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TMI Blog2018 (11) TMI 1005X X X X Extracts X X X X X X X X Extracts X X X X ..... the receipt is taxable under the head “income from other sources” for the reasons as given in his order. The law, in our view, does not place limitations as to the manner in which the AO proposed to tax particular receipt. To protect the interest of revenue, in our view, it is open for the assessing officer to bring to tax receipt under various sections when he is in doubt. Alternative/Multiple reasoning by the assessing authority while arriving at a conclusion that the receipt in taxable is permissible. We are of the considered opinion that we have the power to examine the action of the Assessing Officer in holding that, the receipt in question can also be brought to tax u/s 28(ii)(a) of the Act and u/s 45 of the Act. There is no bar under the statute to the powers of the Tribunal to remand the matter back to the file of the Assessing Officer or to the file of the ld. CIT(A) with or without directions. It is not the case of the Assessing Officer that the assessee is managing the whole of the affairs of GI. Its his case that the assessee has a significant role which is of some substance or worth in the affairs of the company because of his special rights by virtue of the shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of India Limited ( NSE ). The original promoters agreement was amended on 10th May, 1992 and 5th June, 1992. 3. Indian Shaving Product the listed company, engaged in the manufacture, marketing and distribution of shaving products under GILLETTE 7 O CLOCK and other brand names owned and licensed to ISP by Gillette. 4. On 10th July, 1996 a share holder agreement was entered into between Sri Saroj Kumar Poddar (SKP) and Gillette company (GI). The assesee, Mr. Saroj Kumar Poddar directly or through his nominees held approximately 17% of the paid up equity share capital, of the company Indian Shaving Product (ISP) and M/s Gillette Company (Gillete) held 51% of the paid up equity share capital of ISP on the date of signing of the share holder agreement (SHA). 5. We now extract from the share holder agreements, facts relevant to the issue on hand, for ready reference:- SHAREHOLDERS AGREEMENT dt. 10/07/1996 2.Equity 2.1 SKP will endeavour within 2 years from the date hereof consolidate all shareholding in ISP controlled by himself and his wife and male descendants ( SKP's Family') into the name of Sonali Estates Ltd ( Sonali ). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3.6. The Managing. Director will consult in a timely manner with the Chairman on all matters to be placed on the Board agenda and on other important decisions including those of policy and principle. 3.7 The Chairman shall retain the same rights and privileges as are current at the date hereof and shall have right of' access to all financial and other information on the company s activities as required in his role as Chairman and Director. 3.8 The. Chairman's involvement in planning processes, business reviews, investor relations, etc will be in accordance' with the guidelines to be agreed in writing from time to time between Gillette and the Chairman. 6. In the year 2001, ISP was renamed to Gillette India Limited ( the Company or GIL ). Thereafter in the year 2005, Gillette USA was acquired by Procter and Gamble Company USA ( P G ) . The two promoter groups of GIL i.e. P G was holding 75.9% of the share capital (equity) and the assessee alongwith individuals who were related to him and entities which were controlled by the assessee, collectively known as Poddar Group was holding 12.86% equity share capital of the Company. Thus in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... keover Regulations ) for the re-classification of the Continuing Poddar Group Members as part of public shareholders of Gillette and for P G to sell certain equity shares of Gillette held by it in the OPS. 1. Current Shareholding Pattern of Gillette Sl. No. Name Shareholding 1. P G 75.90% 2. SKP and its affiliates (Poddar Group) (Please refer to Schedule 2) 12.86% 3. Public 11.24% Total 100% 2.Steps involved in the Transaction P G, SKP, the Selling Poddar Shareholders (who have agreed to reduce their shareholding to enable compliance with the SEBI Approval) and the Continuing Poddar Group Members, as existing promoters have agreed that the following steps would be undertaken to achieve compliance with minimum public shareholding requirements of Gillette : ( i) For compliance with the SEBI Approval, the OFS would be undertaken by P G, SKP and the Selling Poddar Shareholders, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tte for payment of the Compensation to SKP, and no interests of the minority shareholders are being affected as this payment is being made to SKP in his personal capacity for removal of the special rights held by the Poddar Group as an original promoter and founder of Gillette at the time of its incorporation and thereafter pursuant to the Articles and the SHA. Subject to compliance with the conditions set out in the SEBI Approval, all parties agree and 'acknowledge that payment of the Compensation will not require an open offer to be made under the Takeover Regulations. ( vi) The deletion of articles listed in Schedule 5 from the Articles and the termination of the SHA shall be effective (a) after the OFS is completed and the sale consideration is received by SKP and the Selling Poddar Shareholders pursuant to the OFS and (b) upon SKP receiving the Compensation from P G . Calculation of Compensation 11. For the purpose of calculating the Compensation payable to SKP for termination of the SHA and the special rights incorporated in the Articles, P G and SKP have mutually agreed that the measure of reasonable compensation payable for such termination is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its affiliates under the SHA. D. The Explanatory Statement Pursuant to Section 102 of the Companies Act, 2013 dated 20th November, 2013 issued by the Company is extracted for ready reference :- Item No. 1 Your Company is required to complete the requited steps towards ensuring compliance with the Minimum Public Shareholding (MPS) requirement (atleast 25% public stake) directed by the Securities Exchange Board of India (SEBI) consequent to the amendments to the Securities Contracts (Regulation) Rules, 2010 (SCRR) read with the Listing Agreement. In terms of the said requirements, your Company was required to comply with the said MPS requirement by June 3, 2013, since the public shareholding in the Company was only 11.24% whereas the promoter groups namely the Procter Gamble Group (P G Group) and the Poddar Heritage Group (poddar Group) held 75.90%) and 12.86% stakes in the Company respectively. A proposal-in this regard which was submitted to $~lU was not accepted by SEl3I. and the same was also over- ruled by the Securities Appellate Tribunal (SAT). Thereafter due to the pro-active engagement of the promoters with SEBl, SEBI finally approved a propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rance compensation amount of ₹ 200 Crores (Rupees Two Hundred Crores) to Mr. S. K. Poddar for termination of the SHA and consequent relinquishment of all special rights conferred on the Poddar Group pursuant to the SHA and the Articles of Association'. As the Articles of Association are being amended in connection with the Termination of the SHA, the amendment of the Articles of Association and the vacation of the positions as Directors of the Company of Mr. S. K. Poddar (Chairman) and Mr. Akshay Poddar shall be effective after .payment. of the above. mentioned severance compensation by the P G Group to Mr. S.K Poddar. The public shareholding in the Company would resultantly increase to 25%, in compliance with the SEBI MPS requirements. The said severance compensation would have no impact on the Company and would not impact the interests of the minority shareholders. . ' Mr. S.K. Poddar, Chairman and Mr. Akshay Poddar, Director are deemed to be interested in this item of business. The Board of Directors recommends the proposal for approval by the Members, by exercising their vote through the Postal Ballot. Portion of the ORDER of SEBI dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch assessee is claiming as not to be taxable under any provision of the Act, is actually taxable under different provisions / heads of income of the Act, alternatively. The above discussion is for refuting / invalidating / rebutting/ the various multiple exemptions claimed by the assessee regarding the Compensation received and underscoring the areas as to where the said compensation may be brought to taxation as per the provisions of the I T Act,1961, if the different contentions are made by the assessee at subsequent stages in a bid to save the said compensation from taxation. The purpose here is to underscore the fact that the said amount is taxable under different provisions of IT Act, 1961 even if assessee takes a different presumption and interpretation of said compensation in due course. This should not be taken as a plea by the assessee that since the same is being discussed as taxable under more than one heads, it is not taxable at all. 14. Alternatively and without prejudice to the above stand that the amount in question is taxable u/s 56 of the Act, the AO held that receipt in question was taxable u/s 28(ii) (a) of the Act. He held that the assessee was substantial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee was representative of the entire Poddar group and hence the compensation received only by him is the income of all the members gifted to him. The said discussion is made in pursuance of paras 42 and 43 of this assessment order. 124. As stated above, it is a clear case of tax evasion by both the Assessee and the Group Companies and the Compensation received is taxable as income from other sources u/s 56 as per the discussion made in the earlier portions of this assessment order mentioned in para 70(vi) in the following manner : Shareholder % transfer Amount Taxability Assessee 0.69 Rs.10,72,26,107/- No Not taxable as per the above discussion Family Members of assessee 0.97 Rs.15,07,38,150/- No Not taxable as per the above discussion and exempt as received from relatives Group entities of Assessee 11.21 Rs.174,20,35,742/- Taxable under section 56 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that it could not be done manually and that it requires certain procedural approvals. He submitted that every effort is being made in this regard to comply with the order of the ITAT at the earliest. Regarding the paper book, the learned Special Counsel submitted that he agrees that it is not in accordance with the rules and submitted that every effort would be made to rectify the defects in the paper book during the course of hearing itself. He submitted that the additional evidence contained in the paper book is in the public domain and hence no separate application is required to be filed u/s 29 of the ITAT Rules for admission of the same. He prayed that the department be allowed to defend the order of the ld. CIT(A) and to refer to the paper book filed by it. 20. The learned Senior Counsel Shri J.D.Mistry, without prejudice to the above stated objections, started his arguments on merits, by taking the bench to the facts of the case. He submitted that the AO ultimately chosen to tax the assessee by invoking section 56(2) (vii) of the Act and holding that ₹ 25.79 crore(approx) out of ₹ 200 crores of the severance compensation received is not taxable and that on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the sections that were considered at length by the AO and the conclusions drawn by the AO that the amount in question is taxable as income under those Section except, the AO s finding that the receipt in question is taxable u/s 28(ii)(a) of the Act and that it is alternatively u/s 45 of the Act under the head capital gains specifically with reference to section 55(2)(a) of the Act. 23. The learned Sr. Counsel Shri J.D.Mistry submitted that as the learned Special Counsel has stated that the stand of the AO as confirmed by the ld. CIT(A) is basically wrong , as the receipt in question cannot be brought to tax u/s 56(2)(vii) of the Act and hence nothing survives and that the appeal of the assessee has to be allowed. He contended that, though the AO, in an elaborate order, considered various possible Sections based on which the receipt in question can be brought to tax under Income Tax Act, 1961 ultimately, the receipt was brought to tax only u/s 56(2)(vii) of the Act and not under any other section in the Act. His contention is that once the Special Counsel has given up the departmental stand that the receipt in question is taxable u/s 56(2)(vii) of the Act, then no other sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were vested in the Appellant. would in no way amount managing the whole or substantially the whole of the affairs of the company. The Appellant submitted that the same i also apparent from the following submissions- ( i) The Appellant together with other group entities held only 12.86% shares of the Company whereas P G held 75.90% shares of the Company. (Pg. 14 of the AO's Order) Therefore, it is clear that P G was the majority shareholder having three fourth majority and the Appellant was only holding a small percentage of 12.86% of the total share. This would clearly show that the management of the company was with P G and not the Appellant. ( ii) Under clause 3.3 of SHA (Pg 2) the managing director was to be nominated by Gillette. Further clause 3.5 of SHA (Pg 3) provided that the managing director will have management of whole of the affairs of the company subject to applicable provisions of the Companies Act. The chairman i.e. the Appellant will only be consulted by the managing directors on issues relating to policy and principle. Therefore, it is clear that the company-was being managed by the managing director which was the nominee of P G and not the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he hands of the Appellant. The articles as pointed out by the Counsel merely show that the Appellant had certain rights in the company but from the same it is impossible to concluded that the management of' the Company was wholly with the Appellant. In fact Article 117(2) 125(3) support the case of the Appellant. Article 73. 117( I) provide that the Chairman does not even have the casting vote in the board meetings. ( ii) The Appellant has only carried on activity as a non executive chairman of the Company and has not done anything further. The message from the non executive Chairman in the annual accounts does not mean that the Appellant is managing the Company. ( iii) Similarly. having a separate office space by itself is also an irrelevant factor to decide on the issue of management of the Company. 2. The receipt must be of income character even to come within section 28(ii)(a)- The Appellant submitted that even for a compensation to be charged under section 28(ii)(a) of the Act, it must be a revenue receipt and not a capital receipt. The Appellant submitted that section 2(24)( (v) provide that any sum chargeable to income tax under clause (ii) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the capital gains cannot arise on account of the non-compete agreement entered into by the Appellant on 18 January 1996. The Appellant submits that firstly the compensation of ₹ 200 crores received by the Appellant has no relation to the non-compete agreement dated 18 January 1996 entered into by the Appellant. The compensation of ₹ 200 crores has been received by the Appellant on account of the termination agreement and the severance agreement entered into by the Appellant with P G. 3. Secondly. the Appellant submitted that the amount received by the Appellant under the non-compete agreement has already been held to be a capital receipt by the decision of the jurisdictional High Court of Calcutta in the case of ClT v Saroj Kumar Poddar [151 Taxman 153 ]. There has been no breach of the said agreement and hence there is no question of any further consequence flowing from the said agreement. 4. Thirdly. the Appellant submitted that, under the non-compete agreement the Appellant had taken an 'obligation not to compete' and not a right' and had received the compensation for the same. Therefore, the Appellant submitted that there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok the bench through various clauses of the Articles of Association and submitted that the shareholder agreement along with the Article of Association of the company, would lead to a conclusion that Shri Saroj Kumar Poddar was managing substantially the whole affair of the company. He submitted that the chairman and the director appointed in terms of the SHA by the assessee, cannot be considered to be the non executive directors of the company. He drew the attention of the bench to the annual reports, and submitted that the Chairman has reported on the performance of the company year after year and hence it would be wrong to conclude that he was not managing substantially the whole of the affairs of the company. He argued that the bench should draw any inference from the SHA and Articles of Association. He submitted that the assessee is a key management personnel of the company GI and that he has given up those rights by way of Termination Agreement and Severance Agreement, for a price. He referred to the following decisions in support of his contention that the assessee is a key management personnel:- a) Ramchandiram Mirchandani vs The India United Mills AIR 1962 Bom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e manner in which the AO proposed to tax particular receipt. To protect the interest of revenue, in our view, it is open for the assessing officer to bring to tax receipt under various sections when he is in doubt. Alternative/Multiple reasoning by the assessing authority while arriving at a conclusion that the receipt in taxable is permissible. The Hon ble Supreme Court in the case of Lalji Haridas vs I.T.O. and Anr. 43 ITR 387 (SC) on the issue of Protective assessment held as follows :- In cases where it appears to the income-tax authorities that certain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie it appears that the income may have been received either by A or B or by both together, it would be open to the relevant income-tax authorities to determine the said question by taking appropriate proceedings both against A and B. That being so, we do not think that Mr. Nambiar would be justified in resisting the enquiry which is proposed to be held by respondent No. 1 in pursuance of the impugned notice issued by him against the appellant. Under these circumstances we do not propose to deal wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear and considered opinion that the directions of the learned Tribunal in para 7 for holding an inquiry into the matter by the Assessing Authority into the aspect of fair market price of the shares bought back by the Assessee from its major share holding Mauritius Holding Company is not beyond the jurisdiction of the learned Tribunal and the said remand direction of the Tribunal to hold such an enquiry not only falls within the ambit and scope of the subject matter of the appeal filed by the Assessee by which he claimed that the remittance by the Assessee Company to its Mauritius Holding Company could not be taxed as dividend, forgetting the aspects relating to Clause (e) of Section 2(22) of the Act and therefore the said directions were within the subject matter or the issues raised by the Assessee and making a direction to hold an enquiry into the aspect of fair market value of shares cannot be said to be beyond the subject matter of the appeal. The said directions cannot be said to be per se amounting to taxability of the said payITA No.1695/Kol/2017 Shri Saroj Kumar Poddar A.Y.2014-15 24 out by the Appellant Assessee as 'Dividend' but the same would depend upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate Authority under the Act cannot be intended by the Parliament to have lesser power than the first Appellate Authority as is well settled that the powers of the Appellate Authorities are always co-extensive with that of the Assessing Authority and therefore what the Assessing Authority or the first Appellate Authority could do in the matter of assessment, the Tribunal cannot be said to have any lesser power to do so. 63. Section 254 of the Act, in our opinion, does not have any narrower scope to put fetters on the powers of the Tribunal as is sought to be canvassed before us that the Tribunal could not have exceeded the grounds raised before it by the Appellant Assessee. The Appellant may be either Assessee or Revenue before the Tribunal and the Tribunal has also powers to allow fresh ground of appeal or allow the other party to the appeal to file its cross objections and even suo motu pass appropriate Orders 'thereon' and therefore the words 'as it thinks fit' in our opinion, confer wide powers upon the Income Tax Appellate Tribunal to pass such Orders on the subject matter of appeal 'as it thinks fit' whether the issue is raised by either p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority, as indeed of ITAT, to have ensured that effective inquiry was carried out, particularly in the face of the allegations of the Revenue that the account statements reveal a uniform pattern of cash deposits of equal amounts in the respective accounts preceding the transactions in question. This necessitated a detailed scrutiny of the material submitted by the assessee in response to the notice under Section 148 issued by the AO, as also the material submitted at the stage of appeals, if deemed proper by way of making or causing to be made a further inquiry in exercise of the power under Section 250(4). This approach not having been adopted, the impugned order of ITAT, and consequently that of CIT (Appeals), cannot be approved or upheld. 36. Applying the proposition of law laid down in this case, to the facts of the present case, we are of the considered opinion that we have the power to examine the action of the Assessing Officer in holding that, the receipt in question can also be brought to tax u/s 28(ii)(a) of the Act and u/s 45 of the Act. There is no bar under the statute to the powers of the Tribunal to remand the matter back to the file of the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee and its group had enjoyed important rights which had some substance in management and control of the company ISP, pursuant to the share holders agreement of 1996. 37. As already stated that the severance compensation for termination of special rights enjoyed by the assessee and Poddar Group in GI was a negotiated amount arrived between the parties. This is not a case of ex-gratia payment or windfall much less a casual payment. The payment in question is definitely for extinguishment of special rights, in addition to termination of the significant control and say of the assessee and its group in the affairs of the management of GI. In our view, the ld. CIT(A) should have examined whether such extinguishment of rights in management falls within the ambit of taxability under the head capital gains i.e. Section 45 of the Act. This is not done. Even the arguments of the assessee that the receipt in question is not taxable u/s 28(ii) of the Act, has not been dealt by the ld. CIT(A). The finding of the Assessing Officer is that, the assessee manages substantially the whole of the affairs of GI. The ld. Counsel for the assessee argues that the rights that the non-execut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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