring the total income of ₹ 9.48 Crs (rounded off). Assessment was completed u/s 143(3) of the Act and the assessed income was determined at ₹ 96.91 Crs (rounded off). In the assessment, AO made additions on account of Long Term Capital Gains (LTCG) amounting to ₹ 87,44,79,700/- apart from other additions. This issue relating to the LTCG is the subject matter of the appeal before the Tribunal. 4. Relevant facts include that the assessee-individual owns 55,27,644 shares of United Phosphorous Ltd-UPL and 5,52,965 shares of United Enterprises Ltd -UEL. These shares were transferred voluntarily to M/s. Nerka Chemicals Private Limited (NCPL) without any consideration received by the assessee.The said transfer is executed under the Transfer Agreement dated 26.2.2010. The copy of the said Agreement is placed in the paper book. In the return of income, assessee considered the said transaction of shares as gift ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat considering the absence of consideration, there is no case for invoking the provisions of section 45 r.w.s 48 of the Act. His finding in this regard is extracted as under:- 4.3.14.1............Since, the appellant had actually not received any consideration on transfer of shares of NCPL, the provisions of section 45 r.w.s 48 will not apply and, therefore, the action of the AO in assessing a sum of ₹ 87,44,79,700/- as LTCG in the hands of the appellant cannot be sustained and the addition made by the AO on this account is accordingly deleted. 5.1. Thus, the CIT(A) appreciated the fact that the transfer of shares to NCPL, was done without receiving any consideration in cash or kind and rejected the AO‟s conclusion of invoking the provisions of section 45(1) r w s 48 of the Act. In the order of the CIT(A) dated 31.3.2015, the addition of ₹ 84.45 cr (rounded off) was sustained giving others reasons, which are taken up in the succeeding paragraphs. 6. We shall now deal with the aforesaid other reasons. To start with, the CIT (A) invoked the provisions of section 2(22)(a) of the Act and came the conclusion that the transfer of shares is the case of disgu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rring to the recital B of hte said agreement, Ld Counsel brought our attention to the expressions voluntary‟ and the without consideration‟. He reasoned that the these expressions constitute important aspects of any gift transaction and therefore, the said transfer agreement constitutes gift agreement‟ in substance. 8.1. In that case, if the said agreement is considered gift agreement in substance, relevant transfer constitutes an exempt transfer‟ within the meaning of the clause (iii) of section 47 of the Act. Ld Counsel read out the said clause (iii) as under:- 47. Nothing contained in section 45 shall apply to the following transfers,- (i).... (ii)... (iii) any transfer of a capital asset under a gift or a will or an irrevocable trust 8.2. Further, he reasoned that if the argument on exempt transfer‟ is approved, there is no case for invoking any of the subsection of section 45 of the Act. In order to make out a case against the gift‟, CIT(A) laboured a lot on the said expression of gift and borrowed information from various sources and mentioned that the expression gift should have aspects of love and affection and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndividual and owns the shares of UPL and UEL. These shares are transferred to NCPL without consideration. With these facts, Ld AR submitted that there is no case for invoking the provisions of section 2(22)(a) of the Act. Ld AR relied on the judgment of SC in the case of CP Sarathy Mudaliar 83 ITR 170 and argued that loans advanced by a company to an HUF are outside the scope of said provisions of section 2(6A(e) of the I T Act, 1922 as the HUF per se are not the share holders of the company. He submitted the provisions are similar to the present provisions of section 2(22) of the Act. Ld AR applied the said law to the present facts of the individuals and stated that the provisions of section 2(22) are the deemed provisions and they have to be construed strictly and they are applicable to the present facts where the assessee-individual- the donor of shares, is not the share holder of the NCPL. Extending his reasoning, Ld AR submitted that the assessee is the donor of shares and not the donee and not the beneficiary of any distribution of by a company of accumulated profits by any means specified in section 2(22)(a) of the Act. Referring to the interpretation of the CIT(A) regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of share by the assessee to NCPL without consideration. He also submitted that the AO / CIT (A) randomly applied the ratio of the judgment in case of McDowells (supra) ignoring the facts of the case. 12. Per contra, Ld DR for the Revenue heavily relied on the orders of the AO / CIT (A). The DR is of the opinion that in substance, the family members of Shroff are / will be benefitted as and when the said shares of UPL / UEL are sold and in that sense of the matter, the benefit arose to the assessee. Ld DR argued for confirming the orders of the CIT (A). Decision of the Tribunal 13. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. The assessee is aggrieved with the conclusions of the CIT (A) relating to the invalid invoking of various provisions of section 2(22)(a); section 115-O; section 56(2)(vii) and colourable device related issues. To list of the various aspects discussed by the CIT(A) in his order and according to him the share transfer transaction constitutes ,- (a) a transaction of transfer of shares of UPL/UEL is chargeable to tax u/s 2(22)(a) of the Act; (b) the donor companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Rajnikanth D Shroff are the donors of shares to NCPL. The alleged ultimate beneficiaries of the impugned transaactions are again the same individual of the shroff family. We don‟t find any benefit accrued to them in any manner. Therefore, the analysis of the provisions of clause (a) of section 2(22) of the Act reveals that the same are inapplicable to the share transaction under consideration. In our opinion, the CIT (A) has randomly applied these provisions invalidly and without having any strength of explicit legal provisions. There are no provisions for taxing the so called indirect benefit accrued to the shareholders of the company and provisions of section 2(22)(e) and the that of the section 64 helps the assessee. Therefore, we direct the AO to delete the addition on this account. 17. In our view, further, we find Ld CIT (A) exceeded his jurisdiction in directing the AO to tax the donor companies u/s 115-O of the Act, which may be consequent one, but they are not the subject matter of appeals before him. Therefore, we order for deletion of such direction. Therefore, further, we direct the AO to delete the addition on this account. 18. Applicability of the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns are covered by the provision of section 47(iii) of the Act as prima facie held by the said judgments. There is no case of invoking the provisions of section 2(22)(a) of the Act on the assessee-individual. Similarly there is no case for direction to AO for invoking th provisions of section 115- 0 of the Act on the donor companies where the Shroff family members are the share holders. Finally we disapprove the CIT(A)‟s claim of colourable device in these cases of individuals. Considering the same, we are of the opinion that the grounds raised by the assessee are required to be allowed in favour of the assessee. We order accordingly. 21. In the result, appeal of the assessee is allowed. II. ITA No.4359/M2015 (AY 2010-2011) (In the case of Rajnikant D. Shroff) 22. This appeal filed by the assessee on 15.7.2015 is against the order of the CIT (A)-54, Mumbai dated 31.3.2015. In this appeal, assessee raised four main grounds viz (i) Taxability u/s 2(22)(a) of the Act; (ii) taxability of donor companies u/s 115-O; (iii) taxability u/s 56(2)(vii) of the Act; and (iv) gift of UPL and UEL shares as a colourable device. 23. Before us, Ld Counsel for the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd no.5 raised by the assessee is allowed. 29. In the result, appeal of the assessee is allowed. IV. ITA No.4584/M/2015 (AY 2010-2011) (In the case of Sandra R. Shroff) 30. This appeal filed by the assessee on 6.8.2015 is against the order of the CIT (A)-54, Mumbai dated 31.3.2015 for the assessment year 2010-2011. In this appeal, assessee raised five main grounds viz (i) Taxability u/s 2(22)(a) of the Act; (ii) taxability of donor companies u/s 115-O; (iii) taxability u/s 56(2)(vii) of the Act; and (iv) gift of UPL and UEL shares as a colourable device and (v) taxability of rental income as income from house property on protective basis. 31. All the issues raised in this appeal are identical to the ones raised by the assessee in ITA No. 4583/M/2015 (AY: 2010-2011), which is adjudicated by us in the above paragraphs of this order. Considering the commonality of the issues raised, our decision given therein squarely applies to the present appeal too. Accordingly, all the grounds raised by the assessee are allowed. 32. In the result, appeal of the assessee is allowed. 33. Conclusively, all the four appeals filed by the assessees are allowed. 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