TMI Blog2019 (3) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 56 under the head “Income from Other sources”.It can be said that the residuary head of income can be resorted to only if none of the specific head is applicable to the income in question and that it comes into the operation only if the preceding heads are excluded. Thus, it can be said that the residuary head of income can be invoked only if all the following conditions are satisfied. The benefit accrued to the Assessee in present case is in the capital field and can be brought to tax only under the head capital gain. Accordingly, the provisions of section 56(1) cannot be resorted to. After going through the entire order of the Assessing Officer wherein the Assessing Officer alleged that the assessee has adopted a colourable device, however, not a single instance has been brought on record by the department of any tax evasion. We direct the Assessing Officer to consider shares of WWIL transferred to ECRPL No. 1,03,31,658 and to ECRPL No. 1,28,26,555 as a gift, therefore, not liable to tax. In respect of shares transferred to EBPL, the sale consideration is not to be replaced by the market price but at the price on which these have been transferred. Similarly in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution, register of members and Form 2 filed with the ROC intimating allotment of preference shares. In fact, the monies received towards share capital has been accepted by the AO and it is only the money received toward share premium which is in dispute. In view of the above, the nature and source of ₹ 35 crores received stands explained and no addition under section 68 of the Act is called for. Section 56(2)(viib) of the Act which seeks to tax amount received in excess of fair market value of shares only applies from Assessment Year 2013-14. Hence, Section 56(2)(viib) of the Act cannot be resorted to in the instant assessment year 2012-13 under consideration. Therefore, share premium is not chargeable to tax. Even if the share premium is excessive, the same cannot be taxed under the provisions of section 68 during the A.Y. 2012-13 under consideration, since the nature and source of the same stands fully explained. This contention is duly supported by the decision of the Mumbai Tribunal in the case of DCIT v. Varsity Education Management Pvt. Ltd [2018 (10) TMI 1438 - ITAT MUMBAI]. Addition made on account of share premium received by the assessee to be deleted - Decided i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holly owned subsidiary 7 group concerns even though, the said advances were given out of commercial expediency. The reasons given by her for . doing so are wrong, contrary to the facts of the case and provisions of law. 3. Disallowance u7s 14A read with Rule 8D of the Income-tax Rules, 1962 (hereinafter referred to as the Rules ) a. The Ld. CIT(A) erred in law and facts in confirming the addition of ₹ 8,29,19,798/-u/s 14A of the Act r.w. Rule 8D. The reasons given by her are contrary to the facts of the case and provisions of the Act. b. The Ld. CIT(A) failed to appreciate that the additional disallowance of interest expenditure under section 14A of the Act r.w. Rule 8D of ₹ 18,64,68,8997- ought to be deleted in the absence of dividend income and not because the same has been disallowed under section 36(l)(iii) of the Act , . . 4. Addition u/s 68 of the Act amounting to ₹ 34,99,65,000/- a. The CIT(A) erred in law and facts in upholding the action of the AO in making an addition of ₹ 34,99,65,000/-, being money received towards issue of optionally convertible preference shares during the relevant previous year, as unexplained ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relatable to earning of exempt income, and have to be considered for disallowance. 5. The Assessee prays that the order of the CIT (Appeals) on the above grounds be set aside and that oj the AO be restored. 6. The Assessee craves leave to amend or alter any ground or to submit additional new ground which may be necessary. 4. Following grounds have been taken by the Revenue in the A.Y.2013-14. 1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of ₹ 1,62,25,661/- made u/s.14A r. w. Rule 8D and thus ignoring the CBDT Circular no. 5/2014 dated 11.02.2014 that clarifies that disallowance u/s 14A has to be made irrespective of the fact whether any exempt income has been earned during the year by the assessee or not 2. The Assessee prays that the order of the CIT (Appeals) on the above grounds be set aside and that of the AO be restored. 3. The Assessee craves leave to amend or alter any ground or to submit additional new ground, which may be necessary. A copy of the order of the CIT(A) was received on 03.02.2017 and the last date for filing of appeal is 03.04.2017. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al consideration of ₹ 85.80 Cr against book cost of ₹ 127.01 Cr and suffered loss on such sale/transfer which was disallowed by the assessee in the computation of total income. The Ld. AO observed that the assessee has transferred these shares at Nil consideration under colorable device to evade taxes. Hence, the Ld. AO computed the income on sale/transfer of such listed shares at market value of ₹ 57.90 Cr by taking Nil value as cost of acquisition as computed in the assessment order. The Ld. AO assessed alleged income of ₹ 57.90 cr u/s 56(1) of the Act as income from other sources. The Ld. AO has taken purchases consideration at Nil and taken sale consideration by estimating market value of ₹ 57.90 Cr, while the cost of acquisition of shares is ₹ 127.01 Cr and sale consideration is ₹ 85.80 Cr. Hence, the whole addition so made by A.O. is without appreciating the facts. 8. The A.O also disallowed interest u/s 36(1)(iii) of the Act of ₹ 625,30,04,708/-. In this regard we observed that During the year the assessee had incurred interest expenditure of ₹ 63,11,63,059/- i.e. 63.11 Crores which was wrongly stated as 631.16 Cr by L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per Rule 8D(iii) - Administrative expenditure computed at 0.5% of average investment (Total expenses claimed for the year Rs. Nil) 28,48,16,401/- Less: Disallowed in computation of total income (8,16,63,713/-+12,56,085/-) 8,29,19,798/- Total 20,18,96,603/- 10. A.O also made addition u/s 68 of the Act amounting to ₹ 34,99,65,000/-. In this regard we found that during the year the assessee has allotted 350 optionally convertible preference shares to Pan India infrastructures Pvt. Ltd. at ₹ 10 Lacs per shares having face value of ₹ 100 at premium of ₹ 9,99,900/- per share. During the course of hearing before the AO the assessee submitted following documents of Pan India infrastructures Pvt. Ltd. (a) share certificates; (b) Bank account; and (c) Ledger account of assessee in the books of Pan India Infrastructures pvt ltd. However, the Ld. AO made addition of said ₹ 34,99,65,000/- u/s 68 of the Act being amount representing share premium on following grounds. (a) The assessee has filed to substantiate the amount of share premium with do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sr. No. Particulars Purchaser No. of shares Cost of acquisition Sale consideration Gain/ (Loss) 1. Wire Wierless India Ltd. Essel Corporate Resources P. Ltd. 1,03,31,658 1,96,31,05,502 NA (Gift) (19,63,01,502) 2. - - 1,28,26,555 2437,04345 NA (Gift) (24,37,04,545) 3. Esscl Business Process Ltd. 65,00,000 12,35,00,000 12,35,00,000 - 4. Essel Busines process Ltd., 1,00,00,000 19,00,00,000 19,00,00,000 - 5. - - 2,71,73,445 51,62,95,455 51,62,95,455 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nders Arbuthnot Co. (87 ITR 407) 17. However, the Assessing Officer did not agree with the submission of the assessee and held that the fair market value of the shares is to be substituted for sale consideration and thereby made the addition of ₹ 57,90,33,060/-. His detailed reasonings can be summarized as under: (i) The assessee has very minimal paid up capital and has huge accumulated losses as well as borrowing. It has also advanced huge amounts to related parties and subsidiaries and have substantial investments in subsidiaries and group companies. (ii) The shares of assessee-company are held by the shareholders who are all family members. (iii) Certain details regarding the above transactions were called for, however, the same were not submitted by the assessee. (iv) There are several companies and entities in the group and similar transfer of shares have been carried out in many other companies. (v) The modus operandi of transfer of shares is same in all the group companies wherein the transferor becomes holding company of transferee and thereafter the shares worth crores of rupees are transferred at nil consideration, (vi) The inter se status of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Memorandum and Articles of Association as well as DEMAT slip of share transfers were relied upon. It was pleaded that the transaction cannot be considered as colourable device and the principle laid down by the Supreme Court in the case of McDowell and Co. Ltd, is not applicable. The order of the Mumbai Bench of the Tribunal in the case of DP World Pvt. Ltd. v. DCIT (162 TTJ 446) was relied upon to contend that the transaction of gift cannot be brought to tax. It was also submitted that in the absence of selling price, the capital gain cannot be calculated and, hence, computation machinery falls. It was further contended that the market value cannot be substituted for sale consideration as there is no such provision in the Act. As regards the applicability of S. 56 of the Act, it was submitted that the gain arising out of transfer of capital asset cannot be brought to tax under the head income from other sources. 20. By the impugned the CIT(A) held that the transactions of transfer of shares were in the nature of colourable device. He was also of the view that the transaction of transfer of shares without consideration cannot be said to be gift. He found that certain field in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the transfer of shares is a transfer of capital asset and the gain from which is chargeable to tax u/s. 45 of the Act. The computation of gain, for this purpose, is to be done as prescribed in S. 48 of the Act which provides for deduction of cost of acquisition from full value of consideration . The phrase full value of consideration has received the judicial interpretation in series of decisions by various High Courts as well as Supreme Court. In the case of the CIT v. Morarjee Textiles Ltd. (ITA 738 of 2014) (Bom.), on the facts similar to the present case, wherein the question posed was whether fair market value of shares transferred can be taken as sale consideration for computation of long term capital gain, the Hon ble Bombay High Court held as under: 4. Regarding question no. (ii):- (a) The issue which arises herein for consideration is whether it is open to the Assessing Officer to substitute the full value of consideration1 received on sale of shares by its fair market value in the subject Assessment Year. The impugned order of the Tribunal allowed the respondent-assessee s appeal by inter alia holding that the reliance by the Revenue on Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of shares came into the statute only on introduction of Section 50D with effect from 1st April 2013. Moreover, such a power under Section 50D of the Act is only to be exercised if the Assessing Officer comes to a finding that the consideration received is not ascertainable or cannot be determined. Moreover the decision of the Co-ordinate bench of the Tribunal in the case of MGM Shareholders Benefit Trust (Supra) on identical facts situation has been accepted by the Revenue, as no appeal from the same has been filed by the Revenue. (d) In the above view, the question as formulated does not give rise to any substantial question of law. Thus not entertained. 23. It was also argued by the Ld. AR that notional value of sale consideration can only be taken when it is specifically provided in the Act for e.g. section 50C of the Act which provides for a deemed full value of consideration. As per the ld. A.R. there is no such provision applicable in the present case and accordingly the fair market value cannot be taken as the sale consideration. 24. It was further argued that the transfer in the nature of gift are outside the purview of capital gain provisions. Transfer o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded as colourable device. In any case, this is applicable to the case of group companies and not to the assessee as the transfer or under consideration is not by holding company to its subsidiary and consequently no benefit of S, 47(iv) of the Act has been claimed. (vi) The change in the inter se status of the companies is again irrelevant for the purpose of deciding the issue under consideration the court approved amalgamation cannot be found fault with. For this purpose, reliance is placed upon the order of the Kolkata Bench of the Tribunal in the case of Electrocast Sales India Ltd. v. DCIT (92 taxmann.com 85). (vii) It is not correct to say that the real purpose is to divide the business amongst family members. In any case, if the transactions are not in violation of any law or unreal the same cannot be disregarded. Further, when the ultimate recipient of gifted shares sells the shares, it would be subject to capital gain tax taking the cost of acquisition with reference to that of the previous owner as provided under section 49(l)(ii) of the Act, Accordingly, it is not even a case where the assesses has been able increase its cost of acquisition with a view to pay lower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the gain can be taxed under the head income from other sources. The provisions of S. 56(1) of the Act reads as under; 56.(1) 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 heard 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. 28. The income from other sources is the last and residual head of income. A source of income which does not specifically fall under any one of the other four heads of income (viz, Salaries, Income from House Property, Profit and gains of business or profession, or capital gain) is to be computed and brought to charge under section 56 under the head income from other sources . In other words, it can be said that the residuary head of income can be resorted to only if none of the specific head is applicable to the income in question and that it comes into the operation only if the preceding heads are excluded. However, the benefit accrued to the assessee in present case is in the capital field and can be brought to tax only under the head capital gain. Accordingly, the provisions of Sec. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it can do so. Further, it is clear from section 123 of TOPA, there is no requirement of a gift deed. We observe that for movable property, a gift deed in writing is not necessary, an oral agreement with transfer of possession is sufficient to complete a gift of a movable property. This view has been held by the Hon ble Mumbai Tribunal in the case of Nerka Chemicals Pvt. Ltd. v. DCIT [ITA 4423/M/2014] which held as under: Further, the Coordinate bench of Tribunal in DCIT Vs KDA Enterprises (supra) held section 2(24) defines income . The definition of income provided in section 2(24) although an inclusive definition, but it specifically provides the income which are intended to be taxed under the provisions of the Act. Even the income in the nature of capital gains as per section 45, and gifts received as per section 56(2)(v), (vi), (vii) etc. are included in the definition of income. Thus under the Act only the receipts which are in the nature of income are subjected to tax. Any other receipts which are not in the nature of income are not liable to tax under the provisions of the Act. Section 5 provides for scope of total income chargeable to tax in India on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord we found that in one of the DMAT slips (Pg 89 of PB-I), which related to transfer of 98,31,658/- shares without consideration, the CIT(A) held that this was not a gift since the assessee had not ticked the option of gift provided in the slip instead had mentioned it was a case of transfer of off market inter se transfer between promoters. In this regard we observed that the SEBI (Substantial Acquisition of Shares and Takeover) Regulation, 1997 [hereinafter referred to as SEBI Takeover Code ] requires public announcement on transfer of prescribed limit of shares. However, an exemption is provided where the transfer of shares is an inter se transfer between promoters. In the instant case, it is an off market inter se transfer of shares between promoters rather than simply mentioning gift which would invite doubts as to why public announcement was not made. Hence, to be more specific and claim exemption from public announcement of transfer, off market inter se transfer of shares between promoters was mentioned. Further, it is not a case where the assessee has ticked another option. The assessee has disclosed that the shares are transferred without consideration which is evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of shares of WWIL DTIL should be added under section 56(1) of the Act. The same cannot be accepted. Attention is invited to the provisions of section 56(1) of the Act which read as under: Income from other sources 56. (1) 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. From the above, we observe that income from other sources is the last and residual head of income. A source of income which does not specifically fall under any one of the other four heads of income (viz, Salaries, Income from House Property, Profit and Gains of business or profession, or capital gain) is to be computed and brought to charge under section 56 under the head Income from Other sources . In other words, it can be said that the residuary head of income can be resorted to only if none of the specific head is applicable to the income in question and that it comes into the operation only if the preceding heads are excluded. Thus, it can be said that the residuary head of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t submitted various essential details during the course of the assessment proceedings. 37. In this regard, we observe that the assessee handed over a copy of letter dated 25.03.2015 by which it is clear that the assessee submitted all the requisite details. 38. The Ld. DR also relied upon Para 3.3 to 3.6 to contest that the assessee undertook a modus operandi to transfer share of listed companies worth crores to a wholly owned subsidiary which ultimately get merged into other group concerns by which it is alleged that the assessee avoids capital gain tax. For this the Ld. DR relied on Para 10 at Pg 8 of the AO s order to contest that the assessee at first gifted shares of WWIL DTIL to its wholly owned subsidiaries Essel Champs as gift. Essel Champs thereafter merged with PFT. It was alleged that the assessee had succeeded in avoidance of payment of tax by transferring shares of WWIL and DTIL, ultimately to PFT under the said modus operandi. 39. In this regard we observe that the facts relied upon by the AO at Para 10 relate to AY 11-12 and not to the relevant assessment year under consideration i.e. 2012-13 as is evident from Para 10.2 and 10.3. The transfer of shares of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) of the Act. We have considered the rival contentions and carefully gone through the orders of the authorities below and found from the record that the assessee has an opening balance of advances of ₹ 215.75 Cr and closing balance of ₹ 184.16 Cr which inter alia includes share application money to Essel Sports Pvt. Limited, its wholly owned subsidiary and share application money to Mumbai Football Club Pvt. Ltd., a group concern, details of which are as under: Particulars As on 31.03.2011 As on 31.03.2012 Pan India Infrastructure Pvt. Ltd. 202.60 Cr 169.62 Cr Mumbai Football Club Pvt. Ltd 12.79 Cr 14.32 Cr 44. The Assessing Officer has made disallowance by disregarding the fact that the advances were made as a commercial expediency. From the record we found that during the course of the assessment proceeding vide letter dated 25.03.2017, the assessee has substantiated that the advances in the form of share application money were out of commercial expediency and therefore there was no occas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the name changed to Pan India Infrastructure Pvt. Ltd.) which entered into infrastructure business earning revenue receipts from construction activities. As regards, the share application money to M/s Mumbai Football Club P Ltd: The Assessee advanced a sum of ₹ 2.75 Cr, ₹ 7.93 Cr, ₹ 0.58 Cr, ₹ 1.53 Cr, in AY 08-09, AY 09- 10, AY 10-11, AY 11-12 respectively. Mumbai Football Club is among 14 premier football clubs of India that participate in the professional I-League tournament under the aegis of the All India Federation. Mumbai FC is a venture of the Essel Group incorporated with the object to set up a football club, which includes development, training, coaching, marketing and managing football games/sports events. Further, it was to set-up infrastructure for sporting events on national and international levels which has potential advertisement and prize money revenue. To promote such activity, the Assessee invested in the aforesaid concern not only to finance the said activity but also participate in the returns it generates. Further, during the year under consideration, the Assessee advanced a further sum of ₹ 1.54 Cr. The said funds have been u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28,48,16,401 In this premise, the AO made a further disallowance of ₹ 20,18,96,603/- (28,48,16,401 - 8,29,19,798). Before the CIT(A), the assessee contended, inter alia, that the disallowance under section 14A read with Rule 8D of ₹ 20,18,96,603/- should be deleted since in the absence of exempt income, the provisions of section 14A read with Rule 8D do not apply. It additionally claimed that the suo-moto disallowance of ₹ 8,29,19,798/- should be deleted on the same footing. The CIT(A) in principle upheld that disallowance of interest of Rs. (26,81,32,612 - 8,16,63,713) but however held that since the entire interest stands deleted under section 36(l)(iii) or suo-moto disallowed by the assessee in return of income, no disallowance under 14 A read with Rule 8D was called for. As regards disallowance of expenses under section 14A read with Rule 8D, the CIT(A) held that since the assessee had claimed only a sum of ₹ 91,000/- in its return of income against which the assessee had suo-moto disallowed a sum ₹ 12,56,085/-, no further disallowance was warranted. The assessee s appeal is against the confirmation of disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nally Convertible Preference shares (face value ₹ 100 per share) to M/s PAN India Infraprojects Pvt. Ltd [hereinafter referred to as PIIPL ] at a premium of ₹ 9,99,900/- per share. The AO treated the share premium of ₹ 34,99,65,000/- as unexplained cash credit u/s 68 of the Act. The AO alleged that the Assessee had failed to substantiate the amount received with documentary evidence. The CIT(A) upheld the contentions of the AO. 53. We have considered rival contentions and find from record that during the year under consideration, the assessee has issued 350 Optionally Convertible Preference shares to PIIPL. By filing various documentary evidences, the assessee has duly explained the nature and source of receipt of money of ₹ 35,000 towards share capital and balance ₹ 34,99,65,000 towards share premium aggregating to ₹ 35,00,00,000/- received towards issue of OCPs by establishing the identity and creditworthiness of the subscriber PIIPL as well as the genuineness of the transaction. Consdiering the documents placed on record, the addition of ₹ 34,99,65,000/- under section 68 of the Act is unsustainable both in facts and law. 54. As pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, not taxable under the IT Act held as under: 42. It was contended by the Revenue that in any event the charge would be found in Section 56(1) of the Act. Section 56 of the Act does provide that income of every kind which is not excluded from the total income is chargeable under the head income from other sources. However, before Section 56 of the Act can be applied, there must be income which arises. As pointed out above, the issue of shares at a premium is on Capital Account and gives rise to no income. Section 56(2)(viib) of the Act which seeks to tax amount received in excess of fair market value of shares only applies from Assessment Year 2013-14. Hence, Section 56(2)(viib) of the Act cannot be resorted to in the instant assessment year 2012-13 under consideration. Therefore, share premium is not chargeable to tax. Even if the share premium is excessive, the same cannot be taxed under the provisions of section 68 during the A.Y. 2012-13 under consideration, since the nature and source of the same stands fully explained. This contention is duly supported by the decision of the Mumbai Tribunal in the case of DCIT v. Varsity Education Management Pvt. Ltd. [ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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