9911796707
TMI Blog2007 (1) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... ring total income at Rs. 5,81,19,929 on 31-12-2001. The Assessing Officer first completed the assessment order under section 143(3) on 28-2-2003 accepting the return of income as filed by the assessee. Thereafter a communication was received by the Assessing Officer from the Assessing Officer having jurisdiction over the case of M/s. Escorts Ltd. that Escorts Heart Institute & Research Centre, Delhi (hereinafter referred to as 'EHIRC, Delhi') had been taken over by a company named and styled as M/s. Escorts Heart Institute & Research Centre Ltd. (hereinafter to as 'EHIRL') and the assessee Dr. Naresh Trehan had acquired 10% shares of EHIRL by investing only Rs. 20 lakhs whereas the book value of EHIRL was Rs. 110,14,12,937. On that basis the value of 10% shares acquired by the assessee worked out to Rs. 11,01,41,293. The assessment of M/s. Escorts Ltd., who acquired 80% shares of EHIRL had been made and an addition of Rs. 88,11,30,349 was assessed in their assessment in that respect. On that basis, notice under section 148 was issued in the case of the assessee for reassessment of income for assessment year 2001-02. Thereafter, the Assessing Officer completed assessment order under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Registrar of Societies was informed by letter dated 30-6-2000 that the assets of EHIRC, Chandigarh were to the tune of Rs. 7,000 only. The bank accounts of EHIRC, Delhi continued to be operated in the name of the old society at Delhi even subsequent to the merger of EHIRC, Delhi with EHIRC, Chandigarh. Thus the acquisition of assets of enormous value was not revealed to the Registrar of Societies. Fourthly, while the merger of all assets and liabilities of EHIRC, Delhi with EHIRC, Chandigarh was said to have taken place on 1-10-2000, the intimation of merger was given to the Registrar of Societies on 14-3-2001 only. Thus the facts of merger were deliberately withheld for a very long period. Fifthly, Shri OP Verma, Secretary, EHIRC, Delhi issued a certificate on 1-4-2000 that all the assets of EHIRC, Delhi stood vested in EHIRC, Chandigarh as on 1-4-2000. Contrary to this in a letter dated 30-6-2000 from a Director of EHIRL to the Registrar of Societies at Chandigarh it was stated that pursuant to conversion of EHIRC, Chandigarh into EHIRL assets worth Rs. 7,000 only were received by EHIRL from EHIRC, Chandigarh. Sixthly, the provisions of section 12 of the Societies Registration Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned Assessing Officer did not accept this contention because the assessee had issued cheque for subscribing to the share capital only on 29-6-2000 when EHIRL had already been brought in existence EHIRC, Chandigarh had applied on 23-5-2000 to Registrar of Companies at Chandigarh and certification of incorporation of EHIRL had already been issued on 30-5-2000. The documents including Memorandum and Articles of Association were executed and signed on 19-5-2000 and the assessee was one of the signatories to the relevant documents. As per the documents submitted the assessee was part of the governing body of EHIRC, Chandigarh. These facts showed that there was mala fide arrangement and connivance between the Escorts group and the assessee with the object to have illegal benefit and control over the assets of EHIRC, Delhi; (iii)The assessee submitted that he was not involved in the merger of EHIRC, Delhi and EHIRC, Chandigarh. The learned Assessing Officer did not accept this explanation. The assessee was a renowned doctor and had been working as Executive Director EHIRC, Delhi since beginning. He was the only beneficiary other than Nanda family of Escorts group in EHIRL. That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot or whether it was on capital account or revenue account. In the instant case the benefit was derived at the time the assessee acquired 10% shares by virtue of his directorship and by way of subscription to the Memorandum and Articles of Association. The assessee in connivance with Escorts Ltd. benefited in controlling the assets of erstwhile charitable society EHIRC, Delhi. As EHIRL was newly incorporated and had not done the business, the value of its shares could best be represented on the basis of the value of its assets. The learned Assessing Officer rejected the contentions of the assessee that if the transaction was illegal then no income could be charged under section 2(24)( iv). The provisions of Income-tax Act did not distinguish between income acquired through legal or illegal means. Fact of the matter was that the assessee had received shares of EHIRL at very meagre price; (vi)The learned Assessing Officer argued that definition of "income" under section 2(24) was inclusive definition and therefore, even if sub-clause (iv) did not apply that did not mean that the transaction did not result into any income to the assessee. Reliance was placed on the judgment of Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee on the contrary did not make any such contribution and therefore it was Escorts Ltd. who had nurtured EHIRC, Delhi and was instrumental in its merger with EHIRC, Chandigarh and subsequent conversion into EHIRL. It was Escorts Ltd., who dominated the scene all along and even in EHIRL they acquired 80% shares of that company at par. Escorts Ltd. was already in the business of holding investments and therefore it was the case of the Revenue that M/s. Escorts Ltd. had all along promoted EHIRC, Delhi as an investment proposition. The assessee was neither involved in the formation of EHIRC, Delhi nor made any capital contribution to EHIRC, Delhi and the assessee was also not in the business of holding investments. Whatever investment the assessee had made were not held as a business and if any gains arose on sales thereof the same had been offered for assessment under the head "Capital gains". There was thus no parity on facts between Escorts Ltd. and the assessee and the learned Assessing Officer erred in initiating proceedings under section 147 in the case of the assessee as a sequel to initiation of proceedings under section 147 in the case of Escorts Ltd. 7. The learned CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order the learned Assessing Officer had himself given the finding that merger of EHIRC, Delhi with EHIRC, Chandigarh was not only illegal but sham also. These findings of the Assessing Officer were uncalled for and factually incorrect. EHIRC, Delhi was duly registered as a society under the Societies' Registration Act, 1860 on 21-10-1981. The society obtained exemption under section 10(21) and also enjoyed benefits under section 35(1)(ii). The society received contribution of Rs. 60 lakhs from Escorts Ltd. Several other companies, besides Escorts Ltd. such as Siemens Ltd., Tata Ltd., Parle Beverages Ltd., ANZ Grindlays Bank, Bank of America, Bata India Ltd. had made sizeable contributions to EHIRC, Delhi. How- ever, subsequently it was felt that the objectives of undertaking research in the medical field would be achieved in a better way if the said research was undertaken by a corporate entity instead of its existing structure. It was believed that a corporate entity would be able to effectively achieve the objective of expansion and diversification of the existing hospital and attract the latest technology in the medical field. To achieve that object EHIRC, Delhi merged into EHIR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IRC, Delhi the same was done in accordance with law and by grant of exemption under section 10(21) the Government did not become "interested" in EHIRC, Delhi. As to the contention of the Assessing Officer that provisions of section 12 of the Societies' Registration Act were violated the assessee argued that Shri Anil Nanda was not a member either of EHIRC, Delhi or EHIRC, Chandigarh in his personal capacity. Therefore, the question of officially informing Mr. Anil Nanda in his personal capacity did not arise. A company named Goetz (India) Ltd. of which Shri Anil Nanda was Chairman and Managing Director was a member of EHIRC, Delhi. Like other members the due notice of the meeting was sent to Goetz Ltd. also. The assessee had not been given any copy of statement of Anil Nanda that was referred to and relief upon by the Assessing Officer. 10. The assessee argued that the reliance placed by the learned Assessing Officer on Madras High Court judgment in the case of Prasanna Venkatesa Rao v. K. Srinivasa Rao AIR 1931 Mad. 12 was based on a misconception. The principle laid down in that decision was that members of an association could not create internal rules or bye laws that were inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssumed for the sake of argument that the intrinsic value of the shares of EHIRL was higher than the price paid for the shares of EHIRC, Chandigarh by the assessee, the said increase in value was purely notional and could not be assessed to tax if the shares were not actually transferred and the gain was not realised. As on the date of acquisition of the shares there could be nothing more than expectation of profit. The profit expected was not chargeable to tax unless and until actually realised. Secondly, even if it was to be assumed that Escorts Ltd. had obtained control over the assets of EHIRL that in itself did not generate any income. As explained in the judgment of Hon'ble Supreme Court in Mrs. Bacha F. Guzdar v. CIT [1955] 27 ITR 1 and Calcutta Tramways Co. Ltd. v. CWT [1972] 86 ITR 133 a company was a different legal entity from its shareholders. The shareholders had no rights in the assets of the company except when the dividends were declared or when the assets of the company were distributed on liquidation. The fact that M/s. Escorts Ltd. was a substantial shareholder of EHIRL did not mean that it could enjoy the benefit of those assets. At any rate the assessee was havi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed any benefit from the company. The facts of the case indicated that the assessee was a member of EHIRC, Chandigarh and attended the first meeting of the Board of Directors of M/s. EHIRL held on 16-6-2000. Para 3 of the Minutes of the meeting held on 16-6-2000 recorded the presence of the assessee in his capacity as the first directors of the company along with three other people, viz. Mr. Rajan Nanda, Mr. Umesh Banerjee and Mr. G.B. Mathur. In that meeting the chairman informed the Board that Form No. 32 together with Form No. 29 under the Companies Act, 1956 had already been filed with the Registrar of Companies. Para 4 of the Minutes recorded the registration of the assessee from the Board with effect from 30th May, 2000. The resignation of the assessee from the directorship of the company was accepted with retrospective effect from 30-5-2000. Although assessee's resignation had been given retrospective effect, the fact remained that the assessee was one of the first directors of the company on 16-6-2000 before his resignation was accepted on that day. 2,00,000 shares of the company were allotted to the assessee on that very date, i.e. 16-6-2000. There was, therefore, a very st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had only 20,000 shares in EHIRC, Chandigarh. But he was allotted 2 lakh shares during the Board meeting held on 16-6-2000 while others were allotted only 100 shares against 100 shares held by them previously. All these facts indicated that for all practical purposes the assessee did not loose his authority and status even after he had technically resigned from the Board. That showed the resignation from directorship was pre-determined or pre-ordained action which took form of a colourable device. The assessee's case was therefore not covered by the exception provided by Hon'ble Apex Court in the case of Azadi Bachao Andolan (supra). Merely by resigning on the same day the shares allotted at a concessional rate the assessee could not avoid the liability under section 2(24)(iv) of the Act. Both the ingredients of the sub-section that there should be a benefit obtained from a company and the beneficiary should be director were fulfilled in the case of the assessee. 16. The learned CIT(A) did not find merit in the contention of the assessee that benefit, if any, arose on account of allotment of shares when the assessee was a member of EHIRC, Delhi/Chandigarh. What happened before EH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly, without any limit. Thus the role of the assessee was not limited to only conducting cardiac surgery. It was a matter of record that the assessee attended subsequent meetings of board of directors of EHIRL as a special invitee. The assessee derived benefit by acquiring shares worth Rs. 550 for Rs. 10. That benefit was directly linked to the exercise of profession by the assessee. That benefit was given to retain the services of the assessee, who was an eminent surgeon and an efficient manager. The benefit had therefore arisen to the assessee from the exercise of his profession of carrying out cardiac surgery as well as providing managerial and consultancy service to EHIRL. Provisions of section 28(iv) were therefore attracted. Once it was clear that the benefit had arisen to the assessee from exercise of his profession, it did not matter whether the benefit was capital in nature or that the asset had not been sold. For that proposition the learned CIT(A) relied upon the judgment in the case of CIT v. S. Varadarajan [1997] 224 ITR 9 (Mad.) and the judgment in the case of Addl. CIT v. Ram Kripal Tripathi [1980] 125 ITR 408 (All.). 19. During the course of proceedings before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of section 147 of the Act. 21. The learned counsel argued that the assessment order revealed a confused state of mind. The Assessing Officer held at several places that conversion of EHIRC, Delhi into the company EHIRL was sham. How could the assessment proceedings be initiated and additions be made when the Assessing Officer himself viewed the entire process to be sham and a nullity? The learned counsel argued that it was Delhi Society whose income was treated to be exempt under section 10(21). From inception EHIRC, Delhi was granted approval for the purposes of section 35(1)(ii) also by CBDT. There was no allegation of violation of any of the terms and conditions of exemption under section 10(21) or approval under section 35(1)(ii). Escorts Ltd. had donated a sum of Rs. 60 lakhs to the society during the initial year. It was on 11-11-1999 that EHIRC, Chandigarh was registered by Registrar of Society. That Society was constituted similarly as EHIRC, Delhi but Chandigarh society did not include any clauses pertaining to charitable activity. EHIRC, Chandigarh never applied for any exemption. By a resolution it was decided to amalgamate EHIRC, Delhi with EHIRC, Chandigarh with ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile Escorts Ltd. had made contribution of Rs. 60 lakhs in 1983 the assessee had joined Escorts Ltd. on 11-10-1988 as a consultant. 23. The learned counsel for the assessee referred to the judgment of Hon'ble Delhi High Court in the case of CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 (FB) and argued that in that judgment Hon'ble Delhi High Court had held that the Assessing Officer had no power of review under the provisions of section 147 and therefore proceedings under section 147 could not be initiated on mere change of opinion. The learned counsel referred to the list of investment in shares and mutual funds as on 31-3-2001 annexed to balance sheet said to have been filed by the assessee during the course of assessment proceedings. He pointed out that as per item 16 of questionnaire dated 2-12-2002 issued by the Assessing Officer details of all fresh investments made during the year had been called for. In assessee's reply dated 6-1-2003 the aforesaid list of fresh investment was once again submitted to the Assessing Officer. He pointed out that this list include investment of Rs. 20,03,000 in shares of EHIRC Ltd. The learned counsel argued that thus the Assessing Officer w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to income if there was no sale. In support of these contention the learned counsel also referred to the judgments in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC), Sheo Nath Singh v. AAC [1971] 82 ITR 147 (SC) and Ganga Saran & Sons (P.) Ltd. v. ITO [1981] 130 ITR 1 (SC). 25. During the course of hearing before us the learned counsel for the assessee strongly relied upon the decision of ITAT, "G" Bench, New Delhi dated 31-1-2006 in ITA Nos. 567 & 1562/Delhi/2005 in the case of Escorts Ltd. v. Asstt. CIT [2006] 8 SOT 167 for assessment year 2001-02. He pointed out that while the assessee was allotted only 10 per cent shares M/s. Escorts Ltd. had acquired 80 per cent shares of EHIRL at the same cost of Rs. 10 per share. In the assessment of M/s. Escorts Ltd. an addition of Rs. 88,11,30,349 was made. The amount was assessed in the case of Escorts Ltd. (supra) in the same manner as in the case of assessee before us alleging a benefit received by that assessee within meaning of section 2(24)(iv). After the elaborate discussion ITAT had in the case of Escorts Ltd. (supra) deleted the addition holding that there was no income chargeable to tax in that case by virtue of allotm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fact that the cheque was in the name of EHIRC and not in the name of EHIRL. The learned counsel relied upon photocopy of the cheque issued by the assessee being cheque drawn on Standard Chartered Bank, Parliament Street Branch, New Delhi dated 15-4-2000 bearing No. 446802 for the sum of Rs. 20 lakhs. He pointed out that the cheque was not in favour of limited company. He also referred to photocopy of share certificate for holding of 100 shares numbered from 401 to 500 issued by EHIRC, Chandigarh. The learned counsel argued that the assessee received shares in EHIRL by virtue of his holding of shares in EHIRC, Chandigarh. The learned counsel also relied upon copy of minutes of the meeting of the Board of Governors of EHIRC, Chandigarh held on 27-5-2000 to support his contention that the assessee had acquired shares of EHIRC, Chandigarh first and shares of EHIRL were only a consequence thereof. He pointed out that the assessee had already held 100 shares of EHIRC, Chandigarh on 15th November, 1999 at the time of registration of Chandigarh Society. On 27-5-2000 the EHIRC, Chandigarh allotted 1,99,900 shares to the assessee. Thus in effect the assessee neither obtained nor received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on passed, there was monetary limit of Rs. 10 lakhs in respect of the cheques to be drawn on bank accounts by the assessee and cheques had to be drawn by the assessee jointly with Mr. Umesh Banerjee or Mr. OP Verma whereas Mr. Rajan Nanda jointly with Mr. Umesh Banerjee was authorised to draw on the bank accounts of EHIRL without any monetary limit. The assessee was not made authorised signatory on behalf of EHIRL. 29. The assessee by its letter filed on 9-3-2006 sought to raise the following additional ground of appeal : "That on facts and circumstances of the case, there was no justification in holding that the addition can be made under section 28(iv) of the Act alternatively." 30. The learned counsel stated that as the learned CIT(A) had supported the addition made by the Assessing Officer by making reference to provisions of section 28(iv) also the assessee was advised by way of abundant caution to take a specific ground of appeal in respect thereto. The additional ground involved purely a question of law that could be considered and decided on the basis of facts already on record and it did not involve investigation of any new set of facts. He therefore argued that this ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1966] 59 ITR 767 (SC); CWT v. K.S.N. Bhatt [1984] 45 ITR 1 (SC) and CWT v. Vadilal Lallubhai [1984] 145 ITR 7 (SC) and argued that the assessee was entitled to raise plea based on subsequent events as the same had direct bearing on the question of income being determined in the appeal before us. 32. The learned departmental representative argued that in this case original assessment order under section 143(3) had been made on 28-2-2003. Notice under section 148 was thereafter issued on 19-7-2004. Proceedings for re-assessment under section 147 had been initiated within the period of four years from the end of the assessment year i.e., on or before 31-3-2006. That being so, proviso to section 147 had no application and therefore the argument as to whether or not the assessee had disclosed its transactions with EHIRL was not of much relevance. But, the learned departmental representative argued, even otherwise a case of "change of opinion" could be made only if the assessee could bring out with reasonable certainty that an opinion was formed by the Assessing Officer in the first instance. There was no material to suggest that the Assessing Officer while completing the original asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee's income from assessment and if the Assessing Officer could not be said to have acted irrationally, all requirements for issue of a valid notice under section 148 were satisfied. He referred to the judgment of Hon'ble Delhi High Court in CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 (FB) at page 19 and argued that if relevant information was received or noticed later on, it would give rise to the material before the Assessing Officer for the purpose of initiation of re-assessment proceedings under section 147. The learned departmental representative then referred to the judgment of Hon'ble Supreme Court in the case of Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 and argued that in the case like one before us the bona fide action of the Assessing Officer could not be doubted and therefore sufficiency or adequacy of reasons recorded by him was not justiciable. 35. On merits, the learned departmental representative strongly relied upon the assessment order, the impugned order of the learned CIT(A) particularly para 11 of the impugned order and the arguments of the Special Counsel for the department in the appeal filed by Escorts Ltd. i.e., ITA Nos. 567 & 1562/D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2001-02. We wish however to make it clear that even if the provisions of Proviso to section 147 were applicable initiation of proceedings under section 147 cannot be held bad in law because it cannot be said that during the course of original assessment proceedings the assessee had disclosed fully and truly all material facts necessary for his assessment. The case of the assessee at best is that among the documents filed during the course of original assessment proceedings a list of investments made by the assessee during the relevant year mentioned purchase of shares of EHIRL. On these facts it cannot be said that there was full disclosure of all material facts necessary to enable the Assessing Officer to arrive at a conclusion as to whether or not there was any income chargeable to tax. There are a large number of judicial pronouncements as to what constitutes full and true disclosure of all material fact necessary for assessment. It would suffice to quote from the celebrated judgment of Hon'ble Supreme Court in the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 wherein their lordships have, inter alia, observed as under : "In the present case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Assessing Officer held that there was escapement of assessee's income arising from conversion of EHIRC, Delhi into EHIRL and consequent allotment of shares of EHIRL to the assessee. In our opinion for the purpose of determining the validity of initiation of reassessment proceedings under section 147 in this respect we are primarily concerned with the reasons as recorded by the Assessing Officer before issue of notice under section 148. In the reasons as recorded in writing on 19-7-2004, the learned Assessing Officer has nowhere held that conversion of EHIRC, Delhi into EHIRL was a nullity. The learned Assessing Officer has held that by this exercise the assets of the charitable society were eventually taken over by an entity with no charitable objectives. The assessee being 10% shareholder at the cost of Rs. 20 lakhs therefore gained tremendously on allotment of shares but he did not offer that income in his income-tax return for assessment year 2001-02. We are therefore unable to accept the argument that insofar as initiation of reassessment proceedings is concerned there is any self-contradiction in the belief formulated by the Assessing Officer that the assessee's in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arh was converted into the Company EHIRL the Registrar of Societies was informed by letter dated 30-6-2000 that the assets of EHIRC, Chandigarh were to the tune of Rs. 7,000 only. The bank accounts of EHIRC, Delhi continued to be operated in the name of the old society at Delhi even subsequent to the merger of EHIRC, Delhi with EHIRC, Chandigarh. The assessee was among first Directors of EHIRL. The assessee claimed that he acquired 10 per cent shares of EHIRC, Chandigarh on payment of Rs. 20 lakhs by cheque No. 446802 dated 29-6-2000 drawn on Standard Chartered Bank. The cheque was admittedly dated 29-6-2000, whereas EHIRC, Chandigarh had already been converted into EHIRL on 30-5-2000 and it was worth noticing that the shares of EHIRC, Chandigarh had been allotted to the assessee on 27-5-2000. The cheque as aforesaid was encashed only on 20-7-2000. The documents including Memorandum and Articles of Association were executed and signed on 19-5-2000 and the assessee was one of the signatories to those documents. Thus, on these facts the Assessing Officer has held that provisions of section 2(24)(iv) of the Act applied. Even if the assessee was not a person who had substantial interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) accepted the request of the department to adopt break up value at Rs. 745 per share in stead of Rs. 550 per share on account of market value of the assets of EHIRL. The learned CIT(A) did not accept also the argument of the assessee that he had received shares of EHIRL on conversion of EHIRC, Chandigarh into EHIRL. As per Memorandum of EHIRC, Chandigarh, the assessee had only 20,000 shares in EHIRC, Chandigarh but he was allotted 2,00,000 shares of EHIRL directly in the meeting held on 16-2-2000, while others were allotted only 100 shares against 100 shares held by them previously. Furthermore, according to the learned CIT(A) the creation of EHIRC, Chandigarh and merger of EHIRC, Delhi and thereafter conversion of merged entity into EHIRL was a colourable device. In addition to these arguments, the learned CIT(A) also held the view that the amount assessed by the Assessing Officer under section 2(24)(iv) of the Act was covered by the provisions of section 28(4) also. 42. During the course of hearing before us the learned counsel for the assessee placed strong reliance upon the decision of ITAT, "G" Bench, New Delhi dated 31-1-2006 in ITA Nos. 567 and 1562/Delhi/2005 in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 1-4-2000. 8. ...On 24-5-2000, the Chandigarh Society made an application with the Registrar of Companies, Chandigarh for registration of Chandigarh Society as a limited company in this regard. On 30-5-2000, the Chandigarh Society was registered as a Company limited by shares. ... The name of the Company is mentioned in this certificate as Escorts Heart Institute and Research Centre Limited. ... Thus, the Chandigarh Society also ceased to exist with effect from 30-5-2000. 9. Even prior to the incorporation of EHIRC Limited, the Chandigarh Society, had on 27-5-2000, after amalgamation of the Delhi Society, issued 16,00,000 equity shares of Rs. 10 each in the share capital of Chandigarh Society, to the assessee. This constituted 80% of the share capital of the paid up capital of Chandigarh Society. The Authorised share capital of the Society was 25,00,000 shares of Rs. 10 each. A cheque for Rs. 1,60,00,000 dated 27-5-2000, drawn on Deutsche Bank, had been issued by the assessee, in favour of the Chandigarh Society, a copy of the same is placed at page 81 of assessee's paper book. This cheque was presented for payment only on 20-7-2000. The Bank Statement of the assessee with Deuts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2000. On these facts, the learned CIT(A) concluded that M/s. Escorts Ltd. had already purchased shares of M/s. EHIRL and the same were not issued to them in lieu of any holding of shares of EHIRC, Chandigarh. According to the learned CIT(A), because the Chandigarh Society had not possessed any assets, there was no question of Escorts paying Rs. 1.60 crores towards its capital. Learned CIT(A) emphasized definition of income under section 2(24) of the Act and held that just as benefit received is taxed in the hands of a Director of a Company in terms of section 2(24)(iv) likewise any benefit received by any person other than a director should also be taxed under section 2(24) of the Act. The sequence of events and facts clearly showed that M/s. Escorts Ltd. was controlling the affairs of EHIRC, Delhi; EHIRC, Chandigarh and EHIRL. 44. During the course of hearing of appeal before the Tribunal, M/s. Escorts Ltd. contended that there could be no benefit at the stage of purchase of shares and for that purpose they placed heavy reliance upon the judgment of Hon'ble Delhi High Court in the case of CIT v. Bharat Development (P.) Ltd. [1982] 135 ITR 456 and the judgment of the Hon'ble Oriss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HIRL. It was also clear that on 27-5-2000 EHIRC, Delhi had no existence as it already stood amalgamated with EHIRC, Chandigarh. From the date of issue of cheque on 27-5-2000 and encashment on 28-7-2000 there were enough funds in the relevant bank account of M/s. Escorts Ltd. to cover the amount of Rs. 1.60 crores throughout that period. The encashment of the cheque therefore related back to the date of cheque. The Tribunal has therefore held that M/s. Escorts Ltd. purchased shares of EHIRC, Chandigarh and not of the EHIRL directly. Hence reasoning of the CIT(A) for concluding that income under section 2(24) accrued to M/s. Escorts Ltd. based on the presumption that M/s. Escorts Ltd. purchased shares of EHIRL directly was without any basis. The Tribunal has further held that prior to the issue of 16 lakh shares of Rs. 10 each M/s. Escorts Ltd. never held any shares in EHIRC, Chandigarh. No other consideration like an employer employee relationship or any other business association/considerations for offer and allotment of shares of Escorts Ltd. existed. Only the shares at a concessional price to a person having substantial interest could be considered as income. When there was no pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of section 28(iv) were applicable on account of there being a systematic pre-meditated activity to make profit out of running of charitable organization in the name of M/s. EHIRC, Delhi. The major plank in the assessment order as also in the order of the learned CIT(A) is that at the time when shares of EHIRL were allotted to the assessee before us, he was one of the directors of the assessee-company and therefore the provisions of section 2(24)(iv) of the Act applied. The similar argument was taken in the case of Escorts Ltd. (supra). In that case the Tribunal has given a clear finding of fact that M/s. Escorts Ltd. did not purchase the shares of EHIRL directly and they received the shares of EHIRL on conversion of EHIRC, Chandigarh into the company EHIRL in lieu of the shares that M/s. Escorts Ltd. already held in EHIRC, Chandigarh. The same argument has been taken by the assessee before us as well. We find that if like Escorts Ltd. the present assessee before us did not purchase the shares of M/s. EHIRL directly and instead was allotted the shares of EHIRL in lieu of the shares that the assessee already held in EHIRC, Chandigarh the case made out by the revenue under the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account the balance of Rs. 20 lakhs or more throughout the intervening period from the date of issue of the cheque to the date of its encashment by EHIRC, Chandigarh, in that event it cannot be said that the provisions of section 2(24)(iv) are attracted in the case of the assessee before us. If, however, the facts are found to be different in this behalf from the facts of the case of M/s. Escorts Ltd. and it is found that the assessee before us, unlike M/s. Escorts Ltd., purchased or was allotted shares of M/s. EHIRL directly or the shares of EHIRC, Chandigarh were purchased or paid for by the assessee on a date subsequent to the conversion of EHIRC, Chandigarh into EHIRL in that event the provisions of section 2(24)(iv) of the Act may apply because the assessee was a director of EHIRL on 16-6-2000 when 2,00,000 shares of EHIRL were allotted to the assessee. We make it clear on this point that we do not see much force in the plea of the assessee that on that very date the resignation of the assessee from the directorship of EHIRL was accepted with retrospective effect from 30-5-2000. The fact of the matter is that assessee's resignation has been accepted on 16-6-2000 only and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with law. We direct the Assessing Officer to decide this issue afresh by way of a speaking order in this respect in the light of our directions after allowing the assessee reasonable opportunity of being heard in the matter. 49. Ground of appeal No. 4 (wrongly typed 5) is directed against the levy of interest under section 234B. In this regard the learned CIT(A) has passed the following order : "Ground No. 4 challenges charging of interest under section 234B. No arguments have been advanced in support of this ground. The Assessing Officer is, however, directed to recompute the interest while giving effect to this order". 50. During the course of hearing before us no specific arguments have been made in relation to this ground of appeal. It has been held by the Hon'ble Supreme Court in the case of CIT v. Anjum M.H. Ghaswala [2001] 252 ITR 1 that levy of interest under sections 234A, 234B and 234C is mandatory. We therefore do not see any force in this ground of appeal taken by the assessee. The same is accordingly rejected. 51. Ground of appeal No. 5 (wrongly typed 6) is directed against initiation of penalty under section 271(1)(c). As no appeal is provided against i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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