2020 (5) TMI 339 - AT - Income Tax

Shares received by the appellant as gift - transaction of receipt of shares as taxable in the hands of the beneficiary under section 2(24)(iv) - sham and void transaction - HELD THAT - The words benefit and perquisite are used in this clause of sub-section (24) to Section 2. Whether gifting shares amounts any benefit or perquisite has to be looked into. In the present case at one point the AO has stated that there is benefit to assessee company but at the same time states that the transaction of gift of shares held by Mrs. Arti Jindal in the assessee company to M/s PRJ Holding Private Trust was not valid and was a sham and void transaction which was undertaken to avoid tax. But from the MOU submitted by the assessee company it can be clearly seen that it a family arrangement and internal family realignment amongst the members of the family of Late Shri O.P. Jindal and cannot be taken as gift. The chart reproduced in para 3 hereinabove from the Assessment Order clearly shows that it is not a gift but a family arrangement and these kind of family arrangement cannot be termed as gift/benefit or perquisite. AO by lifting the corporate veil, without providing any cogent reasons, and without appreciating that the beneficiary never obtained any benefit from this transaction at any time cannot comment on the said transaction as sham and bogus. Observations made by the AO in the present assessment order are without any jurisdiction. In fact, the AO overstepped the provisions of the Income Tax Act wherein the Assessment is nil in the case of present Assessee company and commented on the third party assessee which is not permissible under the Act. Ground No. 1 of the assessee s appeal is allowed.

Summary

Issues Involved:
Appeal against CIT(A) order for Assessment Year 2014-15 challenging extraneous findings, validity of shares received as gift, taxation of alleged benefit, jurisdictional errors.

Analysis:
1. The appeal was filed against the CIT(A) order for the Assessment Year 2014-15. The grounds of appeal included challenging the extraneous findings of the Assessing Officer regarding shares received as gifts without consideration. The appellant contended that the shares were part of a family realignment and were valid gifts made in compliance with statutory provisions.

2. The Assessing Officer observed that the appellant received shares from various companies as gifts without consideration. The officer also noted a transfer of shares from one entity to a trust, making an addition in the beneficiary's hands under Section 2(24)(iv) of the Income Tax Act, 1961. However, no addition was made in the appellant's hands.

3. The CIT(A) dismissed the appellant's appeal, leading to further arguments before the ITAT. The appellant raised objections to the observations made by the Assessing Officer, claiming they were beyond jurisdiction and lacked cogent reasons. The appellant argued that the family realignment should not be considered a gift but a legitimate internal arrangement among family members.

4. The ITAT analyzed Section 2(24)(iv) of the Income Tax Act, which includes benefits obtained from a company. The ITAT found that the shares received were part of a family arrangement and not gifts or benefits. The ITAT concluded that the Assessing Officer's observations were without jurisdiction, as the transaction was a family arrangement and not subject to taxation under Section 2(24)(iv).

5. Consequently, the ITAT allowed the appeal of the assessee, stating that the Assessing Officer overstepped the provisions of the Income Tax Act by commenting on a third-party beneficiary when the assessment for the appellant was nil. The ITAT held that the appellant's grounds were valid, and the appeal was allowed, overturning the CIT(A) decision.

6. In conclusion, the ITAT ruled in favor of the assessee, allowing the appeal against the CIT(A) order for the Assessment Year 2014-15. The decision was based on the finding that the shares received were part of a family arrangement and not subject to taxation as benefits under Section 2(24)(iv) of the Income Tax Act, 1961.