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TMI Blog2018 (9) TMI 720X X X X Extracts X X X X X X X X Extracts X X X X ..... d the charge of a second and impermissible opinion on the same subject. However, that is not the case. The TEP and investigation reports – of subsequent vintage (after completion of Mr. Gandhi’s assessment), therefore, constituted tangible material which in terms of the ruling in Commissioner of Income Tax vs. Kelvinator of India Ltd [2010 (1) TMI 11 - SUPREME COURT OF INDIA] justified reassessment. In the case of the other two assessees (Ms. Sonia Gandhi and Mr. Oscar Fernandes) the returns filed by them were processed under Section 143 (1). Such instances are not treated as “assessments”. Zuari Estate Development & Investment Co Ltd [2015 (8) TMI 480 - SUPREME COURT] is an authority on the subject. Writ petitions have to fail. - W.P.(C) 8482/2018, C.M. APPL.32580-32582/2018,W.P.(C) 8483/2018, C.M. APPL.32583-32585/2018,W.P.(C) 8293/2018, C.M. APPL.31812-31814/2018, - - - Dated:- 10-9-2018 - MR. S. RAVINDRA BHAT AND MR. A.K. CHAWLA JJ. Sh. Arvind Datar, Sr. Advocate with Ms. Kavita Jha and Sh. Vaibhav Kulkarni, Advocates, for petitioner in W.P.(C) 8293/2018. Sh. P. Chidambaram, Sr. Advocate with Ms. Kavita Jha and Sh. Vaibhav Kulkarni, Advocates, for petitioner i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... car Fernandes were appointed Directors. The transfer of YI Shares from its existing shareholders, was approved as follows: No. of Shares From To 550 Suman Dubey Sonia Gandhi 550 Sam Pitroda Oscar Fernandes A fresh allotment of YI shares was made, in the following manner: No. of Shares Allotted to Remark Amount paid for (`Rs.) 1,900 Rahul Gandhi Citibank cheque dated 20/1/2011 deposited on 14/7/2011 cleared on 15/7/2011 1,90,000/- 1,350 Sonia Gandhi UCO cheque dated 20/1/2011 deposited on 14/7/2011 cleared on 16/7/2011 1,35,000/- 600 Motilal Vora SBI cheque dated 20/1/2011 deposited on 14/7/2011 cleared on 16/7/2011 60,000/- 50 Oscar Fernandes SBI cheque of 20/1/2011 deposited on 25/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res of the Young Indian (YI) and the cost of acquisition of those shares by Mr. Rahul Gandhi was his income. In support of this position, the Revenue relied upon a letter written by its Department of Investigation dated 11.05.2015 and letter dated 08.06.2015 and a tax evasion petition (TEP) addressed to the Finance Minister by Mr. Subramanian Swamy. Mr. Rahul Gandhi requested the ACIT for copies of the documents to enable him to articulate appropriate objections. The request dated 26.05.2018 was declined on 04.06.2018. Consequently, a request for inspection of the complete records of assessment for AY 2011-12 was made on 11.06.2018 which was granted on 13.06.2018 only to the limited extent that inspection of Reasons to Believe recorded and the approval therefor granted under Section 151 was permitted. The request for inspection of other documents was rejected. Yet, another consequent request for permission to inspect the complete records was made on 14.06.2018 which met with similar fate on 15.06.2018. The further request made on 20.06.2018 and 26.06.2018 for permitting inspection of the entire record was rejected. In these circumstances, the petitioner, Mr. Rahul Gandhi availed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is letter, it was stated that a question with respect to non-furnishing of particulars does not arise. It was stated that Section 148(2) required only reasons to be recorded. Regarding the next issue, i.e. delay, it was stated that there was no delay in the issuance of the notice and that the material relied upon was not stale. Explaining that as far as the legal position on the question of issue of date of service, the revenue contends that Mr. Rahul Gandhi was served; the notice/intimation dated 31.03.2018, through e-mail which was admittedly received at 11.25 PM and also through registered post, both of which satisfied the requirements of Section 282 of the Act. The revenue further stated that the approval given by the third respondent for the reopening of assessment was after due application of mind. It is pointed out that at the stage of reopening and recording of reasons, there was is no question of granting any hearing or opportunity to the assessee in terms of Section 151. As to the issue of valuation of shares, the revenue alleges that the contention is factually incorrect because the assessee is claimed to have acquired assets (i.e. shares of AJL) which were to be valued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Young Indian s shares by Ms. Gandhi was her income in terms of Section 56(2)(vii)(c)(ii) of the Act. The Reasons to Believe relied on the TEP as in Mr. Rahul Gandhi s case, the report of DIT (Investigation) dated 11.05.2015, as well as letter dated 08.06.2015. Upon repeated requests, the revenue refused to give copies or allow inspection into the materials which resulted in the reassessment notice, impugned; however, it granted inspection of the note recording reasons. Ms. Sonia Gandhi represented against the reassessment notice; that was rejected by the ACIT on 31.07.2018. 10. In support of the petition, Ms. Sonia Gandhi states that the re-assessment notice is vitiated because the notice issued under Section 148 of the Act was barred by limitation prescribed under section 149 of the Act; likewise, sanction under section 151 of the Act accorded was a mechanical one treated as an empty formality. It is alleged, like in Rahul Gandhi s writ petition, the impugned notice issued is vitiated on account of violation of principles of natural justice; that notice issued under section 148 of the Act is barred by limitation prescribed under section 149 of the Act; Sanction under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reassessment proceedings were initiated with a premeditated mind set and a mala fide intention. Contention of parties 12. Mr. P. Chidambaram, learned senior counsel argued Mrs. Sonia Gandhi s and Mr. Oscar Fernandes writ petitions; Mr. Arvind Datar, Senior Advocate argued Mr. Rahul Gandhi s writ petition. Mr. Tushar Mehta, the learned Additional Solicitor General appeared and opposed the writ petitions, on behalf of the revenue; the Union of India was represented on advance notice on 08.08.2018; the counsel were heard that day; the court had requested for production of the original file relating to the three petitioners on the next date. On 14.08.2018 notice was issued to the Union of India; the writ petitions were further heard and reserved for judgment, that day. 13. Mr. Arvind Datar, Senior Advocate appeared for Mr. Rahul Gandhi and Mr. P. Chidambaram, Sr. Advocate, appeared for Mrs. Sonia Gandhi and Mr. Oscar Fernandes, made substantially common submissions. The added arguments in the case of Mr. Rahul Gandhi were that the scrutiny assessment under Section 143(3) completed for the relevant AY 2010-11, had enquired into all facets of the income declared; the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that Mr. Rahul Gandhi was a Director of second company is not circumstances or material fact necessary to complete assessment. Mr. Datar argued that when Mr. Rahul Gandhi did not earn any income or acquire any interest in the asset on account of becoming Director in YI, non-disclosure of such Directorship could not be the basis for reopening the assessment during the extended period. Reliance is placed upon CIT v. Kelvinator India Ltd. 320 ITR 561 (SC); Commissioner of Income Tax, Central-I v. Indo Arab Air Services 2015 (64) Taxmann.com 257 and United Electrical Company (P) Ltd. v. CIT 258 ITR 357 (Del). Since the alleged non-disclosure was relied upon to reopen assessment literally at the eleventh hour, there is no other basis for impugned notice, the same is invalid. 15. It is argued that the impugned re-assessment proceedings have been done in haste and with a pre-meditated mind, are not bona fide, and the AO s reason to believe as well as the satisfaction of the PCIT are a sham. The revenue states that it received a TEP on17.06.2014 and the investigation reports were received on 11.05.2015 and 08.06.2015. It is, therefore, inexplicable why the AO waited until the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue urges that the sum of ₹ 90 crores is a paper entry and non-existent in the assessment of the company, YI, it cannot be an asset in the assessment of its shareholders. It is argued by counsel that the revenue cannot treat the debt of ₹ 90 crores as a paper entry so as to enhance YI s tax liability and simultaneously treat it as an asset in the hands of its shareholders and reopen their assessments. 18. Learned counsel submitted that the reassessment cannot lead to absurd consequences. Here, it is submitted that the debt or assets of YI is alleged to be ₹ 90 crores (approximately) i.e. effectively the total value or net worth of that company. It is a matter of elementary common sense that the value of the shares of the individual shareholders of a company cannot exceed the total value of the shares of that company. If the company has a total value/net worth of ₹ 100 crores, the total value of shareholders of that company cannot exceed ₹ 100 crores. 19. Learned counsel also submitted that the AO s impugned orders rejecting the petitioners objections to the reasons is violative of the principles of natural justice. Upon receiving the reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om any person including the company, YI. There was, resultantly no receipt in FY 2010-11 that was taxable as income in AY 2011-12. 23. It is submitted that YI did not declare a dividend to its shareholders in FY 2010-11. It did not buy back the shares from its share-holders. That company did not issue any bonus shares. In sum, there was no transaction between 22.01.2011 and 31.03.2011. Hence, the assessees received nothing from Young Indian in FY 2010-11 that could be taxable as income in AY 2011-12. 24. Mr. Chidambaram and Mr. Datar argued that in any event, the Section 56(2)(vii)(c)(ii) does not apply in view of the fifth proviso, clause (g) thereto, which reads: Provided further that this clause shall not apply to any sum of money or any property received- .......... (g) from any trust or institution registered under section 12AA; It is argued that YI is a Section 25 company. On 29.03.2011, it applied for exemption under Section 12AA of the Income-tax Act, which was granted to it on 09.05.2011 with effect from the year 2010-11. Resultantly, on 22.01.2011 (and even on 31.03.2011), YI was a Section 25 company entitled to exemption under Section 12AA of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is calculation is plainly wrong and bizarre. No reassessment can be made on the basis of a wrong and bizarre calculation and reason to believe based on the said wrong and bizarre calculation. 27. Both counsel argued that the reason to believe of the AO is perverse. On the facts of the present case and the applicable law, no reasonable person could have come to the conclusion that there is reason to believe that income has escaped assessment. It is obvious that the AO had not applied her mind to either the facts or the applicable law. Therefore, she did not have, and could not have had, the requisite reason to believe . Here, reliance is placed on Income Tax Officer v. Lakshmani Mewal: 103 ITR 437(SC); Commissioner of Income Tax v. Orient Craft Ltd.354 ITR 536 (Del); G.S. Engineering Construction Corporation v. DDIT-357 ITR 335(Del) and Shipra Srivastava v. ACIT: 184 Taxman 210 (Del). 28. Counsel attack the satisfaction recorded by the PCIT as perverse. It is urged that the case was apparently submitted to him only late on 31.03-2018. According to the Order of the AO dated 31.07.2018 (rejecting the objections to the reasons ), the PCIT did not take more than 20-3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a scheme of takeover of the AJL by the assessee for a song i.e. without making any payment. It is submitted that contrary to the above, in the present proceedings, the case of the AO is that there was a genuine loan owed by AJL and it was this loan that was acquired by Young Indian for a consideration of ₹ 50 lakhs. The revenue, therefore, cannot be allowed to take contradictory positions in respect of the same transaction (namely, the loan) in respect of two proceedings (one against YI and the other against the shareholder/assessees). If the order of re-assessment dated 27.12.2017 in the YI s case is correct, the entire basis of the notice of reassessment and the reasons in the present proceedings will fall to the ground. 31. Mr. Tushar Mehta, learned ASG for the Union emphasized the limited scope of this court s jurisdiction in exercise of judicial review over reassessment notices. He stated that the judicial pronouncement defining the scope of judicial review have consistently shown that firstly the High Court would not substitute its own reasons to believe in place of reasons to believe recorded by the AO; secondly the recording of reasons to believe by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince this issue was never examined in the original assessment proceedings. In fact, this issue does not arise since Mr. Rahul Gandhi had failed to disclose truly and fully that he was shareholder or had any interest in YI at the relevant time. As regards others, it is submitted that since there was no scrutiny assessments and their returns were processed under S. 143(1). Deputy Commissioner of Income Tax v Zuari Estate Development Investment Co Ltd 2015 (15) SCC 248 has reiterated that there being no assessment under Section 143(1), the question of change of opinion, as contended, does not arise. 32. In the case of the assessees/shareholders of YI, this is the taxable event i.e. 22.1.2011 [date of allotment of shares] as, it is on this date that they were allotted shares of Young Indian at ₹ 100/- per share. As on 28.12.2010, the assigned debt of ₹ 90.21 crore is an asset / receivable of Young Indian and the value of shares allotted to each of them needed to be calculated / determined keeping the value of this asset in mind in order to compute the fair market value of the shares received by the Petitioner in terms of Section 56(2)(vii)(c)(ii).In this ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores in which YI acquired beneficial interests on 26.02.2011 by virtue of conversion of debt into equity by AJL giving 99 per cent of its shares to YI. It is submitted by the ASG that the said sum of ₹ 90.21 Crores was considered only for computing the fair market value of the shares allotted to the assessees. They are not sought to assessed for ₹ 90.21 crores. 35. It is argued that reassessment is based on tangible material and is legal. The ASG urged that the reasons recorded for issue of notice under Section 48 reveals that the AO s belief this case was based on credible information and documents received from investigation wing [much after completion of original assessment], documents and information/material/evidence collected by the AO during the follow up enquiry as a sequel to receipt of information from investigation wing and analysis of facts emerging therefrom and the relevant provision of the Act as well as the judicial pronouncements. Elaborating on this, it was submitted that the TEP and report of the investigation wing in which significant observations were recorded showing that the only purpose of incorporation of YI appeared to be to acquire proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . These facts establish that the requirements of provisions of section 147, First Proviso to section 147, Sections 148, 149 and 151 were all complied with in this case. 38. Refuting the petitioners submissions as incorrect the ASG urged that for the revenue, the conversion of debt (owed by AJL to INC (later assigned to YI)) into 99% equity of AJL s shares in favour of YI is not the taxable event for the assessees. Therefore, this subsequent event, which took place on 26.02.2011, was wholly irrelevant for the purposes of the assessees. The taxable event in these cases is the allotment of YI s shares to the assessees @ ₹ 100 per share on 22.01.2011 for a consideration, which is less than the aggregate fair market value of the property and it is the difference between the fair market value and the actual consideration paid for the shares which is sought to be assessed as income from other sources in accordance with Section 56(2)(vii)(c)(ii) read with the Rules. It is argued that when the right to recover the loan from AJL was assigned by INC to YI as is alleged by them on 28.12.2010 through an assignment deed [prior to which a Journal Entry was also made by AJL substitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) (b) and (2) are relied upon to say that though such companies may not declare dividend to members, they can certainly earn profit in any of its permissible activities and is, therefore, a taxable entity. That these companies need an exemption from payment of tax under section 12A clearly reflects that the Income Tax Act treats a company under Section 25 to be a taxable entity. It is submitted that, therefore, when Mr. Rahul Gandhi was asked on 06.08.2013 by the AO to furnish details of all sister concerns and legal entities where you have interest as a partner or director he replied stating that During the relevant previous year the assesse was not a partner or Director of any other legal entity. The learned ASG submitted that by giving such information, he failed to make a true and full disclosure of a material fact i.e. his acquiring shares of YI on 22.01.2011 at the face value viz. ₹ 100/- per share and thereby attempted to pre-empt any further question on the issue and subsequent investigation. 41. It is submitted that in law were this court were to hold that an individual assessee who is a shareholder of a company under Section 25 need not disclose his interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased outgoing member s nominee or legal heirs, shall be bound to offer the shares held by such outgoing member to the Managing Committee for sale and immediately upon a Shareholder ceasing to be Member pursuant to Article 4.10 or by reason of the death of the Shareholder or otherwise the Managing Committee shall automatically be constituted as the agent for sale of the said shares held by the outgoing member, at the discretion of the Managing Committee, at a value certified as mentioned in sub clause (b) hereunder. The appointment of the Managing Committee as agent of the outgoing member for sale and transfer of the shares of the outgoing member shall not be revocable except with the sanction of the Managing Committee. b. The Managing Committee shall sell the shares of the outgoing member at the price which the Auditor of the Company for the time being shall certify by writing under his hand to be in his opinion the fair selling value thereof as between a willing vendor and a willing purchaser. c. Upon the price being ascertained as aforesaid, the Managing Committee shall forthwith give notice to all the Founder Members of the Company of the numbers and price of shares to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the A.O., prima facie, had a justified reason to believe that at the time when fresh shares were allotted to the assessees, on 22.01.2011, the value of their shares was not ₹ 100/-each but was ₹ 8,15,708.16 per share as calculated in terms of Rule 11 UA. Such shares can be transferred at the rate of ₹ 8.15,708.16 per share which is fair selling value as per Memorandum of Association of YI and fair market value is stipulated under section 56(2)(vii)(c)(ii) read with Rule 11 UA. 44. It is argued that Section 56 creates a legal fiction that if an assessee receives any property (shares in the present case) for a consideration which is less than the aggregate fair market value of the property, such property (i.e. shares in this case) would be income from other sources . Further, the ASG dealt with the petitioners argument that Rule 11UA was not followed correctly (i.e. that the pre-existing rule at the time of allotment- was not taken into consideration and that the paid-up equity capital [PE] of YI, treated to be only ₹ 1,10,000 [based upon the paid-up capital equity of 1100 shares], is incorrect and the PE in the below mentioned formula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst issue which was urged, attacking the reassessment notice and proceedings emanating from it, relates to the satisfaction recorded by the AO (that she had reasons to believe ) that income had escaped assessment. The first limb of this issue, so to say, pertains to the attack on the materials (in the form of two reports of the investigation wing and the TEP), which it is said, were with the revenue authorities for some substantial time, before the reassessment notice was issued, literally, at the eleventh hour. 47. The assessees did not argue that the material which was relied upon was stale; their submission, rather was that reliance on material which was lying with them for over 2 years, ought not to have been in the form of reassessment notice at the eleventh hour; this move, they state, constitutes mala fide exercise of power; it also reeks of non-application of mind. Now, none of the authorities cited or available, on a search of the case law, to the extent possible, show that the courts in exercise of judicial review have intervened to quash a reassessment notice, on the basis of material that is not acted upon promptly or that the material is stale. The emphasis is, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming this belief is not for the court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and nonspecific information. To that limited extent, the court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bed procedure, within the time prescribed? The argument of the assessees on this issue are broadly that the hasty intimation through email process, of the reassessment for the relevant period, shows facial mala fides. The further submission is that the speed post communication with notice, later, was of a copy; the proper email communication with a scanned copy of the intimation, in the relevant form was received later. 51. Reliance was placed on the Centralized Communication Scheme, 2018 dated 22.02.2018 the relevant part of which reads as follows: (2) The notice shall be issued under digital signature of the designated authority. (3) The notice shall be served by delivering a copy by electronic mail, or by placing a copy in the registered account on the portal followed by an intimation by Short Message Service The assessees further state that the relevant instruction, i.e. Notification No. 8, was not adhered to; the extract of that notification reads as follows: 5.2 Use of digital signature by Assessing Officer: All departmental orders/communications/notices being issued to the assessee through the e-Proceeding facility are to be signed digitally by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no allegation of personal mala fides against any official, or that anyone of them was hostile to the petitioners. Consequently, the mere circumstance that reassessment notice was issued on 31.03.2018 does not vitiate the notice or the proceedings. 54. The next main submission of all the assessees is that the value of a share is something which entitles the shareholder to participate in the profits of the company but that she or he does not acquire any interest in the assets of the company. No doubt, Bacha F. Guzdar (supra) is an authority for that principle of law; subsequent judgments have reiterated the same position. But the court notices that the enunciation of law was in the context of an assertion by a shareholder in a tea company (whose income was treated as agricultural to the extent of 60% and, therefore, exempt) that a proportionate portion of the dividend received by her was exempt. The Supreme Court clarified that a shareholder, upon acquiring shares in a company becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares, subject to Articles of Association, that the profits or the portion there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 33 per share, and not ₹ 10/- per share. That judgment, in this court s opinion, has no relevance, because the shareholder had, in the original returns, declared the value of the shares acquired. The High Court, quite correctly held that the reassessment was based on a second opinion or a review, which was proscribed in law. The effect of this provision was explained in Commissioner of Income Tax v. Neelkamal Realtors and Erectors India Pvt. Ltd 2017 SCConLine Bom 5632 in the following manner: So far application of section 56 (2) (vii) (b) (ii) of the Act is concerned, it is self-evident that it only applies to individuals and Hindu Undivided Family. Moreover, it seeks to tax the transferee of the property for having given consideration for which is less than the stamp value by ₹ 50,000/- or more for purchase of the property. 56. This court notices that the provision was introduced through an amendment to the Income Tax Act with effect from 01.10.2009. No provision of the like kind existed when Bacha F. Guzdar (supra), (dealing with fair market value being the basis of determination of a deemed income, in the event of acquisition of unquoted shares,) was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r administrative duties only if he possesses the prescribed qualifications Section 147 The whole. Section 160(1)(aa) The whole. Section 166(2) The whole, provided that the time, date and place of each annual general meeting are decided upon beforehand by the Board of Directors having regard to the directions, if any, given in this regard by the company in general meeting. XXXX XXXX Section 292 Matters referred to in clauses (c), (d) and (e) of sub-section (1) may be decided by Board by circulation instead of at a meeting. Section 299 Shall apply only to cases to which sub-sections (1) and (3) of section 297 apply. XXXX XXXX Note that any exemption granted by the Central Government cannot be taken advantage of, where the body concerned has, by its articles, made its own provision in respect of the subject matter of such exemption. 59. The specific contentions of counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business activities are aimed solely at feeding the trust and furthering their objectives. The rigid insistence on the disclosure obligations and duties and responsibilities of directors, therefore, would detract the effort of feeding charity and furthering charitable objectives. 62. This, however, does not automatically mean that the exemption in regard to provisions of the Companies Act and the disclosure which individual directors have to make to the Board, would in any manner suspend obligations under other laws. In this case, Section 52(2) (v)(c) (ii) clearly deems that the acquisition of certain shares or property can lead to income and the mechanism for dealing with it. Unless that income or information related to it is exempted from the provisions of the other laws -such as taxation laws which enact individual taxation events, the returns that an individual member (or directors) have to disclose regarding the relevant event of share acquisition, it cannot prima facie be held that the individual is exempted altogether from disclosing her or his interest in the acquisition of shares in the not-for-profit company. Here a company acquired an asset on 13.12.2010 (i.e. ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest is includible therein we are referred to Ahmed G.H. Ariffand Others v. Commissioner of Wealth-Tax, Calcutta, [1970] 76 I.T.R. 471. I have no doubt that the expression 'property' must bear a comprehensive import. The question remains whether what is conveyed under the three deeds of settlement to the assessee is a right to anything more than the prescribed minimum under each deed. I may reiterate that the interest extends to no more than that minimum. In this case, given the wording and terminology of Section 56 (2) (vii) (c) (ii), the precedent has no application. It is not the beneficial interest which is in issue here; rather it is the value of the shares acquired on allotment. 64. The next submission made was that disclosure of interest in a not-for-profit company, was not necessary in case of receipt of money or property, from a charitable trust (including a not-for-profit company), in view of the fact that Section 56(2)(vii)(c)(ii) does not apply in view of the fifth proviso, which reads as follows: Provided further that this clause shall not apply to any sum of money or any property received- .......... (g) from any trust or institution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue which this court would discuss, is the formula applied. The petitioners had urged that the amended rule and not the rule which applied when the shares were acquired, was applied to re-open their assessments. The relevant rule, applicable with effect from 18.02.2010 reads, inter alia, as follows: In exercise of the powers conferred by section 295 of the Income tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:- 1. Short title and commencement. - (1) These rules may be called Income-tax (Second Amendment) Rules, 2010. (2) They shall come into force from the 1st day of October, 2009. XXXXXX XXXXXX XXXXXX 11U. Meaning of expressions used in determination of fair market value. - For the proposes of this rule and rule 11UA,- XXXXXX XXXXXX XXXXXX 11UA. Determination of Fair Market Value. - For the purposes of section 56 of the Act, the fair market value of a property, other than immovable property, shall be determined in the following manner, namely,- XXXXXX XXXXXX XXXXXX (b) the fair market value of un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f P/L account, provision for taxation, etc called L ), multiplied by the paid up value of such equity shares (PV) and divided by the total amount of paid up equity share capital as shown in Balance Sheet (PE) (Expressed in the rule as Fair value= (A-L) * (PV) (PE)). 67. The share allotment to Mr. Rahul Gandhi (1900 shares) and Mr. Oscar Fernandes (600 shares) on 22.12.2011, and the allotment of 1350 shares to Mrs. Sonia Gandhi (which increased her holding to 1900) on the same day is said to be the taxing event. The book value of the assets in the balance sheet of the company, YI (which was A) on that day included ₹ 90.21 crores and, therefore, increased; from this the liabilities, (which included the ₹ 1 crore borrowed to acquire the asset) had to be deducted. This reduced the asset value by ₹ 1 crore. The ₹ 88 crore odd had to be divided by the paid up value of the equity shares, i.e. ₹ 5,00,000/- and multiplied by the paid up value of the equity shares of the shareholder. If this formula were applied, the fair market value at which Mr. Rahul Gandhi, Ms. Sonia Gandhi and Mr. Oscar Fernandes were allotted the shares (@ ₹ 100/- each) exceeded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be. There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet a possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income-tax Officer might have discovered, the Legislature has put in the Explanation, which has been set out above., In view of the Explanation, it will not be open to the assessee to say, for example- I have produced the account books and the documents: You, the assessing officer examine them, and find out the facts necessary for your purpose: My duty is done with disclosing these account-books and the documents . His omission to bring to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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