TMI Blog2020 (12) TMI 731X X X X Extracts X X X X X X X X Extracts X X X X ..... operty Act, 1882 there is an absence of consideration in case of a gift. It is an undisputed fact that the assessee being the absolute owner of the shares gifted , had full enjoyment rights including to alienate, discard and even demolish, unless prohibited by some statutory provisions, it is within the powers of the assessee to make gift at its free will. Further the shares were credited in the books of account of the donor. The gift is also authorised by articles of association, approved by Board of Directors and Shareholders. We have carefully considered the facts of that case and found that those facts are distinct with the case before us. In that particular case there was no addition in the hands of the appellant donee company but the appeal was merely against a direction by the learned assessing officer to tax the above sum in the hands of the beneficiary by applying the provisions of Section 2 (24) (iv) of the income tax act in the hands of one Ms Arti Jindal while assessing the case of the appellant company. The only grievance in that appeal was that despite no addition was made in the hands of that appellant company, the learned assessing officer s jurisdiction was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the addition of ₹ 219,55,29,009/- made by the assessing officer, being the alleged business income arising on transfer of shares held in companies of O.P. Jindal Group. 2. That the CIT(A) erred in dismissing the appeal of the appellant, without affording adequate opportunity of being heard, in gross violation of principles of natural justice. 3. That the CIT (A) erred on facts and in law in affirming the action of the assessing officer holding that the appellant had allegedly earned business income on transfer of shares held in companies of O.P. Jindal Group. 3.1 That the CIT(A) erred on facts and in law in not appreciating that the said shares were given by way of gift, without consideration as part of internal family realignment of O .P. Jindal group, and consequently, no income liable to tax arose to the appellant under the provisions of the Income Tax Act, 1961 ( the Act ). 3.2 That the CIT(A) erred on facts and in law in affirming the action of the assessing officer holding that the transaction could not be regarded as gift since the transfer of shares was neither voluntary nor without consideration and further for the reason that there was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mited (74,72,040 equity shares of Jindal steel and Power Ltd having market value of ₹ 2,080,963,140), (2) Sahyog Tradecorp private limited (5000 shares of Jindal Saw Ltd having market value of ₹ 275,050/ ), (3) Virtuouse tradecorp private limited (1000 shares of Hexa Tradex Limited having market value of ₹ 21,790) and (1,95,964 shares of JSW steel Ltd having market value of ₹ 193,665,342/ ), (4) Danta enterprises private limited (54,923 shares of Nalwa Sons investment Ltd having market value of ₹ 32,391,388/ ). When assessee was questioned about the same, it produced copy of the board resolution of the assessee company wherein the gift of above shares were approved in the board meeting held on 18th of March 2014 along with the explanatory statement pursuant to Section 104 of the companies act, 2013. In the explanatory statement at item number [1] it was stated that as a part of the internal family realignment of the OP Jindal group it is proposed to gift those equity shares of various listed companies held by assessee to other companies. Consequent to that the shareholders were to pass a special resolution. This resolution was pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to him it was clear that assessee has transferred shares having the value of ₹ 230 crores to various companies as a part of internal family settlement, however, sale proceeds of such shares which were held as stock in trade as evident from the profit and loss account had not been credited to the profit and loss account. Since the assessee has not disclosed the details of internal family arrangement leading to the transfer of the above share, he held that the assessee had deliberately withheld disclosure of the value of the consideration received by the assessee on transfer of the shares, therefore, he issued a show cause notice to the assessee that why the sum of ₹ 230.73 crore should not be credited to the profit and loss account as sale proceed on transfer of shares as a part of transactions involving family realignment. 4. The assessee made submission on 31st of October 2016 stating that a company, assessee, can give gift and it is not prohibited. The assessee further relied upon the several judicial precedents in the case. With respect to the taxation it was submitted that only real income can be taxed and no notional income can be taxed as a business income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration and this condition of further valid gift was not met by the assessee, therefore, gift made by the assessee is void. With respect to the acceptance of gift by Donee , he held that the board resolution of the Donee companies has not been provided and therefore the acceptance of gift could not be proved. The learned assessing officer thereafter noted that as the assessee has not discharged its onus by furnishing the detail of internal family settlement in order to enable the assessing officer to compute correct amount of business income on transfer of the shares, he held that the assessee has received the business income of ₹ 230 crores being the fair market value of the shares. He further held that as assessee has not disclosed the business income accrued to the assessee on transfer of the shares, books of accounts of the assessee was rejected as it is also proved that the transfer of shares was not a valid gift but it was a transfer in view of internal family realignment for a consideration. Since the shares were held as stock in trade the business income of ₹ 219 crores (230 crores for market value ₹ 11 crores cost of the shares) accrue to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial years and the major part of revenue from operation has been achieved on account of receipt of dividend from the investment made in shares, therefore such business receipts cannot be considered as business income. He further referred to the decision of the authority for advance ruling in case of Orient Green Power private limited (AR number 973 of 2010 dated 14/8/2012). He further upheld the action of the AO in rejecting the books of accounts of the appellant by invoking the provisions of Section 145 of the act. Thus he upheld the action of the learned assessing officer in treating the book value of shares gifted which was part of stock in trade of the appellant company amounting to ₹ 219 crores as business income of the appellant. Accordingly, of the assessee was dismissed. Assessee aggrieved with that has preferred this appeal before us. 7. The ld AR submitted on merits of the case as under :- i. In support of the contention of the assessee, it is stated that there was a Memorandum of Understanding dated 12/11/2012 amongst the four sons of late Shri O P Jindal specifically desiring to realign or rearrange the holding of listed equity shares of late Shri O P Jindal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding of the all the shares including the listed equity shares gifted by the appellant showing with no trading have also been placed in the Paper Book. x. Copies of annual audited accounts of the appellant from the FY 2007-08 to 2012-13 have also been placed in the Paper Book. xi. Copies of annual audited accounts of the appellant from the FY 2014-15 to 2017-18 along with details of sale of stocks and list of dividend received from various companies have also been placed in the Paper Book. xii. On perusal of the above information, it is clear that the transfer of the listed equity shares of the group companies by the appellant to other group companies was in pursuance of a family realignment in pursuance to the MOU dated 12/11/2012. xiii. On perusal of the appellate order dated 12/05/2020 of the Hon ble ITAT in the case of Glebe Trading co P Ltd , it may be seen that three donor companies therein gifted listed equity shares of the five group companies to Glebe during the period relevant to the AY 2014-15 i.e. the same period which is under consideration. xiv. Further, on perusal of the above assessment order of the appellant, it is clear that the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and taxable income came to ₹ 11,04,580/-. The authorities below misguided themselves in harping upon the quantum of loss ignoring that the appellant had as on the balance sheet date investment in shares of ₹ 33,34,00,000/- and had given short term loans and advances of ₹ 7.49 crores. xix. A photocopy of the letter dated 07/11/2001 vide letter no. REGN. MISC. (EXISTING COY)/2001-02 issued by RBI rejecting the NBFC application which has been placed in the paper book. Reference is also invited to Para 19 of the notes to accounts, which specifically mentions that after rejection of appellant s application by the RBI to carry on business as a NBFC, the assessee-company has restricted its activities mainly of holding shares as promoters in the investee companies which proves that the appellant is basically an investor and not a trader in the stocks, a finding given by the CIT(A) which has also attained finality as none has challenged the same in appeal before the Hon ble ITAT. Thus, the said shares need to be considered as capital investment. xx. Admittedly, the appellant could not produce the family arrangement / alignment agreement executed on 12/11/2012 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tenable legally. It is trite law that abstracts like natural love and affection, succession planning, family realignment, etc. are not valuable considerations in terms of money or monies worth which is the basic requirement under Sales of Goods Act, Contract Act, and Transfer of Property Act. It is submitted that when no transfer / sale is valid without valuable consideration and in absence of consideration, no income under the head business can be presumed. xxvi. Whether the shares are treated stock in trade or investment is not very relevant for the dispute since the owner has absolute right of ownership which includes alienation, discarding or destroying the property at his Will. Factum of gift has been rejected by the revenue authorities, firstly, on the ground that the transfer involves consideration i.e. family realignment. As submitted earlier, the consideration has to be in money or monies worth and not abstract considerations. xxvii. Second ground, adopted by the revenue authorities is that the evidence of transfer of equity shares in full was not produced by the assessee and therefore, the transfer was not complete. It is submitted that it is self-contradictor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale/ transfer when movables are sold/ transferred by handing over possession It is also held that gifts were not voluntary then, no sale can be presumed since sale is always voluntary agreement between two parties vi. Shares were shown as stock in trade and when assessee decided to gift i.e. withdrawing from trading, no income accrues. [Supreme Court Kikabhai CLPB 100, Special Bench ITAT in DLF CLPB 111, Bright Star CLPB 163, Aditya Medisales CLPB 170]. Kind reference to the finding of the CIT(A) in para 17 page 46 that the shares were held by the assessee as investment has not been challenged by revenue or assessee before the Hon ble ITAT here. vii. When the stock in trade is withdrawn for gifting out, it gets converted into capital asset in nature[Special Bench DLF Universal CLPB 111].The character of the asset at the time of its transfer alone is relevant, and what was the nature at the time of its acquisition, is altogether irrelevant. Therefore, in the present case the character of shares after withdrawal from trading was capital and there is no question of business profit [Special Bench DLF Universal]. Stand of revenue in para 16.26 of DLF and recorded reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Ld AR further relied up on several documents filed in his paper book containing 509 pages. He referred to many of those documents including the annual accounts of the assessee appellant, annual accounts of the Donee companies and the way shares have been transferred by assessee and accepted by the donee companies. 10. The learned departmental representative vehemently supported the order of lower authorities . 11. We have carefully considered the rival contentions, various decisions cited as well as the paper books supplied by assessee and orders of lower authorities. Simple facts before us shows that assessee appellant company was holding some shares of certain listed companies of O P Jindal Group as stock in trade. As stated these shares were gifted by the appellant company to four different companies of the same group. It was claimed that these gifts have been made as part of family settlement/ arrangement of O P Jindal Group. 12. The first contention that we deal with is whether the appellant company has transferred those shares as part of O P Jindal Group family settlement. A family arrangement is an arrangement between members of the same family intended to be gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compendiously described 'a oneman company'. 10. However, the courts have permitted the lifting of corporate veil to prevent injustice. One such class of cases, where the court has disregarded the corporate entity is where it is used for tax evasion. A classic illustration of this is found in Dinshaw Maneckjee Petit, In re [1927] AIR 1927 Bom 371, where the court lifted the corporate veil as it found that the company in this case was formed by the assessee purely and simply as a means of avoiding super tax and that the company was nothing more than the assessee himself. It did no business but was created purely and simply as a legal entity to ostensibly receive dividends and interest and handed them over to the assessee as pretended loan . In the present case, the Revenue does not seek to lift the corporate veil. It is not the case of the Revenue that the corporate identity is a sham and it has been formed only to circumvent the law. In this case, it is the assessee which seeks to lift the corporate veil so as to identify the members of the assessee-company as those who entered into family settlement as reflected in the arbitration award dated April 30, 1994 and cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee from complying with its obligations under the law. It was also contended that the appellant-assessee had no volition in transferring the shares. This submission overlooks the fact that an artificial entity such as a company only acts through its directors and in no case, does the company have a mind of its own to decide the course of action to be adopted. 13. Further Honourable Karnataka High Court in case of Commissioner Of Income Tax And Another Versus Sea Rock Investments Ltd (2009) three and in 17 ITR 253 (Kar) has also held that though in that case the respondent assessee is a private limited company even though its shareholders are members of the joint family, shareholders have no right over the assets of the company and they would get a right over the assets of the company only in the event of the company is liquidated under the provisions of the companies act and assets are to be distributed to the members of the company. If it is so, by virtue of the arbitration award of shares of the private limited company are transferred to others for consideration, it was held that the respondent assessee being a legal entity is liable to pay the capital gain tax. 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case it is not in dispute that the company transferred shares held as stock in trade and having market value of ₹ 230 crores to the four companies and therefore there is no dispute that there was a transfer of movable property. It is also not in dispute that appellant company was the sole owner of those shares which were transferred as gift to four donee companies. The appellant has amended its articles of association on 26th of December 2013 by adding/inserting clauses 54, 55 and 56 of the Other objects to include a provision for making a gift by the appellant company. Further resolution was also passed in the meeting of the board of directors of the assessee company on 18 March 2014 proposing gift of equity shares to the other four companies. Further an extraordinary general meeting was called on 20th of March 2014 and there also the above resolution was passed by the shareholders of the assessee company. On careful analysis of the shareholding pattern of the assessee it is apparent that there are 12 different corporate entities who are shareholder of the appellant company. Though, the shareholders of these corporate entities who are holding shares in the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appellant company (none of them belong to the family member of the OP Jindal family) and passing of the resolution by the shareholders in an extraordinary general meeting cannot be said to be a non-voluntary act by the appellant. The criteria is laid down u/s 122 of The Transfer Of Property Act 1882 clearly shows that there has to be an absence of consideration. The learned AO at page number 14 of assessment order has held that the above transaction is of gift made by the assessee, however substantial receipt by the assessee which may be if no more but with matching value. However the exact amount of receipt on transfer of shares could not be ascertained due to withholding of information of internal family realignment. We find that there is no fund credited in the books of account of the appellant, no assets are acquired by the appellant, no benefit is received by the appellant, there is no promise of any future consideration in lieu of the alleged gift. On the basis of the financial statements produced before us also we could not find that assessee has been benefited in any manner for the alleged gift. Therefore, assessee appellant company which is a separate independent en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld to be the cost of acquisition. Further Section 2 (42A) has also an insertion of clause (ba) in explanation 1 of clause (i), which provided that the period of holding such a capital asset shall be reckoned from the date of conversion treatment. The above provisions have been amended with effect from 1 April 2019 and therefore even if it is to be presumed that by gifting of the shares assessee converted its stock in trade into a capital asset before gifting, same are not liable to be taxed in assessment year 2014 15 i.e. impugned assessment year. However, there is no act on part of the assessee for the reason that no allegation of the revenue that before transferring the above share as a gift to the different donee companies, assessee converted its stock in trade into a capital asset. The fact remains that revenue also says that the assessee has transferred its stock in trade as a gift. 18. The learned assessing officer rejected the books of accounts of the assessee for the reason that according to him, assessee has not disclosed business income accrued to it on transfer of the shares to the audited profit and loss account. He also rejected the argument of the assessee that n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssociation, approved by Board of Directors and Shareholders. Assessee heavily relied upon the decision of the coordinate bench in case of Glebe Trading Private Limited Versus Income Tax Officer (2020) 116 taxmann.com 866 (Delhi) to state that when the assessee in that case received certain shares from various companies as gift without paying any consideration the same was also not chargeable to tax in view of family settlement of Jindal group. We have carefully considered the facts of that case and found that those facts are distinct with the case before us. In that particular case there was no addition in the hands of the appellant donee company but the appeal was merely against a direction by the learned assessing officer to tax the above sum in the hands of the beneficiary by applying the provisions of Section 2 (24) (iv) of the income tax act in the hands of one Ms Arti Jindal while assessing the case of the appellant company. The only grievance in that appeal was that despite no addition was made in the hands of that appellant company, the learned assessing officer s jurisdiction was challenged wherein it has been held that benefit arose to the shareholder of the appellant com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Indian company. In that particular ruling the shares were held as capital asset and claim was that on transfer of such capital asset i.e. shares of one Indian company transferred as a gift to another Indian company , does not involve any consideration and therefore no capital gain is chargeable to tax. The authority in that ruling held that u/s 82 of the companies act, the shares in any company shall be movable property transferable in manner provided by the articles of the company. In that particular case, the authority did not find any provision in the articles of association for gifting of the shares to another corporate. Further there was a specific mention that the purpose according to the revenue was for avoiding the payment of tax and to get out of the clutches of provisions of Section 56 (2)(viia) of the act which came into effect from 1 June 2001. The facts of that case are clearly on different parameters then the case before us. In the present case what have been transferred are stock in trade and not a capital asset. Further, in the present case there is a provision in the articles of association of making the gift thus, it meets the provisions of the companies act als ..... X X X X Extracts X X X X X X X X Extracts X X X X
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