2023 (3) TMI 1136 - AT - Income Tax

Income from other sources u/s. 56(1) - gift of shares received by the assessee - AO held that receipt of shares as some kind of colorable device and therefore, taxed the market value of said shares as income from other sources‟ - HELD THAT - As gift of shares cannot be held to be sham transaction and the whole purpose of was correct legal rights and obligations and in accordance with the law. The receipt of gift by the assessee is neither chargeable to tax u/s. 56(1) or u/s. 28(iv) of the Act. The gift received by the assessee in present case is in the capital field and can be brought to tax under the head capital gain. Accordingly, the provision of section 56(1) cannot be resorted to. Whether the receipt of shares at nil consideration can construed as business income liable for tax u/s 28(iv)? - We agree with the findings and the observations of the CIT(A) that the benefit of perquisite as stipulated under clause (iv) of Section 28 that it should arise from business or profession, i.e., assessee must 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 the open market at Rs. 255 Crores and the fair value of the shares was taken at 260 Crores in the valuation report for the purpose of arriving of the fair value of the shares and therefore, the AO's observation in this regard has been found to be incorrect. Finding and observation of the ld. CIT (A) as incorporated in forging paragraphs are in consonance with fact and material on record as well as the provisions of law and accordingly, same is confirmed and consequently, the revenue ground is dismissed. Disallowance u/s. 14A read with Rule 8D - HELD THAT - Admittedly there is no exempt income during the year and therefore ld. CIT(A) rightly held that no disallowance can be made under this Section. Apart from that the reasoning given by the ld. CIT(A) has incorporated above is based on correct appreciation of facts and law and therefore the same is confirmed.

Summary

Issues Involved:
1. Deletion of addition of Rs. 357,89,12,600/- made u/s 56(1) of the I.T. Act.
2. Deletion of addition made u/s 68 amounting to Rs. 254,45,97,000/-.
3. Deletion of disallowance u/s 14A despite no exempt income earned.
4. Allowance of Returned Loss of Rs. 1,94,994/-.

Issue-Wise
Detailed Analysis:

1. Deletion of Addition of Rs. 357,89,12,600/- Made u/s 56(1) of the I.T. Act:
The revenue challenged the deletion of an addition of Rs. 357,89,12,600/- made u/s 56(1), arguing the shares of Dish TV India Ltd. were shown at Nil value using a colorable device to evade taxes. The assessee contended the shares were received as part of internal restructuring and not a colorable device. The CIT(A) noted the transfer of shares at Nil consideration was a capital receipt, not taxable under section 56(1) or 28(iv). The Tribunal upheld this, stating the transaction was part of internal restructuring, and the shares were a capital receipt, not taxable under the existing provisions of section 56(1) or 56(2)(viia), which apply to unlisted shares. The Tribunal also referenced the decision in the case of 25FPS Media Pvt. Ltd., affirming that corporate entities can receive gifts, and such transactions are not sham if compliant with legal provisions.

2. Deletion of Addition Made u/s 68 Amounting to Rs. 254,45,97,000/-:
The AO treated the share premium received by the assessee from its holding company, ECRPL, as unexplained cash credit u/s 68, arguing the intrinsic value of the shares did not justify such a high premium. The CIT(A) found the identity, genuineness, and creditworthiness of the investor (ECRPL) were established. The funds were received through proper banking channels, and the share premium was recorded in the financial statements of both the assessee and ECRPL. The Tribunal upheld the CIT(A)'s decision, noting the provisions of section 56(2)(viib) regarding excess share premium over fair market value were not applicable for the assessment year 2012-13, as they were introduced from A.Y. 2013-14.

3. Deletion of Disallowance u/s 14A Despite No Exempt Income Earned:
The AO disallowed Rs. 1,28,30,957/- u/s 14A read with Rule 8D, despite the assessee not earning any exempt income during the year. The CIT(A) observed the total expenses debited by the assessee were Rs. 1,91,994/-, and the AO's disallowance exceeded this amount. Additionally, the average value of the investment was incorrectly computed by the AO. The Tribunal upheld the CIT(A)'s decision, stating no disallowance could be made under section 14A in the absence of any exempt income.

4. Allowance of Returned Loss of Rs. 1,94,994/-:
The AO did not consider the returned loss of Rs. 1,91,994/- while computing the total income, adopting the business income as NIL without any discussion. The CIT(A) directed the AO to consider the returned loss, noting it was a clerical mistake. The Tribunal found no infirmity in this direction and upheld the CIT(A)'s decision.

Conclusion:
The Tribunal dismissed the revenue's appeal and upheld the CIT(A)'s decisions on all issues. The receipt of shares as a gift was not taxable under sections 56(1) or 28(iv), the share premium was satisfactorily explained under section 68, no disallowance was warranted under section 14A in the absence of exempt income, and the returned loss was correctly directed to be considered.