9911796707
TMI Blog2019 (3) TMI 1860X X X X Extracts X X X X X X X X Extracts X X X X ..... money, which was duly replied by the assessee and explained the nature of transaction with notes of account, which also contains capitalisation on interest paid on borrowed funds. Assessment year 2008-09 was also taken up for scrutiny assessment. Once again queries were raised by the Assessing Officer in relation to the JV agreement and option money. Once again, the assessee explained the transaction in the light of details given in the balance sheet and notes to accounts. The order was framed u/s 143(3) of the Act. In assessment year 2011-12 also, the return of income was taken up for scrutiny assessment. The balance sheet and notes of account were examined wherein all the details about the capitalization of interest was properly disclosed and receipt of option money was explained to be adjusted against reduction in the share holding in the year of transfer of shares. It is incorrect to say that the JV agreement was never examined by the Assessing Officer. Right from the first year of scrutiny assessment, after the impugned transaction of option money, JV agreement has been scrutinised by the Assessing Officer alongwith the balance sheet and notes to accounts. It cannot be said t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a stake of 26% and rest of 74% was taken by the assessee. Both the parties agreed that as and when the government eases the norms, the first right of refusal shall be with CUIH and if it refuses to purchase shares of the assessee, the same can be sold to third parties. Same restriction applied to the assessee also. This resulted into sterilisation of the assessee s holding and CUIH agreed to pay option price as described in the JV agreement and it was further agreed that the said option price shall be refundable at the time of transfer of shares by the assessee to CUIH and the manner and mode as well as quantum of refundable option price has been described in Article 16A r.w.s Schedule IX of JV agreement. The sale/transfer of 23% stake by the assessee to CUIH took place in F.Y. 2016-17 relevant to assessment year 2017-18. All the allegations made by the PCIT may be relevant for assessment year 2017-18 when the actual transfer took place. We do not find any merit in applying those allegations in assessment year 2013-14 and 2014-15 to make the assessment orders framed u/s 143(3) of the Act as erroneous and prejudicial to the interest of the revenue. Since the transfer of shares took ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of the PCIT that money invested by DABUR, i.e., the appellant, in AVIVA has come from CUIH. Therefore, the same cannot be held as sham transaction Considering the facts of the case in hand in totality, from all possible angles, we are of the considered view that the assessment orders framed u/s 143(3) are neither erroneous nor prejudicial to the interest of the Revenue. The orders of the PCIT are, accordingly, set aside and that of the Assessing Officer are restored. - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... an Insurance Companies] Regulations, 2000. 8. As per clause 6.9 of the agreement CUIH shall not be under any obligation to subscribe for additional shares to the extent that is prevented by applicable laws whch was at that time 26% for foreign investors. 9. The relevant clauses of the Joint venture agreement read as under: "6.1 If at any time : 6.1.1 the company requires further financing in terms of its Five Year Business Plan and Annual Business Plan presented to and approved by the Board. 6.1.2 The solvency ratio of the Company falls below 120 % of the statutory minimum solvency ratio ( or such other level or range as the Board may agree) (the "Desired solvency Ratio"). 6.1.3 the Board of the Company resolves that further financing is required. 6.1.4 the Appointed Actuary notifies the Board that, in his opinion the Company's financial resources are insufficient to satisfy its working capital requirements; or 6.1.5 the Company is required by Applicable Law to increase its issues share capital; the Company shall, prior to raising finance through any source to meet such requirement including that by way of loans from shareholders, call on each shareholder to provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r expressly agreed that the manner to be determined by it. It is however expressly agreed that such raising of funds shall not issue any fresh equity shares (or any instrument potentially convertible into equity) to CUIH. Dabur and to any Third Party in contravention of this provision. It is further agreed that such raising of funds by the Company shall not require either of the shareholders to assume any financial obligations in respect of such funds. 6.4 Whenever the Company requests the shareholders to subscribe for shares in accordance with clause 6.1, the following procedure shall be applicable :- (a) the Company shall issue a subscription request ("Subscription Request") in the form and substance set out in Schedule 5 and copy it to each of the Shareholders; (b) the Subscription Request for any year shall be issued by the Company between November 1-15; (c) the Shareholders shall be obliged to subscribe to the requisite number of Shares set out in the Subscription Request in accordance with Clause 6.5 below, no later than January 15 of the subsequent year (" Payment Date"). (d) the Company shall be entitled to issue the Subscription Request at any time other than the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank that has furnished the Dabur Guarantee with a copy to Dabur confirming that ; (a) Dabur has discharged its payment obligation in terms of clause 6.5; and (b) Dabur Guarantee can be replaced with a fresh irrecoverable and revolving letter of credit for an amount which is the difference of the amount secured by the existing Dabur Guarantee and the amount contributed by the Dabur to the 6.8 Notwithstanding the terms of Clause 6.1 but subject to Clause 6.9, the shareholders shall not be required to subscribe for shares unless both shareholders are obliged to subscribe for and are issued with the appropriate number of shares as specified in the Subscription Request at the same time. 6.9 CUIH shall not be under an obligation to subscribe for additional shares to the extent that it is prevented by the Applicable Law from doing so. For the avoidance of doubt, CUIH shall always hold a minimum of 26% of the total equity share capital of the company, subject to Applicable Law. 6.10 In the event the Applicable Law Percentage is changed to allow CUIH to hold more than 26% of the total equity share capital of the company, and in the event that the company at that particular point o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n thirty (30) days of such resignation 11.7 The removal of any director from the Board shall be in accordance with Clause 13.24. 11.8 As and when CUlH's shareholding in the Company goes up pursuant to a change in the Applicable Law Percentage. CUIH shaft be entitled to nominate such additional number of directors on the Board as IROA shall approve. " 12. Transfer of shares is government by clause 15 and the same read as under: "15. Transfer of Affiliated Companies. 15.1 A Shareholder (the "Transferring Party35} may at any lime transfer any of its Shares to one or more of its Affiliates provided: 15.1.1 subject to Clause 15.1.5 below, the Transferring Party shall remain jointly and severally liable with the transferee for the obligations of the Transferring Party and shall also be able to exercise the rights under this Agreement in respect of each Share transferred and the Transferring Party shall be constituted as the sole Power of Attorney holder on behalf of the transferee party to deal with the Company without interference from the transferee party ; 15.1.2 the Affiliate shall accede to this Agreement by execution of a Deed of Adherence in the form set out in Schedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any to the maximum Revised Applicable Law Percentage. The rights conferred by this Clause to CUIH shall be exercisable on each occasion (if more than once) when CUIH's shareholding in the Company is lower than the Revised Applicable Law Percentage. In consideration of the terms of this Agreement CUIH hereby grants to Dabur- (a) the right during the Ten Year Period to require CUIH to purchase from Dabur such number of Shares held by Dabur as maybe required to take CU(H Shareholding in the Company to the maximum Revised Applicable Law Percentage; and (b) the right after the Ten Year Period to require CUIH by itself for through its nominee to purchase from Dabur such number of Dabur Shares as would be required to take CUIH shareholding in the Company to the maximum Revised Applicable Law Percentage. The rights conferred by this Clause to Dabur shall be exercisable on each occasion (if more than once) when CUIH's shareholding in the Company is lower than the Revised Applicable Law/ Percentage. The rights available to CUIH and Dabur under this Clause shall be exercised in accordance with the procedures set out in Schedule 6, 16.2 During the term of this Agreement and on ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod. 16.8.2 (Not Used] 16.8.3 If at any point during the Ten Year Period, the Applicable Law requires either Shareholder to engage in a process which. Requires divestment of any Shares, then the Shareholders will cooperate in such process notwithstanding anything to the contrary in this Agreement, if such provision of the Applicable Law requires such a process to be undertaken by a specified time then the process shall be commenced within six months before that time but not earlier In the event, Dabur has to divest its shareholding in the Company 16.8.3.1 If the Market Value realised by Dabur is higher than She Subscription Price plus the Option Price received on such Shares. Dabur shall within thirty (30) days of receiving the Market Value, repay to CUSH the total Option Price (to be calculated in accordance with Schedule 3), paid till date on such Dabur Shares (see illustration 8(1) in Schedule 9) ; 16.8.3.2 If the Market Value is higher than the Subscription Price but lower than the Subscription Price plus the Option Price (to be calculated in accordance with Schedule 3), paid till date on such Shares, Dabur shall repay CUIH, within thirty (30) days of receiving the Marke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) the Market Value is higher than the Subscription Price, Dabur shall repay to CUIH the Option Price (to be calculated in accordance with Schedule 3). pertaining to such shares within thirty (30) days of receiving the Market Value . Provided however, if as a result of repayment of the Option Price, the Net Sale Proceeds per share received by Dabur become less than the Subscription Price, only such part of the Option Price shall be repaid so as to maintain the Net Sale Proceeds per Dabur Share at Subscription Price (see illustration D(2)(a)&(b) in Schedule9); (c) If the Market Value is equal to the Subscription Price, Dabur shall repay the Option Price received on such Dabur Shares (see illustration D(3)in Schedule 9) The sale/ purchase transaction envisaged under this Clause 16.9.2.2 shall be effect in accordance with the procedures set out in Schedule 6B1. 16.9.2.3. Notwithstanding anything contained in Clause 13.3, CUIH may give a Sale Notice that it requires Dabur to divest to public some or all the Dabur Shares. Dabur shall be obliged to sell the number of Dabur Shares specified in the Sale Notice. In the event of divestment by Dabur of the Dabur Shares If :- (a) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bur Shares indicated in the Retention Offer The amount of Option Price to be repaid shall be computed in accordance with the formula set out in Schedule 3. The Shares on which the Option Price is repaid by Dabur to CUIH so terms of this Clause 16.9,2.4 shall thereafter be treated as Retained Shares for purposes of this Agreement. 16.9.3 For the avoidance of doubt, CUIH shall have the right to exercise any and all of the rights enumerated above in Clause individually or concurrently, from time to time. 16.9.4 If the Sale Notice requires Dabur to effect a divestment of the Dabur Shares to public in terms of Clause 16.9.2.3, the Company shall use its best endeavors to effect such an offering within six months of issue of the Sale Notice and the Shareholders shall cooperate with the Company in this regard. 16.9.5 [Not Used] 16.9.6 Provisions applicable to Retained Shares The following provisions shall apply in relation to the Retained Shares and Shares which are treated as Retained Shares pursuant to Clause 16.9.2.4: 16. 9. 6. 1 Dabur shall repay the Option Price it has received it respect of the Retained Shares within thirty (30) days of expiry of the Ten Year Period. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall repay the Option Price pertaining to such shares within thirty (30) days of receiving the Market Value (to be calculated in accordance with Schedule 3). Provided however, if as a result of repayment of the Option Price, the Net Sale Proceeds per share received by Dabur pursuant to the aforesaid clause become less than the Subscription Price, only such part of the Option Price shall be repaid so as to maintain the Net Sale Proceeds per share at Subscription Price. (c) If the shareholding of CUIH is divested in terms of Clause 17.2 after the Ten Year Period and Dabur, pursuant to the exercise of its tag- along right under Clause 17.2.5, sells its Shares, Dabur shall repay CUIH the Option Price received by it (to be calculated in accordance with Schedule 3). Such repayment shall be in accordance with Clause 17.2.5 (b) Dabur shall repay the Option Price (to be calculated in accordance with Schedule 3) on Retained Shares in terms of Clause 16.9.6." 15. Transfer of CUIH shares is governed by clause 17 and the same reads as under: 17. Transfer of CUIH shares 17. 1 Transfer of CUIH Shares - During the Ten Year Period Subject to Applicable Law, if at any time during the fen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whatever reason, neither of them shall sell, transfer, alienate or otherwise dispose of any of their respective Shares. 17.1,5 In the event Dabur fails to issue a notice in terms of Clause 17.1.2 within 30 days of receipt of CUIH Offer Notice, it shall be deemed that Dabur has expressed its intention in terms of Clause 17.1 2(c), and CUIH shall be free to sell its shareholding to any third party 17.1.6 lf:- (a) Dabur has expressed its intention in terms of Clause 17.1.2(c), but CUIH is unable to divest its entire shareholding in the Company within one (1) year of the CUIH Offer Notice; or (b) Dabur has expressed its intention in terms of Clause 17.1.2(b), but CUIH is unable to complete the sale of the Shares held by Dabur within one (1) year of the CUIH Offer Notice. Then, within one (1) year of the date of the notice issued by Dabur under Clause 17.1.2, or such extended period of time as agreed by the Shareholders mutually, the Shareholders shali cooperate with each other to wind up Ihe Company subject to Applicable Law. The provisions of Clause 20.1 shall apply in relation to such winding up. 17.1.7 {Not Used] 17.1.8 If at any time during the Ten Year Period CUIH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice shall clearly indicate the said fact. 17.2,2 Dabur shall have the right to accept an offer made pursuant to Clause 17.2.1 by giving a written acceptance to the Offer Notice which shall be given within thirty (30) days of receipt of the Offer Notice by Dabur. If Dabur accepts the offer, it shall complete the transfer by paying for such Shares, within thirty (30) days of the date of its acceptance, against delivery by CUIH of the relevant share certificates/title documents and duly executed transfer documents Thetime limits set out in this Clause shall be extended by a period equal to the time taken for obtaining any approvals pursuant to Clause 17.2.3 17.2.3 Should the approval of any Government or regulatory authority be required by Dabur or the Third Party nominated by it for acquiring the CUIH Shares, Dabur shall make or procure an application to be made therefore within thirty (30) days of the date of notification of acceptance and pay or procure the payment of the price for the shares within thirty (30) days of the receipt or such approvals. If for any reason whatsoever such approval is not received within ninety (90) days of making the application, CUIH shall be at l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by Dabur become less than the Subscription Price, only such part of the Option Price shall be repaid so as to maintain the Net Sale Proceeds per Dabur Share at Subscription Price; (see illustration E{2)(a)& (b) in Schedule 9) (c) equal to the Subscription Price, Dabur strati retain the Option Price received on such Gabur Shares (see illustration E{3) in Schedules). The sale of the CUIH Shares and the sale of the Dabur Shares shall take place simultaneously and both Dabur and CUIH undertake to each other that in the event that the sale of the other Shareholder's (i.e., CUIH/Dabur, as the case maybe) Shares does not proceed to completion for whatever reason, neither of them shall sell, transfer, alienate or otherwise dispose of any of their respective Shares. If Dabur exercises its option in accordance with Clause 17.2.5 above, it shall within fifteen (15) days of exercising such option, provide CUIH with a power of attorney which shall be substantially in the form-set out in Schedule 12. Subject to Applicable Law the power of attorney given by Dabur shall allow the attorney the ability to execute the required share transfer forms and sale & purchase agreement on behalf of Da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Please refer to the correspondence resting with your letter dated 2nd April 2002 on the captioned subject. We hereby permit Dabur-GGU to receive refundable Option price and to refund the amounts so received in terms of the JV Agreement dated 7th August 20uf. Yours faithfully, (M.R.Rangachari) Deputy General Manager 20. On 07.04.2002, the RBI amended the above mentioned letter as below: RESERVE BANK OF INDIA EXCHANGE CONTROL DEPARTMENT CENTRAL OFFICE BUILDING MUMBAI-400001. Ref. No. EC. 6030/1001-02.01.01/2001-02 17th April 2002 M/s. Dabur invest Corporation, Off Punjabi Bhawan, 10, Rouse Avenue, New Deihi 110 002. Dear Sirs, Acceptance of Option price from M/s. Commercial Union International Holdings Ltd. (CUIH) Please refer to the correspondence resting with our letter dated 15th April 2002 on the captioned subject. We hereby amend para 2 of our above letter dated 15th April 2002 to read as under: "We hereby permit Dabur Invest Corporation to receive refundable Option price from CUIH and to refund the amounts so received in terms of the JV Agreement dated 7th August 2001." Yours faithfully, (M. R. Rangachari) Deputy General Manager 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade as per the exchange rates prevailing on the day of remittance. The transfer / issue /pricing of the shares be as per RBI / SEBI guidelines as applicable. The approval is subject to the following conditions :- a. Compliance with the provisions of the Insurance Act, 1938 and the condition that Companies bringing in FDI shall obtain necessary license undertaking Insurance activities. b. Compliance with para 6.2.18.7.2 of the FDI Policy 2015 c. Compliance with the Indian Insurance Companies (Foreign Investment) d. The taxation of dividend, future capital gains on alienation of shares by the foreign investor, interest income and income of any other nature shall be examined by the field formation in accordance with the provisions of Income - tax Act, 1961 and DTAA applicable to the facts of the case. e. Claim of any tax relief under the Income Tax act or the relevant DTAA will be examined independently by the tax authorities to determine the eligibility and extent of such relied and the approval of FIPB by itself will not amount to any recognition of eligibility of giving such relief. f. FIPB approval by itself does not provide any immunity from tax investigations to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from time to time. 16. You may now proceed, if needed to finalise the foreign collaboration agreement. This approval letter be made part of the said agreement to be executed between the investee company and the foreign collaborator and only those provisions of the agreement which are covered by this letter or which are not in variance with the provisions of this letter shall be binding on the Government of India or Reserve Bank of India. 17. The Administrative Ministries/ Departments is Department of Financial Services. 18. You shall file required documents of inward remittance with the Regional Office of the Reserve Bank of India within 30 days after issue of shares in terms of FEMA regulations notified by RBI> 19. A copy of the foreign collaboration agreement, signed by both parties shall be furnished to the following authorities: i. Reserve Bank of India/ Authorized Dealer ii. Administrative Ministry / Department as mentioned above. iii. FIPB Unit, New Delhi iv. Insurance Regulatory and Development Authority of India (IRDA) 20. You are requested to : a) Acknowledge and confirm the acceptance of the terms and conditions mentioned in this letter immediately on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur Invest Corp. to AIHL for a total consideration of ₹ 940 crores. 2. The approval is subject to the conditions as indicated below:- i) Your company shall file the amended Articles of Association to bring them in line with the amended JV agreement between promoters/ shareholders within a period of 30 days from the date of approval of the Authority. ii) Your company shall comply with the pricing guidelines issued by the RBI as applicable to the transaction of transfer of shares; iii) Your company shall ensure compliance with the conditions stated in the letter F.No.018(2016)/170(2015) dated 18th March, 2016 of FIPB, Department of Economic Affairs. iv) Your company shall comply with the Insurance Act/Rules/Regulations, orders, circulars etc. and any other Rules/Regulations as applicable from- time-to-time. v) Your company and its shareholders shall ensure that the solvency margin as stipulated by the Authority from time to time is maintained. vi) vi) The company shall ensure that the joint venture partner complies with all requirements as regards taxation laws for the Indian jurisdiction as may be applicable. The Board of the company shall ensure compliance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly completed. A.Y 2011-12. 28. Assessment was framed u/s 143(3) of the Act vide order dated 06.09.2013. Vide questionnaire dated 10.07.2013, the Assessing Officer sought certain details which were duly complied with. Vide submissions dated 03.09.2013 alongwith relevant documents which are exhibited at pages 221 to 243 of the paper book. Accounting policies and notes to the financial accounts are exhibited at pages 343 and 344 of the paper book and relevant notes to the account read as under: " II Notes TO THE ACCOUNTS 1. The firm has entered in to Joint Venture (M/s Aviva Life Insurance Co. Pvt. Ltd.) with Commercial Union International Holding Limited England & Wales. 2. The interest of ₹ 225.06 Crores paid on borrowed funds , for acquisition of shares in M/s Aviva Life Insurance Co. Pvt. Ltd. on a long term basis , has been capitalized and included in the cost of the investment being long term investment, based on the legal opinion obtained and as per accounting policies adopted by the firm. 3. The firm has received ₹ 1082.65 Crores (including ₹ 249.71 Crores received during the year) from Commercial Union International Holdings Limited as option m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " 30. After being satisfied with the reply of the assessee, assessment was framed u/s 143(3) of the Act vide order dated 09.02.2016. A.Y 2014-15 [year under consideration ] 31. Assessment was framed u/s 143(3) of the Act vide order dated 28.07.2016. The relevant notes to the accounts read as under: "II NOTES TO THE ACCOUNTS 1. The firm has entered in to Join Venture (M/s. Aviva Insurance Co. Pvt. Ltd.) with Commercial Union International Holding Limited England & Wales. 2. The interest of ₹ 57.26 Crores paid during the current year on borrowed funds for acquisition of shares in M/s. Aviva Life Insurance Co. Pvt. Ltd. On a long term basis and ₹ 22.20 crore as professional charges paid to Indus Bank Limited, has been capitalized and included in the cost of the investment being long term investment, based on the legal opinion obtained and as per accounting policies adopted by the firm. 3. The firm has received ₹ 1823.19 Crores (including ₹ 246.84 Crores received during the year) from Commercial Union International Holdings Limited as option money. The option money to be adjusted against further reduction of shareholding in M/s. Aviva Life Insurance Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Commercial Union International Holdings Ltd. for carrying out the business of M/s Aviva Life Insurance Co. Pvt. Ltd. 2. A copy of the balance sheet and the annual accounts of M/s Aviva Life Insurance Co. Pvt. Ltd. for A.Y. 2013-14, reflecting the share holding pattern. 3. A copy of the agreement vide which option money has been received you from Commercial Union International Holdings Ltd. U.K. 4. Please state why the receipt of ₹ 246.84 as option money has not been declared as income, since it is consideration received for sale of shares 5. It is seen that you have received option money from your joint venture partner ITT view of business restructuring. This transaction is covered within the meaning ol international transaction as per provision of Section 92 B(2j, Explanation (t) (ej of the IT Act, 1961. Please state why you have not filed any report u/s 92E of the IT Act. 6. Please state on what basis you have capitalised the interest expenditure of ₹ 78.54 crores which has been paid on borrowed funds and ₹ 13.61 Lakhs as professional charges paid to Indus Bank Ltd. has and included in the cost of investment. 7. From the copy of the joint ventu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maximum guaranteed return on money applied. According to him, the option money on granting of first rights of stake purchase to CUIH and accretion in shares as composite income arising out of JV agreement, clearly fall under the head 'business income'. (ii) The ld. PCIT was of the opinion that he Assessing Officer has not raised any query related to the nature of business capitalised by the assessee and whether the assessee was justified in capitalising such expenses. The PCIT further observed that the Assessing Officer did not gather any details of option money received and did not examine its nature whether it was an advance or a taxable receipt. (iii) Neither copy of JV agreement, nor working of such amount of option money was furnished. (iv) Surprisingly, thereafter, the PCIT referred to the assessment order for assessment year 2015-16 and extracted the entire assessment order in the body of his order. The ld. PCIT continued harping on the option money received by the assessee and was of the firm belief that option money received by the assessee year after year at a fixed rate of 20% is the income of the assessee for each year and there is no explanation furnished by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from DIC to CUIH Or Payment from CUIH to Dabur ₹ 16.71 per share on 23% stake will be w&mded- RB (MV > SP + OP) ₹ 10.38 per share on 23% stake will be icfcitrefeaffed RE (₹ 478.64 cr.) MV < SP + OP Dabur will retain OP t'Arin Dabur will retain entire OP. + Dabur will also receive from CUIH ₹ 10 per share i.e. SP 7 What is retained by Dabur 74% stake = 1,48,36,26,000 share 23% stake Sold = 46,11,27,000 OP of 74% stake + (MV-OP) of 23% stake = 2480.48 cr. + (100-16.71) x 46,11,27,000 = 6321.20 cr. (> 2480.48 cr.) Dabur will retain option price & market value in excess of option price on 23% which is already received. OP of 74% stake + [MV - (MV - SP)] 23% stake = OP of 74% stake + SP of 23% stake =2480.48 cr. + [940 cr. = - (940 - 461.12 cr.)] = 2941.60 cr. [OP on 74% retained + reed. SP on 23%] OP on 74% retained + Reed. MV on 23% = 2941.60 cr OP on 74% retained + Reed. SP on 23% = 2941.60 cr. After going through aforestated table we can observe that: - (1) Assessee Dabur Invest Corp. (DIC) has applied ₹ 1483,62,60,000/- in 1,48,36,26,000 shares of Aviva Life Insurance Co. P. Ltd., which is 74% stake in that company and 26% allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xable till change of FDI policy and divestment of 51% even if it means non-taxing the same till perpetuity. 37. The ld. DR further highlighted on the following points" 1. Option price is a recurring annual receipt which is taxable in the year of receipt. As per schedule 1 of J.V. Agreement, assessee is receiving annually 20% as a fixed return on investment from FDI Partner (CUIH) as per clause 16.6.2 of J.V. Agreement. As per table given separately, minimum fixed annual return is received by the assessee even if market value of Aviva share is 'zero'. 2. Since, there is a fixed minimum annual return of 20% on investment price, therefore, this transaction is in the nature of interest income and reliance is placed on Rama Bai and ors. Vs. CIT dated 08.11.1989. ISC). 1990 181 ITR 400 (SC). 3. Recurring return of 20% annually and the return at the time of Divestment of shares are only two limbs of same receipt arising out of same J.V. agreement and therefore they are in nature of 'Business Income' as held in the case of CIT vs. Govind Chaudhary & sons dated 22.04.1992 1993 203 ITR 881 SC which says that interest income draws its nature from under lying transaction. 4. Since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on foreign equity holding levels. This is as the assessee had an irrevocable right to transfer, and the parent company (AT&T) an irrevocable right to acquire the assessee's shareholding in its Indian subsidiary (AT&T India) either to itself or through its affiliates (which have right to first refusal), at a predetermined price, called option price, which shall continue to increase with time, i.e., at the defined rate (11% p.a.), to be compounded annually, so that the agreed return shall continue to obtain, resulting in a continuous growth in option price over time. The transfer of shares in the manner afore-said, including the price determined there-under, is made the essence of the agreement, so that any contravention thereof constitutes a breach thereof, which may result in its termination. The assessee-company, which has no right to management, cannot sell, assign, transfer or otherwise dispose of its' shares (or interest therein) in any manner, or otherwise encumber the same in any manner. The assessee's investment in shares, has to be considered in conjunction with the said agreement, being in fact itself only pursuant thereto, i.e., having regard to the realit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... postponed to a later, defined date, signified as the due date, which is at convenient or agreed dates of time. It is only because the debt has arisen and accrued that it becomes liable to be realized, even if at a later date. That, in fact, forms the fundamental or the quintessential difference between cash and accrual systems of accounting, legally recognized and judicially well explained. It would, as such, be incorrect to say that the right (to receive) that vests in the assessee with a passage of time is not a legally enforceable right. It is, further, only when the said right to receive culminates under the terms of the agreement into a realizable right, i.e., which is by a defined date and for a definite sum, that it can be said to mature for payment in favour of the recipient of income. It is only upon this that, where not (being) received, despite the compliances with the stipulations made in its respect by the assessee, that the right can be legally enforced by it. Of-course, whether the income at a definitive rate has been earned and, accordingly, accrued, is itself a subject matter of dispute, i.e., under IT A No2832/ Mum/ 2012 (A.Y. 2008-09 ) Mahindra Telecommunications ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn (over the holding period), found to be para materia, forming part of an integrated revenue ITA No28 3 2/ Mu m/ 2 0 12 (A.Y . 200 8 -09 ) Mahindra Telecommunications Investment Private Limited vs. ITO model and, further, only in the nature of interest income as defined both in the accountancy as well as by statute. There is no law that interest could be assessed only as 'income from other sources', partake as it does its' character from the underlying transaction from which it arises ^IT vs.Govinda Choudhury [19931 203 ITR 881 (SC)). The case law cited stands also considered, only to find the same to be in agreement with the view expressed herein, confirming the stand of the Revenue, being essentially a question of fact, to be determined on an appreciation of the facts of the case, with the law being well settled. " 5. Annual recurring income can be either income comprising interest part or it can be interest plus capital. In the present case, there is no return of capital (Subscription price from A.Y. 2003-04 to 2016-17). Therefore, amount of option price receipt is only interest income and so, taxable as revenue receipt. Reliance is placed on the decision in cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 201314 Vide notice u/s 142(1) dated 20/11/2 0 15, a single point query "Details of Option Price and TDS Deducte d " raised. No follow up queries Ledger account of Option Price received given Insufficient Query equivalent to non-enquiry as per judgment of Bombay High Court in case of Jeevan Investment and Finance Pvt Ltd and Delhi High Court in case of CIT Vs Harsh J Punjabi [2012] 345 ITR 451 (Delhi) Malabar Industrial Co. Ltd v. CIT [2000] 109 Taxman 66/243 ITR 83 (Supreme Court) Adi. CIT v. Gee Vee Enterprises [1975] 99 ITR 375 (Del) Jeevan Investment and Finance Pvt Ltd l/s CIT City 1 Mumbai [2017] 88 Taxmann.com 552 (Bombay) 4. CIT Vs Harsh J Punjabi [2012] 27 Taxmann.com 175 (Delhi) /[2012] 345 ITR 451 (Delhi) DIT Vs Jyoti Foundation [2013] 38 Taxman.com 180 (Delhi) ITO Vs DG Housing Projects Ltd [2012] 343 ITR 329/20 taxmann.com 587/[2013] 212 Taxman 132 (Del) 7. CIT Vs. Maithan International (High Court of Calcutta) 3 2011-12 No queries asked Ledger of option price received is attached No query Mala bar Industrial Co. Ltd v. CIT [2000] 109 Taxman 66/243 ITR 83 (Supreme Court) Rajmandir Estates Pvt Ltd Vs PCIT (2017) 245 Taxman 127 (SC), Shree Manj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " Malabar Industrial Co. Ltd v. CIT [2000] 109 Taxman 66/243 ITR 83 (Supreme Court). Similar judgments in cases of: a. Rajmandir Estates Pvt Ltd Vs PCIT (2017) 245 Taxman 127 (SC) b. Shree Manjunathesware Packing Products & Camphor Works vs CIT (1998) 231 ITR 53 (SC) c. Detailed discussion of Malabar Industrial Co. Ltd v. CIT [2000] 109 Taxman 66/243 ITR 83 (Supreme Court): The hon'ble apex court therein laid down a four-way test for invocation of a provision. Succinctly put, these are: (a) incorrect assumption of facts; (b) incorrect application of law; (c) without applying the principles of natural justice; and (d) without application of mind. ITAT Mumbai in case of Horizon Investment Co. Ltd beautifully summarized the applicability of this judgment in case of non-application of mind (leading to insufficient or no enquiries): "We shall, for the reason that the present case involves the application of section 263 on ground (d) above, dwell on this aspect in some detail. An order, as explained in Malabar Industrial Company Ltd. (supra), is in such a case subject to revision under section 263 not for the reason that some error may be found upon enquiry, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r itself which proved that the order is passed without making enquiries or verifications which should have been made by the assessing officer. Thus it is prejudicial to the interest of revenue and there is loss of revenue": Shankar Tradex Pvt Ltd Vs PCIT (ITA No. 2999/Del/2017) "Orders which are passed without inquiry or investigation are treated as erroneous and prejudicial to the interest of revenue. In case of insufficient inquiries, inquiry should be conducted by commissioner or director himself to record the finding that the assessment order was erroneous" PIT Vs Jyoti Foundation [20131 38 Taxman.com 180 (Delhi). Similar ratio in case of ITO Vs DG Housing Projects Ltd [2012] 343 ITR 329/20 taxmann.com 587/[2013] 212 Taxman 7. Insufficient enquiries upheld revision u/s 263: CIT Vs. Maithan International (High Court of Calcutta) 8. "Failure of assessing officer to make an inquiry before granting deduction would render the assessment erroneous and prejudicial to the interest of revenue": CIT V. Sheshasayee paper and Boards Ltd [2000] 108 Taxman 464/242 ITR 490 (Mad.) Consistency Principle Without prejudice to the above, if a clearly incorrect view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and once again a query was raised in relation to the option money, which was duly replied by the assessee and explained the nature of transaction with notes of account, which also contains capitalisation on interest paid on borrowed funds. 41. Thereafter, assessment year 2008-09 was also taken up for scrutiny assessment. Once again queries were raised by the Assessing Officer in relation to the JV agreement and option money. Once again, the assessee explained the transaction in the light of details given in the balance sheet and notes to accounts. The order was framed u/s 143(3) of the Act. 42. In assessment year 2011-12 also, the return of income was taken up for scrutiny assessment. The balance sheet and notes of account were examined wherein all the details about the capitalization of interest was properly disclosed and receipt of option money was explained to be adjusted against reduction in the share holding in the year of transfer of shares. 43. It is incorrect to say that the JV agreement was never examined by the Assessing Officer. Right from the first year of scrutiny assessment, after the impugned transaction of option money, JV agreement has been scrutinised by the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , will sell its shares to outsiders and right to purchase shares of the assessee was granted to CUIH at a later date as and when FIPB increases the permissible limit of investment for foreign partners in JV agreement. 47. The PCIT completely missed the point that in the case of shares of a company, which is a movable property, the transfer completes when the duly completed transfer deeds, along with share certificates, are delivered to the transferee. Thus, the transfer of shares giving rise to capital gain, if any, is completed in the year in which the shares are delivered to the transferee. This aspect was considered and accepted by the Assessing Officers in the past assessment years and, therefore, no adverse view was taken as there was no sale of shares in those years. 48. As far as capitalization of interest is concerned, it is a settled proposition of law that any expenditure incurred in acquiring a capital asset has to be capitalised. 49. The bone of contention is as to whether the option price received by the assessee is income or it is capital receipt. As per the facts explained elsewhere, the assessee entered into a JV agreement with CUIH to co-promote a company in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee as a capital contribution in the company promoted by it and has direct nexus/link with divestment of such holding in favour of CUIH but this happened in F.Y. 2016-17. 54. The allegation of the PCIT that the investment in shares of AVIVA life insurance India Ltd is business of the assessee is ill founded as this is only a presumption and surmise of the PCIT contrary to the facts of the case in hand. 55. In the case of Parimisetti Seetharamamma Vs. CIT 57 ITR 532, the Hon'ble Supreme Court observed that all receipts are not income, but it is only those very receipts which have the characteristic of income is only chargeable to tax and the onus is on the Revenue to prove that the receipts are income. 56. In the case of CIT vs. Maheshwari Devi Jute Mills Ltd. in 57 ITR 35, the Hon'ble Supreme Court had occasioned to explain the distinction between revenue and capital. The Hon'ble Supreme Court observed as under: "There is no doubt that when a businessman disposes of his capital for whatever reason unless it is a part of his circulating capital, the receipt is capital and not income which is taxable. Distinction between revenue and capital in the law of Income-tax is funda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; etc. but that does not determine its quality, though the name by which it has been called may be relevant in determining its true nature, because this gives an indication of how the person who paid the money and the person who received it viewed it in the first instance. The periodicity of the payment does not make the payment a recurring income because periodicity may be the result of convenience and not necessarily the result of the establishment of a source expected to be productive over a certain period. These general principles have been settled firmly by this Court in a large number of cases. See for example : The Commissioner of Income-tax v. Vazir Sultan, 8& Sons, Godrej 8s Co. v. Commissioner of Income-tax, Commissioner of Income-tax v. Jairam Valji, Senairam Doongarmall Vs CIT". 59. In the light of the aforesaid discussion, for the sake of repetition, we have to point out that the JV agreement was made not to carry on any business transaction between the assessee and CUIH but was made to co-promote a company who would carry on the insurance business. The JV agreement was drafted to lay down the terms and conditions for purchase of shares by each party. Therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P.) Ltd. Popular Bread Factory [20061 280 ITR 377 the Division Bench of the Madhya Pradesh High Court while considering the issue as to whether the CIT had correctly exercised its power under section 263 of the Act by re-opening a block assessment, had cited with approval the following passage from the judgment of the Andhra Pradesh High Court in the case of Sirpur Paper Mills Ltd. v. ITO [19781 114 ITR 404 which somewhat summed up the scope of the power under section 263 of the Income-tax Act. "As observed in Sirpur Paper Mills Ltd. v. ITO [19781 114 ITR 404 (AP) by Raghuveer, J. (as his Lordship then was), the Department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstances. If this is permitted, litigation would have no end, 'except when legal ingenuity is exhausted'. To do so, is '. . .to divide one argument into two and to multiply the litigation'. 12.2 We respectfully concur with the principle adopted by the Division Bench of Madhya Pradesh High Court respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the AO had not applied his mind on the issue. There are judgments galore laying down the principle that the AO in the assessing order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the CIT to pass orders under s. 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open. In Gabriel India Ltd. (supra), law on this aspect was discussed in the following manner: "........From a reading of sub-s. (1) of section, it is clear that the power of suo motu revision can be exercised by the CIT only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the ITO is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercised the quasi judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. ............... There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. ............... We may now examine the facts of the present case in the light of the powers of the CIT set out above. The ITO in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the ITO on being satisfied with the explanation of the assessee. Such decision of the ITO cannot be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard.........." 13. When we examine the matter in the light of the aforesaid principle, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure can be treated as capital expenditure or it is revenue in nature. No doubt, in certain cases, it may not be possible to come to a definite finding and therefore, it is not necessary that in all cases the CIT is bound to express final view, as held by this Court in Gee Vee Enterprises (supra). But, the least that was expected was to record a finding that order sought to be revised was erroneous and prejudicial to the interest of the Revenue. [See Seshasayee Paper (supra)]. No basis for this is disclosed. In sum and substance, accounting practice of the assessee is questioned. However, that basis of the order vanishes in thin air when we find that this very accounting practice, followed for number of years, had the approval of the IT authorities. Interestingly, even for future assessment years, the same very accounting practice is accepted." 69. We find the Hon'ble Delhi High Court in the case of CIT Vs. Anil Kumar reported in 335 ITR 83 has held that where it was discernible from record that the A.O has applied his mind to the issue in question, the ld. CIT cannot invoke section 263 of the Act merely because he has different opinion. 70. Relevant observation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the case. More so, in view of the fact that the assessee explained that the capital investment made by the partners, which had been called into question by the CIT was duly reflected in the respective assessments of the partners who were I.T. assessees and the unsecured loan taken from M/s Stutee Chit & Finance (P) Ltd. was duly reflected in the assessment order of the said chit fund which was also an assessee." 64. Since in the instant case the A.O after considering the various submissions made by the assessee from time to time and has taken a possible view, therefore, merely because the DIT does not agree with the opinion of the A.O, he cannot invoke the provisions of section 263 to substitute his own opinion. It has further been held in several decisions that when the A.O has made enquiry to his satisfaction and it is not a case of no enquiry and the DIT/CIT wants that the case could have been investigated/ probed in a particular manner, he cannot assume jurisdiction u/s 263 of the Act. In view of the above discussion, we hold that the assumption of jurisdiction by the DIT u/s 263 of the Act is not in accordance with law. We, therefore, quash the same and grounds raised b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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