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TMI Blog2023 (3) TMI 1136X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case and law, whether the Ld CIT(A) was justified in deleting the addition made u/s. 68 amounting to Rs. 254,4597,000/- without considering the fact that that intrinsic value of the shares is far less than the Discounted Net Assets Value method adopted by the Assessee company to charge such high premium?. 2. On the facts and circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the CBDT Circular No 5/2014 dated 11/02/2014 that disallowance u/s. 14A has to be made irrespective of the fact whether any exempt income has been earned during the year by the Assessee Company or not? 4. On the facts and circumstances of the case and in law, whether the Ld CIT(A) was justified in allowing the Returned Loss of Rs. 1,94,994/- by stating that no discussion has been made by the AO in respect of the same, without considering the fact that the AO in his Assessment Order at Para 27 has stated that the Assessee Company has not carried out any business activity during the year under consideration?" 2. Whereas in the assessee's appeal, the assessee has mainly challenged certain directions of the ld. CIT (A) given in the above order which are as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporate veil so as to make out a case that receipt of shares by the assessee was pursuant to a family arrangement between the ultimate shareholders;" 3. The brief background of the case is that, the assessee company was incorporated in 5th January, 2009 and is one of the promoter group entities of ZEE and ESSEL Group of companies. During the previous year relevant to the current assessment year, the entire shareholding of the assessee company was acquired by Veena Investments Private Ltd., Essel Group Company, from Essel Sports Private Ltd on 23.08.2011. Subsequently, the entire shareholding of the assessee company was acquired by Essel Corporate Resources Pvt. Ltd. (ECRPL) and Essel Group Company from Veena Investments Private Ltd. on 14.11.2011. This way the assessee company became wholly owned subsidiary of ECRPL from 14.11.2021 onwards. On the same day, a letter of understanding was made between ECRPL and the appellant company wherein it was mutually agreed that as part of the internal restructuring of the group for consolidation of media assets, ECRPL will transfer 44,99,19,548 equity shares in Dish TV India Ltd (Dish TV) to the appellant as a gift without consideration. Furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Ltd is also a company forming part of Essel group of companies and it is engaged in the business of providing DTH services. Dish TV India Ltd is a company in which public are substantially interested and its shares are listed in the Bombay Stock Exchange and National Stock Exchange. 7. The ld. CIT(A) while noting down the facts, has discussed in detail as to how the group companies have been transferring the shareholding to other companies, at nil consideration and showing loss of transfer of this shares at Nil and resultantly, no income under the head capital gain arising from the transfer of the shares have been shown, because it was by way of gift which is exempted from capital gain as per Section 47(iii) of the Act. Further, transfer of a capital asset from the holding company to wholly own subsidiary company is exempt from capital gains as per Section 47(iv) of the Act. After considering the entire gamut of facts and material on record, he has formulated following issues after considering the findings given in the assessment order, remand reports and contentions raised by the assessee in the following manner. i. "1. Whether the transfer of shares made at Nil consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e capital gains arising from the relevant transaction of transfer of shares has not suffered tax. 9. With regard to whether transfer of shares, whether at nil consideration to the assessee can be considered as a gift that has been directly made, he held that said transfer of shares cannot be recorded as voluntary transfer and it cannot be considered transfer were made without consideration. Thus, he held that transfer of shares of Dish TV India Ltd made at nil consideration by ECRPL and Prajatma Trading Company Private Limited to the assessee company cannot be regarded as a gift. As a consequence, the benefit of capital gains u/s 47(3) will not be applicable in respect of these transfers in the hands of transferor companies. 10. Having given adverse findings with regard to the first three issues formulated by him, he proceeded to decide, whether the receipts of shares of a listed companies at a nil consideration by the assessee is liable for tax under Section 56(1) which is the first issue raised by the department, i.e., taxing of amount of Rs. 3578,49,12,600/-. 11. The ld. CIT (A) held that there is no question of taxability in the hands of the assessee company being recipient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. 56(2)(x) from A.Y. 2018-19. Accordingly, he held that the receipt of shares of Dish TV India Ltd by the assessee at "nil‟ consideration cannot be brought to tax under the head income from other sources. 13. In so far as the issue, whether the receipt of shares at nil consideration construed income liable for tax u/s. 28(iv) of the Act, Ld. CIT(A) after discussing the issue in detail and referring the various judgments observed and held has under : i. Considering the principles laid down in the decisions cited above, a benefit or perquisite should arise/ originate from the business of the assessee for the same to be considered as Income under the head business u/s. 28(iv) of the act. The fulfillment of this condition requires that benefit activities by the assessee. The right to receive such a benefit or perquisite should spring up from the business activities carried out by the assessee so as to constitute business income u/s. 28(iv). The applicability of the provisions of section 28(iv) to the transaction of the receipt of shares of Dish TV India Ltd. by the appellant at NIL consideration is therefore required to be examined from this perspective. ii. On perusal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as mentioned above, these decisions have not laid down any legal proposition regarding the allow ability of the transfer of a capital asset in the form of a gift as a revenue expenditure in the hands of the donor. These decisions have dealt with the expenditure incurred on the articles intended for the presentation to the customers for the purpose of promotion of the sales of the business. Moreover, it is a well settled legal position that the revenue/capital nature of the payment in the hands of the payer hs not bearing on the revenue/ capital nature of the same amount in the hands of the recipient. Further, it is seen in the present case that the transferor companies have not claimed deduction for the value of the shares transferred by them at NIL consideration to the appellant while computing their total income under the Act. Hence, it is considered that these decisions cited by the AO have no relevance to the issue on hand. iv. Having regard to the above discussion, the benefit received by the appellant in the form of receipt of shares of Dish TV India Ltd. at Nil consideration from the group companies cannot be considered to have arisen from the business of the appellant an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn at Rs. 255 Crores in the balance sheet for A.Y. 2012-13. The AO further observed that the investment of the assessee in the shares of Dish TV India Ltd of Rs. 255 Crores should not have been taken into consideration for determining the value the shares in the valuation report since the said investment was made out of the share application money received from the investor company itself. 16. The AO therefore came to the conclusion that the assessee has failed to establish the genuineness of the transaction and its true nature and held that it has been established beyond doubt that the assessee could not substantiate its claim of having received the said sum of money in the form of purported premium on shares from the holding company ECRPL, though the primary onus is on the assessee to prove that the sums found credited in its books of account are truly in the nature of share capital and share premium and it was indeed received from the stated person. Accordingly, AO held that same at Rs.254,45,97,000/- in the form of share premium is unexplained cash credit u/s. 68. 17. The ld. CIT (A) after considering the submissions made by assessee as well as the remand report, his observat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt has furnished its PAN, address and copy of the ITR acknowledgment for A.Y. 2012-13 to the AO during the assessment proceedings. The investor (ECRPL) is the holding company of the appellant and it is a part of the Essel Group of companies. ECRPL is an existing company which is filling its returns of income as evidenced by the PAN and the copies of the ITR aknoledgment. Further, the appellant furnished a copy of the assessment order passed u/s. 143(3) of the Act in the case of ECRPL for the assessment year under consideration i.e. A.Y. 2012-13 on 30.03.2016 by the DCIT-6(3)(2), Mumbai. Hence, it is considered that the identity of the investor has been established by the appellant. iv. As regards the genuineness of the transaction of the receipt of the share premium from the investor, the appellant furnished a copy of the bank account statement of the appellant reflecting the said receipt from ECRPL to the AO during the assessment proceedings. On perusal of the bank account statement of the statement, it is seen that the entire share premium of Rs. 254,45,97,000/- and share capital of Rs. 99,00,000/- received during the year from ECRPL has been received through the banking channe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds received in the bank account from Prime Publishing Pvt. Ltd, its holding company. It is therefore noticed that the amount of share premium given to the appellant was paid out of the funds available with ECRPL by way of borrowed funds. Further, on perusal of the copy of the balance sheet of Prime Publishing Pvt. Ltd as on 31.03.2012 furnished by the appellant during the appellate proceedings, it is seen that the funds of Rs. 792.21 Crores lent to ECRPL are duly shown therein under "Short-term Loans and Advances‟. Thus, it is seen that the creditworthiness of the investor has been properly established by the appellant. Vii. Having heard to the discussion above, it is seen that the appellant has discharged the primary onus cast upon it for proving the identity of the investor, creditworthiness of the investor and the genuineness of the transaction in respect of the share premium received from ECRPL during the year. As pointed out by the appellant, the onus of the appellant does not extend to proving the source of the source of the sums credited in the books of the account of the appellant. This legal proposition has been laid down by the Hon'ble Delhi High Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim for deduction of any expenses, no disallowance of expenses under the provisions of section 14A can be made. The question of disallowance of expenses does not arise when no deduction has been claimed for the expenses in the first place. Hence, on account of this reason also , the disallowance made by the AO u/s. 14A to the extent of Rs. 1,26,38,963/- cannot be sustained. i. Further, it noticed that the AO has adopted the average value of investment, the income from which does not or shall not form part of the total income, for the purpose of working out the disallowance as per Rule 8D(iii) erroneously at Rs. 255,43,22,838/-. The AO has considered the investment made by the appellant in the shares of Dish TV India Ltd as the investment that is capable of yielding tax exempt income. It is seen that there was no investment in the shares of the said company as on 31.03.2011. The investment in the said shares stood at Rs. 255,43,22,838/- as on 31.03.2012. Hence, the average value of investment works out of Rs. 127,71,61,419/- as against Rs. 255,43,22,838/- adopted by the AO. Due to this mistake, the amount of disallowance as per Rule 8D(2)(iii) has been wrongly computed at Rs. 1,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Return of Income of Rs. 1,91,994/-.?" 23. In so far as, the first issue raised in Ground No. 1 pertaining to addition of Rs. 3578,49,12,600/-, we have already discussed the brief facts and background of the matter and the manner in which additions made by the AO and the finding of the ld.CIT(A). To put it succinctly, assessee company has received 44,99,19,548 shares of Dish TV Ltd from ECRPL and 14,64,95,662 shares of same company (i.e. Dish TV) from Prajatma Trading Company Pvt. Ltd aggregating to 59,64,15,210 shares as a gift at "nil‟ consideration. Undisputedly, Dish TV Ltd is a public limited company and its shares are listed on BSE & NSE. The AO held that receipt of shares of Dish TV Ltd. from ECRPL and Prajatma is some kind of colorable device and therefore, he has taxed the market value of said shares being at Rs. 3578,49,12,600 as "income from other sources‟ u/s. 56(1) of the Act. Before us, in sum and substance the contention of the assessee had been that: a. the receipt of shares from ECRPL and Prajatma as gift was under an internal scheme of consolidation of media assets without violating any provisions of any law. b. The aforesaid gift cannot be said t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the potential investors, whereby investments could be made for each vertical of business at holding company level ("assessee"), or at consolidated holding level ("ECRPL"). This type of flexibility would help in fund raising. To achieve the said purpose, during the year, the assessee company, a 100% subsidiary of part of the internal restructuring, it received 59,64,15,210 equity shares of Dish TV from its holding company ECRPL and Prajatma. The internal restructuring was carried out in compliances with the relevant corporate law and other requirements evidenced as under: i. The board approval of the concerned companies for the internal restructuring. Authorization by constitution documents of respective companies enabling transfer and receipt of shares as a gift. ii. Relevant disclosures filed to SEBI under regulation of SEBI Regulation, 2011 by the appellant for disclosing inter-se transfer of shares from ECRPL and Prajatma without any consideration. He submitted that a corporate like ECRPL/Prajatma/assessee can give or receive gifts and such receipt is neither taxable under section 56 nor 28(iv) of the Act. At the outset, it was submitted that the issue stands covered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... living persons, or to himself and one or more other living persons; and "to transfer property‟ is to perform such act. In the section "living person includes a company or association or body of individuals, whether incorporated or not, but nothing herein contained shall affect any law for the rime being in force relating to transfer of property to or by companies, associations or bodies of individuals.... Section 122 to TOPA 122. "Gift" is the transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person, called the donor, to another, called the donor, and accepted by or on behalf of the done. Such acceptance must be made during the lifetime of the donor and while he is still capable of giving. If the done dies before acceptance, the gift is void. Section 123 of TOPA 123. For the purpose of making a gift of immovable property, the transfer must be effected be a registered instrument signed by or an behalf of the donor, and attested by at least two witnesses. For the purpose of making a gift of movable property, the transfer may be effected either by a registered instrument signed as aforesaid or by delive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the provisions of law prevailing during the year under consideration, the gift received by one corporate body from another corporate bodies do not come under the ambit of income as contemplated under section 2(24) or any other provisions of the Act. While referring and following the decision in DP gifts and natural love and affection are no necessary requirement. It was held that the only requirement for company is to make gifts as per receptive Memorandum and Article of association, which authorize the company for the same. Applying the proposition of law laid down in the above decision to the facts of the instant case, it is found that the assessee and the donor companies are authorized in this regard [or receiving and making gifts respectively by their Memorandum and Articles of association. 9. In view‟ of the said decision, the gift is not liable to be considered as Sham transaction. This view is also supported by the decision of the case assessee's group concern Jayneer Infrapower in which it is held that... 27. In light a/the above discussion, the transactions cannot be said to be colorable device and, therefore, the decisions relied upon by the AO has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E. From the above, it may he observed that income from other sources is the last an residual head of income. A source of income which does not specifically fall under anyone of the other four heads of income (viz. Salaries, Income from House property, Profit and Gains of business or profession. Or capital gain) is to be computed and brought to charge under section 56 under the head "income from other sources". In other words, it can be said that the residuary head of income can be resorted to only if none of the specific head is applicable to the income in question and that it comes into the operation only if the preceding heads are excluded. Thus, it can be said that the residuary head of income can be invoked only if all the following conditions are satisfied. i. Income - There is an "income"[section 2(24) read with section 4 and 5 of the Act] ii. Not covered by the order heads of income. However, the benefit accrued to the Appellant in present case is in the capital field and can be brought to tax under the head capital gain. Accordingly, the provisions of section 56(1) cannot be resorted to . 10. So far as the applicability of Section 56(2) (vii a) of the Act is conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad as under: "28. The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession- Section 28(iv) specifies that the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargeable to tax under the head profits & gains of Business or profession. The benefit or perquisite should arise from the business for the same to be considered as income under section 28(iv), which means that the assessee must have performed some business activities or carried out his business and must had received any benefit or perquisite in the course of the same. In the present case, the receipt of shares of Dish TV as gift does not arise out of any business dealing and, accordingly, is not taxable under section. In any case, the receipt of gift is a capital receipt and on this count too, the provision of section 28(iv) of the Act cannot be applied. The Hon'ble Tribunal in the case of 25FPS (supra) held that receipt of shares of a listed entity is not taxable under the provisions of section 28(iv) of the Act. It observed as under 13. So far as the applicability of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r referring to various observation of the AO submitted that, one has to see the fact and background of the case and how the group entities have devised a colorable arrangement wherein the shares have been acquired and gifted without getting into the clutches of taxing provision. He also referred to various observations of the ld. CIT (A) stating that how entire restructuring and transaction of acquiring and gifting of shares was colorable device. Once these transactions are sham and colorable, the AO has rightly taxed the receipt of shares based on the market value. 29. The assessee in its appeal specifically from Ground No. 1 to 6 has objected to the various observations of the ld.CIT(A) on the receipt of shares of Dish TV as a colorable device and hence it has been contended that he has extended his jurisdiction in directing the AO to the tax of transaction in the hands of transferor companies by taking necessary steps. Learned Counsel before us has submitted that provision of Section 251 cannot allow to travel outside the scope of appeal or travel outside assessment year nor can travel to affect third party as his observations may have any incriminating affect on the third part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital receipt cannot be liable for tax unless there are specific provisions to tax the same. Certain deeming provision have been brought in the statute u/s. 56(2) (vii a),(vii b),(vii),(x). Some of these deeming provisions have been brought in the statute with effect from particular years. Admittedly, these deeming provisions u/s. 56 were not applicable in the present assessment year, i.e., A.Y. 2012-13. The deeming provision of Section 56(2)(vii a) which was though applicable in the present assessment year, however the same is applicable where a company receives shares of private limited companies without or for inadequate consideration. Thus, this deeming provision is not applicable in the case of the assessee. If at all under this circumstances the receipt of shares is treated as receipt of sum of money or any moveable property by any person as brought in the statue by inserting clause (x) Section 56(2) w.e.f. 01.04.2018, then same too is not applicable in present assessment year as observed and held by the ld.CIT(A) noted supra. The receipt of sum of money or property without consideration brought u/s. 56(2)(x) clearly shows that this were not covered under the existing provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not that he has directed the same should be taxed. Accordingly, we do not find any reason to interfere in such a direction and observation of ld. CIT(A); and he was well within the scope of section. 251 to make such observations while giving finding of fact placed on record. Whether in the hands of the transferor company, it would be subject to capital gains tax or not will only be decided on the facts and merits of the issue involved therein. Nowhere the Ld. CIT (A) has said that same should be tax there as he has merely said the AO should consider the tax liability in accordance with the provision of the law. Accordingly, grounds taken by the assessee are dismissed. 33. Coming to the second issue, regarding the addition u/s. 68 of the Act of Rs. 2,54,45,97,000/-. As noted above during the financial year ending 31st March, 2012 assessee has issued 9,90,000 equity shares to its holding company at a face value of Rs. 10, i.e., to ECRPL at a premium. The total share premium of Rs. 254,45,97,000/- has been treated unexplained cash credit u/s. 68. It is not in dispute either by the AO or by the CIT(A) that assessee has duly explained the nature and source of the receipt of money of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and Form 2 filed with the ROC intimating allotment of equity shares in fact, the monies received towards share capital has been accepted by the AO and it is only the money received toward share premium which is in dispute." 34. Thus, from the aforesaid explanation and material, nature and source of credit cannot be doubted. In so far as receipt of share premium is concerned, the same is not chargeable to tax unless the provisions of Sections 56(2)(vii a) or (vii b) are invoked that it is in excess of fair market value of shares which provision will apply from A.Y. 2013-14 and not in A.Y. 2012-13. Thus, the finding of the ld. CIT (A) in deleting the said premium is confirmed. The ld.CIT(A) has already dealt with the valuation of the shares which was done on Net Asset Value method based on the report of independent Charted Accountant and assessee has considered the market value of asset being share of the listed company. There is categorical finding of the fact that the share of the Dish TV were purchase from the open market at Rs. 255 Crores and the fair value of the shares was taken at 260 Crores in the valuation report for the purpose of arriving of the fair value of the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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