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2014 (4) TMI 480 - HC - Income TaxStay application - Coercive steps to recover the disputed tax by the Revenue Held that - The transaction is of a gift which is a capital receipt in the hands of the assessee and therefore it cannot be said to be a case of any benefit or perquisite arising from business no direct nexus could be established by any tangible material brought on record by the CIT (A) - Simply because both the donor and the donee happened to belong to the same group cannot ipso facto establish that they have any business dealings - it is a case of a valid gift which is to be treated as capital receipt in the hands of the assessee, in the absence of any specific provision taxing a Gift as a deemed business income, provisions of sec. 28(iv) cannot be applied on the facts of the case - The transaction involved is nothing but a Gift and thus it is a capital receipt not taxable under the provisions of the Act. The Assessee has more than just a strong prima-facie case for a stay the assessee held 1.59% and 1.44% of the equity shares of UPL & UEL respectively - After the transfer the assessee holds 21.35% and 47.88% of the equity shares in UPL & UEL respectively - A refusal to grant a stay would in all probability entail a sale of the shares to meet the demand thus, partial stay granted to the assessee.
Issues Involved:
1. Legitimacy of the assessment order taxing the transfer of shares as income under sections 56(1) and 28(iv) of the Income Tax Act. 2. Consideration of the transfer of shares as a gift. 3. Grant of stay of recovery of the disputed tax pending the appeal. Detailed Analysis: 1. Legitimacy of the Assessment Order: The petitioner, a wholly-owned subsidiary of DHPL, received shares from the Shroff group as a gift. The respondents argued that the value of the shares, approximately Rs. 1400 crores, should be taxed under sections 56(1) or 28(iv) of the Income Tax Act. The assessment order taxed the shares under "income from other sources" and issued a demand notice for Rs. 677.38 crores. The petitioner contended that the transfer was a gift and should not be taxed. The court noted that the title of the document (Transfer Agreement) is not determinative of its true character and emphasized that no monetary consideration flowed to the assessee. 2. Consideration of the Transfer as a Gift: The AO argued that the transfer was not a gift as the agreement was titled "Transfer Agreement" and not a "Gift Deed." The court disagreed, stating that the title of the document does not determine its nature. The AO also claimed that the transfer was for business considerations, which the court found unsubstantiated. The court highlighted that the shares belonged to the Shroff group and were transferred within the group, maintaining control and influence. The court found the petitioner's argument that the transfer was a gift to be strong, supported by the ITAT's decision in a similar case (D.P. World (P) Ltd. vs. Deputy CIT), which held that such transfers within corporate groups for internal reorganization are considered gifts and not taxable under sections 28(iv) or 56(1). 3. Grant of Stay of Recovery: The court granted the petitioner's application for a stay of recovery on certain conditions. It considered several factors: - The petitioner made a strong prima-facie case. - The petitioner's case was supported by an ITAT order. - The petitioner would suffer irreparable harm if the recovery was not stayed, as the shares would have to be sold, causing irreversible damage. - The balance of convenience favored the petitioner, as the revenue's interest was protected by the conditions imposed. The court directed the petitioner to deposit Rs. 10 crores and restrained them from disposing of or encumbering their shareholdings in UPL and UEL to the extent of Rs. 1000 crores pending the appeal. The CIT (A) was also directed to expedite the hearing of the appeal. Conclusion: The court ruled in favor of the petitioner, granting a stay on the recovery of the disputed tax amount subject to specific conditions, and emphasized the need to consider the true nature of the transaction and the potential irreparable harm to the petitioner. The decision highlighted the importance of examining the substance over the form of the transaction and provided relief to the petitioner pending the appeal.
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