9911796707
TMI Blog2011 (10) TMI 703X X X X Extracts X X X X X X X X Extracts X X X X ..... n facts in deleting the addition of ₹ 17,39,43,000/- made by the Assessing Officer to the total income of the assessee within the meaning of section 28(1)(iv) of the I T Act. ii) On the facts and in the circumstances the cased ld CIT(A) has erred on facts in holding that Shri Ashish P Deora was appointed as director on 3.5.2005 and the observation of the Assessing Officer that Shri Ashish P Deora was a director in June 2002 is not correct." FOR ASSESSMENT YEAR 2005-06: i) The ld CIT(A) erred in law and on facts in deleting the addition of ₹ 40,45,80,000/- made by the Assessing Officer on account of long term capital gain on transfer of shares to M/s Reliance Infocom Ltd by the assessee company without appreciating the fact that since the share were not listed in the BSE or NSE on the date of sale, the value of shares as on 14.4.,05 has been determined on the basis of its rate of increase in the value from 16.9.02 to 16.3.06 on which date the shares were first listed in the stock exchange. ii) The CIT(A) has erred on facts in holding that Shri Ashish P Deora was appointed as director on 3.5.2005 and the observation of the AO that Shri Ashish P Deora was a di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anesh Infrastructure Capital Fund(GICF). It was contended that the assessee did not receive any benefit from the exercise of his profession or there was no vesting of the property by invoking provisions of sec. 28(iv) of the Act r.w.s 2(24) (vd). Apart from the above, the assessee has also submitted that RIC was suffering losses, it was not paying any dividend and its shares were unlisted. The fare market value of the shares in question at the relevant point of time was at face value. It was submitted that the assessee had no business connection with GICF who had transferred the shares of RIC to the three companies. Finally, it was stated that the shares are to be transferred to the companies only on completion of the project and since the project could not be completed; therefore, the shares were returned to the transferor and no benefit accrued or received by the assessee or his nominee. 4.3 The Assessing Officer did not accept the contention of the assessee and treated the difference of ₹ 52.71 per share as the benefit arising on transfer of these 1 crore shares at par and taxed on substantive basis in the hands of the assessee. At the same time, the Assessing Officer was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record. While making the addition of the premium of ₹ 14/- per share, the Assessing Officer has taken into consideration the directors' report. The Special counsel has also relied upon the directors' report which talks about the allotment of the basic telephone services in 16 out of 18 circles applied by RICL. It is pertinent to note that the directors' report is dated 16.8.2001, which is consequent to the grant of license to RICL for operating the basic telephone services on 20.7.2001. Thus, it is clear that the directors' report refers to the events consequent to the allotment of the shares on 2.4.2001 and particularly the developments of the grant of license of 16 telephone circles. Undisputedly, once the license for operating the basic telephone service in 16 circles was granted which cover the majority of the states of the country; hence, was an important development and certainly it has a positive effect on the value of the shares of RICL. Therefore, reference of grant of license in the directors' report cannot support the action of the Assessing Officer to presume the value of the share of RCIL at ₹ 15/- per share on the date of allotment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business or carried out any business with RCIL either in the past or during the year in question or in subsequent year then it cannot be said that there exist any business or profession relationship between the assessee and RCIL. RCIL and other Reliance group of companies are independent entities and even for taxation purposes, they are separate and independent persons; therefore, any business or professional relationship of the assessee with the RIL could not automatically create any business or professional relationship between the assessee and RCIL. Therefore, provisions of section 28(iv) cannot be applied in the case of the assessee. 7 In view of the above discussion, we hold that the value estimated by the Assessing Officer of the shares of RCIL on 2.4.2001 @ ₹ 15/- per share is highly unrealistic, arbitrary and without any acceptable basis but on the basis of some future events, which could not influence the value of the shares prior to the date of such development. Accordingly, we do not find any error or illegality in the order of the ld CIT(A)." 7. We further note that the Tribunal in the case of n Rupee Finance & Management P Ltd (supra), has also taken sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus on these facts we hold that no addition is sustainable under s. 69. 8.3 This brings us to whether the difference in question can be considered as income under s. 28 (iv) ? The section reads as follows : "28. 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." Circular explaining the provisions of new s. 28(iv) at cl. 82 states as follows : "Assessment of the value of any benefit or perquisite arising from business or exercise of a profession, as income from business or profession. 82. A new cl. (iv) has been inserted in s. 28, w.e.f. 1st April, 1964, by s. 7 of the Finance Act, 1964, under which the value of any benefit or perquisite (whether convertible in money or not) arising from business or the exercise of a profession will be chargeable to tax under the head 'Profits and gains of business or profession'. A corresponding amendment has been made to s. 2 (24), including the value of such benefit or perquisite in the definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that is passed on by one party to another, in addition to cost or sale price, is covered in this proviso. This is clear from the example quoted. In our humble opinion, this section cannot be invoked under the present facts and circumstances. 8.4 Be it as it may the co-ordinate Bench of the Tribunal (F-Bench, Mumbai) in the case of Helios Food Improvers (P) Ltd. (supra) held that s. 28 is a charging section and takes into account the receipts of specified categories of all incomes as well as the receipts which could be generally construed as income in the ordinary sense. But the fact remains that all the receipts mentioned in s. 28 are inherently of income nature except in case of receipt under a given amount of insurance policy. It also states that s. 28(iv) refers to any benefit or perquisite and this means that such benefit or perquisite should be in the nature of income from the very beginning or it must have characteristics of income before it becomes chargeable at a later stage if the original transaction is completed as designed. The Bench further observed that the words 'benefit' or 'perquisite' have been used in the said section and have to be read togethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares. No case has been made out that privilege or benefit or concession has been passed on by the seller to the buyer as part and parcel of a business transaction. A benefit has been assessed by the CIT(A). Mere purchase of shares by way of investment cannot be considered as business of the company though the objects of the company enable it to invest as well as deal in shares. As already stated there is no event which can be said to have resulted in accrual of income to the assessee. Thus on this factual matrix, mere purchase of shares, as an investment, with the lock-in-period of holding, for a consideration which is less than the market value, cannot be brought to tax, as a benefit or perquisite under s. 28(iv) of the Act. The assessee has not in this case, secured any benefit or perquisite in consideration of a business transaction undertaken with the sellers of the shares. Thus this issue is decided in favour of the Revenue and against the assessee." 8. In view of the above discussion and the order of the coordinate Bench of the Tribunal, we do not find any merit in the appeal of the revenue and accordingly uphold the order of the CIT(A)." As viewed by us in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta High Court in the case of CIT vs. Smt. Nandini Nopany (1998) 148 CTR (Cal) 522 : (1998) 230 ITR 679 (Cal). He rightly held that it is manifest that the consideration for the transfer of capital asset is what the transferor receives, in lieu of assets he parts with, i.e., money or monies worth and that the expression 'full consideration' cannot be construed as having reference to the market value of the assets transferred but refers to the price bargained for by the parties and it cannot refer to the adequacy of the consideration. He also rightly observed that the legislature has used the words 'full value of the consideration' and not 'FMV of the assets transferred'. He recorded that the AO has not brought on record any material to show that the assessee has received more than what has been disclosed in the books and under these circumstances the difference cannot be brought to tax under the head 'Capital gains'. We fully agree with these findings and the appeals filed by the Revenue fail." 6. When there was no transfer and the premium estimated by the Assessing Officer at the time original transfer is based on the some future development an ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
