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TMI Blog2012 (10) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... ng notional income from the flats as Income from House property - Held that:- The said flats are shown under the head 'fixed assets' in the balance sheet of the assessee company & have been kept for use for the employees of the company cannot be brushed aside lightly. However, for the year under consideration, the assessee could not establish the usage of the flats by the company for its business purposes, therefore, annual letting value of the flats is liable to be taxed as per the Municipal rateable value, therefore this issue is restored back to the files of the AO - in favour of assessee for statistical purposes. Disallowance of maintenance charges and depreciation - Held that:- ALV has to be taxed for the year under consideration, the assessee will get the statutory deduction of 30% from the ALV, therefore no separate deduction of maintenance charges is to be allowed & that the assessee has failed to establish the flats have been used for the purposes of business for the year under consideration, the depreciation claimed cannot be allowed - against assessee. Addition of consultancy fees - Held that:- Direction of the CIT(A) to verify the correct figure of the consultancy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the light of the above fact, the AO asked the assessee to explain why the receipt of the flats at Hill park should not be treated as income in its hand u/s. 56(1) of the Act. The assessee filed a detailed reply dt. 2.12.2010 explaining the nature of transaction and claimed that the transaction is a gift of shares and therefore it is a capital receipt in the hands of the assessee. The AO observed that the assessee in its submission has chosen not to refer to the provisions of Sec. 56(1) of the Act. In its submission though it was specifically asked to explain why the gift received should not be treated as its income u/s. 56(1) of the Act. The AO was of the opinion that a gift cannot be logically made by one artificial juridical entity to another because the basic condition of love and affection for making gifts does not exist between such artificial entities which are emotion neutral. The AO further observed that the transfer though has been given the colour of a gift is made for business convenience. The AO concluded that the scheme of the Act is such that any income can only be excluded from the total income of the assessee if the Act specifically provides for such exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncommon that transfer of shares between corporate groups takes place for internal reorganization. Such a transfer may trigger capital gains ramifications in India since the shares of an Indian company are situated in India and when the transferor is a non-resident, the deeming provisions of Sec. 9(i)(i) of the I.T. Act, 1961 come into play. However Sec. 47(iii) contains list of transactions which are not treated as transfers for the purposes of Sec. 45 of the Act. Sec. 47(iii) of the Act relates to transfer of a capital asset under a gift, will or an irrevocable trust. The following issues arise in the application of Sec. 47(iii) of the Act in a corporate reorganization involving transfer of shares of an Indian Company without consideration : (a) Since the term Gift is not defined in the Act, which meaning should be ascribed to it and (b) Can a company being a corporate entity make a gift? 9. As gift is not defined under the Act, the Sale of Goods Act, Companies Act and the Indian Contract Act, a reference is made to the Gift Tax Act, 1958 ('GTA') and the Transfer of Property Act, 1882 ('TPA'). 10. GTA was in force with respect to gifts m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imported for the purpose of Sec. 47(iii) of the Act. In the case of CIT v. Shyam Narain Mehrotra [1981] 122 ITR 313 (Cal), the High Court inter alia observed that the expressions similar to Sec. 47(iii) of the Act was present in the erstwhile Sec. 12B of the Indian Income Tax Act, 1922 i.e. even before the GTA came into force. This observation of the Hon'ble High Court suggest that meaning of 'gift' as per GTA should not be imported for the purpose of Sec. 47(iii) of the Act. 15. Similar view has taken in the case of ITO v. Buragadda Satyanarayan [1977] 106 ITR 333 (AO) and ACIT v. Ranga Pai [1975] 100 ITR 413 (Kar). Although there are other decisions to the contrary however these decisions may not strictly hold good since the GTA has been deleted w.e.f. 1.10.1998 and Sec. 47(iii) of the Act continues in its original form. 16. Considering the above discussion, the definition given u/s 122 of the TPA has to be accepted, meaning thereby that meaning of gift reflect non-element of love and affection. Therefore, gift of shares of an Indian Company by a foreign company without consideration has to be treated as gift within the meaning of Sec. 47(iii) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness or profession.--The following income shall be chargeable to income-tax under the head Profits and gains of business or profession ,-- .. (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession ; In our humble opinion, 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. The contention of the Ld. Departmental Representative that by the said transaction the assessee has derived benefit and such benefit has arisen from the business connection of the donor and the donee, cannot be accepted as no direct nexus has been established by any tangible material brought on record by the Ld.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. As we have held that 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gate fair market value of such property ; (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration : Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub-clause (b) as they apply for valuation of capital asset under those sections : Even this amendment did not cover the issues involved in the present appeal. The legislature, in its wisdom, further strengthened the provisions of sec. 56[2] by making the following amendments: (viia) where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature , whichever is higher ; However this amendment has no direct bearing on the facts of the case in hand. 22. Thus, we have considered the application of the provisions of sec. 28[iv] and sec 56[1] [2] from all the possible angles on the facts of the case, in our humble opinion the transaction involved in the present appeal is nothing but a Gift and thus it is a capital receipt not taxable under the alleged provisions of the Act. Therefore, The Assessee Succeeds and Revenue fails. Issues involved in this ground are decided in favor of the assessee and against the Revenue. 23. The second grievance of the assessee is that the Revenue authorities have erred in taxing notional income from the flats as 'Income from House property.' 24. The assessee says that the flats are used for the purpose of business and therefore no notional rent under the head Income from House Property can be taxed. It is the contention of the Revenue that the assessee has failed to es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead consultancy fees . The assessee was asked to file the details. From the details submitted by the assessee, it is seen that the consultancy fees were received from two parties (i) P O Steam Navigation Co., UK amounting to ₹ 4,60,92,500/- and (ii) JAFZA amounting to ₹ 75 lakhs. The AO further observed that as per the agreement of P O Steam Navigation Co., the said company was to pay US Dollors 2,00,000/- per month towards monthly consulting fees for services to Indian terminals. According to the AO, the assessee was to receive a total of USD 24,00,000. However, the assessee has accounted only USD 10,50,000/-. The AO show caused to the assessee as to why the difference of USD 13,50,000/- should not be added as its business income for the year under consideration to which the assessee replied that as per the said agreement, the consultancy fees could be renegotiated as per mutual convenience and hence the amount offered is the only amount receivable during the year from P O Steam Navigation Co. The said explanation of the assessee was rejected and the AO went on to make an addition of ₹ 5,34,65,000/- which is equivalent of USD 13,50,000. 31. When the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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