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TMI Blog2017 (11) TMI 1599X X X X Extracts X X X X X X X X Extracts X X X X ..... ratio of 1:6 to the owner of the said OCDs. It is thus a case of issuance of shares for consideration other than cash. We fail to understand how the consideration received can be said to be an income of the assessee company. The company has received debentures against which it has issued shares at a premium. As further observe that in AY 2009-10, there was no requirement in law even in section 56 or any other section, which mandates that the company would not issue shares at other than the fair market value. Hence a company was free to issue shares at a premium or at par based on the decision taken by its Board. Therefore, it is a simple case where shares have been issued for consideration other than cash being OCDs and this is a transaction clearly on capital account. The Ld. CIT(A) has extensively dealt with this issue and his findings of facts are accurate and correct. We find no reason to interfere with the order of Ld. CIT(A) and the addition of ₹ 200 crores made by the Assessing Officer has rightly been deleted by the ld. CIT(A) vide impugned order. - Decided against revenue - ITA No. 2087/Del./2014 - - - Dated:- 27-11-2017 - Shri H.S. Sidhu, Judicial Member And ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in thousand ) Transferee 2 ( Amt . in thousand ) 1. Fixed Assets a. Buildings (Paintings Decoration items) -- 680.00 b. General Machinery (WDV) 846.00 543.00 c. Audio Video Equipment (WDV) 814.00 -- d. Computer Software (WDV) -- 41.00 e. Office Equipment (WDV) -- 41.00 f. Motor Vehicles (WDV) 952.00 965.00 g. Furniture Fixtures (WDV) 78.00 905.00 Total 2690.00 3175.00 2. Investments 12,55,269.00 14,624.00 3. Current As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... travention thereof and even otherwise, constitutes an income in the hands of the assessee company u/s 2(24) since the said section includes income of all kinds. The Assessing Officer relied on a number of decisions as to the definition of income and proceeded to add a sum of ₹ 200 crores to the returned income of the assessee. 6. Aggrieved by the assessment order, the assessee carried the matter before the ld. CIT(A), who after considering the detailed submissions of assessee, assessment order and various case laws, deleted the entire addition of ₹ 200 crores. The findings and reasonings of the ld. CIT(A) are summarized as under : (i) In the Schedule to the order of the High Court, an amount of ₹ 72,23,63,000/- has been shown as current asset. According to the Ld. CIT(A), the Assessing Officer has not examined the details of the same and failed to appreciate that the current assets of ₹ 72,23,63,000 were OCDs. This is evident from the audited Balance Sheet of CHPL and the assessee company wherein these facts are clearly brought out. Thus, out of ₹ 200 crores, ₹ 72,23,63,000/- represents OCDs approved by the Hon'ble Delhi High Court for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold its shares in ELEL Hotels to Indian Hotels Company Limited and out of the consideration received, it had subscribed to debentures of GSL. Bank statements of CHPL and other supporting records to buttress this fact was examined by Ld. CIT(A) before arriving at the conclusion that source of investment for debentures by CHPL stood established. 7. The Ld. DR vehemently opposed the order of the Ld. CIT(A). He contended that the current assets are defined as cash or cash equivalent and the OCDs cannot be said to be a part of the sum of ₹ 72,23,63,000 as on 31.03.2009. According to him, there were no OCDs as on 31.03.2009 and in the Balance Sheet of CHPL, as on 31.03.2010, they are shown as application money. It was further submitted that the entire investment in the OCD was not out of the sale of investment by CHPL in ELEL Hotels i.e. Hotel Sea-Rock, Mumbai. He stated that the Scheme of Demerger was to hive off the business convention undertaking of CHPL and the balance investment of ₹ 128 crores from 1 April, 2009 to 25 May, 2010 is not linked to the business convention division. He further stated that the debentures transferred partake the character of income in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of ₹ 200 Cr. is shown as 'Debenture application money pending allotment'(ref. page # 81 of PB). Therefore, the Amt. of ₹ 200 Cr which assessee is terming as 'Optionally Convertible Debentures(OCDs)' and consists of two parts, namely, i) Amt. of ₹ 72 Cr. upto from 04.02.2009 to 31.03.2009 and ii) ₹ 128 Cr. between 01.04.2009 to 18.06.2009(ref. para 5.7/page # llof CIT(A)'s order), was simple money advanced to Godavary Shilpkala Ltd. by Claridges Hotels Pvt. Ltd. even upto 31.03.2010. 2.3 As per para 4 of (part) Schedule-20 forming part of the financial statements for the year ended 31.03.2010 of Claridges Hotels Pvt. Ltd. (ref. page # 82 of PB, the controlling stakes in Hotel Sea Rock, Mumbai were sold to Indian Hotel Companies Ltd. through sales of investment (of Claridges Hotels Pvt. Ltd.) in ELEL Hotels and Investments Ltd., Sky Deck Properties and Developers Pvt. Ltd. and Sheena Investments Pvt. Ltd. This sale took place through agreement dated 12.11.2008 which was amended vide 'first' amendment dated 25.06.2009. 2.4 Before CIT(A), as per reply dated 26.12.2013(ref. pg. # 103/PB), the assessee (for the first time) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.10 Business has been transferred as on-going concern. It is also stated as per 2(b) of (part) Schedule forming part of the financial statements for the year ended 31.03.2010 of Claridges Hotels Pvt. Ltd.(ref. page #80 of PB). As per scheme sanctioned by the Hon'ble HC, the 'current assets' worth ₹ 7,22,363 thousand are allowed to be transferred ( ref. Schedule of Property- Part-III). The question is whether it covers the application money for Optionally Convertible Debentures(OCD)? The answer is big 'No' because: a) Application money for Optionally Convertible Debentures(OCD) as on 31.03.2009 cannot be current asset because the 'current asset' is defined as, cash or cash equivalent or any other asset which can be reasonably expected to be converted into cash within one year . It is not investment in a stock listed on any stock exchange. b) There was no so called OCD as on 31.03.2009. In fact, as per B/S of CHPL as on 31.03.2010, these are shown as application money. c) The money was given by CHPL, there is no material to show that it belonged to 'Business Convention Division'. In fact, there is material to show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;Vivanta by Taj') and 'Atrium'-3 star hotel and also developed high end commercial property named 'Pinnacle' with total salable area of 3,18,754 Sq. ft. The decision to invest sale proceeds of sale of investment (of Claridges Hotels Pvt. Ltd.) in ELEL Hotels and Investments Ltd., Sky Deck Properties and Developers Pvt. Ltd. and Sheena Investments Pvt. Ltd. could have been planned near about the date of agreement (i.e. 12.11.2008). vi) The figure of sales proceeds of investment (of Claridges Hotels Pvt. Ltd.) in ELEL Hotels and Investments Ltd., Sky Deck Properties and Developers Pvt. Ltd. and Sheena Investments Pvt. Ltd. is much more than figure of ₹ 200 Crores. Then how come a part of it becomes part of 'Business Convention business' done by 'Business Convention undertaking' ? vii) whether investment of balance 120 Cr. during April to June 2009, is part of 'Business Convention business' held by the Claridges Hotel Pvt. Ltd. in trust as trustee of assessee company ? Obvious answer is 'certainly not' because first of all it is not 'business' and secondly money has not originated from 'business' hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplained in hands of transferor because it is not question of section 68. 5.3 The allotment of share is in consideration of the scheme of demerger sanctioned by the order of Hon'ble HC. Any plea that it is in consideration of something transferred outside the scheme of demerger, is illogical and liable for rejection. 6. It may be seen from the above that i) partial and incomprehensible information was presented before CIT(A). ii) CIT(A) did not appreciate facts and circumstances and misdirected himself into irrelevant questions. iii) The correct position is that it is receipt to assessee which is formed to carry out business activity and earn income. The apparent is that every receipt to an artificial juridical entity formed for earning profit through business is income. The onus is upon the assessee to show that it is not 'income' of the assessee. The assessee failed to discharge this onus. 7. Another issue to be deliberated upon is why the holding company UBS pay ₹ 200 crore to demerged company, GSHPL, which has a asset of only ₹ 30 lakh and a business profit of ₹ 1 crore. As a holding company the UBS must have inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Universal Business Solution (Mauritius) 100% Owner of Claridges Hotel Pvt. Ltd. (Indian company) Invested in Godavari Shilpkala Hospitality Ltd. : 1. ₹ 72 crores in Deb as on 01.04.2009 2. ₹ 128 crores in Deb between 01.04.2009 May 2010 3. ₹ 125.52 as Equity shares in GSL Business convention division (Rs. 0.30 crore) Investment of ₹ 325.52 in GSL and Banquet division worth ₹ 0.30 crores transferred to assessee as per demerger scheme approved by Delhi High Court. DEMERGER SCHEME APPROVED BY DELHI HIGH COURT 1. New company i.e. GSHPL formed after demerger gets following assets from Claridges Hotel Pvt. Ltd.: A. Business convention division with assets liabilities worth ₹ 0.30 crore; B. Debentures in GSL worth ₹ 200 crores C. 100% equity shares of GSL 125.52 crores Total assets transferred 325.82 crores 2. (i) In lien GSHPL issues its shares in the ratio of 1:6 to shareholder of CHPL which is UBSL Mauritius (ii) As a consequence GSPL becomes a wholly owned subsidiary of UBSL (Mauritius) and its balance sheet after acquis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priviledges and all other rights and advantages of whatsoever nature and wheresoever situated belonging to or in the ownership, power of possession and in the control of or vested in or granted in favour of or held for the benefit of or enjoyed by the Business Convention Division . From the aforesaid, your honour will appreciate that the demerged undertaking or the Business Convention Division specifically included investment is GSL which on the date of the demerger on 1st April 2009 were in the form of ₹ 72 crores investment by way of debentures. Further investment of ₹ 128 crores by way of subscription of debentures was made by Claridges Hotels Pvt. Ltd in GSL between the date of demerger i.e. the effective dated i.e. 23 June 2010. f ) Subsequent investments from appointed date till effective date were held under trust by CHPL : The Hon ble Delhi High Court also provided that since their order was passed only in May, 2010 and the appointed date being 01.04.2009, all subsequent business/investment etc. till the date of the High Court order that had taken place in the Business Convention Division would be held as investment/trust by Claridges Hotels ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and passed requisite entries transferring the convention business along with debentures to the tune of ₹ 200 crores etc in their books of account. Please refer the note forming part of the audited Balance Sheet of Claridges Hotels Pvt. Ltd on page no. 80 of the PB. IV . AUDITORS OF THE ASSESSEE COMPANY TOOK COMPLETE COGNIZANCE OF THE ORDER : The appellant company also has, consequent to the assets being transferred to it by Claridges Hotels Pvt. Ltd and shares having been issued by it to M/s UBSL, Mauritius, given a detailed note in its audited books of account to its share holders. Refer page no. 23 of PB V . Judgements relied upon are not applicable to the case of the assessee : 1. The ld. AO has merely cited judgments on an academic basis that the word income is not limited by the word profit and gains ; the motive of the payer is not relying while deciding whether the receipt is revenue or capital, payments constitute income because they are referable to a definite source, income is a word of elastic import , assessee must prove the source of receipt, taxability cannot be decided on the basis of entries which the assessee may choose to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether it fits in the overall definition of income under the Act. d. The following judgments of the Hon ble Supreme Court and jurisdictional High Court are on the proposition that monies brought in by way of share capital cannot be taxed unless the source of the same is in doubt. In the case of the assessee, needless to add the source is very well established and accepted by the ld. AO: - Lovely Exports ( P ) Ltd ( 2008 ) 216 CTR ( SC ) 195 - CIT v . Value Capital Services ( P ) Ltd ( 2008 ) 307 ITR 334 ( Del ) - CIT v . M / s Pondy Metal and Rolling Mill - ITA 788 / 2006 ( Delhi HC ) 3. Transfer of assets to wholly owned subsidiary is not transfer as per section 47 ( vib ): Without prejudice, the ld. AO has also not appreciated the fact that the transfer of debentures by a demerged company to the resulting is not transfer as per clause (vib) of section 47 if the resulting company is an Indian company. 9. We have heard the rival submissions and have gone through the entire material on record and written synopsis filed by both the parties. We have examined the Bala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The company has also paid the capital gains tax on the said transaction. The Department had not even challenged this issue and, therefore, the only issue before us is whether ₹ 128 crores received by the assessee company as OCDs between 01.04.2009 to 25.05.2010 is the income of the assessee u/s 2(24) of the Act. From the above discussion, we feel that it is merely a case where ₹ 128 crores of OCDs having been received by the assessee company against issuance of shares in the ratio of 1:6 to the owner of the said OCDs. It is thus a case of issuance of shares for consideration other than cash. We fail to understand how the consideration received can be said to be an income of the assessee company. The company has received debentures against which it has issued shares at a premium. 9.2 We further observe that in AY 2009-10, there was no requirement in law even in section 56 or any other section, which mandates that the company would not issue shares at other than the fair market value. Hence a company was free to issue shares at a premium or at par based on the decision taken by its Board. Threfore, it is a simple case where shares have been issued for consideration o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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