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TMI Blog2022 (3) TMI 1516X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt income has been earned during the year by the assesse or not?" 2. "On the facts and circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the addition of Rs134,96,23,835/- made by the AO regarding the transfer of shares of listed companies of the group that took place during the relevant assessment year among various companies of the group and that the group represented a proper division of the vase business empire of the group among the family members of the larger promoter family; at a NIL, consideration by the assesse.?" 4. The brief facts of the case are that the assessee filed its return of income on 29.09.2012 declaring total income to the tune of Rs.6,20,567/- for the A.Y.2012-13. The assessee is a company incorporated with the object to carry on the business of dealing in Cinematographic Films. The assessment was completed on 31.03.2015 determining the total income to the tune of Rs.149,57,54,080/-. After making the addition/disallowance aggregating to Rs.149,51,33,530/- u/s 143(3) of the Act. In the assessment order, the AO raised the addition of Rs.134,96,23,835/- u/s 56(1) towards the market value of the shares of Zee News Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of the Hon'ble Delhi High Court in the case of Cheminvest Ltd v. CIT [2015] 61 taxmann.com 118/234 Taxman 761/378 ITR 33 overruling the Tribunal's decision relied upon by the AO holding as under: "In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression 'does not form part of the total income' in Section 14A of the envisages that there should be an actual receipt of income, which was not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A would not apply if no exempt income was received or receivable during the relevant previous year." The Hon'ble Bombay High Court in the case of Pr. CIT v. Rivian International (P.) Ltd. [IT Appeal No. 693 of 2015, dated 21-11-2017] has also held that if the assessee during the relevant year has not earned any tax-free income, the corresponding expenditure incurred cannot be taken into consideration for disallowance. 50. In view of the above discussions we direct the Assessing Officer to delete the disallowance of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has strongly relied upon the order passed by the CIT(A) in question. The assessee acquired 12,78,98,710/- share of Zee News Ltd., by Essel Corporate Resources P Ltd (ECRPL) without consideration. The AO held that the transaction is a colourable device towards the evasion of tax, therefore, tax is leviable on the value of share in view of the provisions u/s 56(2)(viia). The assessee filed an appeal before the CIT(A) who deleted the addition stating therein that the transaction is not liable to be taxed in view of the provisions u/s 56(2)(viia) of the Act and in view of the provision u/s 28(iv) of the Act. The CIT(A) has given the following finding:- "207. It is a well settled legal position that a capital receipt is not liable for tax unless the statute makes a specific provision to bring the same to tax. Such provisions to bring capital receipts to tax are available in the statute in section 45 and in clauses (v), (vi), (vii) and (viia) of section 56(2) and the corresponding clauses in section 2(24) dealing with definition of income. It is therefore required to be examined whether the capital receipt of the appellant by way of receipt of shares falls under the scope of any of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 15.02.2018 of the CBDT containing the Explanatory Notes to the provisions of the Finance Act, 2017 dealing with the rationale for insertion of clause (x) of section 56(2) of the Act. Clause (x) of section 56(2) has been inserted by the Finance Act, 2017 w.e.f. 01.04.2018 and the same has provided that the receipt of a sum of money or moveable property or immoveable property by any person on or after 01.04.2017 without consideration or for inadequate consideration in excess of Rs.50,OOOj-shall be chargeable to tax in the hands of the recipient under the head Income from Other Sources. The relevant part of the Explanatory Notes is reproduced as under: 33. Widening scope of Income from other sources 33.1 The provisions of section 56(2)(vii) of the Income-tax Act provided that any sum of money or any property which is received without consideration or for inadequate consideration (in excess of the specified limit of Rs. 50,000) by an individual or Hindu undivided family is chargeable to income-tax in the hands of the resident under the head "Income from other sources" subject to certain exceptions. 33.2 Further, receipt of certain shares by a finn or a company in which the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to income tax u/s.56(2)(viia) in case such receipt is in excess of Rs.50,000/- and is received without consideration or for inadequate consideration. It has been clearly stated therein that the above provisions were applicable only in case of individual or HUF and firm or company in certain cases and therefore, the receipt of sum of money or property without consideration or for inadequate consideration did not attract these provisions in cases of other assesses. It has been stated that in order to prevent the practice of receiving the sum of money or the property without consideration or for inadequate consideration, a new clause (x) has been inserted in sub-section (2) of section 56 of the Income-tax Act so as to provide that receipt of the sum of money or the property by any person without consideration or for inadequate consideration in excess of Rs. 50,000 shall be chargeable to tax in the hands of the recipient under the head "Income from other sources" . 213. It is therefore clear from the Explanatory Notes that prior to the insertion of Clause (x) in section 56(2) by the Finance Act, 2017 w.e.f. AY 2018-19 onwards, the receipt of a sum of money or property without consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the same as income chargeable to tax under the head Income from Other sources u/s. 56(1) of the Act. The appellant was therefore requested during the appellate proceedings to explain why the provisions of section 28(iv) are not applicable to the facts of the appellant's case. 217. In response to the same, it was stated by the appellant in the written submission dated 28.12.2017 that the receipt of shares of Zee News Ltd. at NIL consideration by the appellant during the year is not taxable u/s. 28(iv) of the Act. It was stated that 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 & Gains of Business or Profession. It was stated that the benefit or perquisite should arise from the business for the same to be considered as income u/s. 28(iv) which means that the assessee must have performed some business activities or carried out his business and must have received any benefit or perquisite in the course of the same. It was stated that the business of the assessee must necessarily have given him the right to recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 28(iv), the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargable to income tax under the head "Profits and Gains of Business or Profession". The word "perquisite" normally connotes meeting the obligation of one person by another person either directly or indirectly or provision of some facility or amenity by one person to another person. Since the term "benefit" has been used along with the word "perquisite" in this section, both the words are required to be read together and they would draw colour from each other. Hence, the word "benefit" is also required to be understood as the facility or amenity given by one party to another party. 222. In the above mentioned case, the Hon'ble Tribunal held that the gift received by the assessee, who is a social reformer, from his followers cannot be considered as a benefit or perquisite since the same did not arise from the exercise of vocation by the assesse on account of the reason that the gifts did not represent the consideration paid by the followers/desciples for the services obtained by them from the assessee. While rendering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the extent of the value mentioned therein, it would not have obtained the entitlements. It is thus clear that the entitlements sprang up or came into being because of the business which the assessee was doltiq. The dictionary meaning of the word "arise" given in the Chamber's Twentieth Century Dictionary as originate, to come into being, leaves no room for doubt that income from import entitlements had actually arisen from the assessee's business." 225. 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 fulfilment of this condition requires that benefit or perquisite is received by the assessee as a consequence of performance of business 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 u/s. 28(iv). The applicability of the provisions of section 28(iv) to the transaction of the receipt of shares of Zee News Ltd. by the appellant at NIL consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 allowability 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 has no 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 company has not claimed deduction for the value of the shares transferred by it at NIL consideration to the appellant while computing its total income under the Act. Hence, it is considered that these decisions cited by the AO have no relevance to the issue on hand. 228. Having regard to the above discussion, the benefit received by the appellant in the form of receipt of shares of Zee News Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ... Section 122 of TOPA 122."Gift" is the transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person, called the donor, to another, called the donor, and accepted by or on behalf of the donee. Such acceptance must be made during the lifetime of the donor and while he is still capable of giving. If the donee dies before acceptance, the gift is void Section 123 of TOPA 123. For the purpose of making a gift of immovable property, the transfer must be effected by a registered instrument signed by or on behalf of the donor, and attested by at least two witnesses. For the purpose of making a gift of movable property, the transfer may be effected either by a registered instrument signed as aforesaid or by delivery. 2. A perusal of the provisions of sections 5, 122, 123 of TOPA indicate that there do not seem to be any restriction on the corporate transfer of shares by way of gift. There is no requirement in TOPA that a 'gift' can be made only between natural persons out of natural love and affection which means that as long as a donor company is permitted by its memorandum / articles of association to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceive gifts and natural love and affection are not necessary requirement. It was held that the only requirement for company is to make gifts as per respective Memorandum and Article of association, which authorize the company for the same. Applying the proposition of law laid down in the above decision to the facts of the instant case, it is found that the assessee and the donor companies are authorized in this regard for receiving and making gifts respectively by their Memorandum and Articles of association." 9. In view of the said decision, the gift is not liable to be considered as Sham transaction. This view is also supported by the decision of the case assesee's group concern Jayneer Infrapower in which it is held that: - "14. The background facts of the transactions under consideration are as follows. During the year under consideration, the assessee has transferred the following shares.- Sl. No. Particulars Purchaser No. of shares Cost of acquisition Sale consideration Gain/ (Loss) 1. Wire& Wierless India Ltd. Essel Corporate Resources P. Ltd. 1,03,31,658 1,96,31,05,502 NA (Gift) (19,63,01,502) 2. Essel Corporate Resources P. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, the Assessing Officer did not agree with the submission of the assessee and held that the fair market value of the shares is to be substituted for sale consideration and thereby made the addition of Rs. 57,90,33,060/-. His detailed reasonings can be summarized as under: (i) The assessee has very minimal paid up capital and has huge accumulated losses as well as borrowing. It has also advanced huge amounts to related parties and subsidiaries and have substantial investments in subsidiaries and group companies. (ii) The shares of assessee-company are held by the shareholders who are all family members. (iii) Certain details regarding the above transactions were called for, however, the same were not submitted by the assessee. (iv) There are several companies and entities in the group and similar transfer of shares have been carried out in many other companies. (v) The modus operandi of transfer of shares is same in all the group companies wherein the transferor becomes holding company of transferee and thereafter the shares worth crores of rupees are transferred at nil consideration, (vi) The inter se status of the companies keep on changing very quickly. The co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench of the Tribunal in the case of DP World (P.) Ltd. v. Dy. CIT [2012] 26 taxmann.com 163/[2013] 140 ITD 694 was relied upon to contend that the transaction of gift cannot be brought to tax. It was also submitted that in the absence of selling price, the capital gain cannot be calculated and, hence, computation machinery falls. It was further contended that the market value cannot be substituted for sale consideration as there is no such provision in the Act. As regards the applicability of S. 56 of the Act, it was submitted that the gain arising out of transfer of capital asset cannot be brought to tax under the head income from other sources. 20. By the impugned the CIT(A) held that the transactions of transfer of shares were in the nature of colourable device. He was also of the view that the transaction of transfer of shares without consideration cannot be said to be gift. He found that certain field in the DEMAT siips have not been properly filled up to categorize the transaction as a gift nor any gift deed was submitted by the assessee. The CIT (A) also observed that the assessee has not furnished any evidence to establish that the transaction was a voluntary act of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of cost of acquisition from 'full value of consideration'. The phrase 'full value of consideration' has received the judicial interpretation in series of decisions by various High Courts as well as Supreme Court. In the case of the CIT v. Morarjee Textiles Ltd. [IT Appeal No. 738 of 2014, dated 24-1-2017] (Bom.), on the facts similar to the present case, wherein the question posed was whether fair market value of shares transferred can be taken as sale consideration for computation of long term capital gain, the Hon'ble Bombay High Court held as under: "4. Regarding question no. (ii):- (a) The issue which arises herein for consideration is whether it is open to the Assessing Officer to substitute the 'full value of consideration1 received on sale of shares by its 'fair market value' in the subject Assessment Year. The impugned order of the Tribunal allowed the respondent-assessee's appeal by inter alia holding that the reliance by the Revenue on Section 2 (22B) of the Act is not justified. This is for the reason that there is no provision under the Act which would permit the Assessing Officer to substitute the 'full value of conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exercised if the Assessing Officer comes to a finding that the consideration received is not ascertainable or cannot be determined. Moreover the decision of the Co-ordinate bench of the Tribunal in the case of MGM Shareholders Benefit Trust (Supra) on identical facts situation has been accepted by the Revenue, as no appeal from the same has been filed by the Revenue. (d) In the above view, the question as formulated does not give rise to any substantial question of law. Thus not entertained." 23. It was also argued by the Ld. AR that notional value of sale consideration can only be taken when it is specifically provided in the Act for e.g. section 50C of the Act which provides for a deemed full value of consideration. As per the ld. A.R. there is no such provision applicable in the present case and accordingly the fair market value cannot be taken as the sale consideration. 24. It was further argued that the transfer in the nature of gift are outside the purview of capital gain provisions. Transfer of shares, by way of gift, are exempt from the provisions of capital gain by virtue of provisions of Sec.47(iii) of the Act which read as under; Transactions not regarded as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany to its subsidiary and consequently no benefit of S, 47(iv) of the Act has been claimed. (vi) The change in the inter se status of the companies is again irrelevant for the purpose of deciding the issue under consideration the court approved amalgamation cannot be found fault with. For this purpose, reliance is placed upon the order of the Kolkata Bench of the Tribunal in the case of Electrocast Sales India Ltd. v. Dy. CIT [2018] 92 taxmann.com 85/170 ITD 507. (vii) It is not correct to say that the real purpose is to divide the business amongst family members. In any case, if the transactions are not in violation of any law or unreal the same cannot be disregarded. Further, when the ultimate recipient of gifted shares sells the shares, it would be subject to capital gain tax taking the cost of acquisition with reference to that of the previous owner as provided under section 49(l)(ii) of the Act, Accordingly, it is not even a case where the assesses has been able increase its cost of acquisition with a view to pay lower capital gains in future. We also observe that if the transaction is a colourable device, no cognizance of the same can be taken and consequently there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 be observed that income from other sources is the last and residual head of income. A source of income which does not specifically fall under any one of the other four heads of income (viz, Salaries, Income from House Property, Profit and Gains of business or profession, or capital gain) is to be computed and brought to charge under section 56 under the head "Income from Other sources". In other words, it can be said that the residuary head of income can be resorted to only if none of the specific head is applicable to the income in question and that it comes into the operation only if the preceding heads are excluded. Thus, it can be said that the residuary head of income can be invoked only if all the following conditions are satisfied. i. Income - There is an "income" [Section 2(24) read with section 4 and 5 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 28(iv) of the Act is concerned. The section 28(iv) is as under: - "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 & Gains of Business or Profession. The benefit or perquisite should arise from the business for the same to be considered as income under section. 28(iv) which means that the assessee must have performed some business activities or carried out his business and must have received any benefit or perquisite in the course of the same. In the present case, the receipt of shares of Zee News Ltd. as gift does not arise out of any business dealing and accordingly is not taxable under section. In any case, the receipt of gift is a capital receipt and on this count too, the provision of section 28(iv) of the Act cannot be applied." 14. In the case of DP World Pvt. Ltd. Vs.CIT (26taxmann.com163), the Co-ordinate Bench has given the following finding: - "19. The AO has applied the provisions of Sec. 56 and treated the value of the flats as income under the head 'Income from other sources' and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaken in a manner to avoid tax and taxable in the hands of the transferor without appreciating that: a) the transfer of shares even in the hands of transferor were exempt from capital gain tax in terms of section 47(iii) and47(iv) of the Income-tax Act, 1961 [hereinafter referred to as "the Act"] b) in the absence of consideration, the computation mechanism fails rendering the transaction non-taxable even in the transferor's hands and that there is no provision in the Act for substituting the fair market value of the shares as sale consideration for computing capital gains and c) the transferor appellant had not claimed any capital loss, in view of which there could be no question of tax evasion. The finding arrived is based on incorrect appreciation of facts and circumstances of the case and in law 6. Without prejudice, the AO & the CIT(A) grossly erred in holding in the Assessment order and Appeal order, respectively that the transferee and the Transferor, respectively, are liable to tax after having lifted the corporate veil so as to make out a case that receipt of shares by the assesse was pursuant to a family arrangement between the ultimate shareholders; 7. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present case. A "finding", therefore, can be only that which is necessary for the disposal of an appeal in respect of an assessment of a particular year. The Appellate Assistant Commissioner may hold, on the evidence, that the income shown by the assessee is not the income for the relevant year and thereby exclude that income from the assessment of the year under appeal. The finding in that context is that that income does not belong to the relevant year. He may incidentally find that the income belongs to another year, but that is not a finding necessary for the disposal of an appeal in respect of the year of assessment in question. The expression "direction" cannot be construed in Vacuum, but must be collated to the directions which the Appellate Assistant Commissioner can give under section 31. Under that section he can give directions, inter alia, under section 31(3)(b), ( c) or (e) or section 31(4). The expression "direction" in the proviso could only refer to the directions which the Appellate Assistant Commissioner or other tribunals can issue under the powers conferred on him or them under the respective sections. Therefore, the expression "finding" as well as the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was paid for purchase of the said property but consciously took a view that she has no wherewithal to make such payment and hence no addition can be made under section 69A of the Act. This finding has become final and this was not in dispute before the Appellate Authority. In the appeal filed by the assessee's husband the only issue was as to whether he paid a sum of Rs. 16,51,000/- to the tenant on behalf of his wife and it is not the case of either the AO or the assessee that the payment was made by assessee's wife. Such being the case, an issue which is not before the first Appellate Authority cannot be subject matter of consideration while disposing of an appeal, in exercise of the powers vested in the first Appellate Authority under section 251 of the Income Tax Act. In the case of A.B. Parikh v. ITO [1993] 203 ITR 186 the Hon'ble Gujarat High Court had considered identical issue with regard to extension of time limit by virtue of provisions of section 150(1) of the Income Tax Act and in that regard the Court observed that in order to issue such directions, which would amount to enhancing the assessment of a third party, such person must have been put on notice, a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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