TMI Blog2021 (2) TMI 717X X X X Extracts X X X X X X X X Extracts X X X X ..... shares are to be transferred always at the market rate and if the Dabur incurs certain losses , then same shall be to an extent be recouped by CUIH. If there is upside in the market value of share , such defined gain on transfer of Dabur share is to be retained by Dabur. As we have already held that option price received by the assessee, though received on a regular basis and generating constant cash flow in the hands of the assessee, however, there is a liability on the assessee to repay such option price when such shares are sold in certain events. Therefore, though it is received on a regular basis and used to generate an income regularly in the hands of the assessee, it cannot be said that it is an income. Shares held by Dabur is a capital asset of the assessee. The shares are locked in for the reason that the right of first refusal to buy the shares of Dabur rests with CUIH. In return, CUIH has paid Dabur option price, which is merely an advance against the purchase of the shares by CUIH at a later point of time. Thus option price, is required to be adjusted in all the transactions wherever the shares of Dabur would be transferred either to CUIH, or its nominee, or to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more reason to say so is that when assessee has subscribed to the shares of the company, according to clause number 10 which describes the dividend policy amongst the shareholders, any dividend received by the assessee if at all, is not adjustable against option price. Thus Dabur shares are also entitled to Dividend , If any. It is not the case of the revenue that at the time of investment Dabur has not looked into the viability of business of insurance, government policies of foreign direct investment in insurance sector and continuity of CUIH in the business of insurance. After considering all these facts the Dabur has invested into the insurance business by assuming the risk as a business man. Thus, the treatment of the joint-venture agreement by the revenue and its interpretation that option price received by Dabur is a revenue receipt and is chargeable to tax as income is devoid of any merit. Market value of the shares does not change the amount of return receivable by the assessee - Sale of such shares was never linked with the market value of shares. In case before us, the price at which the shares are to be transferred by Dabur to the other shareholder is at market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so appeal of the assessee deserves to succeed. Ground number 1 and 2 of the appeal of the assessee is allowed holding that the option money received by the assessee is capital receipt which requires an adjustment only at the time of transfer of the shares by Dabur to CUIH while working out resultant capital gain thereon. - ITA No. 8058/Del/2018 - - - Dated:- 11-2-2021 - Shri Sudhanshu Srivastava, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Assessee : Shri M. P. Rastogi, Adv For the Revenue : Shri G. C. Srivastava, Adv ORDER PER PRASHANT MAHARISHI, A. M. 01. This appeal is filed by the Dabur invest Corporation, [ The appellant/ Assessee ] against the order of The Commissioner Of Income Tax (Appeals) 16, New Delhi [ The Ld CIT (A) ] dated 30 November 2018 for assessment year 2015 16. The Ld. CIT (A) dismissed Assessee s appeal filed against the assessment order passed on 31st of December 2017 u/s 143 (3) of The Income Tax Act 1961 [ The Act] by The Joint Commissioner Of Income Tax, Range 46, New Delhi [ The Ld AO]. Therefore, Assessee has preferred this appeal. 02. Assessee has raised following grounds of appeal:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the option price so received by the appellant from CUIH on account of granting of right to purchase shares of the appellant in the Co promoted company is a capital receipt and consequently the taxation of the option price received by the appellant as a business income, is arbitrary, unjust and bad in law. 7) That the assessing officer and CIT (Appeals) both have failed to appreciate that the investment to acquire controlling stakes in a company is a capital investment and has no characteristics of business, the option money received from CUIH , is only against the capital investment made by the appellant and has no characteristics of income is contemplated u/s 4 of The Income Tax Act, 1961 (The Act) and consequently the taxation of option price received by the appellant from CUIH as made by the assessing officer and sustained by CIT (Appeals) are based on the whims and fancies of the authorities below and is arbitrary, unjust and bad in law. 8) That the assessing officer and CIT appeals both failed to appreciate that option money is received under the terms of agreement is only appropriate and adjustable at the time of divestment of stakes by the appellant, accordingly accrue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p firm. It filed its return of income on 28 August 2015 showing total income of ₹ 5,451,114/ . During the year under consideration the assessee has shown total income from business of ₹ 5,451,114 which included profit on current investments at ₹ 4,111,774, interest received of ₹ 1,339,339/ , and dividend received of ₹ 9,603,292 which was claimed as exempt u/s 10 (34) of the act. 04. Assessee entered in to a Joint Venture Agreement with Commercial Union International Holdings Ltd, [CUIH] a company incorporated in England and Wales on 7 August 2001. Assessee and CUIH [ an internationally established player in Insurance business] agreed to subscribe to and invest in shares of a company namely Dabur- CUG Life Insurance Co Private Limited which was later on named as Aviva Life Insurance Co Private Limited [ AVIVA] for the provisions of life insurance, pension and long-term savings business in India. The government of India then allowed Foreign Direct Investment [FDI] participation up to 26% in insurance sector and accordingly, CUIH and Dabur agreed to hold 26% and 74% shares of the new company respectively. 05. According to one of the terms of the Jo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the assessee for the period under consideration. Assessee also supported this by submitting copy of the agreement between the assessee and CUIH wherein in clause NO. 16 of the agreement, nature of option money received and receivable by the assessee was discussed. Thus, the claim of the assessee was that, option money received by it is not an income of the assessee but a capital receipt. It is to be adjusted at the time of sale of shares by assessee in favour of CUIH. 10. The learned assessing officer perused the joint-venture agreement dated 7 August 2001 between CUIH and appellant and assessee was once again asked to explain on 28th of December 2017 stating that the advanced option money have the nature of return on investments in view of granting power of controlling Company s affairs to CUIH . Alternatively, in terms of assessee s interpretation of advance option money is receipt of advance money for diluting/holding on Aviva life insurance Co private limited and transfer of the same to CUIH at a future date, the same is not tenable as even one rupee advance cannot be taken from CUIH till the government policy changes to increase the foreign direct investment hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n at a future date. Assessee further referred to clause number 16.6.2 read with schedule 3 and schedule 9 stating that assessee refunded back the appropriate option money in assessment year 2017 18 (financial year 2016 17). Therefore, it was stated that the option price is certainly not a return on investment and the receipt of option price is not income. Therefore, it was submitted that there is no question of making any addition u/s 68 of the income tax act. 11. The assessing officer once again not satisfied with the reply of the assessee. He asked assessee on 29th of December 2017 that jointventure agreement is required to be examined, had change in government policy to increase in foreign direct investment participation would not have taken place, assessee would have refunded the above sum and why option money received should not be taxed as income in this year in view of the decision of the coordinate bench in 159 ITD 600 (Mum). 12. Assessee submitted on 29th of December 2017 stating that the decisions cited by the learned assessing officer in case of Mahindra Telecommunications Investment Private Limited Versus Income Tax Officer [2016] 180 TTJ 434 (159 ITD 600 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stating that assessee paid ₹ 37 cores to a bank for promotion of its insurance business as business promotion expenditure and assessee was an active promoter of the business and not a passive one, whereas in the case before the coordinate bench Mahindra was just looking for a fixed return and nothing more in the joint-venture telecom venture. ix. With respect to the refund of option price stating that assessee refunded to the extent of 48% of the option price when 23% stake was transferred. It was further stated that the uncertainty of the refund of option price, it could not have been 100 % and when something can be refunded to the extent of total option price received, there cannot be a situation where income can be said to accrue or received by the assessee with certainty, thus accrual principle fails. x. In the case before the coordinate bench the right to accrue income present from the day one i.e. 16.5% irrespective of the final share price on the exit and there was no question of any refund as the final exit price was predetermined. Therefore, coordinate bench held that assessee acted almost like a fixed return investment which is not the case in the issue befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an income in the hands of the assessee in each year. He further noted that out of the option money received of ₹ 2017.03 cores up to 31st of March 2015, which has further increased substantially up to 31/3/2017, and receipt of another ₹ 940 cores against sale of 23% stake by the assessee from CUIH, the only amount refunded is ₹ 478 crore. According to him, nature of such refund in reference to the joint-venture agreement is different. Therefore, no part of option money was refunded. He noted that the total share sale consideration of 23% stake was ₹ 940 crore out of which ₹ 461.12 cores was subscription price and ₹ 478 crore was refunded which is well within ₹ 940 cores. He further noted that the assessee has received an option price of 20% of total subscription value of 74% of its stake of 81.4 million shares at the rate of ₹ 10 each year. In each year, per share receipt of ₹ 2/ which comes to ₹ 32/ per share on 74% stake in 2016, when 23% stake was diluted. Share price at the time of purchase of shares was ₹ 10 per share and the market value of share in 2016 was ₹ 20.35 per share. He noted that the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted to a foreign investor is a right separate and distinct from the right to an increase in the value of the shares. Hence, such a recurring income which is payable is chargeable to tax in the year of receipt. 14. Learned AO held that the coordinate bench decision of Mahindra Telecommunications Private Limited Versus Income Tax Officer [69 taxmann.com 431] applies to the facts of the present case completely. He therefore held that as the business of the assessee in the present case is investment in shares and mutual funds and the income from the same is offered by the assessee is business income, therefore, the income received by the assessee in the name of option price is held to be business income. He held that the assessee has received option price every year and it is not in any way linked to the sale of stake by the assessee, therefore, it is chargeable to tax as business income. Accordingly he made an addition of ₹ 2,468,462,400 to the total income of the assessee of ₹ 5,451,114 determining the total income of ₹ 2,473,913,510 as per order passed u/s 143 (3) of The Income Tax Act 1961 on 31 December 2017. Appeal before CIT (A) 15. Aggrieve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt of option price will crystallized only in the event of sale of shares by assessee to commercial union International holding. She referred to clause 16.2 of the JV agreement and interpreted it that commercial union International holding will pay option price to assessee in perpetuity or till all the shares held by assessee are transferred to that company. Meaning thereby, that commercial union International holding becomes the sole owner consequent upon government of India allowing 100 % percent foreign direct investment. She therefore held that it did not mean that the receipt of option price are contingent upon such an event or that the said receipts will crystallized on the dates on such transfer of shares from Dabur to commercial union International holding. Therefore, she upheld the finding of the learned assessing officer that option price received at the rate of 20% of the subscription price annually, is in fact in the nature of receipt in the hands of the appellant and not a liability as shown by the appellant. She, therefore, rejected the contention of the appellant that receipt is in the nature of capital receipt, hence not taxable. She also noted that the option pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valour in perpetuating an error. However, she noted that in some of such years, the learned Principal Commissioner Of Income Tax has invoked the provisions of Section 263 of The Act, holding that the order is erroneous and prejudicial to the interest of the revenue, as the orders have been passed by the learned AO for all those years without making enquiries or verification, which should have been made. Therefore, claim of the assessee of the consistency has no legs to stand. In the end, she held that the claim of the option price as a liability in the books of accounts is in the nature of subterfuge to hoodwink the income tax authorities by using a device, which is seemingly valid but is a feigned or counterfeit transaction entered into for ulterior motive where the apparent is not real. Thereafter, she referred to the celebrated decision of the honorable Supreme Court in case of Durga Prasad More [82 ITR 540], Sumati Dayal [214 ITR 801] and McDowell Co [154 ITR 148] and held that the option price is not a liability and has been wrongly treated so by the appellant in its books. Such a treatment is obviously a colorable device to escape tax liability and hoodwink the tax authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thermal Power Corporation Ltd reported in 229 ITR 383. He submitted that requisite facts are on record. He stated that the above ground of appeal could be raised at any time during the pendency of appeal. Therefore, it should be admitted. 18. Shri G C Srivastava, Ld. Special Counsel for the revenue [Learned Departmental Representative, DR] vehemently opposed the admission of the additional ground and submitted that the interest expenditure claimed by the assessee now by this additional ground requires to be adjudicated by investigation of the fact that whether the interest accrued during the year or not. In view of this, such additional ground cannot be admitted, as it is factual, requires examination and the basic facts are not available on record. Therefore should not be admitted. 19. We have carefully considered the rival contentions and perused the application of the assessee wherein the claim of the assessee is that if the business income of the assessee is computed by treating the option price received as income , corresponding deduction of the interest expenditure capitalized in the books of accounts of the assessee should be granted to the assessee as deductible exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Commissioner Of Income Tax is with respect to enquiries of the learned assessing officer which should have been made . He submitted that such 263 orders were subject to challenge before the coordinate bench. He stated that in the order passed u/s 263 of the act by the coordinate bench clearly clinches the issue in favour of the assessee. He submitted that in that particular order the coordinate bench has held that the treatment given by the assessee of the option price is correct and therefore the issue involved in this appeal is squarely covered in favour of the assessee. ii. He submitted for all earlier years the issue has been tested and accepted in the assessment orders passed by the ld AO u/s 143(3) of the act. Therefore, the issue has been decided by the ld AO, which is neither subject to Reassessment or revision, thus the issues on the principles of consistency is covered in favour of the assessee. iii. He submitted that in the instant case, the contribution of capital by way of investment in shares for acquiring a controlling stake of 74% in the Aviva life insurance Co Ltd is a capital asset of the appellant and the appellant does not deal in the shares of Aviva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant s holding, to pay option price to the appellant against the investment so made. The option price described under the joint venture agreement was refundable/ adjustable at the time of transfer of shares by the appellant to CUIH and the manner and mode as well as the quantum of refundable option price has been described in Article 16A read with Schedule 9 of the joint venture agreement. He further stated that this joint venture agreement, containing the terms of refundable option price, has been approved not only by IRDA but also by RBI who is the authorized supervising authority to control the incoming and outgoing of foreign exchange. The RBI had granted the approval of joint venture agreement on 15 April 2002 read with letter dated 17 April 2002. The payment of the option price by CUIH to the appellant was linked with the investment made by the appellant as capital contribution in the form of shares and was paid not only on account of the sterilization of the investment made by the appellant but also for the acquisition of the appellant s stakes in the joint venture company at a later date as and when the FIPB increases the limit of investment for foreign persons. In fact i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at the time of working of selling price of the stakes as per the formula assigned in clause 16 of the joint venture agreement and the excess amount would be refunded to CUIH and has been actually refunded to CUIH in Assessment Year 2017-18, when CUIH had purchased 23% stakes; and secondly on account of sterilization of the appellant asset not to sell its share in a given period to third person except CUIH. vi. He further submitted that the investment by way of contribution of capital in the form of shares in Aviva Life Insurance Co. Pvt. Ltd. to acquire a controlling stake to the extent of 74% is a capital asset in the hands of the appellant and not a trading asset. On account of the terms of clause No. 15, it was agreed amongst the joint venture partners that the appellant will not sell its shareholding in Aviva Life Insurance Co. Pvt. Ltd. to third party and thereafter a right to purchase the shares of the appellant was granted to CUIH at a later date as and when the FIPB increases the permissible limit of investment for foreign partners in joint venture. On account of these terms, the capital assets of the appellant, which were in the form of capital contribution in Aviva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stakes cannot be separated from the price of share on which transaction takes place because it is incidental to the holding of investment. ix. He further submitted that the right to purchase shares granted by the appellant to CUIH under the joint venture agreement is not a separate right or limb of the transaction, but it is an incidence arising out of holding of shares by the appellant in Aviva Life Insurance Co. (P) Ltd., which cannot be segregated from shares as presumed by the Pr. CIT. Similarly, as far as the accretion to shares is concerned, the investment in Aviva Life Insurance Co. Pvt. Ltd. was as a capital contribution in the form of shares for acquiring controlling interest to the extent of 74% in the company and is a capital asset in the hands of the appellant. It was not the object of the appellant to deal in shares of Aviva Life Insurance Co. Pvt. Ltd. and cannot be because the shares of Aviva Life Insurance are also not tradable. It is not a listed company. The period of holding of investment in Aviva Life Insurance itself indicates that it is a capital investment and accordingly the accretion thereto is also in the capital field as held by the Punjab Haryana Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign investment, the same is controlled by FIPB, established by Government of India. In subsequent year, when the FIPB increased the permissible limit by a foreign party in India from 26% to 49%, the joint venture partners applied to FIPB for the approval of transfer of 23% stakes from appellant to CUIH. The FIPB in turn vide letter dated 18th March 2016 allowed CUIH to increase its shareholding in Aviva Life Insurance from 26% to 49% by way of transfer of 23% shareholding currently held by Dabur for a consideration of ₹ 940 crore being the market value of shares subject to the condition that the investment will be made out of the remittance of foreign exchange received through normal banking channels as per RBI Notification No. FEMA 20/2000-RB (Transfer or Issue of Security by a Person Resident outside India) dated 3rd May 2000, this approval was also subject to compliance with IRDA Rules, and Regulations as mentioned by FIPB letter itself. Thereafter, the company got approval from IRDA with regard to increase in shareholding from 26% to 49% vide letter dated 1 April 2016. This condition as made by FIPB was also in consonance of clause 16A of the agreement, which deals w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... traint in joint venture agreement on use of option money. It was not put in any escrow account, but it was used by the appellant as per its own free will because none of it was to be refunded. It is settled proposition of law as held by Supreme Court in the case of Kishan Chand Chela Ram vs. CIT in 46 ITR 640 at page 645, that the nature and quality of the receipts has to be examined at the time of its receipt. Such quality cannot be affected or altered by subsequent act or conduct. There is no prohibition under the law that in every case where the amount has been received in advance and the transaction has taken place later, the amount so received would be kept in escrow account. It depends upon the terms of the contract and faith of the parties thereto. However, by not putting the amount in escrow account, there is no prejudice caused to the Revenue because whatever income has been earned by the appellant on account of the utilization of the option money received, the appellant has offered the same in its return and paid the tax thereon. Had the amount been put in escrow account, no income would have been earned by the assessee and no tax would have been paid on the amount earned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the very inference of the Pr. CIT that option money received @ 20% is akin to interest is wrong and based on his own assumption not permissible under the law. On the contrary, the quality of receipt has to be seen with reference to the terms and conditions of the joint venture agreement under which the option money received. xiv. Rebutting the presumption that ld AO for the purpose of taxation of the above money has relied upon the judgment of Mahindra Telecommunications Investment in 180 TTJ 434 wherein the Mumbai Bench of the ITAT, after having regard to the peculiar facts of that case, held that the option money calculated on the yield of 11% per annum, is taxable as a revenue receipt and accrued year after year. He submitted that the facts of the case of Mahindra Telecommunications (supra) are different from the facts of the assessee s case and are distinguishable. In the case of Mahindra Telecom, the said company, as is evident from the ITAT order, had entered into a shareholders agreement dated 7th March 2006 with AT T Global Network Holding, USA (AT T Network Global) and had agreed to subscribe to and invest in shares up to 26% in the AT T Network Services (India) Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, have to be given its legal effect. As also explained earlier, notwithstanding the investment being admittedly in shares, i.e., called risk capital as it entails risk, the assessee company is, by the terms of the arrangement, insulated from the consequence of holding such capital, i.e., does not bear any risk. Its return is contractually defined and, accordingly, the shareholding sans the attributes of risk capital or of such an investment. Irrespective of the performance of the investee company during the holding period, or the intrinsic or the market value of its shares as on the date of transfer, the assessee is to, on the exercise of the option, or alternatively by AT T, entitled to a (contractually agreed) price calculated to give a predetermined yield. That is, the said option is inconsistent with investment in risk capital? xv. In the case of the assessee, such is not the position. In assessee s case, the exit price of the shares has not to be determined on a fixed rate of yield, but it has to be determined on the basis of market value, which depends upon the performance of the company, and the same would be determined by the financial experts. As per the formula, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shareholders agreement, AT T Network Global had an irrevocable call option to increase its holding in AT T Network India to the extent permissible by laws in India by requiring the said Mahindra Telecom to sell shares to it or its affiliate at the predetermined price. The predetermined price, for the purpose of the said purchase and sale, was prescribed as the equity contribution plus return at 11% per annum compounded annually on the said contribution over the period of holding. Besides this predetermined price, Mahindra Telecom was also entitled to a call option fee on each anniversary of the investment date at 5.5% of its equity contribution. On such facts, the ITAT inferred that this predetermined price is independent of the actual value of the shares or the performance of the company during the holding period. The future price would depend not on the performance of the company but is predetermined and would be calculated on annual yield and this is the essence of agreement, which lands it with a character of a financial instrument towards earning income at a defined (agreed) rate rather than a promoter investing for acquiring a stake in a particular business. In the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter is that the joint venture agreement was made in the year 2001 and after incorporation of the joint venture company; the appellant-assessee was in receipt of option price in terms of the joint venture agreement from CUIH. The same has been disclosed by the assessee year after year in the notes forming part of the annual profit loss account and balance sheet enclosed with the return. In earlier years, the Assessing Officer, after examining the terms of the joint venture agreement as well as the nature of receipts and the Notes of Accounts appended to the balance sheet, had made no addition and accepted the appellant-assessee s contention that it would be considered at the time of exit. Since then, there is neither any change in the facts of the case or the circumstances in relation thereto, and once it has been accepted by the Assessing Officer in the earlier years, then on the principle of consistency in subsequent years the Assessing Officer cannot change the stand. xxi. It has been observed by the Assessing Officer that there is no clause to refund the option money in case the Govt. policy regarding participation of FDI insurance business does not change in such si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t learned CIT had only taken the stand that the learned that AO had completed the assessment without conducting necessary enquiries regarding option money and accordingly he directed the learned assessing officer to pass a fresh order of assessment after conducting such enquiry. He further stated that the revenue is in appeal before the honourable High Court against the aforesaid decision of the coordinate bench. In nutshell, he stated that findings given against the revenue with regard to the invocation of jurisdiction u/s 263 of the income tax act cannot act as a bar against the merit of the addition made in a different year by the learned assessing officer. He further stated that the principle of Estopple and Resjudicata do not apply to the income tax proceedings and the issue is required to be tested on its own merit. Therefore he submitted that the issue raised in the present appeal are not covered by the decision of the coordinate bench in the matter needs to be examined on the merits of the addition. To support his contentions, he relied upon the decision of the honourable Supreme Court in case of RameswaraLal Sanwarmal versus Commissioner of income 122 ITR 1, state Of Or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t value of share is zero, or ₹ 26.72 ₹ 20.38 (as in case of the assessee) return remain same i.e. equal to option price + subscription price. For this, he referred to table A page number 12 of his submission. He referred to the chart wherein he has stated the calculation of the total amount received by the assessee for different market value is of Aviva life insurance Corporation says as per different clauses of the joint-venture agreement read with schedule 3 and schedule 9 of the joint-venture agreement. Therefore he draw a conclusion that whatever may be the market value of the shares, entire option price is retained because amount retained by the assessee is always higher or equal to option price. He further stated that ₹ 2941.60 crore is minimum guaranteed return on assessee s investment even when market value of the share is zero. viii. For different market value of shares return will be different in real share deal. This proves that the market value of the share has no relevance and return on such investment is not governed by market forces or by performance of company but received at a predetermined rate, which can never happen in share transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue receipt as interest. He submitted that no part of option price consist of capital or investment portion. It is also not a real share deal but a financial transaction is joint-venture agreement override share transaction and despite holding controlling stake, assessee has no control. He submitted that assessee receives option price in three different eventualities referring clause number 16.1, 17.1.11 and clause 20.2 of the joint-venture agreement accordingly, he stated that the payment of option price by CUIH to assessee in all eventualities is an essence of JV agreement. 25. He submitted that in case of clause number 16.1 the assessee will sale its stake, but still that is not capital for various reasons as stated above. In case of clause number 17.1.11, CUIH when sale its stake in yet assessee will be entitled to retain option price. Hence, it has no relation to the sale of stake by the assessee. Even in case of winding up as per clause number 20.2 assessee is bound to receive option price, which established that it is not a share transaction. 26. He submitted that out of ₹ 246.84 crore option price received by the assessee in assessment year 2015 16 no a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion price received by the assessee for giving CUIH first to purchase its 74% stake would qualify as interest u/s 2 (28A) of the income tax act as held in the case of Mahindra telecommunications investment private limited 159 ITD 600. He further against has that it is a fixed annual return at the rate of 20% rate hence it is in nature of interest only, which can never be capital. 29. He further referred to the question that what is the business of the assessee and stated that the business of the assessee as per memorandum and articles of association is making of investment being an investment company. Hence, investment in shares of only the life insurance Corporation represents an opportunity for the assessee to on income on such investments made in the course of business returning the income by way of option price, as business income. He further placed reliance on the decision of honourable Supreme Court in case of Sardar Indersingh Sons Ltd versus CIT 24 ITR 415. 30. With respect to the intention to sale shares he stated that assessee has expressed its intention in the joint-venture agreement to sale its 74% stakes to CUIH on first possible opportunity as and when governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it depends on the performance of the company and the performance of in for insurance sector. 3) With respect to the minimum guaranteed return, he submitted that in the real purchase of shares there is no guaranteed return. However in the case of the assessee according to clause number 16.6.1 and schedule 3 provide that even when a market value of share is lower than the subscription price, CUIH shall pay to assessee difference between subscription price and market value Simon tenuously with the sale of assessee s shares and assessee shall be entitled to retain the option price received on its shares. That means even when market value of the share is zero assessee will get ₹ 10 per share of subscription price from CU and will retain option price received of ₹ 2048.48 cores that is the total amount received by assessee will be ₹ 2941.60 crore same is received by the assessee in real case of assessee when market value is only ₹ 20.38 per share. Therefore, assessee is entitled to receive even when share prices zero minimum guaranteed return, which makes it a financing deal as in real share deal assessee will help to refund entire option price. 4) He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne to circumvent the foreign direct investment restriction of 26% and give control in the hands of foreign investor despite being a minority stakeholder. He therefore submitted that the joint-venture agreement thus override sale transaction and makes it a pure financial transaction where company is being controlled and run by a minority stakeholder while assessee receives a fixed hefty annual return of 20% on sum invested in subscription price of its 74% stake in such annual return is decided on the very day of entering into the jointventure agreement when company has not even started his business. 34. He submitted that substance that is to prevail over the form. The Joint venture Agreement is accordingly found to be a manner of investment akin to a financial arrangement yielding return of income as a function of time and therefore the issue is squarely covered against the assessee by the decision of the coordinate bench in case of Mahindra telecommunications investment private limited (2016) 69 taxmann.com 431 (MUM) i. The undisputed facts of both the cases (the case of the appellant and that of Mahindra Telecommunications Investment (P) Ltd.) are similar in the aspect that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with all force in this case. iv. The issue that crops up in the case of the appellant and also in the case of Mahindra is whether any income has accrued to the appellants in the given facts and circumstances. The Hon ble Bench s decision in the Mahindra s case goes in depth of this issue to resolve it having due regard to the existing principles and jurisprudence. The appellants were subject to an agreement in both the cases whereby they had an irrevocable option to sell their respective shareholdings to the foreign investee company at the agreed terms and conditions of the option price. In the case of Mahindra, the option price was pre-determined at 11% p.a. whereas in Dabur, the option price money is linked to the market and fair value of the shares as agreed upon by the contracting parties. However, it would be pertinent to note that in both the cases, income began to accrue to the Indian entities from day one, which would be realizable only on the sale of shares as they are subject to their respective agreements. v. Pursuant to the agreements, the appellants were required to hold the shares in the Indian investee company to the extent of cap on the FDI percentage. Till t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as two rights, i.e. enhancement in value of shares and the right to option, subject to the satisfaction of the terms of the agreement. It is both the right in conjunction that results in the earning of income or the accrual of the right to receive, leading to a receivable. It was held that even though the amount stands received as per the agreement on a future date, the right to receive inures instantly. The two are only modes through which the appellants earn a return on investment, accruing on the basis of time. The option price being paid only on the difference on the time of divesture was held to be of no significance. ix. Both the cases are similar in the view that the return on investment in shares would be received only as a part of the sale price and cannot be received independent of it or even be notionally received due to the terms of the agreement being as such. It is to be noted that the fair price is independent of the actual value of shares or the performance of the company. Where one predetermines the same along with a guaranteed rate of return, it would be lending it with a character of financial instrument. Various terms of the agreement were examined by the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issues raised, the inevitable inference is that the decision in the case of Mahindra applies with all force in the case of Dabur as well. A decision based on sound principles cannot be brushed aside by pointing minor differences here and there, the difference not being important enough to change the course of the decision. xiv. Ld. AR submitted that in the case of the appellant that there was no fixed return on investment in the Assessee s case as was the case in Mahindra. This is not correct. The calculation of total amount received by assessee for different market values of ALIC shares is computed in the table below, as per different clauses of JV Agreement read with schedule 3 and schedule 9: - MV = Market Value OP = Option Price = 2480.48 cr. On 1,48,36,26,000 share SP = Subscription Price =10 S. N0. Clause of JV Agreement OP SP MV Formula OP received [Col. 7] Amount to be received first from CUIH Amount to be refunded to CUIH in 1 month of receipt of market value Net amount retainer by A [Col. 10] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in his order u/s 263 of the Income-tax Act, 1961 (the Act) had not dealt the issue on merits. It was stated by the Revenue that in the orders u/s 263 the learned CIT had also taken the stand that the AO has completed the assessment without conducting enquiries regarding option money and that he had directed the AO to pass fresh assessment orders after conducting such enquiries. 1.1 It is submitted that for the purpose of ascertaining whether the AO had taken a plausible view at the time of completion of regular assessment proceeding, the Tribunal specifically considered the merits of the matter and has returned a categorical finding on the issue. In the order u/s 263 of the Act, the learned CIT first had reproduced the notice u/s 263 of the Act, then thereafter had reproduced the various replies as submitted by the assessee in response to queries made by the CIT from time to time about the terms and conditions of the joint venture agreement and then thereafter at page 31 of the order, the learned CIT again reproduced the fresh query letter and then reproduced the various replies filed by the assessee . 1.2 At page 35 of the order, the reproduction of assessee s reply to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... giving his opinion and comments upon this, held that because at this stage, the AO has not applied his mind on such issues, hence the order is set aside and then directed to make the enquiries. 1.8 In such situation, when the learned CIT has discussed the related issue on merits based on the judgment of Mumbai Bench of the Tribunal in the case of Mahindra Telecom (supra) as well as the conclusion arrived at by the succeeding AO in Assessment Year 2015-16 (who himself has relied upon the judgment of the Mumbai Bench of the Tribunal in the case of Mahindra Telecom) and then holding that the AO has not applied his mind to such issues and then directing the AO to make enquiries on this line, amounts to misleading the judicial process because once a senior officer makes certain observations, then practically it is impossible for the subordinate officers not to follow that and in this case also the AO in the proceedings undertaken in the furtherance of order u/s 263 of the Act has also confined himself to the findings and observations of the learned CIT and then made the addition accordingly, which is very much clear from the orders passed by the AO in furtherance of order u/s 263 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the transfer of shares giving rise to capital gain, if any, is completed in the year in which the shares are delivered to the transferee and this aspect was considered by the AO in the past assessment years. Therefore, no adverse view was taken, as there was no sale of shares in those years. (e) In paragraph 48, the Hon ble ITAT observed that the capitalization of interest has also been correctly made as the same has been incurred in acquiring the capital asset. (f) In paragraph 49, the Hon ble ITAT has dealt the basic issue of the case and observed that the bone of contention is as to whether the option price received by the assessee is income or capital receipt. (g) In paragraph 50, the Hon ble ITAT observed that both the parties agreed not to sell shares to the outside parties and the first right of refusal in the case of Dabur shares would be of CUIH and on account of such restrictions, resulted into sterilization of Dabur holding and CUIH agreed to pay option money as described in the joint venture agreement and would be refundable at the time of transfer of shares to CUIH and the manner and mode as well as quantum of refundable option has been described in article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served while considering the provision of Section 263 of the Act that generally the issue which are accepted by the AO do not find mention in the assessment order, but that does not mean that the AO has not applied his mind. It cannot also be said that the AO has failed to make any enquiries because no further enquiry was necessary, more particularly when all the facts were before AO. From the above discussion and observations made by the Hon ble ITAT in Assessment Years 2013-14 and 2014-15, it is clear that the Hon ble ITAT, while holding that orders as passed by the AO in Assessment Years 2013-14 and 2014-15 were not erroneous, has considered the merits of the case also, and after considering each and every allegation made by the AO/Pr. CIT, the ITAT has returned a categorical finding in respect of: (a) investment of the appellant in Aviva Life Insurance has been held to be a capital asset in the hands of the appellant; (b) decision of the Mumbai Bench of the Tribunal in the case of Mahindra Telecommunications Investment Pvt. Ltd. vs. ITO, 180 TTJ 434 is held to be applicable only in Assessment Year 2017-18 when the shares were actually transferred by the appellant; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the joint venture agreements as well as the notes on account attached with balance sheet and had accepted the contention of Dabur and then no additions were made. Such position remains continued year after year and was examined by different AOs and all of them accepted. Accordingly, the Revenue should not be allowed to change the stand when the facts remained the same. Such principle has also been accepted by the Jurisdictional High Court in the case of CIT vs. Neo Poly Pack (P) Ltd. in 245 ITR 492. (ii) In paragraph 9 of the submissions, some observation of the Hon ble Supreme Court in the case of Rameshwar Lal Sanwar Mal vs. CITin 122 ITR 1 has been reproduced. It is submitted that this observation has been made by the Hon ble Supreme Court in the context of the issue before it. The issue before the Hon ble Supreme Court was whether in the absence of a specific plea in an earlier case, can it be said that the issue has been decided impliedly. In such context, such observation was made by the Supreme Court. However, in the instant case, in earlier years the issue of tax of the option money was examined by the various AOs and made no additions. Since then there is no ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is totally different. Hence, it is submitted that the case of assessee be examined independently from that of Mahindra Telecom keeping into consideration the various terms and conditions of the joint venture agreement as entered between the assessee and CUIH. (vii) In paragraph 15, the Revenue had quoted certain observations of the Hon ble Supreme Court in the case of Union of India vs. Paras Laminates Pvt. Ltd. in [1991] AIR 696 = 186 ITR 722. The case of Paras Laminates relates to the Customs Act, 1962 and not to the Income-tax Act. However, in that case, the issue before the Hon ble Supreme Court was whether in the absence of a specific provision, the Division Bench of the Tribunal consisted of two members can make reference to the President for constitution of a larger Bench because on identical facts, a larger Bench of the Tribunal in the case of another assessee M/s Bakelite Hylum had classified imported goods under a particular tariff item which the said Paras Laminates also claimed, but the members of the Division Bench did not appear to be satisfied with the order of the earlier larger Bench about the classification of the goods and in such facts the Hon ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to look the other definitions also which have the material impact to understand the intention of the parties. In Schedule 1, the definition of net sale proceeds has also been given and the same reads as under: Net Sale Proceeds shall mean the difference between the gross sale receipts per Dabur share and such option price which shall be calculated as per the formula set out in Schedule 3. 3.4 Under the law, the definition clause of a contract or a statute defines only the meaning of expression thereof used in other parts of the contract or a statute, but does not define its purpose. Hence, in order to get the purpose, that part of the contract has to be read where such expression has been used. 3.5 In paragraph 20, the Revenue, instead of dealing with the issues and points raised by the assessee in its submissions filed on 4th November 2019, has reiterated the contention of the AO as jotted down in the assessment orders, which are based on assumptions and presumptions as made in the case of Mahindra Telecom. 3.6 It may not be out of place to mention here that in the case of Padmasundara Rao vs. State of Tamil Nadu in 255 ITR 147, the Hon ble Supreme Court ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The basic principle of construction of an agreement is that it has to be read as a whole and every part of the contract has to be given effect to ascertain the intention of the parties to the agreement. 256 ITR 47 (Del) CIT vs. Dr. R.L. Bhargava 102 ITR 748 (Cal) Narayan Prasad Vijayvargiya vs. CIT 3.9 In the case of Mahindra Telecom, the Hon ble ITAT Mumbai, instead of construing the joint venture agreement in a literal way, has decided the issue keeping in mind that the substance of the transactions will prevail over the form and then drawn its own inference and presumptions. Such construction of a written agreement is not permissible under the law, more particularly in the fiscal laws. The Mumbai Bench of the ITAT had no occasion to consider the judgment of the Hon ble Supreme Court in the case of CIT vs. Motors General Stores Pvt. Ltd. in 66 ITR 692. 3.10 In the case of Motors General Stores (supra), the Hon ble Supreme Court held that under the fiscal world, when a transaction is embodied in a document, the liability to tax depends upon the meaning and the content of the language used in accordance with the ordinary rules of construction and the taxing statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to, be. In the Duke of' Westminster's case deeds of covenant had been executed by the Duke in favour of employees in such amounts that the covenantees, if remaining in the Duke's service, would receive respectively sums equivalent to their wages and salaries. If they left the services of the Duke the payments would still have been due, but it was in nearly all instances explained to the employee that so long as the service continued, while the deed did not prevent his claiming ordinary wages in addition, it was expected that he would not do so. It was argued for the Crown that though in form a grant of an annuity, the transaction was in substance merely one where by the annuitant was to continue to serve the Duke at his existing salary, so that the annuity must be treated as salary. Neither the Court of Appeal nor the House ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred the shares held by them in a sugar mill to Motors General Stores. For the Assessment Year 1956-57, the said company submitted a return of income showing a sum of ₹ 9,823/- as profits derived from the transaction. The Income-tax Officer found that the value realized exceeded the written down value by ₹ 43,568/- and accordingly computed the profits u/s 10(2)(vii) of the Income-tax Act, 1922, and included the amount in the taxable income of the company. The order of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner as well as by the Income-tax Appellate Tribunal. The question arises whether the transaction, which actually took place, is sale or exchange. If it is sale, then it is liable to tax, and if it is exchange, then it is not liable to tax. The Hon ble Supreme, after considering such facts, held that no doubt the purpose of the transfer of the cinema house was for sale, but in fact when the deed was executed, it was not a sale deed but was a deed of exchange and under the law no tax can be levied on exchange. 3.12 In the instant case, the basic bone of contention is whether the option price as received by Dabur is a capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age. The rights available to CUIH and Dabur under this Clause shall be exercised in accordance with the procedures set out in Schedule 6. 16.6 The sale consideration received by Dabur pursuant to the exercise of the CUIH Option or the Dabur Option, shall always be the Market Value per each Share sold by Dabur provided that: 16.6.1 In the event that the Market Value is lower than the Subscription Price, CUIH shall also pay the difference between the Subscription Price and the Market Value to Dabur simultaneous with the sale of Dabur Shares. Dabur shall be entitled to retain the Option Price received on such Dabur Shares (See illustration A(1) in Schedule 9). 16.6.2 If the Market Value is higher than the Subscription Price, Dabur shall repay the Option Price (to be calculated in accordance with Schedule 3) pertaining to such Dabur Shares within thirty (30) days from the receipt of the Market Value. Provided however, if as a result of repayment of the Option Price, the Net Sale Proceeds (i.e. the difference between the gross sale receipt per Dabur Share and such Option Price which shall be calculated as per the formula set out in Schedule 3) become less than the Subscri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordance with Schedule 3). Such repayment shall be in accordance with Clause 17.2.5(b). (d) Dabur shall repay the Option Price (to be calculated in accordance with Schedule 3) on Retained Shares in terms of Clause 16.9.6. 4. On careful consideration of the terms and conditions of the joint venture agreement dated 7th August 2001 (copy placed at page 24 of the Paper Book No. 1), it is clear that: (i) Dabur agreed to acquire 74% stakes in the proposed joint venture company for which a subscription guarantee has also been extended by Dabur which could be encashed if Dabur fails to subscribe the agreed stake. (ii) Dabur has agreed not to sell its shares to any third party and an option has been granted to CUIH to purchase the shares of Dabur in the given period subject to payment of the option price by CUIH to Dabur on granting of such rights. (iii) The option price so received in terms of clause 16 of the joint venture agreement was a refundable option money which is clear from clause 16A of the joint venture agreement and the quantum of refund of option price would be ascertained in the year of divestment of shares. The quantum of refund of the option price so received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Schedule 9 of the agreement and the retained option money forming part of the net sale proceeds of the shares as described in the definition of net sale proceeds given in Schedule 1 read with clause 16A of the agreement, it is clear that the payment of option money was attached with the holding of controlling stakes by Dabur in joint venture company which is on capital account. The investment in joint venture company by Dabur was not made for trading purposes because the shares of Aviva Life Insurance are not a tradable item. 5. The date of receipt of the amount is not the criteria to determine its nature. All incomes are receipt, but all receipts are not income. It is only those very receipts, which have the characteristic of income, are taxable under the Income-tax Act (See ParimesettiSeetharamamma vs. CIT in 57 ITR 532 (SC). 6. There is a fundamental difference between capital receipts and income receipts. The income receipts are liable to tax u/s 4 of the Act, but capital receipts are not liable to tax except the capital gain. He relied up on 57 ITR 36 (SC) CIT vs. Maheshwari Devi Jute Mills Ltd., 249 ITR 265 (Bom) Caddle Weaving Mills Pvt. Ltd. vs. CIT, 273 ITR 1 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (See 48 ITR 222 (SC), P.H. Divecha vs. CIT). In the instant case, the option price has been received not to sell controlling stakes by transfer of shares to third person except to CUIH in the given period. 6.5 The receipt of option money is not absolute on the date of receipt, but it carries obligation to refund the excess amount over and above the net sale proceeds as defined in the joint venture agreement and was duly approved by Reserve Bank of India also and accordingly remains an advance till the happening of the contingency, i.e. date of exit and keeping into such principles, the earlier Assessing Officer had not made any addition keeping into consideration the notes made in the books of account. 6.6 It is an admitted fact that in Assessment Year 2017-18 when Dabur has transferred its 23% stakes in favour of CUIH after the necessary permission from appropriate authorities, has actually refunded an amount of ₹ 478 cores being the proportionate amount out of the option money. The receipt of market value of 23% stake from CUIH first, and then refund of option money was not only in accordance with the terms and conditions of the joint venture agreement but as per t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur. Under the joint venture agreement, the option money was paid by CUIH to Dabur on account of sterilization of the right to exit the option granted in favour of CUIH by Dabur to purchase the shares of Aviva Life Insurance Co. at a future date and not to sell the same to any third person. Under the joint venture agreement, the investment was made by Dabur in the corporate company as a capital contribution in the form of shares and no money was advanced to CUIH. Under the law, shareholders and company are separate entity as held by the Hon ble Supreme Court in Bacha F. Guzdar vs. CIT in 271 ITR 1. 8. In the case of CIT vs. ArunaDua in 186 ITR 494, the Hon ble Calcutta High Court held that if the parties to the agreement have understood the agreement in a certain way and have acted upon that agreement, it is not open to the AO to give another interpretation and tax the assessee on a hypothetical amount. In the instant case, Dabur and CUIH have understood that the investment in co-promoted company Aviva Life Insurance Co. is on capital account and since the inception of the agreement have understood in that sense which is very much clear from the Notes on Account forming par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he LA Act, the Hon ble Supreme Court has held that the amount allowed u/s 28 of the LA Act under the name of interest is basically not an interest but it is part of the enhanced compensation and would be liable for capital gain tax. 10.2 In the written submissions, the Revenue has relied upon the judgment in the case of SardarInder Singh Sons Ltd. vs. CIT, 24 ITR 415 (SC). The facts and circumstances of SardarInder Singh case are different from the facts of the present appeal. In the case of SardarInder Singh, the said company held a large number of shares in other incorporated companies and was realizing some of its holdings and acquiring large block of shares in other companies. In the Assessment Year 1938-39, the company showed a loss on account of sales of shares and securities and this was allowed as a business loss. However, in the Assessment Years 1939- 40, 1940-41 and 1941-42, the company claimed that the surplus resulting from similar sales during the corresponding accounting year was not taxable income as it was a mere change of investment and was, therefore, a capital account. The Income Tax authorities rejected the claim of the said SardarInder Singh and taxed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the facts noted by the ITAT in paragraph 2 of the impugned order, the said Mahindra Telecom had entered into shareholders agreement dated 7th March 2006 with AT T Global Network Holding LLC, USA (hereinafter called AT T) and had become agreed to subscribe to invest in shares of AT T Global Network Services (India) Pvt. Ltd., promoted by AT T Global, up to 26% of the equity capital, and the balance 74% was to be held by AT T Global being the limit prescribed by the Government of India under FDI Investment Policy. Under the agreement, AT T Global had an irrevocable call option to increase its holding in AT T India to the extent permissible by laws in India by requiring Mahindra Telecom to sell shares to it or its affiliate at the option price, to be exercised on or after three years of investment or the elimination of regulation on foreign equity holdings level, whichever is earlier. The option price for the purchase of the aforesaid purchase and sale is defined as the equity contribution plus return at 11% per annum compounded annually on the said contribution over the period of holding. 3. The issue arose before the Hon ble Mumbai Bench of the ITAT was whether the option p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eproduced in paragraph 4.4 of the order are as under: 6.13 Subject to the provisions of the Act, the Board of Directors shall determine all matters by simple majority vote, which majority shall include at least two (2) directors nominated by AT T. 7.3 Subject to the provisions as contained in the Articles and the Act any resolution at a duly constituted General Meeting shall be adopted by a simple majority vote of the total votes validly cast at such General Meeting which majority shall include affirmative vote of AT T. 7.4 At a General Meeting the Parties shall cause their votes in respect of their respective Shares to be cast on the matters before the meeting in a manner so to ensure that matters that have been specifically agreed to herein between the Parties get approved. ML agrees to vote all its shares in conformity with AT Ts vote on all matters presented to the shareholders by the board , except as required by applicable law and except if reasonably seen to be detrimental to ML's economic interests or reputation, provided however, that ML shall vote all its shares in conformity with AT T's vote in regard to actions relating to matters set forth in Sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 24 shall survive termination of this Agreement. Further notwithstanding anything contained in this Agreement: 17.4.1 On termination of this Agreement by AT T: (i) pursuant to Section 17.2(a) or (b) AT T may elect to require ML to sell its entire shares at their par value, to a person resident in India or other eligible person identified by AT T and in the event of such election the sale and purchase of shares shall be completed within a period of 120 (one hundred twenty) days from the date of the written notice for termination; or (ii) pursuant to Section 17.2(c) AT T shall offer to sell to ML such number of shares in the Company that it cannot hold at the Option Price and if ML does not exercise the said offer within 10 business days then AT T may sell the offered shares to a person resident in India or other eligible person identified by AT T. 17.4.2 On termination of this Agreement by ML: (i) pursuant to Section 17.3(a) or (b) ML may elect to offer its shares in the Company to AT T at the Option Price (subject to Sub-section 8.13) and the Call Option Fee pro-rated for the period between the prior anniversary of the Capitalization Date and the date of terminat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order, the ITAT then observed as under: . In this regard, we may also add that we are conscious that the agreement has not been doubted by the Revenue and the same shall, accordingly, have to be given its legal effect. As also explained earlier, notwithstanding the investment being admittedly in shares, i.e., called risk capital as it entails risk, the assessee company is, by the terms of the arrangement, insulated from the consequence of holding such capital, i.e., does not bear any risk. Its return is contractually defined and, accordingly, the shareholding sans the attributes of risk capital or of such an investment. Irrespective of the performance of the investee company during the holding period, or the intrinsic or the market value of its shares as on the date of transfer, the assessee is to, on the exercise of the option, or alternatively by AT T, entitled to a (contractually agreed) price calculated to give a predetermined yield. That is, the said option is inconsistent with investment in risk capital? Comments by Dabur Invest Corp. 9. At the outset, it is brought to your kind notice that in the case of Padmasundara Rao vs. State of Tamil Nadu in 255 ITR 147 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly different from the terms and conditions as agreed amongst the Mahindra Telecom and AT T in their shareholders agreement. The following particularly are not there in the joint venture agreement executed by Dabur Invest Corp and CUIH: (a) In the case of Mahindra Telecom, the option price as explained is different from the option price as explained in the case of Dabur. In the case of Mahindra Telecom, the option price represents a predetermined selling price to be worked out on a return of compounded rate of 11% per annum and it was not a refundable amount. On such predetermined price, i.e. the option price, the said Mahindra Telecom is under obligation to sell its shares to AT T irrespective of the performance and market value of the company. Even in the case of good performance, when the market value of the shares would be high, the said Mahindra Telecom has to sell its shares to AT T at a predetermined price and similarly even in the case of bad performance of the company, the said Mahindra Telecom would be entitled to receive the selling price of shares at such predetermined price even though the market value of shares would be low. Accordingly, the Mahindra Telecom did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the joint venture agreement depends upon the market value of the shares at the time of divestment. The market value of the shares at the time of divestment has to be determined by an independent financial expert. More the market value of the shares more would be the amount of refund of option price to CUIH (See Schedule 9 of joint venture agreement). 16. In the case of Dabur, whatever would be the amount of option money retained under the terms and conditions of the joint venture agreement would form part of the net selling price of shares as also explained in the definition clause of Schedule 1 of the joint venture agreement which reads as under: NET SALE PROCEEDS shall mean the difference between the gross sale receipts per Dabur share and such option price which shall be calculated as per the formula set out in Schedule 3. 17. Under the joint venture agreement, Dabur entails the risk also because the market value of shares at the time of divestment depends upon the performance of the company as well as the prevailing market condition. In case of good performance, the market value of shares would be high and in that situation, the quantum of refund of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 1, the Hon ble Bombay High Court has again reiterated the same principle and observed that any amount received on capital account is a capital receipt not chargeable to tax. In the case of Vodafone India, the Hon ble Bombay High Court was examining the issue whether the amount received on account of subscription of the issue is a capital account or a transaction giving rise to revenue character in terms of Section 92B of the Act. The Hon ble Bombay High Court held that the amount received towards the share subscription is a capital account and the premium thereon also remains to be on capital account. This judgment of the Bombay High Court has been accepted by Central Board of Direct Taxes in Instruction No. 2/2015 dated 29th January 2015 reported in [2015] 274 CTR [St] 65. 24. The Jurisdictional Delhi High Court in the case of Nestle SA vs. ACIT in 311 CTR 344, after following the judgment of Vodafone India (supra) held that the investment in shares of the subsidiary is a transaction on capital account not giving rise to any income. 25. In the case of Mahindra Telecom, the ITAT had no occasion to consider the effect of sterilization of an asset as has been done in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares as explained in clauses 16 and 16A of the joint venture agreement read with definition of selling price defined in Schedule 9 of the joint venture agreement. In fact, in Assessment Year 2017-18, when first time Dabur had divested its stake of 23% in Aviva in favour of CUIH, Dabur had refunded the option money amount of ₹ 478 crore to CUIH after ascertaining the quantum of refund as per the terms of the joint venture agreement read with its Schedule 3 of the joint venture agreement. 30. In the case of Mahindra Telecom, the Hon ble Mumbai Bench of the ITAT was influenced with the concept that the substance of the transaction prevails over the form. However, such principle is not known to the law. In the case of Mahindra Telecom, the Hon ble Mumbai Bench had no occasion to consider the principles laid down by the Hon ble Supreme Court in the case of CIT vs. Motors General Stores Pvt. Ltd. in 66 ITR 692. In the case of Motor General Stores, it has been held by the Hon ble Supreme Court, while following its earlier judgment in the case of Bank of Chettinad Ltd. vs. CIT in [1940] 8 ITR 522 (PC) that the doctrine that in revenue cases the substance of the matter ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r form which would attract tax. Thus, he submitted that there is no similarity between the two transactions and the decision cited by the learned revenue authorities to tax the option price as revenue receipt is devoid of any merit. Analysis Decision 38. We have carefully considered the rival contention, perused the judicial precedents cited before us by the rival parties, the order of the learned assessing officer and the learned and CIT A. 39. The first contention raised by the learned authorised representative is that the issue involved in this appeal is squarely covered by the decision of the coordinate bench in case of the assessee for assessment year 2013 14 and 2014 15 in ITA number 1763 and 1764/del/2018 dated 11th of March 2019 where in coordinate bench quashed the order passed by the ld PCIT u/s 263 of the Act were quashed. . We have carefully considered the rival contentions on this issue. We find that both these appeals were preferred by the assessee against two separate orders of The Principal Commissioner of Income Tax 16 New Delhi dated 6 February 2018 framed u/s 263 of the income tax act pertaining to those assessment years. On careful con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not allowed by the private parties and was meant only for government companies. However, in the year 2001, the government of India has opened of the field for private parties also and in order to control foreign direct investment in such business also allowed partnership of foreign entities with Indian stake. Therefore, in this background the joint-venture agreement was entered into. 41. The whole controversy in this appeal is solely based on the interpretation and understanding of Joint-Venture Agreement dated 7 August 2001 entered into between CUIH and the assessee. Therefore, it is important to cull out necessary ingredients, terms, and conditions between the two shareholders of a private limited company. The agreement, titled as a Joint-Venture Agreement, which was entered into on 7 August 2001 between the two shareholders i.e. commercial Union International Holdings Ltd (CUIH) and Dabur invest Corp (assessee). CUIH is a subsidiary of a company based out of England carrying on the business of life insurance and related business in United kingdom and other parts of the world whereas assessee is under the control of majority shareholders of Dabur India Ltd, which is engaged i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company. Such financing was based on its five-year business plan and annual business plan presented to and approved by the Board of Directors. Such further financing is also governed by the solvency ratio of the company falling below 120% of the statutory minimum solvency ratio or such other level range as the board of directors agreed to i.e. desired solvency ratio. Such further financing is required to be contributed by both the shareholders in the company by way of subscription for further shares in proportion that the total amount of paid-up share capital bears to the amount of total of paid-up share capital of the company. However if annual business plan for a year requires capital contribution by Dabur in excess of the amount the amount is required to be contributed by Dabur in that year in terms of the five year business plan at the rate of 30% of the amount set out in such business plan. Further subscription by the shareholders shall be subject to approval of the aforesaid annual business plan by both the shareholders. However, the total financial commitment of Dabur towards the company shall not exceed ₹ 237 crores, which constitutes 74% of ₹ 320 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... board. The quorum of the board meeting of the directors shall be 4 directors one of whom must be a Dabur nominee and one CUIH nominee. All the decisions are required to be reached on a simple majority of votes of the directors present. As per clause number 13 there are certain reserved matters between the shareholders, which are required to be pursued not without the prior unanimous approval in writing by both the shareholders. According to clause 15 there is a provision of transfer of shares by both the shareholders to its affiliated entities. The Dabur undertook that during the terms of this agreement it will not sell or transfer the Dabur shares to any company which is not an affiliate of Dabur and there will not be any new shareholding in any affiliate holding shares pursuant to the transfer Under this clause or in Dabur by any person other than Indian National if such transaction would prevent CUIH from maximizing its shareholding in the company. According to clause 16 CUIH agreed to pay the option price to Dabur for right granted to CUIH during the 10 year period to require Dabur to sell only to CUIH such number of shares as would be required to take CUIH shareholding in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CUIH shall also have a right to divest the shares of Dabur in public. CUIH may also offer the locked in shares of Dabur to Dabur itself with a condition that the option price received by it on the Dabur share specified in the retention shares be returned to CUIH.. If the Dabur retains those shares at the time of divestment after the 10-year period Dabur shall repay the option price it has received with respect to the retained shares. Further if the retained shares by the Dabur are required to be sold by the Dabur the right of first refusal rest with the CUIH. Further, if it is sold to other parties , then due diligence of the affairs of the company is to be allowed by CUIH. The option price received by the Dabur is required to be repaid to CUIH in certain circumstances as per clause number 16 A. Clause 16 B is with respect to the invocation of guarantee and clause number 16 C is placing the shares in escrow account in situation of the winding up of the company. Clause number 17 deals with the transfer of shares owned by CUIH within a 10-year period and after the 10-year period. According to that clause, if at any time during the 10 year period CUIH decides to sell its shares to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement provides certain definitions. One of the clause that is defined as OPTION PRICE and certain other relevant terms are as Under:- OPTION PRICE shall mean during the 10 year period sum payable by CUIH to Dabur annually in advance which is equivalent to 20% of the subscription price for each share held by Dabur and after the 10 year period a sum payable by CUIH to Dabur annually in advance which is equivalent to 20% of the subscription price for each Dabur share. In the event of further capital contribution by Dabur in terms of clause 6 during the year, the option price payable in relation to the such capital contribution in that year shall be proportionate to the remaining period in that year. All taxes, including withholding taxes, if any, payable by CUIH on the option price, shall be to the account of CUIH. All taxes payable by Dabur, if any, shall be to the account of Dabur. Retained Shares shall mean the shares held by Dabur immediately after the expiry of the 10 year period which constituted 26% of the companies then paid up equity share capital and those shares in relation to which Dabur has returned the option price in terms of clause 16.9.2.4 subsc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (In Rs.) Accumulated sum In Rs Assessment status 1 2002 03 2003 04 22,91,04,000 22,91,04,000 Already assessed. The assessment for assessment year five 06, 2006 07, 2008 09 were already completed as scrutiny assessment u/s 143 (3) of the act. 2 2003 04 2004 05 47,84,44,000 70,75,48,000 3 2004 05 2005 06 47,33,04,000 118,08,52,000 4 2005 06 2006 07 59,66,47,200 177,74,99,200 5 2006 07 2007 08 91,46,13,095 269,21,12,295 6 2007 08 2008 09 108,13,17,600 377,34,29,895 7 2008 09 2009 10 212,50,69,101 589,84,98,996 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m received of ₹ 2,468,462,400/ is income of the assessee. 48. Further, for assessment year 2011-12 and 2012-13, the case of the assessee has been reopened u/s 147 of the act. For assessment year 2013 14 and 2014 15, The Principal Commissioner of Income Tax took action u/s 263 of the income tax act, which challenged before the coordinate bench, and such action u/s 263 was quashed by coordinate bench by order dated 11/03/2019. 49. It is also evident that till assessment year 2010 11, assessee has received option price money of ₹ 8,329,447,357, which is not offered by the assessee as income for assessment year 2003 04 to AY 2010-11. It is interesting to note that this sum of ₹ 8,329,447,357/ is proportionately offered by the assessee in assessment year 2017 18 at the time of the sale of part shares from Dabur to CUIH. Therefore, assessee has offered/ considered proportionately the above sum of ₹ 8,329,447,357/ under the head of capital gain in assessment year 2017 18. If the option price money received by the assessee is held to be income chargeable to tax on year-to-year basis, naturally such amount received till assessment year 2010 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Price for each shares held by Dabur. Option price payment date is also fixed. It means the date on which CUIH pays Dabur the option price which had the first instance the date of initial subscription by Dabur and thereafter on every 31st of January each year. However, what is this option price and what is the relevance of this option price in the whole agreement is required to be seen. 52. Clearly the joint-venture agreement between commercial Union International Holdings Ltd and Dabur invest Corp is a shareholder agreement between both the shareholders of Dabur CGU Life Insurance Co Private Limited (Aviva Life Insurance Co Private Limited). This agreement decides interse rights, duties, obligations, covenants between the parties to far as they hold the shares in the private limited company. The movement any one of the shareholder exits , the agreement comes to an end. 53. As the parties to the joint-venture agreement has agreed to develop an insurance business, assessee, Dabur invest Corp invested 74% in the equity capital of that company and commercial Union International Holdings Ltd subscribed to 26% of equity capital of that company because at that particular tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption price guarantee to recover such amount. The above option Price shall be paid on each option price payment date Dabur until:- a) all shares held by Dabur other than the retained shares are sold and Dabur has received sale proceeds for such sales in terms of this agreement, or b) Dabur except the retention of made by CUIH as per clause 16.9.2.4 on all the Dabur shares 16.6 The sale consideration received by Dabur pursuant to the exercise of the CUIH option or the Dabur option shall always be the market value for each share sold by Dabur provided that:- 16.6.1 in the event that the market Value is lower than the subscription Price, CUIH shall also pay the difference between the subscription Price and the market Value to Dabur Simultaneously with the sale of Dabur shares. The Dabur shall be entitled to retain the option price received on such Dabur shares. 16.6.2 If the market Value is higher than the subscription Price, Dabur shall repay the option price (to be calculated in accordance with schedule 3) pertaining to such Dabur shares within 30 (30) days from the receipt of the market value. Provided however, if as a result of repayment of the option Price, the net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the difference between the market value and the subscription Price simultaneously with Dabur offering its shares as a part of the divestment process. Dabur shall retain the option price received by it on such shares. In the event, CUIH fails to pay the difference between the market value and the subscription price to Dabur as aforesaid, Dabur shall be entitled to invoke CUIH subscription price guarantee to the extent of the amount which is equal to such difference. 16.9 divestment after the 10-year period After the expiry of the 10-year period, the following provisions shall apply in relation to the Dabur shares:- 16.9.1 CUIH shall continue to pay the option price on the Dabur shares 16.9.2 The CUIH option shall continue in full force and effect and CUIH shall have the following rights:- 16.9.2.1 CUIH may give notice has proceeded 6A that it requires the sale of some or all Dabur shares to CUIH (subject to applicable law). If CUIH requires Dabur to sell the Dabur shares to CUIH, Dabur shall sell such shares at market value and the provisions of clause 16.6 shall apply to such sale/purchase transaction. 16.9.2.2 CUIH may give a sale notice that it requires the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice received on such shares, then Dabur shall repay to CUIH within 30 days of receiving the market value, the total option price paid till date on such Dabur shares d) if the market Value is lower than the subscription Price, CUIH shall pay two Dabur the difference between the market value and the subsection Price Simon tenuously with the sale of Dabur shares offered as a part of the divestment process. Dabur shall be entitled to retain the option price received by it on such shares. In the event, CUIH fails to discharge its payment obligation Under this clause 16.9.2.3 (d), Dabur shall be entitled to invoke the CUIH subscription price guarantee for the amount which is equal to the difference between the subscription price paid for Dabur shares and the market Value received. The divestment by Dabur envisaged Under this clause 16.9.2.3 shall be effected in accordance with the procedures set out in schedule 6B2. 16.9.2.4 CUIH may, at its discretion, offer (retention offer) Dabur for Dabur to return the option price received by it on some or all of the Dabur share specified in the retention offer. If Dabur accept the retention offer, Dabur shall indicate such acceptance by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale proceeds per share at subscription Price. c) If the shareholding of CUIH is divested in terms of clause 17.2 after the 10 year period and Dabur, pursuant to the exercise of its tagalong right Under clause 17.2.5, sells its shares, Dabur shall repay CUIH the option price received by it (to be calculated in accordance with schedule 3). Such repayment shall be in accordance with clause 17.2.5 (b) d) Dabur shall repay the option Price (to be calculated in accordance with schedule 3) on retained shares in terms of clause 16.9.6. 54. On careful consideration of above all clauses it is quite clear that option price received by Dabur from CUIH is subject to the determination of market value per share held by Dabur. This is evident from the reading of clause number 16 and 16 A of the agreement. Option price received by the assessee is directly linked with the transfer of Dabur shares. Dabur shares are to be transferred always at the market rate and if the Dabur incurs certain losses , then same shall be to an extent be recouped by CUIH. If there is upside in the market value of share , such defined gain on transfer of Dabur share is to be retained by Dabur. The learned CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as foreign entity is also planned. Further on looking at clause number 6, wherein the provisions of further financing are incorporated. It is provided that in case the company requires further financing it would be in terms of the five year business plan and annual business plan presented to and approved by the board of directors. Further if the solvency ratio of the company falls below 120% of the statutory minimum solvency ratio, then also further financing is required. The board of the company may also decide on its own that further financing is required. All these are based on the business plan and annual business plan presented to the board. In the board of directors both the shareholders have a right to appoint the directors in proportion to their shareholdings. In the impugned year before us the Dabur was holding 74% of equity and thus was a majority partner. 57. It is also stated by the learned CIT A that the joint-venture agreement is merely a financial agreement where Dabur confers exclusive rights upon CUIH for purchase of its shares. Thus it is only an agreement when CUIH guarantees payment of 20% as option price to Dabur by 31st January every year in retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholders i.e. shareholders agreement, it is apparent that option price received by the assessee annually is merely an advance receipt of sale consideration of shares to be transferred by assessee in favour of CUIH, its nominee or to 3rd party. 59. Even such Option price received is always a liability of the assessee , as there are relevant clauses of the agreement where assess needs to refund the same to CUIH based on market value of shares. Undeniably, there are circumstances where the Option price is to be retained by the assessee , but all these depends on the triggering even of sale of Dabur shares , not before that. Further the option price is also to be adjusted in full value of consideration of shares as when those are transferred. Thus, Option price is capital receipt, received in advance by the assessee. 60. One more reason to say so is that when assessee has subscribed to the shares of the company, according to clause number 10 which describes the dividend policy amongst the shareholders, any dividend received by the assessee if at all, is not adjustable against option price. Thus Dabur shares are also entitled to Dividend , If any. 61. It is also argued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right of management in the new entity. 62. It has been also held by revenue that the joint-venture agreement is an ironclad financial agreement where CUIH, holding guarantee of 20% of option price on the rights of CUIH for buying further stake of the assessee due to change in the foreign direct investment percentage and therefore the option price received by the assessee is income of the assessee. We have already stated that the joint-venture agreement is in the nature of a shareholders agreement. It may be possible that one shareholder may put in investment in the company and other party may put in investment as well as expertise for the business of the company. But both are investors in the company. Even otherwise any acquisition of a stake in a company is always a financial arrangement. The right of first refusal to buy the stake of another party is always enshrined in case of closely held companies for smooth conduct and efficient running of the business. Whenever the shareholders enters into a shareholder agreement with respect to a particular company where both of them have invested and give a right of purchase of stake of one another, issues counter guarantees to eac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities have also held that at the time of receipt of option price by the assessee there is no underlying asset transferred by the assessee and therefore it is an income in the hands of the assessee. Naturally, the option price received by the assessee is an advance towards the sale price of the shares at a future date therefore the transfer of the underlying asset will happen at a future date on happening of the certain events. Thus it cannot be said that as there is no transfer of an asset at the time of receipt of option price and therefore, , the option price becomes an income of the assessee. If, this argument of the revenue is accepted then any advance received for the sale of a capital asset, where the sale will happen in the later time, Will become income of the assessee even if the transfer of such capital asset takes place in later years. This will tantamount to changing the character of a capital receipt (sale consideration for a capital asset) received in advance as income without there being any transfer of an asset. It is not the case of the revenue that ultimately the assessee did not transfer the assets and adjusted the option price against the sale consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare and option price received by the assessee. Thus it is clear that when the market Value is higher than the total of subscription Price plus option price received by Dabur, in that circumstances the Dabur is entitled to retained such excess price. Thus it is clear that if market value of the share is higher than the total of subscription price plus option price, such higher value is to be retained by Dabur and not to be refunded. In view of this the argument of the revenue that in all circumstances the assessee gets only the option price or the option price is always to be retained is a fallacy. It is true that in such circumstances of the option price received by the assessee is always to be retained however, the assessee is also getting much more than option price if the market Value is higher than the subscription Price plus option price. The option price is a minimum guarantee given by CUIH as the minimum exit value of the investment made by assessee. Which is in general is found in many of the investment made by private equity funds. In this case the only differences that assessee is periodically receiving the minimum guarantee over a period of time as advance against sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sell the shares to the third parties without giving an option first to the existing shareholders. Further in case of the winding up of the company the liability of the shareholders are only restricted to the extent of the subscription amount, none of the shareholders can be asked to pay to the creditors beyond the net worth of the company except in case where the individual shareholders have guaranteed such payment to the creditors separately. 67. The ld CIT (A) has held that the agreement is an eyewash and is to hoodwink the revenue. On careful reading of the orders, nowhere the lower authorities have doubted the content of the agreement. It is merely an issue of interpretation of an item of receipt, which is required to be determined whether it is capital receipt or revenue receipt. The Context of the agreement s stated is before several authorities such as IRDA, RBI, and FDI Committee and even before AO for eight long years without expressing any doubt by any of the authorities. 68. Lastly the revenue has relied heavily on the decision of coordinate bench in case of Mahindra Telecommunications Investment Private Limited (2016) 69 taxmann.com 431 stating that issue is squar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Para number [3] of that decision succinctly brings out the issue before the bench as Under:- The respective cases 3. The issue arising for determination is whether the income by way of return on 'equity' accrues to the assessee from day to day, i.e., on the basis of the holding period, for each previous year comprising the holding period, or shall accrue only on the sale of shares, i.e., on the exercise of the put option or, equivalently, call option by AT T Global. As per the assessee, the income had not accrued in-as-much as the option had not been exercised, i.e., accrued and shall only be so on the (sale) transfer of shares. Reliance stands placed by it on E. D. Sassoon Co. Ltd. v. CIT [1954] 26 ITR 27 (SC) and CIT v. Canara Bank [1992] 195 ITR 66/61 Taxman 79 (Kar.). In view of the Revenue, the income being defined to arise on the basis of time, i.e., as a linear function of and by elapse of time, accrues to the assessee on time basis and, accordingly, working out that accrued for the current year, reflected by an increase in the option price during the year, brought it to tax. Reliance is placed by it on Madras Industrial Investment Corpn. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is at market value and Dabur is also entitled to increase in market value of those shares above total of option price and subscription price. Further, according to clause number 7.4 of that agreement, the failure of Mahindra to support AT T shall constitute a breach under that agreement. In Case before us, Dabur has right of veto and there is no clause that failure of Dabur to support CUIH constitutes a breach of the agreement. Further on termination of the agreement by foreign party, in that case the Mahindra was required to sale all its shares at their par value and in case of termination of agreement by Mahindra, Mahindra was to offer all its shares to AT T at the option price. Thus, the shares were to be transferred by Mahindra in that decision to AT T at option price only and any increase therein is only with respect to a predefined rate. Whereas in case before us it is linked to the market value of those shares. Coordinate bench further made a definite observation that shareholding of Mahindra or the rights of the shareholder of AT T were qualitatively different, such case is missing in case before us and, the shareholder agreement says that both have right according to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 2014 15 were subjected to revision by The Principal Commissioner of Income Tax 16, New Delhi. On appeal before the coordinate bench against that order, the coordinate bench as per order dated 11 March 2019 has quashed assumption of jurisdiction by CIT u/s 263 of The Income Tax Act. Further, for assessment year 2011 12 and 2012 13 the action u/s 147/148 of the income tax act has been initiated by reopening of the assessment. The appeals of those years are pending before the CIT A. However, up to assessment year 2011 12 i.e. For eight assessment years, consistently this position is maintained by assessee as well as the income tax authorities. Now revenue has changed its stand. Principles of Estoppels and Resujudciata do not apply to the tax matters is an established principle, but principle of consistency does. The principle of consistency is also cardinal principle of taxation as held by the honourable Supreme Court in Radhasoami Satsang v. Commissioner of Income-tax 193 ITR 321 and 358 ITR 295. Further, saying that there was an error in earlier acceptance of the order/stand of the assessee, therefore revenue s stand is changed stating that there is no heroism i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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