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TMI Blog2021 (10) TMI 723X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluded that at the time of receipt of monies originally in the sum of ₹ 3,46,33,388/- , which was treated as gift by the assessee company for reasons stated hereinabove, Alertpay Quebec was not the Holding Company of assessee company. Hence we hold that the observation made by the ld AO in this regard is factually incorrect. Applicability of provisions of section 28(iv) read with section 2(24)(ix) - In the instant case, the amounts have been received by the assessee company which is not covered by the provisions of section 56(2)(vii) - provisions of section 56(2)(viia) of the Act applies only to receipt of shares by a firm or company without consideration or for inadequate consideration. In the instant case, the assessee company had only received monies. Hence the said provisions are also not applicable in the instant case. We find that the provisions of section 56(2)(viib) of the Act are applicable only for consideration for issue of shares received by a company from any person who is a resident. Admittedly, the monies have been received in the instant case by the assessee company from a non-resident. Hence the provisions of section 56(2)(viib) of the Act are also not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided in this appeal is as to whether the ld. CIT(A) was justified in upholding the action of the ld. AO in treating the money received by the assessee for issue of shares but the shares could not be issued due to contravention of FEMA guidelines and accordingly, treated as gift by the assessee company, in the facts and circumstances of the instant case. 3. We have heard rival submissions and perused the materials available on record. The assessee company was registered originally in the name of M/s. Alertpay Solutions Pvt. Ltd., on 20/04/2010. Later the name of the company was changed to M/s Crescent Payments Pvt. Ltd., w.e.f. 29/01/2014. The assessee company is engaged in the business of Information Technology Enabled Services (ITES). The return of income for the A.Y.2012-13 was filed by the assessee electronically on 29/09/2010 declaring loss of ₹ 65,86,782/- under normal provisions of the Act and book profit of ₹ 64,69,719/- u/s.115JB of the Act. During the course of scrutiny proceedings, the ld. AO observed that as per the information available in Note-3 to balance sheet reserves and surplus , an amount of ₹ 3,46,33,388/- was shown as monies received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, did not heed to the contentions of the assessee and observed that assessee‟s contention that it has no business relations with Alertpay Inc. Canada is not correct, since Alertpay Canada is a holding company of the assessee company. The ld. AO further observed that the utilisation of funds either for capital or for revenue purposes will not change the character of the receipt, as long as the said money is not received in the shape of share capital. The ld. AO also observed that the assessee itself admitted that in order to circumvent regulations of one statute i.e. FEMA, it has treated the receipt of amount as gift. With these observations, the ld. AO sought to treat the receipt of amount of ₹ 3,46,33,388/- as taxable income in the hands of the assessee. 4. The ld. CIT(A) upheld the action of the ld. AO by observing as under:- 6.2 I have carefully perused the assessment order and the submission of the appellant. It is seen that the main argument of the appellant is that it is this receipt is gift. The appellant claimed that Shri Feroz Patel, elder brother of Yusuf Patel Zoheb Patel introduced his share capital but the appellant could not issue shares wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business income. But, in the instant case the amount claimed as received as gift from the Alterpay Inc. Subsequently, the appellant's claim that it was share capital from Shri Feroz Patel without any evidence is not acceptable. Secondly, the appellant has relied on the decision of Hon'ble Mumbai ITAT in the case of Graviss Hospitality Ltd. On perusal of the said decision, it is seen that it was with respect to the forfeited share application money but this is not the case here, in this case the appellant's original claim is of gift and not the forfeiture of share application money of Shri Feroz Patel. In my opinion, the appellant, first proved that its claim made in the return that it was a gift. But, in the instant case the appellant first stated that it was remittance from the Alterpay Inc Canada without any instruction and subsequently claimed that it was share application from Shri Feroz Patel and he relinquished its right. Hence/ it is not possible to understand as to actually what happened. Who made the remittance and for what purpose. If the shares were allotted to Shri Feroz Patel then for what reason the amount was remitted through the Alterpay Inc. Canad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this regard, it was specifically clarified by the ld AR that at the time of receipt of monies, Alertpay Quebec was not the holding company of the assessee company. We further find from the perusal of the Board Resolution dated 21.9.2011 of Alertpay Quebec, that the Canadian Company would send fresh money transfer of 153000 Canadian Dollars to the assessee company for purchasing the shares of the assessee company. Obviously this event happened after the receipt of original gift amount of ₹ 3,46,33,388/-. Only pursuant to this acquisition of shares by investing 153000 Canadian Dollars, the assessee company became the subsidiary company of Alertpay Quebec and not before that. Hence it could be safely concluded that at the time of receipt of monies originally in the sum of ₹ 3,46,33,388/- , which was treated as gift by the assessee company for reasons stated hereinabove, Alertpay Quebec was not the Holding Company of assessee company. Hence we hold that the observation made by the ld AO in this regard is factually incorrect. 5.2. Hence in this factual matrix, we have to examine the applicability of provisions of section 28(iv) read with section 2(24)(ix) of the Act. Inci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then the said receipt cannot be chargeable to tax in terms of section 56(1) of the Act. In the instant case, the amounts have been received by the assessee company which is not covered by the provisions of section 56(2)(vii) of the Act. We find that the provisions of section 56(2)(viia) of the Act applies only to receipt of shares by a firm or company without consideration or for inadequate consideration. In the instant case, the assessee company had only received monies. Hence the said provisions are also not applicable in the instant case. We find that the provisions of section 56(2)(viib) of the Act are applicable only for consideration for issue of shares received by a company from any person who is a resident. Admittedly, the monies have been received in the instant case by the assessee company from a non-resident. Hence the provisions of section 56(2)(viib) of the Act are also not applicable in the instant case. With regard to applicability of provisions of section 28(iv) of the Act, admittedly, the monies were not received by the assessee company in the ordinary course of its business. For the applicability of provisions of section 28(iv) of the Act, the following conditions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable. The Assessing Officer taxed under the head 'Income from other sources', a sum representing the market value of shares of UPL and UEL in hands of assessee holding that said transaction was transfer and not by way of gift and thereafter, he sought to tax same under section 25(iv). The assessee filed an appeal before Commissioner (Appeals) against the said assessment order. In the meantime, the Assessing Officer served a notice of demand. The assessee filed appeal against the said assessment order. The Commissioner (Appeals) after hearing the assessee disposed of the stay application and directed the assessee to pay 25 per cent of the demand in four equal monthly instalments and directed for the stay on the recovery of the balance amount. On writ, the assessee prayed to set aside the order of Commissioner (Appeals). HELD The Assessing Officer in the assessment order held that the transfer agreement is purely in the nature of 'transfer' as it does not mention the word 'gift'. He rejected the contention that the transfer of the shares was by way of gift as the agreement is titled as 'Transfer Agreement' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mportance, one legal and the other practical, to grant the stay albeit on certain conditions. [Para 11] The the assessee case is supported by an order of the Tribunal in the case of D.P. World (P.) Ltd. v. Dy. CIT [2013] 140 ITD 694/[2012] 26 taxmann.com 163 (Mum. - Trib.). The transaction involved a transfer of the shares which entitled the holder of the shares to the said flats. The Tribunal had held that simply because both the donor and the donee happened to belong to the same group cannot ipso facto establish that they have any business dealings and it is a case of a valid gift which is to be treated as capital receipt in the hands of the assessee, in the absence of any specific provision taxing a Gift as a deemed business income, provisions of section 28(iv) cannot be applied on the facts of the case. In view of the judgment of the Tribunal, the assessee has more than just a strong prima facie case for a stay. Prior to the transfer of the said shares the assessee held 1.59 per cent and 1.44 per cent of the equity shares of UPL UEL respectively. After the transfer the assessee holds 21.35 per cent and 47.88 percent of the equity shares in UPL UEL. A refusal to gr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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