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TMI Blog2015 (4) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... er sources' u/s 56(1) of the I.T Act." "3.Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) was justified in deleting the addition of Rs. 161,86,77,034/-, without appreciating the fact that the said receipts cannot be categorized as 'gifts' claimed to be exempt from taxation." 4.Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) was justified in holding the receipts without any consideration as "gift" in the absence of 'Natural Love and Affection' without appreciating the fact that 'Natural Love and Affection' is crucial element of any transaction to qualify as gift." 5.Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) was justified in relying on the provisions of section 25 of Companies Act and section 80G of the I.T Act and holding that a company can make gift, without appreciating the fact that these are specific provisions stipulated by statute for specific purposes and therefore, the same cannot be applied in generality and to the facts under consideration." "6.Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) was justified in not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration i.e. F.Y.2008-09, assessee received Rs. 161,86,77,034/-, from four concerns and claimed it as gifts received from these concerns. The names and other details of the four concerns from whom the amounts have been received are as follows :- Sl.No Name of the Corporate Donor PAN Address Amount(Rs.) Source 1 Amur Trading Pvt. Ltd. AAACR2647D 505, Dalamal House, Nariman Point, Mumbai 42,90,52,221 Dividend receivable by donors from Reliance Industries Ltd. on their share holdings are directly transferred to the assessee 2 Madhuban Merchandise Pvt. Ltd. AABCM9540M 505, Dalamal House, Nariman Point, Mumbai 44,50,38,399 3 Tresta Trading Pvt. Ltd. AAACR2649P 505, Dalamal House, Nariman Point, Mumbai 42,78,44,222 4 Ornate Traders Pvt. Ltd. AAACO0856D 505, Dalamal House, Nariman Point, Mumbai 31,67,42,192 3. The assessee has claimed that the amount received are gifts received from the said four concerns. It is claimed that the amounts have been received directly from Reliance Industries Ltd. on account of the dividend receivable by the said four concern against their shareholding in Reliance Industries Ltd. It is on the directions of the four conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s selected for scrutiny and notice U/S 143(2) and 142(J) of the I T. Act were issued and served on the Appellant. The .Authorized Representative of the Appellant attended from tune to tune and submitted the requisite details. Regular Assessment U/s 143(3) was completed by the A.o. vide his order dt.ll.11.2011 determining total taxable income at Rs. 178,47,63,054/- under normal provisions of the Act and book profit of Rs. 210,28,48,614 u/s 115JB of the Act. The addition made by the AO is disputed in appeal before your Honour. The brief facts relating to additions/ disallowances made by the AO and disputed in appeal are as under: 2. The Appellant is a private limited company engaged in the business of Investment. During the year under consideration it received gifts aggregating to Rs. 161,86, 77,034/- from four companies viz. Amur Trading Private Ltd., Medhuban Merchandise Private Ltd., Tresta Trading Pvt. Ltd. and Ornate Traders Pvt. Ltd. All the above four companies are shareholder of Reliance Industries Limited [Reliance Industries] and receive dividend income from Reliance Industries. The Appellant and all the above four companies are Private Limited companies and are governed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther That the Company do receive delivery of the same from the Transferor Company for completing the gift. Resolved Further That Smt. KD Ambani and Shri D.N Chaturvedi, Directors of the company, be end are hereby severally authorized to do, perform and execute all acts, deeds, matters and things as may be necessary, proper or expedient to give effect to this resolution and for matters connected herewith and incidental hereto. Similar such resolutions were also passed by the other four companies in their respective extra ordinary general meetings and board meetings. Consequently, the Appellant received gift of Rs. 16.l,86,77,034/- from above four companies during the year, as under: Name of the Company Amount of Gift (Rs) Amur Trading Private Limited 42,90,52,221 Madhuban Merchandise Private Limited 44,50,38,399 Tresta Trading Private Limited 42,78,44,222 Ornate Traders Private Limited 31,67,42,192 Total 161,86,77,034 As the gift received by the Appellant from corporate bodies is in the nature of Capital receipt, the Appellant credited the gift of Rs.l,61,86, 77,034/- to Capital reserve Account in its books of accounts. During assessment proceedings the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not taxable under any of the provisions of the Income Tax Act - 1961. The Appellant submits that the Income Tax Act - 1961[hereinafter referred to as Act} is an act passed by the Parliament to levy tax on 'income' of an assessee. Thus what is subjected to tax under the Act is only the 'income' of the assessee and not each and every receipt of an assessee. The Appellant submits that where the other receipts not in the nature of income are intended to tax under the Act, the legislature has specifically made provisions for taxability of such receipts in the statute itself like section 45, section 56(v), 56(vi), 56(vii) etc. The Appellant submits that section 4 of the Act is the charging section which reads as under: "4. (1) Where any Central Act enacts that income - tax shall be charged for any assessment year at any rate or rates, income - tax at that rate or those rates shall be charges for that year in accordance with, and subject to the provisions including provisions for the levy of additions income - tax of, this Act in respect of the total income of the previous year of every person; Provided that where by virtue of any provisions of this Act income - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Appellant. The Appellant submits that the gift received has nothing to do with the business of the Appellant so as to constitute its income from business or a revenue receipt in the nature of income. The Appellant therefore submits that the Gift received is in the nature of a capital receipt not Hable to tax under the Income Tax Act. The Appellant further submits that as per section 14 of the Act, income of an assessee must be classified under the following heads of income viz "Salaries‖: "Income from house property': 'Profit and gains of business or profession", "Capital gain" and "Income from other sources". The Appellant submits that the provisions of the Act provides for what can be constituted/considered as income under the various heads of income. Thus income of an assessee shall be chargeable to tax only if it falls under any heads of income. In this connection the Appellant submits that the gift received is neither in the nature of Salary nor in the nature of income from house property. The Appellant further submits that by no stretch of imagination it can be said that the Appellant is engaged in the business of receiving gifts from corporate bodies: h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded amendments in the Act and all the definition regarding taxability of gift (i.e. receipt of assets without sufficient or without any consideration) are inclusive and only those instance of gifts are required to be taxed and not all gifts. This is so, more particularly, because all gifts are capital receipt in nature and only certain gifts are made taxable. The Appellant submits that provisions of section 56(2)(v), (vi), (vii), and (viia) specifically covers the instances of gifts which are taxable under the provision of the Act: and all other gifts received by an assessee other than those covered in above sections are not chargeable to tax being capital in nature. In this connection the Appellant rely upon the following judicial pronouncements wherein the hon'ble courts have held that gift capital receipts without considerations are not in the nature of income and hence the same can not be charged to tax under the provisions of the Income Tax Act. 1) HH Maharani Shri Vijaykuverba Saheb of Morvi & Anr Vs. CIT [49 ITR 594](Bombay: "There is no doubt that under the Indian IT Act even payments, which are voluntarily made may constitute "income" of the person receiving them. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases I have mentioned above where the business continues but by some overriding reason profit cannot be earned. The situation in the present case is, however, entirely different. Even if there was any doubt as to what exactly the payment of Rs. 5 lakhs represented, it is now laid at rest by the findings of fact that have been placed before us upon remand. The company itself has admitted that the payment was made as a personal gift to the assessee. It may have been calculated on the possible loss that had been suffered, but it is obvious that there was no question of any legal liability on the part of the company to pay or any legal right on behalf of the assessee to receive payment. It was paid as a personal gift in consideration of the long association of the assessee and his firm with the shipping' company for a number of decades. It was entirely prompted by generosity, and there is no reason to equate the payment with the payment that the assessee could have received from an insurance company if it had a "consequential loss policy" of the nature described above. That being so, I think that the Tribunal had come to the correct conclusion that this amount of Rs. 5,00,000 was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. The fact that proviso (d) to section 15(1) of the Bombay Act enabled to appellant to seek payment was far from saying that it was a source, It could not afford any foundation for such a source. It was a compassionate payment for such length of period as the Government might, in its discretion order. The amounts received by the appellant during the financial years in question were capital receipts and, therefore, not income within the meaning of section 2(24) of the income tax Act, 1961. 5) CIT Vs. Ramdeo Samadhi !J60 ITR 179KRajasthan) "The ingredients of "income" are: (i) it must be a periodical monetary return, (ii)coming in with regularity or expected regularity, (iii) from definite sources, and (iv) excluding a receipt in the nature of a mere windfall. It is well-settled that in order to become a vocation, an activity need not be organized and a single act may amount to carrying on a business, profession or vocation. In the case of a voluntary payment, no tax can be levied on it, if it had been made for reasons purely personal to the donee and unconnected with his ,office or vocation, while it will be taxable if it was made because of the office or vocation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e gift of Rs. 161,86, 77,034/- received by the Appellant from corporate bodies are in the nature of capital receipt not liable to tax under the provisions of the Income Tax Act. 4. Now, coming to the AO's observation in the assessment order, the Appellant submits that the assessment order passed by the AO is solely on the basis of suspicion, surmises and on misconception of law. The Appellant submits that the AO framed the entire assessment order on misconception of law that a company being an artificial judicial person cannot give gift to another company. The AO further observed that for giving gift there has to be natural love and affection between the donor and donees. The Appellant submits that the above observations of the AO are self drawn conclusions/observations of AO without the authority of law. In this connection the Appellant submits that the Appellant and donors being Private Limited Companies are governed by the Companies Act. Section 82 of the Companies Act provides that shares in a company is a moveable asset. The section 82 of the Companies Act reads as under: "82. The shares or debentures or other interest of any member in a company shall be moveable proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the Companies Act and Transfer of Property Act. The Appellant further object to the findings of the AO that prerequisite of gift is that it should be out of natural love and affection. The Appellant strongly submits that none of the provisions of the Acts reproduced hereinabove anywhere states that the gift should be out of natural love and affection. The Appellant submits that the only condition stipulated by the Act lor a gift is that it should be made voluntarily and without consideration by one person to another person. The courts time and again have held that the love and affection does not constitute a consideration when the gift is given by a donor to donee and the gifts given has been held to be gift without consideration. The Appellant therefore submits that the observations of the AO in assessment order totally misconceived and without the authority of law. Apart from above, with respect to observations of the AO that a company being an artificial person cannot not make gift, the Appellant further respectfully submits that the statute even the taxing statue has recognized that the gift can be given by a company. In this connection the Appellant submits that the Gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough taxing statutes that a Company can make/receive g1ft. The Appellant therefore submits that the observations of the AO in assessment order are erroneous and without the authority of law. 5. The Appellant further submits that the AO In assessment order has recorded several findings on the basis of assumptions and surmises throughout the order so as to draw a pre-meditated conclusion which are as under: 1) Page 7, para 6: "Since receiving a cash gift by a company from another set of companies is not only a very unusual and atypical but also a curious transaction. This sort of transaction is generally not heard of and raises serious doubts." The Appellant submits that the above observations of the AO are based on suspicion and surmises without there being any basis. Tile Appellant submits that an unusual transaction which the AO has not generally heard of does not in any manner suggest that the transactions are not genuine or not permissible under the provisions of the Act or all, the receipt irrespective of its nature becomes an income liable to tax under Act. The Appellant further submits that In any way the doubt or suspicion of the cannot in any way convert a capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very the Appellant submits that the dividend has actually been received by the Appellant in its bank account which conclusively prove the delivery of the gift from donor to donee i.e. the Appellant. With respect to donative intent, the Appellant submits that all tile four donors have passed a resolution in the meeting of shareholders and board of Directors that they intend to transfer the dividend on shares of Reliance Industries held by them to the Appellant donee as gilt. The Appellant therefore submits that the donative intent to transfer the dividend as gift is clear tram the resolution passed by the donors. With respect to acceptance by the donee the Appellant submits that it has duly passed a resolution in the meeting of shareholder and board of directors duly conveying their acceptance to the gilt. The Appellant therefore submits that all the essential requisites of gifts stated by the AO in assessment order have in fact duly been fulfilled by the Appellant and no adverse conclusion can be drawn in the case of the Appellant. 3) Page 8, para 6.2: "From the above it can be said that a gift can only be between two living persons or natural persons. The sin qua non of the gilt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, This sort of transactions is generally not heard of, 'gifts are generally given and received by individuals etc. The Appellant submits that these observations of the AO clearly suggest that the AO has based his order solely on assumptions and surmises. The Appellant submits that when there is specific provisions in the Act with respect to treatment of gifts, no general conclusions can be drawn. The Appellant therefore submits that above observation of the AO clearly proves that the AO framed the assessment order in disregard to the provisions of the law on the subject and without bringing any contrary material on record. 4) Page 8, Para 6.4.; "Section 25 of the Indian Contract Act. 1872. lays down that a contract without consideration is void ab initio, except for an agreement in writing registered under the provision of Registration Act, 1908 and such agreement is on account of natural love and affection. Therefore a claim of gift by a company is not sustainable as there can never be any love and affection by or between an artificial juridical person. The Appellant submits that it agree with the AO that section 25 of the Indian Contract Act, 1872 lays down that a contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing an ordinary resolution of the shareholders and Directors of the company and same has also been accepted after passing of ordinary resolution by the shareholders and directors of the Appellant. The Appellant submits that above is a sufficient compliance of various laws for making or receiving gift by the companies. The Appellant further submits that there is no requirement under the law for making a gift deed; hence non execution of gift deed alone can not be held to be prejudicial to the Appellant and moreso treating the gift as income of the Appellant under the Income Tax Act." 7) Page 9, Para 7." In legal term the act of gift cannot be said to be have been undertaken as the donee has not given express consent to receive the alleged gift." The Appellant submits that the above observation of the AO is erroneous and factually not correct. As stated earlier the Appellant has accepted the gift from the donors by passing an ordinary resolution in the Extra Ordinary General Meeting of the Shareholders and also in. the meeting of the Board of Directors. The Appellant further submits that the AO has strongly relied upon and taken shelter under the meaning of gz1t given in dictionar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment order has no relevance to the case of the Appellant and are distinguishable on facts. In view of our above submissions and various Judicial pronouncements relied upon, the Appellant submits that the gift of Rs. 161,86,77,034/- received by the Appellant from corporate bodies are in the nature of capital receipt and the same cannot be considered as income of the Appellant under any provisions of the Act and hence is not liable to tax. 4.1. During the course of appellate proceedings above, submissions of the assessee was remanded by the CIT(A) to the A.O. vide order u/s. 250(4) dated 31/8/11 which is as follows: Assessment in this case u/s. 143(3) is completed vide order dated 11/11/11 by the A.O. in which the claim of the assessee that it has received Rs. 161. 86 crore as gift has been rejected and it has been assessed as income from other sources, which has been disputed by the assessment the present appeal and made submissions vide letter dated 31/8/12 with paper-book. Whereas, while making assessment the A.O. has held vide para 8 of the assessment order as follows: "8. The transaction has been painted as a gift to escape taxation in the hands of the recipient. Apparently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here out, with a purpose, that this case falls in such category of cases which were referred by the Hon'ble Fins nee Minister under the titles "provisions for countering tax-evasion" & "evil of tax-evesian" while presenting the Finance Act, 1964 in following manner: "84. It is a curious paradox of our situation that while money for worthwhile investments and public purposes is in short supply, there is a great deal of unaccounted money circulating in the economy in search of further under-cover gains. What is more important, this social evil inherent in tax evasion gets doubly compounded as it necessitates greater and greater tax burdens on those who are law' abiding. Perhaps, the most important problem that faces us in regard to fiscal reforms is that of devising astute and stringent measures to meet this evil of tax-evasion so that it might be possible to distribute the burden of taxation more justly and evenly between different individuals in the same or similar walks of life. We have thought too exclusively of social justice between different classes or sections of the community and not enough of the injustice inherent In tax evasion as between members of each class or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read as under: 1.5 While discussing section 2(24), the assessee itself has admitted that the definition of income provided in the said section is inclusive one and not exclusive. Reliance is placed on following judicial pronouncements: 'Income this Act connotes a periodical monetary return 'coming in' with some sort of regularity, or excepted regularity, from definite sources - CIT v. Shaw Wallace & Co. 6 ITR 178 (PC)/Padmaraje R. Kadambande v. CIT[1992) 195 ITR 877 (SC): The word ‗income is not limited by the words 'profits' and 'gains'. Anything which can properly be described as 'income; is taxable under the Act unless expressly exempted - Maharajkumar Gopal Saran Narain Singh v. CIT [1935] 3 ITR 237 (PC). No attempt has been made in the Act to define 'income' except to say that it includes certain things which would possibly not have been regarded as income but for the special definition. That, however, does not limit the generality of its natural meaning except as qualified in the section itself - Raghuvanshi Mills Ltd. vs. CIT [1952] 22 ITR 484 (SC)' The word 'income' as it is used in the Income-tax Act has often ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason. 1.8 The supporting reason has to be w.r.t the question that as to why any person will make gift to any other person. Now as the meaning of gift has not been provided in the Income-tax Act, therefore the meaning' has to be borrowed from any other law or statute prevailing in land. As the Gift-tax Act has already been abolished, therefore the meaning of gift can not be borrowed from it. Here, it is pertinent to mention that gilt, has been defined in Transfer of property Act 1882.Section 122 of the Transfer of property Act 1882, defines gift as under: "Gift" is the transfer of certain existing moveable or immoveable property made voluntarily and without consideration, by one person, called the donor, to another called the donee, and accepted by or on behalf of the donee. Acceptance when to be made. - Such acceptance must be made during the lifetime of the donor and while he is still capable of giving, If the donee dies before acceptance, the gift is void. Thus, the contract act lays down the condition that for a genuine gift transaction, the done has to be a living being. To be very precise, lifetime word used in the above definition connotes to natural birth and dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the provision of Registration Act, 1908 and such agreement is on account of natural love and affection. Therefore a claim of gift by a company is not sustainable as there can never be any love & affection by or between an artificial juridical person. 1.15 Further as far as gilt of the property is concerned, section 122 of the Transfer of Property Act, 1882 requires that transfer of property by way of gift must be accepted by the donee and inter alia such acceptance must be made during the life time of the donor and before the donee dies. The provisions using the word like the death of the donee are logically in the context of a living individual or natural person and not in the context of an artificial person. In view of the foregoing, it is not possible for a company to receive a gift. 1.16 Hence, on the basis of discussion above, it can be concluded that a company cannot be a donor or a donee of a gift since a company is an artificial juridical person and does not have senses to possess or express the emotions of natural love and affection-existence of which is the prime requirement for holding a contract of gift legally valid. 1.17After being unsatisfied with the logics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this regard it is to be mentioned that till 1988, since Gift tax Act was applicable, being direct tax in nature, therefore there was no need to have specific section for the purpose of taxability in the I. T Act. However, after the abolition of Gift Tax Act, as there was no tax on gifts, therefore, this was used as a colorable device to evade taxes, therefore vide Finance (no.2) Act, 2004 w.e.f 01.04.2005 inserted clause (v) to sub section (2) of section 56, gift received by an individual and HUF was made taxable. Here, it is pertinent to mention that the only exception was made in the case of gift received from close relation, because it was held by the legislatures that as the basic condition for gift are natural love and affection' and the same can be only between close relatives. Probably this is the reason/logic, why while framing the above provision, the Legislature have only talked about individual and HUF; which is a possibility as the Legislature never thought that there can be any transaction between two companies, which is not a possibility at all and that too in the garb also celled 'gift: 1.22 Now as far as insertion of provisions of section 56(2)(viia) in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome - chargeable as - Assessee was a partner in a firm which acted as freight brokers of a shipping company - Firm used to receive a remuneration of one per cent on freight booked but no minimum remunerations was guaranteed by company to firm if no business was carried on - With outbreak of second world war company stopped functioning in Burma and no brokerage accrued to Kim thereafter - Assessee claimed compensation for loss of business during war period - Director of shipping company released Rs. 5 Jakhs to assessee "for loss of assets I and brokerage in Burma due to enemy action" - ITO held that Rs. 5 lakhs was income in assessee s- band' which was liable to be assessed - Tribunal held that payment was motivated purely by feelings of generosity on part of shipping company having regard to assessee 's association with it for a number of decades hence, it was in nature of personal gift and not taxable in hands of assessee- whether since shipping company itself had admitted that payment was made as a personal gift, Tribunal was right in its conclusion that sum was not assessable- Held yes The first and foremost important fact to be noted here is that the case law quoted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see continued to receive cash allowance as compassionate payment from 1-8-1956 on modified terms and the sanction of the same was conveyed to the assessee. For the assessment year 1963-64 and 1964-65, the assessee claimed that the amounts received by him were not assessable to income-tax as those receipts were of a capital nature. The ITO disallowed the assessee's claim and subjected the respective amounts to tax in each of the assessment years. On appeal, the AAC as well as the Tribunal. confirmed the order of the ITO. On reference, the High Court, relying on the case of HI-f Maharani Shri Vijavkuverba Saheb of Morvi v. CIT 119631 49 ITR 591 (Born.) came to the conclusion that the amounts received by the assessee during the relevant financial years were income within the meaning of section 2( 24) and could not heI regarded as capital receipts in the hands of the assessee. It, accordingly affirmed the view taken by the taxing authorities The case law quoted by the assessee only supports the stand taken by the undersigned by treating the above sum as income. 5 CIT vs. Ramdeo Samadhi 160 ITR 179 The word 'income' has been defined in section 2(24)and it is an inclusive def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see known as R's Samadhi The ratio of the case is totally different with that of the assessee under consideration. In the quoted case, the receipt/offerings made at the Samadhi or R by the devotees or pilgrims, were made by them at the spur of moment when they visited there. These offerings were because of affection or faith or belief, which is totally absent in the case of assessee under reference. Therefore, the case law relied by the assessee does not hold good. 6 Mehboob Productions Private Ltd. Vs. CIT 106 ITR 758 Section 4, read with sections 2(24) and 10(3) of the Income-tax Act, 1961 (Corresponding to section 3, read with sections 2(6c) and 4(3) (vii) of the Indian Income tax Act 1922) Income -chargeable as Assessment year 1959-60. Assessee company was doing business in production of films and one of its films was awarded certified of merit whereupon it was granted exemption from entertainment duty- As per Government resolution amounts equivalent to amounts of entertainment duty leviable on their exhibition should be paid by exhibitors to assessee produce5rs payments appeared to be entirely at discretion of Government and exemption should be withdrawn by Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business, since they represented revenue receipts arising from the sale of the finished products. On the last date of the accounting year, the assessee closed the 'Wire and Strip Gift Account' and the 'Semi-Processed Needles Gift Account' by transferring the respective sums to the credit of the 'Capital Reserve Account' and debited an aggregate sum to the trading account by making corresponding credit entries in the accounts of 'Wire and Strip' and the Semi-Processed Needles: The net effect of these entries was that the profit of the assessee was reduced. The ITO took the view that the debit was wrongly made in the trading account since no monies were expended by the assessee in acquiring the raw materials and semi-finished needles, but they were received by way of gift from foreign collaborators and hence no amount was deductible in respect of the value of these goods. On appeals the AAC as well as the Tribunal also took the same view. On reference, the High Court held that the value of these goods could not be treated as revenue receipt because they had been received by way of gift and, in any event, even if they constituted revenue recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollaborating foreign company (which has a definite role and pre-defined role in a joint venture) free of cost, while in the case of' assessee under reference there is no such collaboration Joint-venture/partnership or any other pre-defined relationship. Therefore relation between the doner and donee in the above referred case and in the case of assessee under reference is altogether different. b. In the case of Groz-beckert Saboo Ltd., the doner has sold machinery of substantial amount and along with that machinery it has gifted some raw material and semi finished products, while in the assessee under consideration there had not been any transaction, what to say about purchase and sale of machinery. Assessee during the remand proceedings, vide its letter dated 10th Sep, 2012, has submitted as under: "we confirm that, since inception, except for receipt of gift, the company has not transacted with any of the above referred 4 companies or their shareholders" Therefore, the ratio of the above case can not be applied in the case of assessee under reference. c. The issue before the Hon'ble Supreme Court was that whether raw materials and semi finished needles were intro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taxable and these are without prejudice to the general provisions of section 56 (1) of the IT Act. Basically, in order to curb the practice of bringing unaccounted money in the books of the assessee, the act was amended and specific provisions were brought in the form of section 56 (2) to tax the gift, save from received from designated relation to the done. As specified above, since only living being receive or advance gift, therefore restrictions were place in the statute that only close relative can give or receive gift, so that abuse of exemption provisions on account of gift transactions may be avoided. (ii) The argument is devoid of any merit because the law makers can make legislation on a probable and plausible transaction, as there not be any gift between companies, no legislation was made. 1.28 Further the assessee contention that with the insertion of clause (Vila) to section 56 (2) by the Finance Act 2001, two new categories were added to section 56 (2), being 'firm' and 'company' in relation to transfer of shares, and yet the transaction undertaken by the assessee is not covered is concerned, it is to be noted that (i) The Explanatory Memoran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and there was no natural love and affection and in its absence, gifts could not be accepted to be genuine - Assessee challenged order of Tribunal on ground that she should have been allowed an opportunity to cross-examine donors who denied to have given gifts - Whether even if cross-examination was allowed and donors, who had disowned making of gifts, were confronted and shown to be factually wrong, same would have made no difference as in absence of natural love and affection, gifts were not genuine - Held, yes - Whether, there fire, order of Tribunal was to be upheld - Held, yes Smt. Kusum Lata Thakral v CIT [185 Taxman 237] Section 68 of the Income-tax Act, 1961 - cash credits - Assessment year 1998-99 - Whether where assessee claimed to have received certain sum a. gifts but failed to establish that donor had means and gift was genuine and was given out of natural love and affection, amount received as gift was to be added to income of assessee - Held. yes Jaspal Singh v CIT/[159 Taxman 3061 1.32 Apart from the above, it is pertinent to mention that during the remand report proceedings, the assessee has submitted that in the case of doner company namely M/s Madhuban Merchan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessor. who passed this assessment order regarding the stand taken while considering the alleged pit as income from other sources. However, without prejudice to the above, since credit entry is found to be credited in the books of the assessee, therefore, if any how the same can not be taxed under section 56, then it would be taxed under the provisions of section 68, which is read as under: "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the source and source thereof or the explanation offered by him is not, in the opinion of the 7-9[Assessing] Officer, satisfactory. the sum so credited may be charged to income-tax as the income of the assessee of that previous year: 1.34 In this regard, reliance is placed on judicial pronouncement of Honble Supreme Court in the case of CIT v. P Mohankala [2007] 291 ITR 278 (SC) and Sumati Dayal Vs. Commissioner of Income Tax, Bangalore [1995 Supp.(2) SCC 453) 2. The second issue, on which the remand report has been called for is as under: Find out and report the cross holdings between the assessee and the donor companies and report the impact of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TE LIMITED 10000 3. MADHUBAN MERCHNDISE PVT. LIMITED 9514 4. SAUMYA FINANCE AND LEASING CO.(P.) LTD. 9514 5. SHIKHAR TEXTURISING PRIVATE LIMITED 9514 6. SILKINA TRADING PRIVATE LIMITED 1533 TOTAL: 50075 TRESTA TRADING PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. os share of Rs. 10 each 1. AMUR TRADING PRIVATE LIMITED 1523952 2. ANUCHIT TRADERS PRIVATE LIMITED 70800 3. LAZOR DETERGENTS PRIVATE LIMITED 83000 4. MADHUBAN MERCHNDISE PVT. LIMITED 50000 5. SAUMYA FINANCE AND LEASING CO.(P.) LTD. 71000 6. TRESTA TRADING PRIVATE LIMITED 27800 7. UNICOME TRADING ENTERPRISES PVT. LTD. 71000 TOTAL: 425600 JOGIYA TRADERS PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of Rs. 10 each 1. AMUR TRADING PRIVATE LIMITED 1060004 2. CAPABLE COMMERCIALS PRIVATE LIMITED 618000 3. KUNDRAT INVESTMENT & LEASING (INDIA)(P) LTD. 1018096 4. LAZOR DETERGENTS PRIVATE LIMITED 1518100 5. MADHUBAN MERCHNDISE PVT. LIMITED 475000 6. SAUMYA FINANCE AND LEASING CO.(P.) LTD. 1299600 7 TRESTA TRADING PRIVATE LIMITED 570000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... INDIA) P.LTD. 1560000 4. LAZOR DETERGENTS PRIVATE LIMITED 1160900 5. MADHUBAN MERCHNDISE PVT. LIMITED 745940 6. TRESTA TRADING PRIVATE LIMITED 1160900 TOTAL: 6110000 PURURAVA TREADERS PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of Rs. 10 each 1. AMUR TRADING PRIVATE LIMITED 324710 2. CAPABLE COMMERCIALS PRIVATE LIMITED 1805000 3. JOGIYA TRADERS PRIVATE LIMITED 342000 4. LAZOR DETERGENTS PRIVATE LIMITED 1916910 5. MADHUBAN MERCHNDISE PVT. LIMITED 2000000 6. RISHI TRADING CO. PRIVATE LIMITED 90000 7 SAUMYA FINACE& LEASING CO. P. LIMITED 1377500 8. TRESTA TRADING PRIVATE LIMITED 855380 9. UNICOM TRADING ENTERPRISES PRIVATE LIMITED 1377500 TOTAL: 10089000 RASHI TRADING COMPANY PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of Rs. 10 each 1. AMUR TRADING PRIVATE LIMITED 1097450 2. CAPABLE COMMERCIALS PRIVATE LIMITED 630000 3. DAINTY INVESTMENTS & LEASINGS P. LTD. 600000 4. LAZOR DETERGENTS PRIVATE LIMITED 1348050 5. MADHUBAN MERCHNDISE PVT. LIMITED 748050 6. SAUMYA FINACE& LEASING ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; TOTAL: 100000 SUGAM TEXTURISING PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of Rs. 10 each 1. AMUR TRADING PRIVATE LIMITED 211536 2. LAZOR DETERGENTS PRIVATE LIMITED 367536 3. MADHUBAN MERCHNDISE PVT. LIMITED 367536 4. RASHI TRADING COMPANY PVT. LTD. 156000 5. RAHINO BAGS PRIVATE LIMITED 66144 6. SAUMYA FINANCE & LEASING CO. PVT.LTD. 301392 7. SWARAG TRADERS PRIVATE LIMITED 96720 8. TRESTA TRADING PRIVATE LIMITED 367536 TOTAL: 1934400 SWARAG TRADERS PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of Rs. 10 each 1. AMUR TRADING PRIVATE LIMITED 500000 2. ANUCHIT TRADERS PRIVATE LIMITED 1140000 3. CAPABLE COMMERCIALS PRIVATE LIMITED 1040000 4. LAZOR DETERGENTS PRIVATE LIMITED 1580000 5. MADHUBAN MERCHNDISE PVT. LIMITED 1656800 6. SAUMYA FINANCE & LEASING CO. PVT.LTD. 1040000 7. TRESTA TRADING PRIVATE LIMITED 623200 8. UNICOME TRADING ENTERPRISES PVT. LTD. 1140000 TOTAL: 8720000 UNICOME TRADING ENTERPRI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear and distinct motive w.r.t transaction under reference. The exact nature and motive, best known to the assessee, has never been disclosed to this office. Apparently the motive behind this transaction is to transfer money from one Group Company to another without paying income tax. In fact, the motive behind the above transaction in the guise of gift transaction is nothing but to evade tax as it does not fall within the four corners of definition of gift, therefore it cannot be treated as gift. CONCLUSION 3. In view of facts of tht case, surrounding circumstances and analysis made above, the above transaction cannot be categorized/considered as a gilt transaction. In fact., whole scheme of so called gift transaction is a camouflage to circum vent the mandate off. T Act, 1961, tax-evasion and to devoid the government kitty from its gar, tan e tax. 4. The report is submitted to you for your kind perusal. Sd/- [ARVIND KUMAR Deputy Commissioner of Income tax, 3(2) Mumbai' 4. The remand report was forwarded by the CIT(A) to the assessee and assessee filed rejoinder dated 18/10/12, which is as follows: "Rejoinder of the Appellant to the Remand Report 1. We refer to the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies subject to the same rate of tax. No additional tax benefit has accrued either to the donor companies or to the Appellant in any manner whatsoever. Accordingly, the Appellant respectfully submits that the amount received by the Appellant without consideration cannot be considered as colorable device as portrayed by the Assessing Officer In his remand report. The transaction is tax neutral and has no revenue effect. 3. Now coming to the observation of AO in the remand report, the Appellant submits that the main points of arguments of the A 0 can he summarized as under: 1) Gift can only he made and received by a Living person (i.e. human being.) and not by the Companies being artificial person. 2) There has to be natural love and affection between the person giving and receiving gift. 3) Receipt of money without consideration is nothing but income as the definition of 'Income ‗is inclusive and not exhaustive. 4,) Section 56(1) being residual taxing pro vision, any income not covered under heads A to E specified in Section 14 of the Act is chargeable under the head "income from other sources" 5) The Credits (gifts) in the books of the Appellant can alternatively b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore submits that Explanation I clearly provides that section 25 of the Contract Act is not applicable to the gifts made by the donor to the donee. The Appellant therefore submits that the arguments of the AO are contrary to the specific provisions of the Act and shall be quashed. 3)Receipt of money without consideration is nothilighut income as the definition of Income' is inclusive and not exhaustive: he AO at pang 1.5 and 1.6 of his remand report tried to justify, that any receipt which makes a person richer by accretion of wealth, is an income in the hands of the recipient and is chargeable to tax under the Income Tax Act-1961. The Appellant strongly objects to the above observations of the AO. The Appellant at the outset submits that the Income MX Act - 1961 is an act passed by the parliament to ley tax on 'income' of an assessee. Thus what is subjected to tax under the Act is only the income of the assessee and not each and every receipt of an assessee. The Appellant submits that receipts which are capital in nature or does not fulfill criteria of an income, cannot be subjected to tax unless specifically provided under the Act like section 45, section 56(v) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied upon various case laws which are clearly distinguishable on facts and in Jaw. In all the cases relied upon by the AO, the receipts by the assessee were undoubtly in the nature of an income and the questions before the courts was taxability of such income under particular head. On the Facts of those cases, the courts have held in these cases that these income which do not 12iil under specific head of income under section 14 item A to E, are chargeable to tax under the residuary provision i.e. u/s 56(1). However in the case of the Appellant the gift received by the Appellant is not in the nature of income but is a capital receipt,' hence if is respectful submitted that none of the case relied upon by the AO has any relevance to the facts of the case of the Appellant. The Appellant therefore submits that the observations of the AO are grossly erroneous and without the proper appreciation of law. 5) The Creidits (Gifts) in the books of the Appellant can alternatively be considered as unexplained cash credit u/s 68 of the Act. The AO at pars 1.33 of the remand report states that, f any how the same can not be taxed under section 56', then it would be taxed under the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time of making assessment. The AO in support of his above proposition relied upon Supreme Court judgment in the case of CIT vs. P. Mohankala [2007] 291 ITR 278 (SC) and Sumati Dayal vs. Commissioner of Income-tax, Banglore 11995 Supp.(2) SCC 4531. The Appellant submits that both the above cases are distinguishable on facts in law and have no relevance to the issue in appeal. 6) Various judicial pronouncements relied upon by the AO: The AO at para 1.31 of his remand report has relied upon the judgment in the case of Smt. Kusum Lata Thakral Vs. CIT [185 Taxman 2371 and Jaspal Singh Vs. CIT [158 Taxman 3061 to draw a conclusion against the Appellant With respect to the above Judicial pronouncements referred by the AO in his remand report. the Appellant respectfully submits that the above cases are distinguishable on facts and in law. The Appellant submits that in the above cases the creditworthiness of the donors were In doubt and the donor have specifically denied of having given gifts to the donee. The Appellant therefore submits that in the above cases the questions relates to the genuineness of the gifts received by the donee and the gifts were found to be the non genui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinguishable 1ctor for application of the principal laid down by the Apex Court. 5. The AO further at pare 1.21 has observed that, 'Probably this is the reason/logic, why while framing the above provision, the Legislature have only talked about individual and HUF, which is a possibility as the Legislature never thought that there can be any transaction between two companies, which is not a possibility at all and that too in the garb of so called gift " (Emphasis supplied) Further at Para 1.27 (ii) the AO observed that, "The argument is devoid of any merit because the law makers can make legislation on a probable and plausible transaction, as there cannot be any gift between companies, no legislation was made. The Appellant respectfully submits that the above observations of the AO are erroneous and solely based on suspicion wherein the AO raises doubt on the competence of the legislature. The Appellant respectfully submits that the legislature has made suitable legislations as and when required to give effect to its objective. The Appellant submits that gift by one corporate body to another is not an unknown transaction to the legislature or public at large. The Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s "during life tithe of individual /company etc. 3. Company can receive and make gift is established by the following: a)'Living person "includes company as explained above b)Natural love and affection is not the only factor as per Explanation 1 to Section 25 of the Indian Contract Act, 1872. c)Company was assessee under Gift Tax Act, (now repealed) d). Hon'ble Supreme Court approves the ratio and accounting treatment when Company receives gift in CIT Vs. Groz - beckert Saboo Ltd 1116 ITR 1251 4. The Appellant has received money without consideration and money being movable property the transfer is completed by delivery. 5. Only three essential elements determines whether or not gift has been made viz, a) delivery, b) donatives intent and c) acceptance by donee. In the present case, The Appellant has received the amount through bank i.e. delivery is complete, Donative intent has been expressed by the donors / grantors by giving mandate to Reliance Industries Limited and The Appellant has accepted the gift by deposit in its bank account and accounting the same accordingly. Thus all the three tests are fulfilled. Accordingly gift is valid. 6 Source of the amount recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reply to the above letter of CIT(A) dated 6/12/12, the A.O. forwarded his comments vide letter dated 3/1/03, which are reproduced below: "Sub: Appeal in the case of M/s ICDA Enterprise Pvt. Ltd - assessment year 2009-10 Ref; Appeal No. CIT611-4/IT-27,DC.3(2)/2011-12 - In continuation to this office letter dated 13/12/2012, as directed, kindly find enclosed herewith remand report as under: 1. As per the enclosures attached with your letter dated 06.12.12, five affidavits have been received. The content of these affidavits have been made available to the A. 0. during the course of the assessment proceedings and remand report proceedings, which has been duly analyzed during the respective proceedings. The only difference between the details submitted before the assessing officer and (CIT (A) is that before assessing officer they have been submitted in letter format While before CIT(A), it has been filed in affidavit format in a stamp paper. 2. Now, as far as the issue w.r.t judicial pronouncement of Hon'ble ITAT, Mumbai, in the case of D.P. World Pvt. Ltd. vs. DCIT and Karnataka High Court in the case of CIT vs. nadatur Holding & Investments Pvt. Ltd. is concerned, the ratio lai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee under reference, there is nothing of such sort." Thus the ratio of above judicial; pronouncement can't he applied in the case of assessee under reference. 3. Here it is to he noted when the gift has not been defined in any statue, the normal connotation used in the common life has to be taken. It is beyond comprehension that for any transaction to be of gift" in nature, the basic and foremost condition is that of 'natural love & affection" is absent. In the absence of this particular emotion any transaction without having any corresponding liability will be either charity for the bigger cause or good cause. Thus any receipt which is credited in the books of accounts and which does not have a corresponding liability and natural love & affection can't be a gift. All such receipts have to be compulsorily and mandatorily routed through profit and loss account. As the assessee company under reference has not done so, therefore, it cant evade taxes in the guise of so called gift" receipt. 4. In view of the above analysis, the decisions relied upon by the assessee company are rejected in to-to as the facts and circumstances of said cases is altogether different from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is a gift of shares and therefore it is a capital receipt in the hands of the assessee. 6. 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. 7. Accordingly AO taxed the income under the head 'Income from other sources' u/s 56(7) of the Act. In view of the above facts, with due respect, it is submitted that the AO has proceeded on the basis of incorrect facts as the transaction in the instant case was not between ha/ding and subsidiary company but it was between two fellow subsidiary companies. The AO further proceeded to narrate that the decision is circumscribed within the short perimeter of decision of Gift Tax Act and Section 47(iii) of the IT Act. It is respectfully submitted that application of provisions of Section 476th), if at all, to be seen, it will be in the case of ,141s. British India Steam Navigation Co., the transferor and not in the case of DP World Pvt. Ltd., the transferee. The substantial ground of AO while making addition and considering gift as inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 25000 shares of Infosys Technologies Limited. 2. The Assessee treated those shares as investment and on sale, computed income from Capital Gain. 3.The Assessing Officer by his order dated 24-2-2003 has assessed the same as income from profit and gain of business. 4. While doing so a. the Assessing Authority doubted the * transaction of gift stating that in a transaction of gift, the principal element is natural love and affection to the donee. b. The company is an artificial juridical person, which is identified by the owner's i.e., share holders who are themselves are the Directors of the Company, such love and affection to a artificial, juridical person is imaginary High Court, while dealing with the issue noted the observation of AO which as under: I. The gift is in accordance with law and there is no bar for the Directors gifting their holdings in favour of the Company. 2. The finding of the Assessing Authority that the gift is not genuine is totally contrary to law. After noting the observation of CIT(A), it held that: There is no bar for gifting the equity shares to its company As per the definition of gift, the gift means transfer by one person to another of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder and in remand report, that it is a dubious transaction and such gifts are used as means for bringing the unaccounted money into the books of the assessee by avoiding tax payment and it is further held that the assessee has ulterior motives, whereas, the exact nature or motive behind the transactions are not ascertainable with the limited time and resources available to the A.O. The A.O. has also claimed that the companies are not capable of giving gifts, because there is no love and affection which is required for gift transactions. It is also claimed that the gifts are not evidenced by deeds and they have not been accepted. These issues are discussed as follows: 5.3 The suspicion or the presumption of the AO that the transation of gift is dubious and to bring in books the unaccounted money is contrary to the facts of the case, because in this case, admittedly the gifts have been received on account of the dividend of the donor companies from Reliance Industries Ltd. therefore, the Reliance Industries Ltd. have paid necessary dividend distribution tax on dividend distribution and, therefore, such money received by the assessee is not unaccounted money, whereas, it has been pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and distinctive motive with regard to these transactions and the exact nature and motive is best known to the assessee. But merely blaming the assessee that it is not furnishing the correct motive is putting the cart before the horse. Assessee has claimed clearly and categorically that it has received these amounts as gifts and, therefore, it is for the A.O. to bring on record any other contrary motive and if he fails to do so then there is no alternative but to accept the claim of the assessee that these are gifts. A.O. has stated in the remand report that motive appears to be transfer of money from one company to another without payment of tax, but in case of gifts the asset is naturally transferred from donor to donee and taxes will be levied as applicable and therefore, there is nothing wrong or unusual in the gift transactions of the assessee. Therefore, in view of the facts and circumstances of the case it cannot be said that there is any other motive behind these transactions other than gifts. 5.5 The A.O. has held that these transactions cannot be treated as gifts because there are no gift deeds and because they have not been specifically accepted, whereas, there is no su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m other sources, nor under the head business income u/s. 28(iv) and held that the receipt is a capita]. receipt not taxable. Besides relying on the judgment of Hon'hle ITAT in the case of D.P. World Pvt. Ltd., because the facts of the cases are similar, the ossessee has further claimed that the decision is binding on the CIT(A)4, Mumbai, because it pertain to the same charge of CIT(A)-4, Mumbai. Therefore, the relevant portion of the Hon'hle ITAT on the issue of requirement of natural love and affection and competency of companies to make gift are reproduced below: "8. It is not uncommon 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 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(11.) of the Act relates to transJi of a capital asset under a gift, will or an irrevocable trust. The following issues arise in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration. In other words, there is no requirement in the TPA that a 'gift' can be made only between natural persons out of natural love and affection which means that as long as a donor company is permitted by its Articles of Association to make a 'gift, it can do so. Sec 82 of the Companies Act, 1956 also provide that shares in a company constitute movable property transferable in the manner provided by its Articles of Association. 14. Now the question arises whether the meaning of gift' as per Gift Tax Act could be imported for the purpose of Sec. 4761i) of the Act. In the case of CIT Vs Sliyam NarainMehrotra (1981) 122 ITR 313 (Cal), the High Court inter alia observed that the expressions similar to Sec. 47(i11) 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 Honble 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 Vs Burag-addaSatyanarayan (1977) 106 ITR 3.33 640 and ACIT Vs RangaPai 0975) 100 IT1? 413 (Kar). Although there are other deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature of capital receipt. (iii) Essar Technologies [ITA No 1 79,Mum/20051. The Hon 'Mc Mumbai ITA T has not challenged the validity of one corporate gifting to another. (iv)CIT Vs Ste warts & lloyds of India Ltd. 165 ITR 416 ('Gal): The Hon 'bin High Court has accepted the legality of the corporate gifts. (v) Deere & Co. 64AJ? of2010 dated 27May20]] (vi) Goodyear Tire and Rubber Company 64AR 1006 of 2010) dated 2 May 2011 (vii) Dana Corporation 321 ITR 178 (4AR) (viii) Amiantit International Hondings Ltd. 322 ITR 678 (AAR) (ix)Vodafone Essar (2011 -TII-01 -HC-De-CA) In addition to the above discussion and case laws, it is provided by the provisions of Income-tax Act itself that companies can make and receive gifts. As per section 56(2)(viia) and 56(2)(viib), gift of certain kind f shares received by a company in which the public are not substantially interested are taxable and, therefore, it is clear that the Income-tax Act, itself provides that companies can receive gifts, of course, gifts of only shares of certain kind received by certain category of companies are taxable. (The provisions of section 56(2)(viia) and (viib) are applicable w.e.f. 1/6/10 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the head 'other sources' only because the A.O. has held that these receipts are not gifts because companies cannot accept gifts and there is no love and affection, but it has already been held that these are valid gifts. But it is still relevant to discuss the nature of the gifts. The Rifts received by the assessee are admittedly not arising during the course of business or profession of the assessee. They are not out of any compulsion on the donors. They are not on account of compensation for any source of income or any other transaction. There is no other element of income in the receipts by the assessee from the said four companies. In the case of D.P. World (supra), Hop:hie 'TAT has held that such gifts are capital receipts. It was also held in the case of ACIT vs. Set India Pvt. Ltd. [20101 3 ITR, Trib 454 (Mum), that there was no material for the Department to come to the conclusion, that there had been any element of income in the receipts. In this case, both the donor-shareholder and the assessee-company were engaged in the business of T.V. Marketing. This view is also confirmed by the decision of Hongble Supreme Court in the case of CIT vs. Groz-Beckert Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny form under the Income Tax Act or any other Act. it is only with the amendment of section 56 w.e.f. 1/4/05 by Finance (No.2) Act, 2004, by introducing clause (v) in sub-section 2 of section 56 that receipt of gifts by an individual and HUF became taxable in the hands of the done, whereas, gifts received by any other person remained out of tax net. Whereas, with the introduction of clause (viia) and (viib) in sub-section 2 of section 56 w.e.f. 1/6/2010 and 1/4/2013 respectively, gift of only shares of certain category of companies by certain category of companies have become taxable and any other gift received by any company through any other mode, i.e. cash, cheque, listed shares or other kind of properties, other than the said certain category of shares is not taxable till date, under any provisions of the Income Tax Act. Even the legislative history shows that gifts received by companies other than certain kind of shares by certain category of companies mentioned under section 56(2)(viia) and (viib) are not taxable under Income-tax Act or any other Act. During the period, when Gift Tax Act was in existence, gifts by companies as well as by any other person were taxable under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither taxable u/s. 28(iv) of Income Tax Act nor under the head income from other sources" uls. 56 of Income Tax Act. As discussed and decided above the gifts are in the nature of capital receipts and, therefore, they are not taxable as income unless such gifts are made taxable specifically by way of special provisions, as has been made in case of individual/HUF gifts and certain other gifts u/s. 56(2)(v), (vi). (vii), (viia) and (viib) of I.T. Act. Section 56 is a residuary section which -means that any other income which is not specifically taxable under any other head of income can be brought to tax under the head "income from other sources", u/s. 56 of Income Tax Act. But the necessary condition is that it must be an income before being taxed u/s. 56, whereas, as discussed and decided above, these receipts are gifts which are capital receipt in the hands of the assessee and not an income and, therefore, it cannot he taxed under residuary head of income. U/s. 28(iv) also certain kind of receipts which may appear to be in the nature of gifts have been made taxable, i.e. any benefit or perquisite whether convertible into money or not and arising from business or the exercise of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absence of any specific provision taxing a Gift as a deemed business income, provisions of sec.28[iv] cannot he applied on the facts of the case. The CIT [..4] erred in taxing the value of the stamp duty as income under sec.28Tivi of the Act. 21. Now let us examine the provisions of sec 56 of the Act relied upon by the AO. "56. Income from other sources.--(1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head Income from other sources" if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E." A plain reading of the above provision show that not every receipt is taxable under the head 'Income from other sources but only those which can be shown as 'Income 'can be brought to tax under this head, if it does not fall directly under other heads of income specified in sec. 14 of the Act. The legislature keeping in mind the Tax Planning done by the Tax Payers by resorting to Gifts, which cannot he termed as income, made certain amendments by introducing clause [v] to sec. 56[2] which reads as under : v) where any sum of money exceeding twenty-five ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res cia company not being a company in which the public are substantially interested, - (i) without consideration, the aggregate fair market value of wl;ich exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (i) 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 this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicd) or clause (vid) or clause (vii) of section 47. Explanation. - For the purposes of this clause, "fair market value" of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii); The above amendment covers the issues involved in the present appeal but the legislature in its wisdom made it applicable for the transactions effected after the 1st day of June,2010. Certain lacuna may have still remained to be addressed therefore t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is for the assessee to prove the identi4 of the person from whom the money is received and his capacity/source of payment and the genuineness of the transaction. Therefore, in the case of the assessee also, it is expected from the assessee to prove all the three elements. The identity of the donors and the source/capacity are not in dispute and they have been admitted as explained, as discussed earlier in this order. The assessee has claimed these receipts as gifts and there is no other contrary fact on record, therefore, there can be no other doubt in accepting the genuineness of the transactions also. It has been held in the case of Shankar industries vs. CIT 114 ITR 689 (Cal) that prima-facie, it is for the assessee to prove the identity of the creditor, capacity of the creditor and genuineness of the transaction, whereas, once the assessee. has adduced evidence to establish prima-facie the aforesaid, the onus shifts to the Department and, therefore, it was for the A.O. to lead evidence contrary to the claim of the assessee because the assessee has provided details and evidence with regard to all the three elements. This view is also supported by the decision of Hon'ble M.P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .... ...................... Explanation 3. - For the purposes of this clause, - (a) "Concern" means a Hindu undivided family or a firm or an association of persons or a body of individuals or a company, (b) A person shall be deemed to have a substantial interest in a concern, other than a company. if he is, at any time during the previous, beneficially entitled to not less than twenty percent of the income of such concern. From the above definition and discussion. it is clear that there has to be an advance or loan given by a company to a. substantial shareholder with 10°/s interest or to a concern in which such shareholder is holding not less than 20% of the voting power/shares for taxing such loan u/s. 2(22)(e). Whereas, in the case under consideration, there is no common shareholding between the assessee and the other four companies who have made the gifts. Therefore, no addition can be considered in the case of the assessee u/s. 2(22)(e) of Income-tax Act. By way of giving detail in the remand report of different companies, A.O. has tried to show a certain kind of indirect and invisible control by certain persons. But for making any such payment to be taxable u/s. 2(22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 115JB also holding that it is credit to profit and loss A/c. as an item of exceptional nature, which has been objected by the assessee and the submissions of the assessee on this issue are as follows: "7. The Appellant further submits that as the gift received from corporate bodies are in the nature of capital receipt, the Appellant credited the gift received of Rs. 161,86,77,034/- to capital reserve account instead of crediting to Profit & Loss Account. However the AO in the assessment order observed that the gift received of - Rs. 161,86,77,034/- is required to be credited to Profit & Loss Account in terms of Part II of schedule VI of the companies Act - 1956. The AO therefore added Rs. 161.86,77,034/- to the books profit of the Appellant computed u/s 115JB of the Act The Appellant submits that Part II of schedule VI of the Companies Act sets out requirements as to Profit & Loss Account as per which the Profit & Loss Accounts: a) Shall be so made out as clearly to disclose the result of the working of the company during the period covered by the account: and b) Shall disclose every material feature, including credits or receipts and debits or expense in respect of non - recu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied by the statutory auditors of the company as having been prepared in accordance with the requirements of Parts II and III of Sch VI to the Companies Act?" The Hon '5k Supreme Court in the case of Apollo Tyres(supra) thus observed as under. "The above speech shows that the IT authorities were unable to bring certain companies within the net of income-tax because these companies were adjusting their accounts in such a manner as to attract no tax or very little tax. it is with a view to bring such of these companies within the tax net that s. 115J, was introduced in the IT Act with a deeming provision which makes the company liable to pay tax on at least 30 per cent of its book profits as shown in its own account. For the said purpose, s. 115J makes the income reflected in the companies books of accounts as the deemed income for the purpose of a assessing the tax. If we examine the said provision in the above background, we notice that the use of the words "in accordance with the provisions of Parts If and 111 of Sch. VT to the Companies Act" was made for the limited purpose of empowering the assessing authority to rely upon the authentic statement of accounts of the company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to held that view taken by the Tribunal is correct and the High Court has erred in reversing the said view of the Tribunal. Therefore, we are of the opinion, the AO while computing the inbome under s. 1151 has only the power of examining whether the books of account are Certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The AO thereafter has the limited power of making increases and reductions as provided for in the Explanation to the said section. To put it differently, the AO does not have the jurisdiction to go behind the net profit shown in the P&L a/c except to the extent provided in the Explanation to s.115J. "Based on these observations and findings, the Supreme Court has held that the AO while computing the income under section 115J has only the power to examine whether the books of accounts are certified by the authorities under the Companies Act as having been property maintained in accordance with the Companies Act. The AO therefore has the limited power of making increases and reductions as provided for in the Explanation to the said section. The Appellant further submits that Explanation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts are prepared and certified by the auditors, which in -turn are approved/adopted by the shareholders of the company and are filled before the Registrar of the companies, the Assessing Officer has no powers of disturbing the profits of business as held by the hon'ble Supreme Court in Appollo Tyres Ltd. Vs. CIT (5'upra.). Only power of the Assessing Officer is to make suitable adjustments to the profits of business under the Explanation to section 115 JB of the Act. The said adjustments are relatable to the profits and gains of business carried on by the assessee. Any gain arising on sale of investments, though taxable, may necessarily he not routed through Profit & Loss Account. We uphold the order of CIT(A) that no adjustments on account of gain on sale of nits of mutual fund is to be made while working out the book profits under Section 115JB of the Act. The grounds of appeal raised by the revenue are dismissed." The A in the assessment order relied upon the decision of Honble Hyderabad ITA T Special Bench in the case of Rain Commodities Ltd. Vs. DCIT[40 SOT 265] to drawn conclusion against the Appellant. The Appellant submits that the facts in the case of the Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per the audited accounts of the assessee, the statutory auditors have reported that amongst others, that in their opinion, the P&L a/c and the balance sheet are in compliance with the Accounting Standards referred to in sub s. (3C) of s. 211 of the Companies Act, and further reported that the balance sheet and P&L a/c read together with the notes thereon, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted. As per audited P&L a/c, the assessee has included long-term capital gain. In the Notes on accounts, it is nowhere mentioned and claimed that though the long-term capital gain is included the P&L a/c. but it is not includible in the net profit in terms of provisions of Part II and Part III of Sch. VI to the Companies Act or the accounting principles accepted under the Companies Act. Hence, it is not a case of the assessee that the long-term capital gain was not includible in the P&L a/c prepared in terms of Sch. VT to the Companies Act. Only in the computation of book profit under s. 115111 of the Act, the assessee claimed exclusion of long-term capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act in absence of any such adjustment specifically provided in the section." I have considered the facts of the case and submissions of the assessee. The receipts of gifts have not been credited to profit and loss A/c. by the assessee and, therefore, it can be added to the book-profit only if it is provided by the provisions of section 115JB only as has been held by Honible Supreme Court in the case of Apollo Tyres Ltd. vs. CIT 255 ITR 273 (SC). The receipts totaling to Rs. 161,86,77,034/- are capital receipts as discussed and decided against the earlier grounds of appeal in this order, whereas, there is no requirement of Schedule VI to credit to profit and loss A/c. any capital receipt and, therefore, assessee has rightly taken them directly to the Balance-Sheet. Section 115JB does not prescribe any such item to be added to book-profit while computing the income u/s. 115JB, the items mentioned from (a) to (i) in explanation 1 to subsection 2 of section 115JB do not include any such item by which the book-profit is to be increased. Therefore, it cannot be added to the book-profit u/s. 115JB. Hence, the addition made by the A.O. to the book-profit of Rs. 161,86,77,034/- is deleted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receive donations, gifts or income to or from such persons, institutions or Trusts, whether in cash or any other assets as may be thought to benefit the company or any other object of the company or otherwise expedient and also to renumerate any person or introducing or assessing in any manner the business of the company subject to the applicable provisions of Companies Act 1956". 11. Ld. CIT (DR) vehemently argued that this receipt is not as per the Memorandum of Association as the benefit to the company or any object of the company is not brought out in the resolution of Board. Therefore the facts of instant case are distinguishable from those of M/s DP World. 12. Reliance was placed by CIT(DR) to the decision of AAR dated 14.8.2012 in the case of M/s Orient Green Power Pvt. Ltd., wherein it was observed that in the context of Sec 47 (i) and (iii), the gift referred to is a gift by an individual or a joint Hindu family or a Human Agency. Sec47(iii) speaks of ―any transfer of a capital asset under a gift, or will or an irrecoverable trust. Execution of a will involves a human agency. A gift by a corporation to a corporation (though a subsidiary or an associate enterprise, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation to said section. However, this was in the context when account of assessee company were certified by auditors as having been maintained in accordance with provisions of the Companies Act. This decision was rendered in the context of Sec 115J and not See 115JB. Therefore, reliance on this decision is misplaced. 16. Further reliance was placed on the decision of the Special Bench, ITAT Hyderabad in Rain Commodities Ltd ( 20104 ITR (T) 551 Hyderabad SB) wherein it was held that AO, while computing book profit of a company u/s 115JB , has only power of examining whether books of account are certified by authorities under Companies Act, 1956, as having been properly maintained in accordance with Companies Act and the Assessing Officer can rewrite the P & L Account if it is discovered that P & L Account is not drawn up in accordance with Parts II and Part III of Schedule VI to the Companies Act and if accounting policies, accounting standards are not adopted for preparing such accounts. The inescapable conclusion is that the book profits have to be calculated on the net profits computed as per parts II and III, of Schedule VI to the Companies Act, 1-956 and as adjusted by the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the statutory auditor and also debited by the shareholders in the annual general meeting. As per ld. AR, no adjustment was required to be made to the book profit u/s.115JB on account of gift received by the assessee. He further contended that for a receipt to be taxable under the provisions of Act, it must necessarily be in the nature of an income or its taxability should have been specifically provided by the statute. As per ld. AR gift received by one corporate bodies from another corporate body did not come within the ambit of income as contemplated u/s.2(24) of the Act or any other provisions of the Act. The gift so received were voluntarily payments made by the donor to the assessee. As per ld. AR provisions of section 56(2)(v), (vi), (vii) and (viia) specifically covers the instances of gifts which are taxable under the provisions of the Act; and all other gifts received by an assessee other than those covered in above sections are not chargeable to tax being capital in nature. In this connection ld. AR relied upon the following judicial pronouncements wherein the hon'ble courts have held that gift/ capital receipts without considerations are not in the nature of income an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or evidence contrary to the claim of the assessee even after being allowed further opportunity and time by way of remanding the case to him. Therefore, A.O. could not refute the claim of the assessee on the basis of any contrary fact or evidence. Hence, the claim cannot be rejected merely on the basis of doubt and suspicion. The additions cannot be made or decision cannot be taken on the basis of suspicion, assumptions, surmises, doubts or misconceptions, as has also been held by Hon'ble judicial authorities in many cases, out of which few are as follows:- (i) Omar Salay Mohamed Sait vs. CIT - 37 ITR 151 (SC). (ii) Bhogilal H. Patel vs. CIT - 74 ITR 692 (Bom). (iii) German Remedies Ltd. vs. DCIT - 285 ITR 26 (Bom). (iv) Lalchand Bhagat Ambica Ram vs. CIT - 37 ITR 288 (SC). (v) Dhakeshwari Cotton Mills Ltd. vs. CIT - 26 ITR 775 (SC). (vi) Gordhandas Hargovandas & Anr. vs. CIT - 126 ITR 560 (Bom). (vii) ITO vs. W.D. Estate Pvt. Ltd. - 45 ITD 473 (Bombay `E' Bench) (viii) Bhilai Motors vs. CIT - 167 ITR 147 (MP). (ix) N.V. Philips Gloeilempenfabriekem vs. CIT - 172 ITR 541 (Kol). 21. Our attention was invited to the decision of Hon'ble Supreme Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S to the assesse was remuneration for services rendered or to be rendered; and that what the assesse received was not assessable to tax." 22. Ld. AR further submitted that as per section 56(2)(viia) and 56(2)(viib), gift of certain kind of shares received by a company in which the public are not substantially interested are taxable and, therefore, it is clear that the Income-tax Act, itself provides that companies can receive gifts, of course, gifts of only shares of certain kind received by certain category of companies are taxable. (The provisions of section 56(2)(viia) and (viib) are applicable w.e.f. 1/6/10 and 1/4/13 respectively). Similarly section 80G allows deduction to companies also on the donations received by the companies. Therefore, it cannot be said that the assessee could not have received such gifts from other companies. It is clear from the Gift Tax Act, 1958, now repealed that gifts were taxable in the hands of the companies also. It is also clear from the Transfer of Property Act that companies can receive and make gifts as submitted by the assessee and discussed above and there is no requirement of any natural love and affection for making or receiving a gift ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The gift received from corporate bodies are in the nature of capital receipt and hence rightly credited to capital reserve account which is in accordance with Part II and III of Schedule VI of the Companies Act - 1956. The Balance sheet and Profit & Loss Account of assessee are audited and approved by the Statutory Auditor. The same were adopted by the shareholders in Annual general meeting and filed with the Registrar of Companies. After such approval and adoption of the Balance Sheet, the AO is not the authority to correct the accounts under the Companies Act. In view of above the Assessing officer has no power to disturb the Profit & Loss Account while applying the provisions of section 115JB of the Act, except as provided under the explanation 1 to section 115JB of the Act. In this connection for the proposition regarding the power of the assessing officer to recast the accounts, the reliance was placed upon the judgment of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. Vs. CIT (255 ITR 273). In this case, the Supreme Court has observed that while looking into accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, we find it difficult to accept the argument of the Revenue that it is still open to the AO to re scrutinize this account and satisfy himself that these accounts have been maintained in accordance with the provisions of Companies Act. In our opinion, reliance placed by the Revenue on sub-s. (IA) of s. 115J of the IT Act in support of the above contention is misplaced. Sub-s. (IA) of s. 115J does not empower the AO to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate, according to us, is bodily lifted from the Companies Act into the IT Act for the limited purpose of making the said account so maintained as a basis for computing the company's income for levy of income-tax. Beyond that, we do not think that the said sub-section empowers. the authority under the IT Act to prob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts on account of gain on sale of units of mutual fund is to be made while working out the book profits under Section 115JB of the Act. The grounds of appeal raised by the revenue are dismissed." 26. Ld. AR finally relied on the detailed findings recorded by CIT(A) after considering the remand report and the rejoinder filed by the AO and assessee respectively and contended that order of the CIT(A) should be upheld. 27. We have considered rival contentions, carefully gone through the orders of the authorities below and material placed on record. We have also considered the remand report sent by the AO as well as the rejoinder filed by the assessee. We have also deliberated the judicial pronouncements referred by the lower authorities in their respective orders as well as cited by ld. AR and DR during the course of hearing before us with reference to the factual matrix of the instant case. From the record we found that assessee is a private limited company engaged in the business of investment. The return for the year under consideration was filed at Rs. 16.60 crores under normal provisions of Act and book profit of Rs. 48.41 crores under section 115JB of the Act. During the year un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to above, the donor company vide its letter dt.19.06.2006 had given irrevocable instruction u/s 205 r.w.s. 206 of the Companies Act to Reliance Industries to pay dividend directly to the Appellant. The corresponding resolution was also passed by the Appellant at the Board Meeting held on 12.06.2008 accepting the gift. The extract of the resolution passed by the Appellant is as follow: "Resolved That the company do accept gift amounting to Rs. 44,50,38,399/- from Madhuban Merchandise Private Limited, the Transferor Company. Resolved Further That the Company do receive delivery of the same from the Transferor Company for completing the gift. Resolved Further That Smt. KD Ambani and Shri D.N Chaturvedi, Directors of the company, be end are hereby severally authorized to do, perform and execute all acts, deeds, matters and things as may be necessary, proper or expedient to give effect to this resolution and for matters connected herewith and incidental hereto." Similar resolutions were also passed by the other four companies in their respective extra ordinary general meetings. Thus, the assessee received gift of Rs. 161.86 crores from the above four companies. The gift so received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditions income - tax of, this Act in respect of the total income of the previous year of every person ; Provided that where by virtue of any provisions of this Act income - tax is to be charged in respect of the income of a period other than the previous year, income - tax shall be charged accordingly."(Emphasis Supplied) Thus as per section 4 of the Act income tax shall be charged in respect of total income of an assessee. The Act defines the term ‗total income' under section 2(45) which reads as under: "2(45) ―total income"means the total amount of income referred to in section 5, computed in the manner laid down in this Act;"(Emphasis Supplied) Section 5 of the Act provides for scope of total income chargeable to tax in India on the basis of receipt, accrual and deemed to be received and accrued in India. In view of above the charging section of the Act specifically provides for taxation of ‗income' of an assessee. For a receipt to be taxable under the provisions of the Act it must necessarily be in the nature of an income or its taxability should have been specifically provided by the statute. Section 2(24) of the Act defines 'income'. The definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der any head of income are subjected to tax under the residuary head of income i.e. income from other sources. However again what is subjected to tax under the provisions of section 56 is income of revenue nature. The gift was always treated as non taxable capital receipt in the hands of the recipient till 31.03.2005. Thereafter the legislature vide Finance (No.2) Act, 2004 w.e.f. 1.04.2005 inserted clause (v) to sub section (2) of section 56 of the Act so as to include any sum of money received without consideration from any person, other than exception provided in that section, by an individual or Hindu Undivided Family was made subjected to tax. The scope of the said section was further narrowed down by raising the limit of receipt from Rs. 25,000/- to Rs. 50,000/- with effect from 1.04.2006. The said section was amended from time to time by amending the limit of receipts and nature of transaction but the applicability of the said section was restricted only to an individual or Hindu Undivided Family. Thus when the legislature intended for bringing to tax net the gift received by an assessee it has specifically provided so by enacting the law. As per section 56(2)(v) the gifts r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, there is no dispute as far as the identity and capacity/source of gifts are concerned. 34. Now coming to the contention of AO with regard to the genuineness of the transaction, the A.O. has observed in the assessment order and in remand report, that it is a dubious transaction and such gifts are used as means for bringing the unaccounted money into the books of the assessee by avoiding tax payment and it is further held that the assessee has ulterior motives, whereas, the exact nature or motive behind the transactions are not ascertainable with the limited time and resources available to the A.O. The A.O. has also observed that the companies are not capable of giving gifts, because there is no love and affection which is required for gift transactions. It was also claimed by AO that the gifts are not evidenced by deeds and they have not been accepted. 35. We found that suspicion of AO that the transaction of gift is dubious and to bring into books any unaccounted money is contrary to the facts on record. Insofar as admittedly the gifts have been received on account of dividend by the donor companies from the Reliance Industries Limited. The Reliance Industries Ltd. have als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision, the source of the receipt is disclosed by the assessee and there is no dispute about the truth of that disclosure, the income tax authorities are not entitled to raise an inference that the receipt is assessable to income tax on the ground that the assesse has failed to lead all the evidence in support of his contention that it is not within the taxing provision. Govindarajulu Mudaliar v. Commissioner of Income Tax [ 1958 ] 34 ITR 807 (S.C.) distinguished. Commissioner of Income Tax v. Calcutta Agency Ltd. [ 1951 ] 19 ITR 191 (S.C.) referred to. A conclusion recorded by the Tribunal by wrongly throwing the burden of proof upon the assesse cannot be regarded as binding upon the High Court in a reference under section 66 of the Income tax Act. The assesse explained that the jewellery and amounts of money received by her in the relevant years were gifts made by S. the Maharani of Baroda. Relying on the following pieces of evidence, viz. (i) her admission that she acted as the local agent of S for disbursing salaries to the servants of S, and (ii) that in a bill issued by a garage the assesse was described as the private secretary of S, and observing that she had failed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the concerned housing society to another company and both the companies were subsidiary of a third company, whereas, there was no business transaction between the donor and donee companies. The A.O. rejected the claim of gift and assessed the value of such flats as declared in Wealth Tax return by the Respondent company, under the head 'income from other sources'. Whereas, CIT(A) found that it is not taxable under the head income from other sources, but held it taxable under the head business income u/s. 28(iv) of I.T. Act, at the amount at which stamp duty has been paid. However, the ITAT held that the companies are competent to make gifts and further held that the gifts made of the three flats is neither taxable under the head income from other sources, nor under the head business income u/s. 28(iv) and held that the receipt is a capital receipt not taxable. Besides relying on the judgment of ITAT in the case of D.P. World Pvt. Ltd., the assessee also relied upon the judgement of ITAT Chennai in the case of Redington (India) Limited, ITA No. 513/Mds/2014. The relevant portion of the ITAT order on the issue of requirement of natural love and affection and competency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or not but nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by companies, associations or bodies of individuals. 12. Section 122 of the TPA , dealing with gift , defines the same as transfer of certain existing movable or immovable property , made voluntarily and without consideration, by one person, called the donor , to another called the donee and accepted by or on behalf of the donee. 13. A perusal of the aforesaid provisions of the TPA indicate that there do not seem to be any restriction on the corporate transfer of shares by way of gift provided it is made voluntarily and without consideration. In other wards, there is no requirement in the TPA that a 'gift' can be made only between natural persons out of natural love and affection which means that as long as a donor company is permitted by its Articles of Association to make a 'gift; it can do so. Sec 82 of the Companies Act, 1956 also provide that shares in a company constitute movable property transferable in the manner provided by its Articles of Association. 14. Now the question arises whether the meaning of 'gift' as per Gift Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tively by their Memorandum and Articles of Association. The position regarding the competency of corporate entities to make and receive gifts has also been upheld in the following cases, : 1. CIT vs Groz-Beckert Saboo Ltd [116 ITR 125J. In this case, the appellant, a company, received capital asset as gift from one of its collaborator. In propounding its decision the Hon'ble Supreme Court did not question the validity of a corporate giving or receiving gifts. 2. M/s. SET India Private Limited 3 ITR 454 (Mum) (Trib): In the said case, the SET (supra) had received gift from its parents company, the said gift has been held to be non -taxable as it was in the nature of capital receipt. 3. Essar Technologies [ITA No 179/Mum/2005: The Hon'ble Mumbai ITAT has not challenged the validity of one corporate gifting to another. 4. CIT Vs. Stewarts & Lloyds of India Ltd. 165 ITR 416 (Cal): The Hon'ble High Court has accepted the legality of the corporate gifts. 5. Deere & Co. AAR of 2010 dated 27 May 2011 6. Goodyear Tire and Rubber Company AAR 1006 of 2010) dated 2 May 2011. 7. Dana Corporation 321 ITR 178 (AAR) 8. Amiantit International Hondings Ltd. 322 ITR 678 (AAR) 9. Voda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oluntary and gratuitous payments, which are connected with the office, profession, vocation or occupation may constitute "income" although if the payments were not made the enforcement thereof cannot be insisted upon. These payments constitute "income" because they are referable to a definite source, which is the office, profession, vocation or occupation. It could, therefore, be said that such a voluntary payment is taxable as having an origin in the office, profession or vocation of the payee, which constitutes a definite source for the income. What is taxed under the India IT Act is income from every source (barring the exceptions provided in the Act itself) and even a voluntary payment, which can be regarded as having an origin, which a practical man can regard as a real source of income, will fall in the category of income; which is taxable under the Act. !¥here, however, a voluntary payment is made entirely without consideration and is not traceable to any source, which a practical man may regard as real source of his income, but depends entirely on the whim of the donor, cannot fall in the category of "income". What we have to see, therefore, in the present case, is whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, considering the use of the word "include" in section 2(24), the word "income" shall be construed as comprehending not only those which section 2(24) declares that they shall include but also such a thing as it signifies according to its natural import. Since section 2(24) has not declared that grants-in-aid shall include, the word ''revenue'' it shall be construed as comprehending what it signifies according to its natural import. In relation to a business undertaking, the word ''revenue'' connotes incomings of the undertaking which are products of the normal working of the undertaking. The giving of financial aid or subsidy is at the discretion of the Government. Therefore, the grants-in-aid received by the assessee, a producer of films, from the Government is a financial aid or subsidy given by the Government with a view to encourage the film industry and is not a product of the normal business activities and such grant-in-aid is not a revenue receipt liable to be included in the total income of the assessee. 4) Padmaraje R. Kadambande Vs. CIT [195 ITR 877](Supreme Court}: "Held, reversing the decision of the High Court, that the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee for the labour and/or skill bestowed, and/or capital invested by him,' coming in from a definite source, which need not be a legal source, in the sense that the failure to pay the same need not be enforceable in a court of law: and excluding a receipt "in the nature of" a mere windfall, which would mean a windfall in regard to its very nature and not in regard to its extent or quantum. When talking of a windfall receipt in connection with the consideration of the question whether such receipt would be income or not, one has to restrict the concept of such a windfall to a case where the unexpectedness of the advantage pertains to the factum of receipt and not to the quantum of receipt. What we are considering as "windfall" is some unexpected receipt not in the contemplation of" the assessee and not directly attributable to or occurring by way of its business profits. On the other hand, where there was clear expectation, though small, of receiving such advantage or profit, then it cannot be properly regarded as windfall merely because the advantage of receipt is much more than could have been reasonably anticipated." 43. In the case of CIT Vs. Groz- Beckert Saboo L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a living person conveys property, in present or ill future, to one or more other living person or to himself and one or more other living persons; and "to transfer property" is to perform such act. In this section "living person" includes a company or association or body of individuals, whether incorporated or not, but nothing herein contained shall affect any law for the time being in force relating to transfer of property to or by companies, associations or bodies of individuals ." 46. Section 122 of the Transfer of Property Act provides for making of a gift and permits transfer of moveable or immovable property but without any consideration. The shares or interest in a company is a moveable asset as per the Companies Act. Further as per section 5 of the Transfer of Property Act, a company is a living person, competent to transfer a property 88 per the Act and therefore the Transfer of Property Act permits a limited company to be a donor. 47. Now, coming to the observation of the AO to the effect that a company being an artificial person cannot not make gift. Even the taxing statue has recognized that the gift can be given by a company. In this connection the relevant provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvations of the AO in assessment order are erroneous and without any authority of law. 49. Three elements are essential in determining whether or not a gift has been made, a) delivery. b) donative intent,' and c) acceptance by the donee. All the above essentials stated by the AO are duly been fulfilled by the assessee and all the four donor of gifts. With respect to delivery of gift, the dividend has actually been received by the assessee in its bank account which conclusively prove the delivery of the gift from donor to donee. With respect to intent of donor, all four donors have passed a resolution in the meeting of shareholders and board of Directors that they intend to transfer the dividend on shares of Reliance Industries held by them to the assessee donee as gift. Thus, the donative intent to transfer the dividend as gift is clear from the resolution passed by the donors. With respect to acceptance by the donee, the assessee has duly passed a resolution in the meeting of shareholder and board of directors duly conveying their acceptance of the gift. Thus all the essential requisites of gifts stated by the AO in assessment order have been duly fulfilled by the assessee an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, because it may not be taxable under any other head of the income. The A.O. has assessed it under the head "income from other sources" holding that assessee has failed to prove that the amount received is exempt from taxation. Though no specific reason has been given by the A.O. for assessing it under the head income from other sources, but it is clear from the discussion and decision of the A.O. that it has been assessed under the head "income from other sources" because it was found not taxable under any other head of income, therefore, assessed under the residuary head of income, "income from other sources." 56. It is only with the amendment of section 56 w.e.f. 1/4/05 by Finance (No.2) Act, 2004, by introducing clause (v) in sub-section 2 of section 56 that receipt of gifts by an individual and HUF became taxable in the hands of the donee, whereas, gifts received by any other person remained out of tax net. Whereas, with the introduction of clause (viia) and (viib) in sub-section 2 of section 56 w.e.f. 1/6/2010 and 1/4/2013 respectively, gift of only shares of certain category of companies by certain category of companies have become taxable and any other gift received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below :- "19. The AO has applied the provisions of Sec. 56 and treated the value of the flats as income under the head 'Income from other sources' and the Ld. CIT(A) has made the addition u/s. 28(iv) of the Act by treating the Stamp Duty value as income from profit and gains from business and profession. 20. We have carefully considered both the provisions. Let us first examine the provisions of sec.28(iv) of the Act relied upon by the CIT(A). "28. Profits and gains of business 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty value of such property; ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration ; (c) any property, other than immovable property, -- i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; ii) (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 section. Even this a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purposes of this clause, (a) the fair market value of the shares shall be the value (i) as may be determined in accordance with such method as may be prescribed ; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of 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 (i) & [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. " 58. Now, we examine taxability of gift u/s.68 of the IT Act. Section 68 deals exclusively with the subject o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a body of individuals or a company; b) A person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the previous, beneficially entitled to not less than twenty per cent of the income of such concern." 60. It is clear that there has to be an advance or loan given by a company to a substantial shareholder with 10% interest or to a concern in which such shareholder is holding not less than 20% of the voting power/shares for taxing such loan u/s. 2(22)(e). Whereas, in the case under consideration, there is no common shareholding between the assessee and the other four companies who have made the gifts. Therefore, no addition can be considered in the case of the assessee u/s. 2(22)(e) of Income-tax Act. 61. The AO has also added the amount of gift received while computing book profit u/s.115JB by holding that it should be credited to the profit and loss account as an item of exception nature. As per our considered view there is no merit in AO's contention. The Supreme Court in the case of Appollo Tyres (supra) has observed that while looking into accounts of the company, the Assessing Officer has to accept the authenticity o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, we find it difficult to accept the argument of the Revenue that it is still open to the AO to re scrutinize this account and satisfy himself that these accounts have been maintained in accordance with the provisions of Companies Act. In our opinion, reliance placed by the Revenue on sub-s. (IA) of s. 115J of the IT Act in support of the above contention is misplaced. Sub-s. (IA) of s. 115J does not empower the AO to embark upon a fresh inquiry in regard to the entries made in the books of account of the company. The said sub-section, as a matter of fact, mandates the company to maintain its account in accordance with the requirements of the Companies Act which mandate, according to us, is bodily lifted from the Companies Act into the IT Act for the limited purpose of making the said account so maintained as a basis for computing the company's income for levy of income-tax. Beyond that, we do not think that the said sub-section empowers. the authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment is required to the book profit declared by the assessee u/s 115JB of the Act. 64. Similar issue has come up before the jurisdiction Honble Bombay high Court in the case of CIT Vs. M/s Akshay textiles & Agencies Pvt. Ltd (304 ITR 401] wherein the hon'ble Bombay High Court has held as under: "C. Whether on the facts and in the circumstances of the case and in law, the Hon'ble Tribunal was correct in upholding the order of the CIT(A) in holding that the capital gains of Rs. 19,74,489 are not to be taken into account while computing the profits liable to be taxed under s. 115JA of the IT Act, 1961 and that the decision of the Bombay High Court in CIT vs. Veekaylal Investment Co. (P) Ltd. (2001) 166 ITR (Bom) 96 : (2001) 249 ITR 597 (Bom) was not applicable ? " 2. Insofar as question "C", our attention is invited to the judgment of the Supreme Court in Apollo Tyres Ltd. vs. CIT (2002) 174 CTR (SC) 521 : (2002) 255 ITR 273 (SC). The question framed therein which is similar to the question "C" has been answered in favour of the assessee and against the Revenue. In the light of that the question of law as framed would not arise." 65. Similarly, Honble Bombay High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he statutory auditors have reported that amongst others, that in their opinion, the P&L a/c and the balance sheet are in compliance with the Accounting Standards referred to in subs. (3C) of s. 211 of the Companies Act, and further reported that the balance sheet and P&L a/c read together with the notes thereon, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted. As per audited P&L a/c, the assessee has included long-term capital gain. In the Notes on accounts, it is nowhere mentioned and claimed that though the long-term capital gain is included in the P&L a/c but it is not includible in the net profit in terms of provisions of Part II and Part III of Sch. VI to the Companies Act or the accounting principles accepted under the Companies Act. Hence, it is not a case of the assessee that the long-term capital gain was not includible in the P&L a/c prepared in terms of Sch. VI to the Companies Act. Only in the computation of book profit under s. 115JB of the Acts the assessee claimed exclusion of long-term capital gain which is exempt under s. 47(iv) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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