9911796707
TMI Blog2015 (4) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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? Held that:- The companies are competent to make and receive gifts and natural love and affection are not the necessary requirements. The only requirement for a gift by a corporate entity to another corporate entity is that they are authorized to do so by their Memorandum and Articles of Association. As mentioned earlier the assessee and the donor companies are authorized in this regard for receiving and making gifts respectively 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, on which assessee has relied during appellate proceedings: (i) CIT vs Groz-Beckert Saboo Ltd [1978 (11) TMI 2 - SUPREME Court]. All the donor companies and the assessee are authorized by their Memorandum and Articles of Association for giving and receiving gifts. Proper resolution in the Board Meeting have been passed by all the four companies for making the gift to the assessee and assessee, ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e gift of ₹ 161,86,77,034/- received by the assessee from corporate bodies are in the nature of capital receipt not liable to tax under the provisions of the Income Tax Act. Applicability of Section 82 of the Companies Act - Held that:- There in no impediment for assessee or donor companies under the Companies Act to make / receive dividend as gift. - 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. Whether Artificial company can make gifts - Held that:- 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of book-profit u/s. 115JB - Held that:- A.O. has made addition of the gifts received by the assessee to the income of the assessee, while computing the income u/s. 115JB also holding that it is credit to profit and loss A/c. as an item of exceptional nature - Held that:- The receipts totaling to ₹ 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 ₹ 161,86,77,034/- is deleted. The amount of gift so received is neither taxable as income from other sources u/s. 56 nor as capital gain nor as income u/s.2(22)(e) nor u/s.115JB of the I.T.Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in nature, which is not specifically exempt under the statute, shall fall within the ambit of definition of income as stipulated by law under section 2(24) of the I.T. Act 1961. 7. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A)was justified in holding that provisions of Section 56(2) empower the assessee to receive so called corporate gift without paying any tax on it, without appreciating the fact that sec. 56(2) is exemplary and specific, which does not redundant the generality of the provisions of Section 56(1). 8. Whether on the facts and circumstances of the case and in law, the Ld. CIT (A)was justified in deleting an addition of ₹ 161,86,77,034/-, without appreciating the fact that if such interpretation was to be accepted, it will legalise the transfer of funds from one corporate to another without any consideration and without payment of any taxes by the recipient, which will be against the scheme laid out by legislature u/s 2(24) r.w sec. 56(1) of the I. T. Act 1961. 9. Without prejudice to the above, if at any stage it is held that above receipts of ₹ 161,86,77,034/- were not to be taxable u/s 56(1) of the I.T A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 concerns that their dividend were directly credited to the bank account of the assessee. The assessee also claimed that all the four concerns have passed resolutions in the meeting of Board of Directors for making the said gifts and similarly the assessee company has also passed a resolution by the board of directors for receiving the gifts. It is also claimed that all the four donor concerns are also authorized by Memorandum and Articles of Association for making such gifts and the assessee company is authorized for receiving such gifts. Accordingly, the assessee claimed that all the four donor concerns are also authorized by Memorandum and Articles of Association for making such gifts and the assessee company is also authorized for receiving such gifts. Accordingly, the assessee claimed that the identity of the donor comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 by their respective Memorandum and Articles of Associations.' The Memorandum of Associations of the Appellant and all the above tour companies provides for the receiving/giving of gift respectively. The Clause 30 of Memorandum of Associations of the Appellant provided as follows: To make and/or 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 remunerate any person or corporation introducing or assisting, in any manner the business of the company subject to the applicable provisions of Companies Act, 1956. Similarly clause 21 of Memorandum of Associations of M/s. Madhuban Merchandise Private Limited (on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 raised the query with respect to gift received by the Appellant from corporate bodies, their treatment in books of accounts of the Appellant and its taxability. In response the Appellant filed all the relevant details before the AO during assessment proceeding. The Appellant submitted that all the donor companies are shareholders of Reliance Industries Limited and receives dividend income from Reliance Industries. The donor companies had given irrevocable instructions to Reliance Industries to pay dividend directly to Appellant. The receipt of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - 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 1.11 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty': '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: hence the gift can also not be considered as the income from business of the Appellant. The Appellant further submits that as the gift has no relation to any capital asset, the same can also not be considered as capital gain for the Appellant. With respect to income from other source, the Appellant submits that income of every kind which is not chargeable to tax under any head of income are subjected to tax under the residuary head of income j.e. income from other sources. However again what is subjected to tax under the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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. It is not necessary that in order that the payments may constitute income'; they must proceed from a legal source: in that if the payments are not made the enforcement of the payments could be sought by the payee in a Court of law. It does not, however, mean that every voluntary payment will constitute income . Thus, voluntary 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 5,00,000 was not a revenue receipt and could not be assessed fur taxation. 3) Lachit Films Vs. CIT [195 ITR 402]Gauhati): In section 2(24) of the Income-tax Act, 1961, it is declared that income includes such and such which are enumerated therein. In section 2(24), grant-in-aid has not been included as an income or revenue receipt. 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the donee. Before a partlcular, amount can be characterised as an income, there should be its define source which should be an identifiable one may be an individual or an institution, or a body of people or any other source. 6) Mehboob Productions Private Ltd. Vs. CIT [106 ITR 758{Bombay}: Income is a monetary return expected by 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 sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 property, transferable in the manner provided by the article of the company. The Appellant submits that as submitted hereinabove in earlier paras of our submission the Memorandum and Article of Associations of both the appellant donee and all the four donor companies contains provisions to receive/ make gifts respectively. Hence there in no impediment for Appellant done inn or donor companies under the Companies Act to make / receive dividend as gift. Now coming to the term &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rily 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 Gift Tax Act, 1958 (now repealed) provided as under: a) Section 2(iii) of the Gift Tax Act, 1958 defines ― (iii) assessee means a person by whom gift-tax or any other sum of money is payable under this Act, and includes- (a) every person in respect of whom any proceeding under this Act has been taken for the determination of gift-tax payable by him or by any other person or the amount of refund due to him or such other person; (b) every person who i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 receipt ill the nature of revenue receipt liable for tax under the Act. In this connection the Appellant rely upon the Judgment in the case of Income Tax Officer Vs. Komal Kumar Bader [33 SOT 58](Jaipur) wherein the Hon'ble ITAT has held as under: Only an Income can be taxed under IT Act and income is defined under s. 2(24). An asset cannot be termed as any sum as used in various sub-cls. of s. 2(24) or an 'income' and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is that the transaction is without any consideration and out J}f natural love and affection, as held in various judicial pronouncements. Since company is an artificial judicial person, so there cannot be any natural love affection by a company or between the companies. Hence, a transaction of gift cannot be said to be valid or legally tenable between companies or where one of the parties is a company. Page 8, para 6.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore 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 without consideration is void except for an agreement In writing, registered under the provisions of Registration Act. The Appellant however submits that the AO has failed to take cognizance of the explanation to section 25 of the Contract Act. The Appellant submits that legislature has appended Explanation 1 to section 25 of the Contract: Act which reads as under: Explanation 1.- Nothing in this section shall affec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 dictionary, ignoring the provisions of the Act like Transfer of Property Act, Contract Act, Gift Tax Act (even though repealed). The Appellant submits that the dictionary meaning of a provision cannot be a sole basis for converting a capital receipt into a revenue receipt liable to tax. 6. The AO in. the assessment order has relied upon various judgments to tax the gift received of ₹ 161,86,77,034/- the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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, the amount has been remitted to the assessee company without any consideration, but it is not possible. No one parts with even a penny without any consideration. And in the instant case, the sum is huge by any account. So there has to be a consideration underlined which is not readily visible. It may be mentioned here that due to web of cross holdings amongst the companies c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments 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 profession and as between the honest taxpayers and the dishonest evader. (emphasis supplied With a purpose) . From the observations made by the Finance Minister regarding the evil of tax evasion in his statement in Parliament on the economic situation, on 16-12-1963. 1.1 In this background, the issues raised by the assessee, vide its submission ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24) and 56(2)(v).(vu, (vii) of the I T Act. 1961, which are 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)' Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly a assertion, which for the sake of totality has to be supported by 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a contract without consideration is void ab initio, except for all 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 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (no.2) Act, 2004 w.e.f 01.04.2005 inserted clause (v) to sub-section (2) of section 56 ..' 1.21 In 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an not be applied in the case of assessee under reference. 2 CIT vs. Pran Jiban Jaitha 52 ITR 108 Section 28(i) of the Income-tax Act, 196] [Corresponding to section 10(1) of the Indian Income-tax Act, 19221 -- Business income - 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 ₹ 5 Jakhs to assessee for loss of assets I and brokerage in Burma due to enemy action - ITO held that ₹ 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of the Bombay merged Territories Miscellaneous Alienations Abolition Act, 1955, which was passed to abolish miscellaneous alienations of various kinds prevailing in the merged territories in Bombay. Under sub-section (1)(d) of section 15 of the said Act it was provided that a cash allowance could be paid as a compassionate payment notwithstanding the abolition of all alienations under section 4. The assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otees or pilgrims were made by thorn at the spur of moment when they visited there. There was no prior determination. The offerings were voluntary in the shape of gifts and could not be attributed to any activity on the part of the assessee. Hence, none of the ingredients of the income existed in the instant case and therefore, the amount or offerings received by the descendants of R at R's Samadhi could not be regarded as income from any source assessable in the hands of the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and manufacture of hosiery needles, and received from them consignment of machinery and along with that, certain goods free of cost, these goods consisted partly of raw materials and partly of semi-furnished needles. These goods were brought into books by making debit and credit entries under 'Wire strip Gift A/c and 'Semi-Processed needles Gift A/c. The assessee utilized these goods in the manufacture of finished products and sold the same in the market and the sale proceeds received by the assessee were credited in the trading account maintained in the books of account of the 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as on today's time, Thereafter sea changes have taken place in these type of legal issues and 111 between there exist no case law where assessee has taken such type of' benefits, In addition to that this is an obsolete case law, which has no relevance to the fact of present case and the assessee has unfruitfully labored to compare the cited case law with his present case, Further the ratio of the cited case law is different from that of assessee under reference, A comparative analysis of the same is as under: a, Groz-beckert Saboo Ltd. received some raw material from collaborating 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow, as far as the issue raised by the assessee vide its submission (under Ii pro visions of section 56 (2), the gift received by the company does not find any place and the assessee claims that impugned sum is not taxable since it is a gift and it does not fall in any of the provision of section 56 (2) dealing with the taxability of gifts,), that there are 110 provisions in the income tax act, which prohibits that a company cannot receive gift or advance gift, is concerned, it is to be noted that (i) The provisions of section 56 (2) are only a few specific instances transactions that are 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Punjab Haryana High Court etc., have held that a gift is something which is given out of natural love and affection. The above judicial pronouncements are as under: Section 69A of the Income-tax Act, 1961 - Unexplained moneys - Assessment year 2003-04 - Assessing Officer made addition to declared income of assessee by treating alleged gifts to be assessee's income from undisclosed sources - On appeal. Commissioner (Appeals) and Tribunal affirmed order of Assessing Officer by recording finding of fact that there was no relationship between donors and assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gift by the donee/recipient. Further, in the case of the assessee company, such alleged gift: transactions have also been noted in other years as well. 1.33 At this juncture, it would he relevant to mention that any credit which is found to be credited in the books of accounts and which does not have any corresponding liability has to he either assessed under section 56 or under section 68 of the I. T Act, 1961. In the case of assessee under reference, the undersigned is of considered opinion that the same should be taxed under section 56. The undersigned is in complete agreement with my predecessor. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. CAPABLE COMMERCIALS PRIVATE LIMITED 2. JOGIYA TRADERS PRIVATE LIMITED 124000 3. KUNDRAT INVESTMENT LEASING (INDIA)(P) LTD. 124000 4. LAZOR DETERGENTS PRIVATE LIMITED 124000 5. ORNATE TRADERS PRIVATE LIMITED 124000 6. PURURAVA TRADERS PRIVATE LIMITED 123000 7. RASHI TRADING COMPANY PRIVATE LIMITED 124000 8. SAUMYA FINACE AND LEASING COMPANY PRIVATE LIMITED 133000 TOTAL: 1000000 ORNATE TRADERS PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of ₹ 10 each 1. AMUR TRADING PRIVATE LIMITED 1523952 2. LAZOR DETERGENTS P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JOGIYA TRADERS PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of ₹ 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 8. UNICOME TRADING ENTERPRISES PVT. LTD. 1299600 TOTAL: 7858400 KUDRAT INVESTMENT AND LEASING (INDIA) PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. LAZOR DETERGENTS PRIVATE LIMITED 487350 4. MADHUBAN MERCHNDISE PVT. LIMITED 487350 5. ORNATE TRADERS PRIVATE LIMITED 405000 6. TRESTA TRADING PRIVATE LIMITED 487350 TOTAL: 2565000 SILKINA TRADING PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of ₹ 10 each 1. AMUR TRADING PRIVATE LIMITED 1156720 2. KUDRAT INVESTMENT AND LEASING (INDIA) P.LTD. 1824000 3. LAZOR DETERGENTS PRIVATE LIMITED 1156720 4. MADHUBAN MERCHNDISE PVT. LIMITED 696000 5. SAUMYA FINANCE AND LEASING CO.(P.) LTD. 440000 6. TRESTA TRADING ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MITED 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 CO. P. LIMITED 1151000 8. TRESTA TRADING PRIVATE LIMITED 369450 9. UNICOM TRADING ENTERPRISES PRIVATE LIMITED 1151000 TOTAL: 7095000 SAUMYA FINACE LEASING CO. P. LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of ₹ 10 each 1. AMUR TRADING PRIVATE LIMITED 6429923 2. CAPABLE COMMERCIALS PRIVATE LIMITED 5427000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RADING PRIVATE LIMITED 5165486 2. KUDRAT INVESTMENT LEASING (INDIA) P. LTD 5890000 3. LAZOR DETERGENTS PRIVATE LIMITED 6282144 4. MADHUBAN MERCHNDISE PVT. LIMITED 6282144 5. SAUMYA FINANCE LEASING CO. PVT.LTD. 6282144 6. TRESTA TRADING PRIVATE LIMITED 3162000 TOTAL: 33063918 RHINO BAGS PRIVATE LIMITED EQUITY SHAREHOLDING AS ON 13/6/2008 S.No. Name of Shareholder No. of share of ₹ 10 each 1. AMUR TRADING PRIVATE LIMITED 12000 2. ANUCHIT TRADERS PVT. LTD. 18000 3. LAZOR DETERGENTS PRIVATE LIMITED 19000 4. MADHUBAN MERCHNDISE PVT. LIMITED 19000 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ON 13/6/2008 S.No. Name of Shareholder No. of share of ₹ 10 each 1. AMUR TRADING PRIVATE LIMITED 1062400 2. LAZOR DETERGENTS PRIVATE LIMITED 1065216 3. MADHUBAN MERCHNDISE PVT. LIMITED 973568 4. RHINO BAGS PRIVATE LIMITED 720000 6. SAUMYA FINANCE LEASING CO. PVT.LTD. 720000 7. TRESTA TRADING PRIVATE LIMITED 1065216 TOTAL: 5606400 2.2. On going through the share holding patter, it is evident that all the above donor companies have share holding in each other. Apart from these companies Amur trading Pvt. Ltd. Maduban Merchandise Pvt. Ltd. Tresta Trading Pvt. Ltd. and Ornate Traders Pvt. Ltd. there are another companies viz Lazor Detergents Pvt. Ltd. Rashi trading company Pvt. Ltd. Rhino Bags Pvt. Ltd., Saumya finace leasing Co. Pvt. Ltd., et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 copy of the remand Report dated 01.10.2012 of Deputy Commissioner of Income Tax-3(2) (hereinafter referred to as the A.O.) in the case of Appellant for A.Y.2009-10 provided to us by your honour for our comment. In this connection the Appellant submits that the AO in his Remand Report has made an attempt to justify the stand taken by the then Assessing Officer while framing the order u/s.143(3) of the Act, but without bringing any cogent material on record or putting forward any additional arguments to support the issue in appeal. The AO has merely repeated the same arguments as were stated in the assessment order and elaborated the same without support of factual finding, legal provision or judicial pronouncements. At the outset we wish to state that the AO started his remand report by quoting the observation ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be considered as unexplained cash credit u/s 68 of the Act. 6) Various, judicial pronouncements relied upon and distinguished by the A0. In this connection the Appellant submits as under. 1) Gift can only be made and received by a living person (i.e. human being ) and not by the companies being artificial person: The AO in para 1.8, 1.9 to 1.16 and 1.27 of the Remand Report has observed that the gift can only be made and received by a living person (i.e human being) and not by the companies which is an artificial person. In this regard the AO relied upon the - definition of Gift provided under section 122 of the Transfer of Property Act. The Appellant at the outset submits that it has already made a detailed written submission at para 4 and 5 and demonstrated that various provisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 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) etc of the Act. The Appellant submits that if the observations of the AO are accepted than every receipt will be liable to income tax, which certainly is neither the object of the Act nor the intention of the legislature. The Appellant submits that the observations of the AO that every receipt is an income of the assessee are against the basic object of the Act and contrary to judicial pronouncements. The Appellant respectfully submits that the income tax is leviable only on the taxable income of the assessee and hence receipts of capital nature, unless specifically charged under the Act, are outside the ambit of the Income Tax Act. In this connection the Appellant strongly rely upon para 3 of its written submission (refer pages 5 to 15) wherein the issue has been discussed in det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 provisions of section 68. The Appellant at the outset objects to the above statement of the AO. The Appellant submits that section 68 of the Act reads as under: 68. Where any sum is found credited in the books of an assessee maintained for anyprevious year, and the assessee offers no explanation about the Nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year (Emphasis supplied) 'The Appellant submits that section 68 of the Act comes into play when any sum is found to be credited in the books of an assessee and the assessee offers no explanation about the nature and source thereof or the explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 genuine; whereas in the case of the Appellant there is no doubt with respect to identity and creditworthiness of the donor and genuineness of the gifts. The Appellant therefore respectfully submits that the reliance by the A0 on the above referred case laws are totally out of context and needs to be ignored. 4. The AO further tried to distinguish various case laws relied upon by the Appellant in its written submission on flimsy grounds. The Appellant submits that the case laws relied upon by the Appellant in its written submissions, lays down the principle on the concept of income i.e. what can be termed as income chargeable under the Income Tax Act-1961and vice versa. The Appellant submits that the ratio laid down in all the case laws relied upon by the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 Appellant submits that in the past the legislature has enacted the Gift Tax Act -- 1958 ('although repealed since 1998) wherein it has recognized the Company i.e. a body corporate as an assessee for the purpose of Gift Tax Act. Section 2(xvii) of the Gift Tax Act defined person as under: (Xviii) ‗person includes a Hindu Undivided Family or a company or an association or a body of individuals or persons whether incorporated or not. The Appellant therefore submits that the gift by a corporate body to another corporate body is not an unknown phenomenon as claimed by the A 0 in his remand report. The Appellant therefore submits that had the legislature intended to bring the gifts by one corporate body to another corporate body within the ambit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivery, 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 received by the Appellant and the credit worthiness of the donor companies are duly explained. 7. Amount received by the Appellant without consideration is a Capital Receipt and rightly credited to Capital Reserve Account and accordingly is not in the nature of income. 8. Section 56 is not applicable to the money received by a company without consideration. In view of our submissions and various judicial pronouncements relied upon, the Appellant submits that the gift of ₹ 161,86,77,0371- 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 the additional to total income made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pective 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 laid down in said cases is not applicable to that of assessees case under reference, as the facts of the case relied upon are different than that of the assessee. Case wise analysis of the same is being made as under. 2.1 The judgment of Hon'ble ITAT, Mumbai in the case of DP World Pvt Ltd. vs. DCIT is altogether different than that of the assessee under reference. In the case of DP World Pvt. Ltd. vs. DCTT the shares of company (which is the owner of three residential flats at Hill Park) were gifted (by the shareholder) to ultimate holding company, so that case decided by the 1T47', no income accrue or arise because it is an internal matter between subsidiary and holding c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that of the assessee under reference. Similarly affidavit filed by the assessee also contains nothing new, therefore, have not been commented. Yours faithfully Sd/- [ARVINN KUMAR) Deputy Commissioner of Income-tax 3(2), Mumbai. 6. The comments of the A.O. were forwarded to the assessee and assessee filed the rejoinder vide letter dated. 22/1/13 as follows: 1. We refer to the copy of the letter dated 03.01.2013 of Deputy Commissioner of Income Tax-3(2) thereinafter referred to as the A.0.) in the case of Appellant for A. Y 2009 - 10 provided to us by your honour for our comment. The Appellant submits that the AO in his letter dated 03.01.2013 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 income was the Company being artificial person, there cannot be love and affiction among artificial persons and accordingly the money received is not gift but the same is income, the A 0, in his submission, con yen len tly ignored following observations of Hon'ble ITAA at Para 13 which is summarised as under: There is no requirement in the Transfer of Property Act 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 Memorandum /Articles of Association to make a 'gift it can do so. Para 16 which is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors 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 existing moveable or immoveable property made voluntarily and without consideration and includes deemed transfer or conversion of any property. We find nothing wrong in gifting the shares in favour of the company by its shareholders. Thus the Appellant relied on the observation of Honble High Court that the Company can receive gift. In view of our above submission and various judicial pronouncements relied upon the Appellant submits that gift received by the Appellant of ₹ 161,86,77,034/- is a capital receipt and has correctly been credited to capital reserve by the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 properly accounted for and necessary taxes paid, therefore, there is no case of introducing unaccounted money in the books of account of the assessee-company. Even otherwise, more doubt or suspicion cannot be the basis for making any addition or rejecting the claim of the assessee. Doubt and suspicion may lead to inquiry or investigation and, therefore, A.O. should have brought out facts or evidences contrary to the claim of the assessee on record, either during assessment proceedings or remand proceedings. Whereas, A.O. has not been able to bring out any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 such legal requirement for making a gift. Even by simple delivery the gift can be made of an amount or cheque or other movable property. Whereas, in the case of the assessee, letters certifying the gifts with corresponding resolution of their board have been furnished before the A.O. During appellate proceedings assessee has also filed affidavits from all the four donor companies, certifying the gifts. Assessee has also filed its affidavit for certifying the receipt of gifts. Receipt of gift as well as making of gift are authorized by r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies 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 the application of Sec. 4761i.) of the Act in a corporate reorganization involving transfer of shares of an Indian Company without consideration (a) Since the term Gift is not defined in the Act, which Jneanin4' should be ascribed to it and (b) Can a company being a corporate entity make a gift? 9. As gift is not defined under the Act. the Sale of Goods Act, Companies Act and the Indian (]ontract Act, a reference is made to the Gift Tax Act, 1958 (1G749 and the Transfer of Property Act, 1882 ('TPA). 10.GTA w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 decisions to the contrary however these decisions may not strictly hold good since the GTA has been deleted w.e.t: 1.10.19.98 and Sec. 47(iii) of the Act continues in its original form. 16. Considering the above discussion, the definition given u/s 122 of the TPA has to he accepted, meaning thereby that meaning of gift reflect non- element of love and affection. Therefore, gift of shares of an Indian Company by a foreign company without consideration has to be treated as gift within the meaning of Sec. 476U) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Saboo Ltd. 116 'TR 125 (SC). Therefore, the receipts of these gifts by the assessee are capital receipts. This view is also supported by the following case laws as claimed by the assessee:- 1) 11H. Maharani Shri Vijay kuverba Saheb of Morvi Anr Vs. CIT [49 ITR 594](Bornbay): 2).CIT Vs. Pran Jiban Jaitha [52 ITR 108] (Calcutta): 3)Lachit Films vs. CIT [195 ITR 402] (Gauhati): 4) Padmaraje R. Kadambande Vs. CIT 195 ITR 877]'Supreme Court): 5) CIT Vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Gift Tax Act only and there was no provision for taxing gifts under the Income-tax Act. Therefore, gifts were not separately taxed under any provisions of the Income- tax Act during the period when the Gift Tax Act was in existence and the question of taxing the gifts separately under Income-tax Act, did not arise. When the Gift Tax Act was repealed in 1998, legislature indicated its intention that the gifts will be no more taxable under the Gift Tax Act, but nc corresponding cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 profession. Therefore, such perquisite, benefit or receipt which arises from the business or from exercise of a profession can only be taxed u/s. 28(iv). In the case of the assessee, admittedly, there is no business relation or business transaction between the assessee and the four donor companies from whom the gifts have been received and, therefore, the amount received from the said four companies cannot he brought to tax u/s. 28(iv) of Income-tax Act. This issue has also be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 thousand rupees is received without consideration by an individual or a Hindu undivided family from any person on or after the 1st day of September, 2004, 'hut before the 1st day of April, 2006, the whole of such ―However such amendment did not take care of the transactions involved in the instant case. The legislature further brought amendments as under: (vii) where an individual or a Hindu undivided family receives in any previous year, from any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeds 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 the legislature did not stop here but went on to make further amendments by inserting clause [viib]as under: (viib) where a company; not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. High Court in the case of CIT vs. Metachem industries 245 ITR 160 (MP), where it was held that once the assessee explained the credit standing in the name of its partners, then it is open to the A.O. to undertake further investigation, but assessee cannot be asked further evidences. Hon'ble Gawahati High Court has held in the case of Khandelwal Constructions vs. CIT 227 ITR 900 (Gau) that before rejecting the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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)(e), direct holding of required percentage of shares is necessary. On the other hand, it has been decided by certain appellate authorities that the recipient company should have direct holding, as registered and beneficial shareholders of the company from whom the payment have been received. Same is the decision of Hon'ble ITAT in the case of ACIT vs. Bhaumik Colours Pvt. Ltd. 118 lTD 15. Similar view has been confirmed by Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stead of crediting to Profit Loss Account. However the AO in the assessment order observed that the gift received of - ₹ 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 ₹ 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 - recurring transactions or transactions of an exceptional nature. The Appellant submits that Part II of schedule VI, require profit and loss Account to- disclose the result of the working of the Company and any credit or receipt relating to business whether recurring or non - recurring. The Appellant submits that by no stretch of imagination receipt of gift from corporate bodies can be considered as r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. While so looking into the accounts of the company, an AO under the IT Act has to accept the authenticity of the accounts with reference to the pro visions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinised and certified by statutory auditors and will have to be approved v the company in its gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies 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 section 115JB of the Act is applicable only if the item of expense or income is debited or credited to the Profit Loss Account. The Appellant submits that when the item of expense or income is not debited or credited to the Profit Loss Account, Explanation to section 115JB of the Act cannot apply and hence no adjustment is required under that section to the books profit. The Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer 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 Rain commodities Ltd. (supra) are exactly opposite to the facts of the case of the Appellant. In fact the decision in the case of Rain commodities Ltd (supra) supports the contention of the Appellant. The Appellant submits that in the case of Rain Commodities Ltd (supra) the assessee prepared its Profit Loss account in accordance with Part II and III of Schedule V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 gain which is exempt under s. 4760 of the Act. It is due to fact that the assessee claimed deduction of long-term capital gain from book profit by virtue of being exempted income in the normal provisions of the Act and not because of the reason that the same was not includible in P L a/c prepared under Part II and Part III of Sch. VI to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 ₹ 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 ₹ 161,86,77,034/- is deleted. 10. Ground No.9: In this ground the assessee has disputed interest u/s. 234B and 234C, which are consequential in nature and, therefore, the A.O. is directed to recompute the same after giving effect to this order. 11. Ground No.10: 12. Mere initiation of penalty does not give rise to any cause of grievance, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, which is always claimed to be independent for tax purpose) is a strange transaction. To postulate that a corporation can give away its assets free to another even orally can only be aiding dubious attempts at avoidance of tax payable under the Act. 13. As per ld. CITDR, the submission of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce 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 amounts mentioned in the Explanation . No further rebates or deductions after such adjustments, notwithstanding away the fact whether any income is taxable or not under the normal provisions of the IT Act has to be added to the Book Profit as an extraordinary item as per accounting st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 and hence the same cannot be charged to tax under the provisions of the Income Tax Act. 1)H.H. Maharani Shri Vijaykuverba Saheb of Morvi Anr Vs. CIT [49 ITR 594](Bombay) 2) CIT Vs. Pran Jiban Jaitha [52 ITR 108] (Calcutta): 3) Lachit Films Vs. CIT [195 ITR 402](G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim 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 case of Parimisetti Seetharamamma vs. CIT (56 ITR 532), wherein it was held as under : By sections 3 and 4, the Indian Income-tax Act, 1922, imposes a general liability to tax upon all income. But the Act does not provide that whatever is recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 by companies. Even the present Income-tax Act by way of Section 56(2)(viia) and 56(2)(viib) provides that gifts of certain kind of shares are taxable in the hands of certain category of companies. The donations and charities are made and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 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 the provisions of the Companies Act, which obligate the company to maintain its accounts in a manner provided by the Companies Act, scrutinized and certified by the statutory auditors, approved by the shareholders and filed befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 probe into the accounts accepted by the authorities under the Companies Act. If the statute mandates that income prepared in accordance with the Companies Act shall be deemed income for the purpose of s. 115J of the Act, then it sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 ₹ 16.60 crores under normal provisions of Act and book profit of ₹ 48.41 crores under section 115JB of the Act. During the year under consideration assessee has received gift of ₹ 161.86 crores from four companies viz. Amur Trading Private Ltd., Medhuban Merchandise Private Ltd., Tresta Trading Pvt. Ltd. and Ornate Traders Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 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 ₹ 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 ₹ 161.86 crores from the above four companies. The gift so received was claimed as capital receipt, therefore, credited to capital reserve account in its books. 30. During the course of scrutiny assessment the AO raised query with respect to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me - 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 of 'income provided in section 2(24) although an inclusive definition, but it specifically provides the income which are intended to be taxed under the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 25,000/- to ₹ 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 received by an individual and HUF only are made liable to tax. Thereafter for the first time two other category of assessees were added with effect from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 also paid dividend distribution tax, therefore, such money received by the assessee is not unaccounted money. The AO has not brought any evidence on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to place before the income tax authorities all the evidence in support of her contention, the Appellate Tribunal held that what w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 of companies to make gift are reproduced below: 8. It is not uncommon that transfer of shares between corporate groups take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty 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 Act could be imported for the purpose of Sec. 47(iii) of the Act. In the case of CIT vs. Shayam Narain Mehrot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orate 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. Vodafone Essar (2011-TII-01-HC-Del-(A) 41. Furthermore, As per section 56(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, 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 whether the payment made by the son Maharaja to the father Maharaja, though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 payment under proviso (d) to section 15(J) of the Bomba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Ltd. [116 ITR 125] the Hon'ble Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eys 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 provisions of Gift Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Thus, the observations 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rces as the residuary head of income, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant portion of the decision is reproduced 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 connec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tamp duty value of which exceeds fifty thousand rupees, the stamp 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of persons as may be notified by the Central Government in this behalf. Explanation.-- For 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. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause; 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 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 obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany in its general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation 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' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 161,86,77,034/- was received from corporate bodies were not credited to the Profit Loss Account and hence no adjustment 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 ₹ 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uded in the net profit determined as per P L a/c of the assessee prepared under the Companies Act. 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 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 computa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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