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TMI Blog2018 (7) TMI 1805X X X X Extracts X X X X X X X X Extracts X X X X ..... or avoiding payment of tax and to get out of the ambit of section 56 (2) (viia) of the Act. And it is apparent from record that assessee has not demonstrated by way of documentary evidence or in any of the manner to prove the genuineness and validity of transaction. Ld.Counsel has been harping that the shares held by assessee in a Public Limited Company was transferred in lieu of a family realignment, but failed to establish the relation of the alleged transferee company with that of assessee or any of the group/subsidiary companies. Further there is no agreement/document that has been executed between group companies forming part of family realignment. Assessee is thus directed to provide all necessary and relevant information/details to assist Ld. A.O., as called for, to his satisfaction, in determining correct nature of alleged transaction as per law. It is also directed that in the event assessee fails to provide any document as called for, in order to establish the genuineness and validity of alleged transaction, as has been submitted to be for a family realignment, Ld.A.O. may compute income in the hands of assessee as per law. On the contrary if assessee is able to prove to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record. The additions/disallowances made are unjust, arbitrary, against the principles of natural justice and are also highly excessive. 11. That the documents, explanations filed by the assessee and the material available on record has not been properly considered and judicially interpreted. 12. That the AO and CIT(A) have grossly erred on facts and in law in passing the impugned order without affording a proper and sufficient opportunity to the appellant to be heard and submit evidence in its support. The order is passed in violations of principles of natural justice. All of the above grounds of appeal are without prejudice and are mutually exclusive to each other. The assesse craves leave to add, amend, alter and or modify the grounds of the appeal." 2. Brief facts of the case are as under: Assessee filed its return of income declaring loss of ₹ 97,82,122/- on 29/11/14. The case was selected for scrutiny and statutory notices were issued in response to which Representative of assessee appeared before Ld.AO and filed various details as required for. 2.1. Ld.AO from financial statements observed that assessee made following disclosure in its "Note to the Fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r: "1. Considering the notes to accounts and reply of assessee company, it is observed that the assessee company holds 1,11,59,010 equity shares of M/s Jindal steel & Power Ltd (JSPL ) as on 31/03/2008 for a value of ₹ 17,29,64,655/-. The company got five bonus shares for one share held in JSPL on 19/09/2009 making total investment as 6,69,54,060 equity shares having total value at ₹ 17,29,64,655/-. Further during the year under review, the assessee company purchased 4,50,000 shares of M/s Jindal Steel and Power Ltd. making total holding at 6,74,04,060.0ut of such holding, the company transferred 1,76,94, I 08 equity share of JSPL on 20/0312014 without any consideration to its sister concern namely M/s GiebeTrading Pvt Ltd by way passing a board resolution on 18/03/2014 and passing a special resolution in the extra ordinary General meeting held on 20/03/2014. 2. By way of transferring its investment of 1,76,94,108 shares to its sister concern without any consideration , the company not only reduced its investments to nil and booked losses of ₹ 17,29,64,655/- which were adjusted out of Reserves of company but also reduced its income to the extent that would hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in the manner provided by articles of the company. The AR of the Assessee company has not submitted anywhere that the transfer of the shares allegedly gifted was in the manner provided by the Articles of the Company. Or in other words it was not proved that the articles of association of company empower the assessee company to transfer its share without any consideration that too on oral understanding. Even in the board Resolution, authorizing the so called gift, there is no mention of any power derived from the articles of association, that too without any consideration and on oral understanding only. Without anything more, it is difficult to imagine any clause in the Article of Association of a company providing for gifting away the assets in the form of shares in another company without any consideration on oral understanding only. 5. The transaction also failed in the test of commercial expediency and business prudence. Companies being artificial persons into existence only for business or non-business purpose as mentioned in their constitutional documents. Companies do not have an existence beyond the law; therefore, they are a fiction created by law. They are instrumental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue that arises for consideration is regarding taxation of capital gains on transfer of 1,76,94,108 shares of JSPL to GTPL, another company of the Group. It is the case of the appellant that the said 1,76,94,108 shares of JSPL were given as gift without consideration to GTPL pursuant to the internal family realignment of the larger O.P.Jindal group. It is accordingly, contended by the appellant that the said transaction is not covered by section 56(2)(viia) and is exempt from tax u/s 47(iii) of the Income Tax Act, 1961 (the Act). After considering all the facts and circumstances of the case, it is held that the AO has correctly observed that gift by a corporation to another corporation is a strange transaction as there cannot be a gift between artificial entities/persons. The submissions filed by the Appellant are considered and not found to be tenable. The case laws cited by the Appellant are distinguishable on facts. The AO has held that the transfer of shares of ₹ 489,30,83,023/- to M/s Giebe Trading Pvt. Ltd. is a transfer within the meaning of sec. 2(47) of the Act and is liable to be taxed u/s. 45 of the Act. The provision of Sec. 47(iii) do not apply in this cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made as a gift to Giebe Trading Pvt.Ltd., which is exempt from capital gains by virtue of provisions of section 47 (iii) of the Act. He submitted that the shares continue to be held by Giebe Trading Pvt.Ltd., and no amount has been received by assessee. He therefore submitted that there was no question of taxation of any amount in the hands of the assessee. Ld.Counsel submitted that provisions of section 56 (2) (viia) are also not applicable since assessee has not received any shares as gift and that the recipient still holds the shares in its books of account and has not sold the said shares received as gift from assessee. 7.4. Ld.Counsel submitted that there is no prohibition under any law in assessee gifting shares held as investment, to another company. He submitted that natural love and affection is not a precondition for the purpose of making gift. He placed reliance upon provisions of section 5 of Gift Tax Act and section 122 of Transfer of Property Act, to support validity of transaction. He submitted that transaction was genuine and cannot be regarded as sham without any basis or evidence. 7.5. Ld.Counsel by placing reliance upon the decision of Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Deere & Co., In re [2011] 337 ITR 277 (AAR) 6. CIT vs. Shoorji vallabhdas & Co. [1962] 46 ITR 144 (SC) 7. CIT vs. Excel Industries Ltd. [2013] 358 ITR 295 (SC) 8. Ram Charan Das vs. Girjanandini Devi and Ors. AIR 1966 SC 323 9. CIT vs. Kay Arr Enterprises [2008] 299 ITR 348 (Madras) 10. CIT vs. R. Jayanthi (HUF) SLP (C) No. 9079/2008 11. CGT vs. K.N. Madhusudhan. GTA No. 2/2008 (KAR) 12. CIT vs. B.C. Srinivasa Setty [1981] 128 ITR 294 (SC) 13. Goodyear Tire & Rubber Co., In re. [2011] 334 ITR 69 (AAR-New Delhi) 14. DIT vs. Goodyear Tire & Rubber Co. [2014] 360 ITR 159 (DELHI) 7.7. On contrary Ld. CIT DR submitted that transaction has not been proved by assessee to be genuine, by way of any written contract/agreement. She submitted that merely by passing board resolutions, assessee transferred large number of shares of Jindal Steel and Power Ltd to Giebe Trading Pvt.Ltd., through De- mat account. She submitted that value of shares as on the date of gift was huge, and commercial expediency for such transfer has not been explained/established by assessee at all. 7.8. She submitted that assessee transferred alleged shares as gift in the ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the nature of alleged transfer to be sham. 8. We have perused the submissions advanced by both the sides in the light of the arguments and the judicial precedents relied upon by both the sides. 8.1. The scheme of capital gains, as set out in Section 45 to 55 of the Act, excludes certain categories of transaction from its ambit. These are, inter alia, distribution of capital assets on the partition of a Hindu family or on the dissolution of a firm; transfer of a capital asset by a company to its subsidiary or under a scheme of amalgamation; transfer of a capital assets under a gift or a will or an irrevocable trust. The provisions with which we are concerned in sub-s (iii) of Sec.47 are extracted hereunder "47. Nothing contained in section 45 shall apply to the following transfers -... (iii) any transfer of a capital asset under a gift or will or an irrevocable trust." Section 48 lays down mode of computation of capital gains and Section 49 refers to how cost is to be ascertained in cases of certain modes of acquisition. In the present facts of the case upon going through various observations and documents placed in the paper book it is surprising to note th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served that the genuinity of the transfer of shares without consideration was not questioned by the authorities below and therefore this Tribunal decided that gift for the purposes of Gift Tax Act, 1958 qualifies a property in money or monies worth to be transferred to a person which includes "company" as well. It was observed therein that in Gift Tax Act, 1958, there's no attributes like love and affection. In the facts of the present case the issue is in respect of genuinity of transaction itself has been challenged by authorities below in the absence of gift deed. Even that there is no proof of any family settlement being arrived when the transferee is a party. • In case of Hon'ble Madras High Court in CIT vs KAY AAR Enterprises (supra) had approved the decision of coordinate Bench of Chennai Tribunal in KAY AAR Enterprises vs. JCIT (supra), wherein Hon'ble Court had held that rearrangement of shareholding in the company amongst the family members under the family arrangement is not liable to capital gains tax. The factual background in that case was pursuant to a family arrangement, family members had transferred shares owned by them into companies to the family member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can company was capital asset. On this factual background Hon'ble Authority of Advance Ruling decided that no consideration would accrue or arise to the applicant by transfer of shares and it cannot be presumed that by transfer of shares assessee would have derived any profit or gain. In the facts of the present case the shares held by assessee is by way of investments in a public limited company which has been transferred to a 3rd company without establishing the commercial need to do so. There has been no agreement that has been executed for transfer of shares voluntarily and assessee has failed to establish the genuineness of the transaction. • In the case of Dana Corporation (supra), the facts before the Authority of Advance Ruling was that Dana Corporation had undergone bankruptcy proceedings initiated under the Bankruptcy Code of US and in the course of proceedings Dana Corporation submitted a plan for reorganisation before the Court which was confirmed by the Court. Hon'ble Authority observed that the transfer of shares was pursuant to the plan of reorganisation that was approved by the Bankruptcy Code of US and therefore it was held that no consideration can at all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny by way of shares in a public limited company, unless it be one which has been set up for some purpose. Ld.A.O. had rightly raised question regarding the reality and genuineness of transaction, in addition to its validity. In fact when such transactions are entered into, involving assets substantially worth, it behoves the assessee before Ld. AO to establish to the hilt, the factum, genuineness and validity of such transaction, the right to enter into such transaction and bonafides of such transaction, especially when, revenue challenges genuineness of such transaction itself. It has been vehemently contested by authorities below as well as Ld. CIT DR that transaction has been effectuated for avoiding payment of tax and to get out of the ambit of section 56 (2) (viia) of the Act. And it is apparent from record that assessee has not demonstrated by way of documentary evidence or in any of the manner to prove the genuineness and validity of transaction. 8.5. Ld.Counsel has been harping that the shares held by assessee in a Public Limited Company was transferred in lieu of a family realignment, but failed to establish the relation of the alleged transferee company with that of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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