TMI Blog2023 (3) TMI 1136X X X X Extracts X X X X X X X X Extracts X X X X ..... ust have performed some business activities or carried out business and he must have received any benefit or perquisite in the course of business or profession. The share of Dish TV as a gift does not arise out of business dealing and accordingly, rightly being held by the ld. CIT (A) that is not taxable under the said provision. Therefore, the said receipt is not taxable u/s. 28(4). Accordingly, the deletion of the addition made by the ld. CIT (A) is upheld and Ground No. 1 of the revenue's appeal is dismissed. Receipt of share premium is concerned, the same is not chargeable to tax unless the provisions of Sections 56(2)(vii a) or (vii b) are invoked that it is in excess of fair market value of shares which provision will apply from A.Y. 2013-14 and not in A.Y. 2012-13 - finding of the ld. CIT (A) in deleting the said premium is confirmed. CIT(A) has already dealt with the valuation of the shares which was done on Net Asset Value method based on the report of independent Chartered Accountant and assessee has considered the market value of asset being share of the listed company. There is categorical finding of the fact that the share of the Dish TV were purchase from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be made irrespective of the fact whether any exempt income has been earned during the year by the Assessee Company or not? 4. On the facts and circumstances of the case and in law, whether the Ld CIT(A) was justified in allowing the Returned Loss of ₹ 1,94,994/- by stating that no discussion has been made by the AO in respect of the same, without considering the fact that the AO in his Assessment Order at Para 27 has stated that the Assessee Company has not carried out any business activity during the year under consideration? 2. Whereas in the assessee's appeal, the assessee has mainly challenged certain directions of the ld. CIT (A) given in the above order which are as under: 1. The Assessing Officer [hereinafter referred to as the AO ] / Commissioner of Income tax (Appeals) [hereinafter referred to as the CIT(A) ] erred in holding that the shares of the listed company was received as a part and parcel of division of vast business empire of the group among family members undertaken in a colorable manner so as to avoid tax. 2. The AO/CIT(A) erred in holding that the receipt of shares of listed company was not in the nature a gift but as a resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by Veena Investments Private Ltd., Essel Group Company, from Essel Sports Private Ltd on 23.08.2011. Subsequently, the entire shareholding of the assessee company was acquired by Essel Corporate Resources Pvt. Ltd. (ECRPL) and Essel Group Company from Veena Investments Private Ltd. on 14.11.2011. This way the assessee company became wholly owned subsidiary of ECRPL from 14.11.2021 onwards. On the same day, a letter of understanding was made between ECRPL and the appellant company wherein it was mutually agreed that as part of the internal restructuring of the group for consolidation of media assets, ECRPL will transfer 44,99,19,548 equity shares in Dish TV India Ltd (Dish TV) to the appellant as a gift without consideration. Further, on 14.11.2011 itself, a letter of understanding was made between Prajatma Trading Co. Pvt. Ltd. (an Essel Group Company) and the appellant company wherein it was mutually agreed that as part of the internal restructuring of the group for consolidation of media assets, ECRPL will transfer 14,64,95,662 equity shares in Dish TV India Ltd to the appellant as a gift without consideration. On the same day, the board of directors of ECRPL and Prajatma Trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 59,64,15,210 Dish TV shares received by the appellant at NIL consideration during the year from the group companies amounted to ₹ 3578,49,12,600/- at the average traded price of ₹ 60/- per share. Dish TV India Ltd is also a company forming part of Essel group of companies and it is engaged in the business of providing DTH services. Dish TV India Ltd is a company in which public are substantially interested and its shares are listed in the Bombay Stock Exchange and National Stock Exchange. 7. The ld. CIT(A) while noting down the facts, has discussed in detail as to how the group companies have been transferring the shareholding to other companies, at nil consideration and showing loss of transfer of this shares at Nil and resultantly, no income under the head capital gain arising from the transfer of the shares have been shown, because it was by way of gift which is exempted from capital gain as per Section 47(iii) of the Act. Further, transfer of a capital asset from the holding company to wholly own subsidiary company is exempt from capital gains as per Section 47(iv) of the Act. After considering the entire gamut of facts and material on record, he has formulated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ins tax in respect of such transfer, is clearly a colorable device. After discussing the issue in detail he directed AO to take necessary steps regarding the tax liability of the transferor companies as per the provision of law, whenever the capital gains arising from the relevant transaction of transfer of shares has not suffered tax. 9. With regard to whether transfer of shares, whether at nil consideration to the assessee can be considered as a gift that has been directly made, he held that said transfer of shares cannot be recorded as voluntary transfer and it cannot be considered transfer were made without consideration. Thus, he held that transfer of shares of Dish TV India Ltd made at nil consideration by ECRPL and Prajatma Trading Company Private Limited to the assessee company cannot be regarded as a gift. As a consequence, the benefit of capital gains u/s 47(3) will not be applicable in respect of these transfers in the hands of transferor companies. 10. Having given adverse findings with regard to the first three issues formulated by him, he proceeded to decide, whether the receipts of shares of a listed companies at a nil consideration by the assessee is liable fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircular No dated 15.12.2018. He thus held that, under the existing provision of under 56(2)(viia) the gift of listed shares was not chargeable to tax under the head income from other sources‟ which has been made specifically brought to tax u/s. 56(2)(x) from A.Y. 2018-19. Accordingly, he held that the receipt of shares of Dish TV India Ltd by the assessee at nil‟ consideration cannot be brought to tax under the head income from other sources. 13. In so far as the issue, whether the receipt of shares at nil consideration construed income liable for tax u/s. 28(iv) of the Act, Ld. CIT(A) after discussing the issue in detail and referring the various judgments observed and held has under : i. Considering the principles laid down in the decisions cited above, a benefit or perquisite should arise/ originate from the business of the assessee for the same to be considered as Income under the head business u/s. 28(iv) of the act. The fulfillment of this condition requires that benefit activities by the assessee. The right to receive such a benefit or perquisite should spring up from the business activities carried out by the assessee so as to constitute business income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form of corporate gift for the purpose of the business is allowed as a revenue expenditure, a gift received by a company can be treated as a revenue receipt in the form of a benefit arising from the business which is taxable u/s. 28(iv) of the Act. However, as mentioned above, these decisions have not laid down any legal proposition regarding the allow ability of the transfer of a capital asset in the form of a gift as a revenue expenditure in the hands of the donor. These decisions have dealt with the expenditure incurred on the articles intended for the presentation to the customers for the purpose of promotion of the sales of the business. Moreover, it is a well settled legal position that the revenue/capital nature of the payment in the hands of the payer hs not bearing on the revenue/ capital nature of the same amount in the hands of the recipient. Further, it is seen in the present case that the transferor companies have not claimed deduction for the value of the shares transferred by them at NIL consideration to the appellant while computing their total income under the Act. Hence, it is considered that these decisions cited by the AO have no relevance to the issue on hand. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee company was made on the basis of adjusted Net Asset Value (NAV) method and observed that the valuation report is factually incorrect in as much as the value of the shares of Dish TV India Ltd held by the appellant company was taken at ₹ 260 Crores in the report though the same is shown at ₹ 255 Crores in the balance sheet for A.Y. 2012-13. The AO further observed that the investment of the assessee in the shares of Dish TV India Ltd of ₹ 255 Crores should not have been taken into consideration for determining the value the shares in the valuation report since the said investment was made out of the share application money received from the investor company itself. 16. The AO therefore came to the conclusion that the assessee has failed to establish the genuineness of the transaction and its true nature and held that it has been established beyond doubt that the assessee could not substantiate its claim of having received the said sum of money in the form of purported premium on shares from the holding company ECRPL, though the primary onus is on the assessee to prove that the sums found credited in its books of account are truly in the nature of share cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the lack of justification for the share premium can be aground for addition of the share premium u/s. 68 of the Act even where the identity of the investor, the genuineness of the transaction and the creditworthiness of the investor have been established by the appellant. iii. As regards the identity of the investor, the appellant has furnished its PAN, address and copy of the ITR acknowledgment for A.Y. 2012-13 to the AO during the assessment proceedings. The investor (ECRPL) is the holding company of the appellant and it is a part of the Essel Group of companies. ECRPL is an existing company which is filling its returns of income as evidenced by the PAN and the copies of the ITR aknoledgment. Further, the appellant furnished a copy of the assessment order passed u/s. 143(3) of the Act in the case of ECRPL for the assessment year under consideration i.e. A.Y. 2012-13 on 30.03.2016 by the DCIT-6(3)(2), Mumbai. Hence, it is considered that the identity of the investor has been established by the appellant. iv. As regards the genuineness of the transaction of the receipt of the share premium from the investor, the appellant furnished a copy of the bank account stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on accounts forming part of the financial statements of ECRPL, it is seen that the increase in Long Term borrowings from ₹ 1.04 Crores as on 31.03.2011 to ₹ 797.68 Crores as on 31.03.201 is mainly due to receipt of Inter-Corporate Deposits (ICDs) of ₹ 792.21 Crores by ECRPL from Prime Publishing Pvt. Ltd., the holding company of ECRPL. Further, on perusal of the copy of the bank account statement of ECRPL, it is seen from the narration for the entries contained therein that ECRPL paid the share capital and the share premium to the appellant out of the funds received in the bank account from Prime Publishing Pvt. Ltd, its holding company. It is therefore noticed that the amount of share premium given to the appellant was paid out of the funds available with ECRPL by way of borrowed funds. Further, on perusal of the copy of the balance sheet of Prime Publishing Pvt. Ltd as on 31.03.2012 furnished by the appellant during the appellate proceedings, it is seen that the funds of ₹ 792.21 Crores lent to ECRPL are duly shown therein under Short-term Loans and Advances‟. Thus, it is seen that the creditworthiness of the investor has been properly established ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tments during the year. Thus, he deleted the addition after observing as under. Further, it is seen that the total expenses debited by the appellant in the P L Account amounted to ₹ 1,91,994/-. As against the said claim of expenses of ₹ 1,91,994/-, the AO has made disallowance of expenses of ₹ 1,28,30,957/-. The disallowance made by the AO is far higher the total claim of deduction for expenses made by the appellant. The AO has therefore disallowed expenses to the tune of ₹ 1,26,38,963/- which were never incurred nor claimed as deduction by the appellant. In the absence of claim for deduction of any expenses, no disallowance of expenses under the provisions of section 14A can be made. The question of disallowance of expenses does not arise when no deduction has been claimed for the expenses in the first place. Hence, on account of this reason also , the disallowance made by the AO u/s. 14A to the extent of ₹ 1,26,38,963/- cannot be sustained. i. Further, it noticed that the AO has adopted the average value of investment, the income from which does not or shall not form part of the total income, for the purpose of working out the disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of total income of the appellant. This ground of appeal is therefore allowed. 22. We have heard both the parties, perused the relevant finding given in the impugned orders as well as material referred to before us. The merits of additions have been challenged by the revenue on all the addition made by the AO are as under: a. Receipt of share of Dish TV Limited as gift, taxed under section 56 of the Act ₹ 3578,49,12,600/- b. Share premium received from Essel Corporate Resources Pvt. Ltd., under section 68 of the Act ₹ 254,45,97,000/- c. Disallowance under section 14A r.w.r 8D of the Act of ₹1,28,30,957/- d. Non-consideration of loss claimed in Return of Income of ₹ 1,91,994/-.? 23. In so far as, the first issue raised in Ground No. 1 pertaining to addition of Rs. 3578,49,12,600/-, we have already discussed the brief facts and background of the matter and the manner in which additions made by the AO and the finding of the ld.CIT(A). To put it succinctly, assessee company has received 44,99,19,548 shares of Dish TV Ltd from ECRPL and 14,64,95,662 shares of same company (i.e. Dish TV) from Prajatma Trading Company Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out with a view to consolidate/rationalize the holding of various Media Assets namely Business operated by Siti Networks Ltd into a single Holding Company, i.e., ECRPL, in accordance with the extant regulations. As a part of the above restructuring, it was intended that ECRPL, will have 100% subsidiaries to hold each distinct media business vertical, namely, DTH Business operated by Dish TV India Ltd, TV news operated by Zee Media Corporation Ltd and Cable operated by Siti Networks Ltd from the perspective of future raising. In the present case, pursuant to the internal restructuring an interested investor can either invest in all 3 media verticals by investing in ECRPL or in other words, there was a flexibility offered to the potential investors, whereby investments could be made for each vertical of business at holding company level ( assessee ), or at consolidated holding level ( ECRPL ). This type of flexibility would help in fund raising. To achieve the said purpose, during the year, the assessee company, a 100% subsidiary of part of the internal restructuring, it received 59,64,15,210 equity shares of Dish TV from its holding company ECRPL and Prajatma. The internal restruc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p by the assessee company as well as holding company i.e. M/s. Essel Corporate Resources Pvt. Ltd. In transferring the equity shares for the purpose of restructuring and consolidation of Media assets, The documents were obtained from the assessee in the form of financial statement and place on record. It is to be seen whether a corporate like ECRPL/ assessee can give or receive gifts. However, apparently there is no gift on record but the provision of Section 5, Section 122 and section 123 of Transfer of property Act is liable to be seen in this regard which is reproduced as under:- 5. In the following sections transfer of property means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself and one or more other living persons; and to transfer property‟ is to perform such act. In the section living person includes a company or association or body of individuals, whether incorporated or not, but nothing herein contained shall affect any law for the rime being in force relating to transfer of property to or by companies, associations or bodies of individuals . Section 122 to TOPA 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax in India on the basis of receipt, accrual and deemed to be received and accrued in India. In the view of above, the charging section of the Act specifically provides for taxation of income‟ of an assessee. For a receipt to be taxable under the provisions of the Act it must necessarily be in the nature of an income or its taxability should have been specifically provided by the statue. Under the Act, what is subjected to tax is only the income‟ of the assessee and not each and every receipt of the assessee, where the other receipts not in the nature of income are intended to tax, the legislature has specifically made provisions for taxability of such receipts in the statue itself like section 45, section 56(v), 56(vi), 56(vii) etc. It was also held that as per the provisions of law prevailing during the year under consideration, the gift received by one corporate body from another corporate bodies do not come under the ambit of income as contemplated under section 2(24) or any other provisions of the Act. While referring and following the decision in DP gifts and natural love and affection are no necessary requirement. It was held that the only requirement for compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without or inadequate consideration and in the present case the assessee is recipient of shares of listed company therefore provision of section 56(2)(viia) cannot apply. Further, referred to the following passage in the case of 25FBA Supra which is at under : 9. In view of the said discussion and law relied by the assessee, we are of the view that the gift is not a colorable device to avoid the tax liability if any. It is also to be seen whether the same is liable to be taxed u/s. 56(1) and 28 (iv) of the Act or not:- 56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head Income from other sources , if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. From the above, it may he observed that income from other sources is the last an residual head of income. A source of income which does not specifically fall under anyone of the other four heads of income (viz. Salaries, Income from House property, Profit and Gains of business or profession. Or capital gain) is to be computed and brought to charge under section 56 under the head incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) cannot apply. In view of above, the CIT(A)'s observations that the provisions of section 56(1() do not apply in case of transfer of shares should be upheld. 12. It speaks about the receipt of share from the Private Limited company for without or inadequate consideration whereas in the present case, the assessee is the receipt of shares of a listed company so the provision u/s. 56(2) (vii a) of the Act is not liable to be applicable. 27. As regard to the applicability of Section 28(iv), Ld. Counsel submitted that during the course of the appellate proceedings, the AO vide remand report contended that the receipt of shares of Dish TV as gift by the appellant during the year is chargeable to tax as income under the head business as per the provisions of section 28(iv) of the Act. The provisions of section 28(iv) read as under: 28. The following income shall be chargeable to income-tax under the head Profits and gains of business or profession Section 28(iv) specifies that the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargeable to tax under the head profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fession- The following income shall be chargeable to income tax under the head Profits and gains of business or profession. 15. In view of the said decision, it is quite clear that the provision Section 28(iv) and 56 in case of receipt of shares of a listed a company as gift is not applicable. Accordingly, we uphold the finding of the CIT(A) on this issue. In the result, the appeal filed by the revenue is hereby dismissed. Accordingly, the provisions of section 56 and 28(iv) cannot be applied in the present case, where the assessee is recipient of shares as gift. This view is further fortified by the decision of coordinate benches in the case of DCIT Vs. KDA Enterprises (P) Ltd (57 taxmann.com 284) Nerka Chemical Pvt. Ltd Vs. DCIT (ITA No. 4423/MUM/2014 (supra) and DP World Pvt. Ltd. Vs. CIT (26 taxmann.com 163). 28. The Ld. DR on the other hand after referring to various observation of the AO submitted that, one has to see the fact and background of the case and how the group entities have devised a colorable arrangement wherein the shares have been acquired and gifted without getting into the clutches of taxing provision. He also referred to various observations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observation of the CIT(A) is not justifiable, therefore, we set aside the such direction and decide the issue nos. 1 to 4 in favour of the assessee against the revenue. 30. As stated above, the only controversy is whether the receipt of shares aggregating 259,64,15,210 of Dish TV Ltd as a gift without consideration can be subjected to tax at the u/s. 56(1) or 56(2)(viia). A receipt can only be brought to tax under the express provisions of the law and not every receipt can be subject to tax. It cannot be disputed and the shares of Dish TV received by the assessee as gift represented the capital receipt in the hands of the assessee company and the same was held as an investment classified as capital assets in the books of account. The nature of the said receipt of shares remains the same irrespective of whether the shares were transferred at nil consideration. A capital receipt cannot be liable for tax unless there are specific provisions to tax the same. Certain deeming provision have been brought in the statute u/s. 56(2) (vii a),(vii b),(vii),(x). Some of these deeming provisions have been brought in the statute with effect from particular years. Admittedly, these deeming pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e manner in which the restructuring of various group companies have been done, the shares have been acquired and given as a gift on a nil‟ consideration does not impact in so far as the receipt of shares in the hands of the company as a gift. Whether the donor company which has even the gift of shares has devised any colorable mechanism in order to escape the capital gains would be a subject matter of scrutiny of examination in those cases. The ld.CIT(A) has given his observation and has directed the AO to take necessary steps under the provisions of the law regarding the tax liability of the transferor company and whether the capital gains rising from relevant transaction transfer of shares can subjected to tax or not. These are merely an observation and direction to AO to examine the issue of chargeability of capital gains in the hands of transferor companies and not that he has directed the same should be taxed. Accordingly, we do not find any reason to interfere in such a direction and observation of ld. CIT(A); and he was well within the scope of section. 251 to make such observations while giving finding of fact placed on record. Whether in the hands of the transferor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem of income filed by Prime Publishing, its financials and relevant bank statements in order to prove source of source. In fact, the genuineness of the funds received by ECRPL from Prime Publishing was questioned by the Department in A.Y. 2013-14 and addition under section 68 of the Act was made in the hands of ECRPL for receipt of funds from Prime Publishing. The matter went up to the Tribunal (ITA 1835/MUM/2017). The Tribunal has deleted the addition under section 68 of the Act as the nature and source of such borrowing from Prime Publishing stood proved. Thus, not only is the source of money from ECRPL stands proved but also the source of source i.e. from Prime Publishing stood established. iii. Genuineness of the transaction Since all the funds have been through a proper banking channel duly recorded in the books of account and financials of the Company, there cannot be any doubt on the genuineness of the transaction. A copy of the bank statement of the assessee bank statement of ECRPL Prime Publishing were submitted to establish the same. The assessee even submitted the relevant board resolution and Form 2 filed with the ROC intimating allotment of equity s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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