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TMI Blog2022 (3) TMI 1516X X X X Extracts X X X X X X X X Extracts X X X X ..... uly been adjudicated in due course of law. CIT(A) has decided the issue judiciously and correctly which is not required to be interfered with at this appellate stage. Accordingly, this issue is decided in favour of the assessee against the revenue. Addition of transfer of shares - gift receipts as liable to be considered as Sham transaction - whether the same is liable to be taxed u/s 56(1) and 28(iv)? - As argued that CIT(A) has deleted the addition without looking at the very nature of transfer of shares in substance i.e. the creation of holding company and subsidiary company was a colourable device adopted to evade taxes - HELD THAT- We are of the view that the gift is not a colourable device to avoid the tax liability if any. As receipt of share from the Private Limited Company for without or inadequate consideration whereas in the present case, the assessee is the recipient of shares of a listed company so the provisions u/s 56(2)(viia) of the Act is not liable to be applicable. As the provision Section 28(iv) and 56 in case of receipt of shares of a listed a company as gift is not applicable. Accordingly, we uphold the finding of the CIT(A) on this issue. Powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a company incorporated with the object to carry on the business of dealing in Cinematographic Films. The assessment was completed on 31.03.2015 determining the total income to the tune of Rs.149,57,54,080/-. After making the addition/disallowance aggregating to Rs.149,51,33,530/- u/s 143(3) of the Act. In the assessment order, the AO raised the addition of Rs.134,96,23,835/- u/s 56(1) towards the market value of the shares of Zee News Ltd. received from the holding company at nil consideration, the disallowance of Rs.1,65,85,334/- was made u/s 14A, disallowance of expenses of Rs.2,58,769/- was made u/s 37 of the Act and addition of interest on Income Tax refund of Rs.7,66,868/- was assessed under the head income from other sources. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who partly allowed the claim of the assessee but the revenue was not satisfied, therefore, the revenue has filed the present appeal before us. ISSUE NO. 1 5. Under this issue the revenue has challenged the deletion of disallowance made u/s 14A r.w. Rule 8D of Rs.1,65,85,334/-. The main contention of the Ld. Representative of the revenue is that the CIT(A) has deleted the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant previous year. The Hon'ble Bombay High Court in the case of Pr. CIT v. Rivian International (P.) Ltd. [IT Appeal No. 693 of 2015, dated 21-11-2017] has also held that if the assessee during the relevant year has not earned any tax-free income, the corresponding expenditure incurred cannot be taken into consideration for disallowance. 50. In view of the above discussions we direct the Assessing Officer to delete the disallowance of Rs. 28,48,16,401/-. The Department's appeal in Ground 3 and 4 against the findings of the CIT(A) will also stand dismissed on the same footing. 6. On appraisal of the above mentioned finding, it is apparent on record that the assessee did not earn any exempt income, therefore, no disallowance is required in view of the decision of Special Bench in the case of Cheminvest Ltd v. CIT [2015] 61 taxmann.com 118/234 Taxman 761/378 ITR 33. Further, the CIT(A) has also dealt the expenses incurred by the assessee. The assessee did not claim any expenses. No deduction was claimed, therefore, there should be no disallowance expenses, hence, on this aspect also no disallowance u/s 14A r.w. Rule 8D is required. The CIT(A) has also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipt is not liable for tax unless the statute makes a specific provision to bring the same to tax. Such provisions to bring capital receipts to tax are available in the statute in section 45 and in clauses (v), (vi), (vii) and (viia) of section 56(2) and the corresponding clauses in section 2(24) dealing with definition of income. It is therefore required to be examined whether the capital receipt of the appellant by way of receipt of shares falls under the scope of any of the above mentioned provisions in the statute which seek to bring the capital receipts under the scope of income chargeable to tax. Since the appellant is the recipient of the shares in the transaction of transfer of shares, the provisions of section 45 dealing with capital gains are not applicable to the appellant. As regards clauses (v), (vi) and (vii) of section 56(2), it is seen that the same seek to bring to tax the receipt of any sum of money or moveable property or immovable property by an individual or a HUF without consideration or for inadequate consideration with reference to the fair market value of the property in the hands of the recipient. The same are applicable only to recipients having the statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 56(2)(vii) of the Income-tax Act provided that any sum of money or any property which is received without consideration or for inadequate consideration (in excess of the specified limit of Rs. 50,000) by an individual or Hindu undivided family is chargeable to income-tax in the hands of the resident under the head Income from other sources subject to certain exceptions. 33.2 Further, receipt of certain shares by a finn or a company in which the public are not substantially interested is also chargeable to income-tax in case such receipt is in excess of Rs. 50,000 and is received without consideration or for inadequate consideration. 33.3 The definition of property for the purpose of this section includes immovable property, jewellery, shares, paintings, etc. These provisions were applicable only in case of individual or HUF and firm or company in certain cases. Therefore, receipt of sum of money or property without consideration or for inadequate consideration does not attract these provisions in cases of other assessees. 33.4 In order to prevent the practice of receiving the sum of money or the property without consideration or for inadequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Act so as to provide that receipt of the sum of money or the property by any person without consideration or for inadequate consideration in excess of Rs. 50,000 shall be chargeable to tax in the hands of the recipient under the head Income from other sources . 213. It is therefore clear from the Explanatory Notes that prior to the insertion of Clause (x) in section 56(2) by the Finance Act, 2017 w.e.f. AY 2018-19 onwards, the receipt of a sum of money or property without consideration in cases not covered by the existing provisions of section 56(2)(vii) and (viia) was not chargeable to tax under the head Income from other Sources. The cases of receipt of a sum of money or any property by any person has been made liable to tax under the head Income from Other Sources from AY 2018-19 onwards by inserting Clause(x) in section 56(2). From the legal position explained in the Explanatory Notes, it is also clear that the receipt of a sum of money or property without consideration in cases not covered by the existing provisions of section 56(2)(vii) and (viia) was not chargeable to tax under the head Income from Other Sources under the provisions of section 56(1) also. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise of a profession shall be chargeable to tax under the head Profits Gains of Business or Profession. It was stated that the benefit or perquisite should arise from the business for the same to be considered as income u/s. 28(iv) which means that the assessee must have performed some business activities or carried out his business and must have received any benefit or perquisite in the course of the same. It was stated that the business of the assessee must necessarily have given him the right to receive such a benefit or perquisite to as to constitute income u/s. 28(iv). It was pointed out that the appellant has not carried out any business activity during the impugned assessment year nor at any time in the past which could have given it a right to receive the gift of shares and therefore, the provisions of section 28(iv) are not applicable to the facts of the appellant's case. 218. In support of the above proposition, the appellant relied on the decision of the Hon'ble ITAT, Mumbai in the case of Nirmala Athavale Vs. ITO 118 ITO 373 wherein it was held that a gift will become income only when received as a consequence of exercise of vocation/business/prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be understood as the facility or amenity given by one party to another party. 222. In the above mentioned case, the Hon'ble Tribunal held that the gift received by the assessee, who is a social reformer, from his followers cannot be considered as a benefit or perquisite since the same did not arise from the exercise of vocation by the assesse on account of the reason that the gifts did not represent the consideration paid by the followers/desciples for the services obtained by them from the assessee. While rendering this decision, the Hon'ble Tribunal placed reliance the decision of the Hon'ble Mumbai in the case of Hellos Food Improvers (P) ltd Vs CIT (Supra). 223. Further, in the case of CIT Vs. Stads Ltd 373 ITR 313, the Hon'ble Madras High Court held that the benefit or perquisite should arise out of normal transaction of the business for the same to be taxed as business income u/s.28(iv) of the Act. The relevant part of the decision of the Hon'ble High Court is reproduced as under: Since the issue revolves around Section 28(iv) of the Income Tax Act, it is necessary to extract the same herein for better clarity. '28. Profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered as income under the head business u/s. 28(iv) of the Act. The fulfilment of this condition requires that benefit or perquisite is received by the assessee as a consequence of performance of business 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 Zee News Ltd. by the appellant at NIL consideration is therefore required to be examined from this perspective. 226. On perusal of the financial statements of the appellant for the FYs 2011-12 201011 relevant to the present assessment year and the immediately preceding year, it is seen that the appellant did not carry out any business activity during these years. On perusal of the P L account for these years, it is seen that there is no revenue from operations credited to the P L Account. The only credit to the P L Account during the FY 2011-12 relevant to the present assessment year is the interest on the income-tax refund. Further, on perusal of the balance sheet of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payer has no 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 company has not claimed deduction for the value of the shares transferred by it at NIL consideration to the appellant while computing its total income under the Act. Hence, it is considered that these decisions cited by the AO have no relevance to the issue on hand. 228. Having regard to the above discussion, the benefit received by the appellant in the form of receipt of shares of Zee News Ltd. at NIL consideration from the holding company cannot be considered to have arisen from the business of the appellant and consequently, it is held that the provisions of section 28(iv) are not applicable to the facts of the appellant's case so as to bring the said benefit to tax: as income under the head business. 7. The factual position is not in dispute, the assessee company is a 100% subsidiary of Essel Group and accordingly is a part of internal reconstructing who received 12,78,98,710 equity shares of Zee News Limited as a gift without consideration. The internal reconstructing was carried out in compliance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 delivery. 2. A perusal of the provisions of sections 5, 122, 123 of TOPA indicate that there do not seem to be any restriction on the corporate transfer of shares by way of gift. There is no requirement in TOPA that a 'gift' can be made only between natural persons out of natural love and affection which means that as long as a donor company is permitted by its memorandum / articles of association to make a 'gift', it can do so. Further, it clear from section 123 of TOPA, there is no requirement of a gift deed. 8. The section nowhere caused restriction to the corporate transfer of shares by way of gift. The company can do so when interest is mentioned in the memorandum/article of association. This view is taken by the decision of the Hon ble ITAT in the case of Nerka Chemicals Pvt. Ltd. Vs. DCIT [ITA 4423/M/2014] held as under: - Further, the Coordinate bench of Tribunal in DCIT Vs KDA Enterprises (supra) held section 2(24) defines 'income'. The definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red as Sham transaction. This view is also supported by the decision of the case assesee s group concern Jayneer Infrapower in which it is held that: - 14. The background facts of the transactions under consideration are as follows. During the year under consideration, the assessee has transferred the following shares. Sl. No. Particulars Purchaser No. of shares Cost of acquisition Sale consideration Gain/ (Loss) 1. Wire Wierless India Ltd. Essel Corporate Resources P. Ltd. 1,03,31,658 1,96,31,05,502 NA (Gift) (19,63,01,502) 2. Essel Corporate Resources P. Ltd. 1,28,26,555 24,37,04,345 NA (Gift) (24,37,04,545) 3. Esscl Business Process Ltd. 65,00,000 12,35,00,000 12,35,00, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of sale consideration, the computation mechanism fails and the transaction cannot be brought to tax in view of the decision of the Hon'ble Supreme Court in the case of CIT v. B.C. Srinivasa Setty [1981] 5 Taxman 1/128 ITR 294. It was also submitted that the Assessing Officer cannot substitute the sale consideration by fair market value in the absence of any such provision under the Act. Reliance was placed upon the decisions of the Hon'ble Supreme Court in the case of CTT v. George Henderson and Co. Ltd, [1967] 66 ITR 622 and CIT v. Gillanders Arbuthnot Co. [1973] 87 ITR 407 (SC). 17. However, the Assessing Officer did not agree with the submission of the assessee and held that the fair market value of the shares is to be substituted for sale consideration and thereby made the addition of Rs. 57,90,33,060/-. His detailed reasonings can be summarized as under: (i) The assessee has very minimal paid up capital and has huge accumulated losses as well as borrowing. It has also advanced huge amounts to related parties and subsidiaries and have substantial investments in subsidiaries and group companies. (ii) The shares of assessee-company are held by the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4,36,73,445 shares were transferred at cost while only 2,31,58,213 shares were gifted. Total 57,90,33,060 18. Against the above addition by AO, assessee approached to CIT(A). 19. It was pleaded before the CIT (A) that the transfer of shares made without consideration is gift and, therefore, the same cannot be taxed under the provisions of the Act. It was explained that the transaction was part of internal restructuring exercise carried out for consolidation/rationalization of various media assets. In support of this, the copies of Memorandum and Articles of Association as well as DEMAT slip of share transfers were relied upon. It was pleaded that the transaction cannot be considered as colourable device and the principle laid down by the Supreme Court in the case of McDowell and Co. Ltd, is not applicable. The order of the Mumbai Bench of the Tribunal in the case of DP World (P.) Ltd. v. Dy. CIT [2012] 26 taxmann.com 163/[2013] 140 ITD 694 was relied upon to contend that the transaction of gift cannot be brought to tax. It was also submitted that in the absenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22. It was contented by the ld. AR that the assessee has transferred the shares of Wire Wireless India Ltd. and Dish TV India Ltd. to its group companies. These transfers have taken place either at cost or without consideration. It is submitted that both the lower authorities have ignored the fact that the transfers have been effected pursuant to internal restructuring exercise carried out by the assessee. Both the authorities have further erred in assigning the market value as a sale consideration for the purpose of determining the income. It is submitted that there is no such enabling provision under the Act to substitute the market value in place of actual consideration. As per ld A.R., the ld. CIT (A) has correctly held that the transfer of shares is a transfer of capital asset and the gain from which is chargeable to tax u/s. 45 of the Act. The computation of gain, for this purpose, is to be done as prescribed in S. 48 of the Act which provides for deduction of cost of acquisition from 'full value of consideration'. The phrase 'full value of consideration' has received the judicial interpretation in series of decisions by various High Courts as well as Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the admission, the Revenue did not point out any facts which would evidence that the transaction was not genuine. In such a case where the genuineness is not disputed with any evidence, it is not open to discard the document and/or transaction on the basis of some supposed object/intent. In the present facts the Revenue accepts the documents but only substitutes the consideration. Therefore, the issue is whether such substitution of full consideration received by fair market value of the asset is permissible. As held by the Tribunal at the relevant time there was no power vested in the authorities under the Act to substitute a full value of consideration received for sale of shares by fair market value in respect of stocks and shares. The power to substitute full consideration with fair market value in respect of shares came into the statute only on introduction of Section 50D with effect from 1st April 2013. Moreover, such a power under Section 50D of the Act is only to be exercised if the Assessing Officer comes to a finding that the consideration received is not ascertainable or cannot be determined. Moreover the decision of the Co-ordinate bench of the Tribunal in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder consideration. Whether the market value can be substituted for actual consideration, is a question to be decided on the basis of the provisions of the Act. (v) The modus operandi of transfer of shares in other group companies do not have any bearing on the issue under consideration. In any case, if transfer or becomes the holding company of transferee company, the provisions of S. 47(iv) of the Act would be applicable and the capital would not be charged as per the provisions of the Income-tax Act. If there is no charge of tax as per the provisions of the Act, the Assessing Officer cannot complaint about the same. In any case, the violation of the pre-condition of S. 47(iv) of the Act invites the tax liability as prescribed u/s. 47A of the Act and, therefore, the transaction of transfer by holding company to subsidiary cannot be branded as colourable device. In any case, this is applicable to the case of group companies and not to the assessee as the transfer or under consideration is not by holding company to its subsidiary and consequently no benefit of S, 47(iv) of the Act has been claimed. (vi) The change in the inter se status of the companies is again irrelev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res P. Ltd. etc. Here again, no illegality of tax evasion has been pointed out. All transfer of shares are duly accounted and reported. (c) Wire Wireless India Ltd., (City Cable) Similar objections have been raised by the A.O regarding transfer of shares from premier finance and Trading Co. Ltd., Jayneer Capital Pvt. Ltd etc. to Direct Media Solution P. Ltd etc. we refer and rely upon the submissions made hereinabove. (d) Zeel, Zee Learn, Essel Propack, Jayneer Capital Pvt. Ltd. etc .As in the case of companies referred to in the preceding paras, the allegation of the A.O is same in case of these companies. We refer and rely upon our observation made hereinabove. 27. In light of the above discussion, the transactions cannot be said to be colourable device and, therefore, the decisions relied upon by the A.O has no relevance. 9. In view of the said discussion and law relied by the assessee, we are of the view that the gift is not a colourable device to avoid the tax liability if any. It is also to be seen whether the same is liable to be taxed u/s 56(1) and 28(iv) of the Act or not: - 56. (1) Income of every kind which is not to be excluded from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (vid) or clause (vii) of section 47. Explanation. For the purposes of this clause, fair market value of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii); From the above, you may observe that the aforesaid provisions apply in a case where a company receives shares of private limited companies for without or inadequate consideration. In the present case, the assessee is the recipient of shares of a listed company. Accordingly, the provisions of section 56(2)(viia) cannot apply. In view of the above, the CIT(A) s observations that the provisions of section 56(1) do not apply in case of transfer of shares should be upheld. 12. It speaks about the receipt of share from the Private Limited Company for without or inadequate consideration whereas in the present case, the assessee is the recipient of shares of a listed company so the provisions u/s 56(2)(viia) of the Act is not liable to be applicable. 13. So far as the applicability of Section 28(iv) of the Act is concerned. The section 28(iv) is as under: - Section 28(iv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parcel of division of vast business empire of the group among family members undertaken in a colorable manner so as to avoid tax. 2. The AO / CIT(A) erred in holding that the receipt of shares of listed company was not in the nature a gift but as a result of a division of vast business empire of the group among family members involving an element of quid pro quo between the ultimate beneficiaries; 3. The CIT(A) grossly erred and exceeded his jurisdiction in giving a direction to the AO that the impugned transactions were taxable in the hands of the transferor though taxability of transferor was not a subject matter of appeal; 4. The CIT(A) has misdirected himself in as much as all his findings/ observations/directions in the order regarding the Transferor are extraneous to the subject matter of appeal and are beyond the jurisdiction of the CIT(A) thereby rendering that portion of the order illegal and all the said portions deserve to be expunged from the order. 5. Without prejudice, CIT(A) erred in holding that transaction under which the assessee received the shares of the listed company was a colorable device undertaken in a manner to avoid tax and taxable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt or extraneous matter would be a finding. That certainly cannot be the intention of the legislature. The Madras High Court also in A.S. Khader Ismail v. Income-tax Officer, Salem [1963] 47 ITR 16 gave a very wide interpretation to that word, though it did not go so far as the Full Bench of the Allahabad High Court. Ramachandra Iyer J., ashe then was, speaking for the court, observed that the word finding in the proviso must be given awide significance so as to include not only findings necessary for the disposal of the appeal but also findings which were incidental to it. With respect, this interpretation also is inconsistent with the well-known meaning of that expression in the legal terminology. Indeed, learned counsel for the respondent himself will not go so far, for he concedes that the expression finding cannot be any incidental finding, but says that it must be a conclusion on a material question necessary for the disposal of the appeal, though it need not necessarily conclude the appeal. This concession does not materially differ from the definition we have given, but the difference lies in the application of that definition to the finding given in the present case. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduce, enhance or annual the assessment. He can also initiate penalty proceedings and in any other case he may pass such orders in the appeal as he thinks fit. The expression 'may pass such orders in the appeal' was subject matter of consideration by various Courts. While deciding the appeal the Appellate Authority may give appropriate directions to the AO either in regard to the assessee in appeal before him or otherwise. However, these directions cannot travel outside the assessment year to which the appeal relates. In the same way the directions cannot relate to a third person, whose appeal is not pending before him. The policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage, as observed by the Hon'ble Apex Court in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1. In the instant case no addition was made in the hands of Smt. Kalpana VijaySarda though she has filed the return by specifying that she has purchased the property. At the same time it is not in dispute that the AO has taken a consistent stand that a sum of Rs. 16,51,000/- was paid for purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss it is shown that she was capable of having so much of income in the year under consideration. The first Appellate Authority has not made any comment in that regard and, in fact, has not given any opportunity to Smt. Kalpana VijaySarda, which shows the fallacy in the direction given by him. 21. In the case of Mrs. Banoo E. Cawasji v. CIT [138 ITR 686], the Hon ble High Court has observed that the CIT(A) is not required to pass the order in the case of third party. Accordingly, we are of the view that the observation of the CIT(A) is not justifiable, therefore, we set aside the such direction and decide the issue nos. 1 to 4 in favour of the assessee against the revenue. ISSUE Nos. 5 6 22. Since the matter of controversy has been adjudicated while deciding the issue nos. 1 to 4, therefore, these issues could only be academic in nature, hence, no need to require any adjudication. ISSUE NO.7 23. Issue no. 7 is formal in nature which nowhere required any adjudication. 24. In the result, the appeal filed by the assessee is hereby allowed and the appeal filed by the revenue is hereby dismissed. Order pronounced in the open court on 02/03/2022 - - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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