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TMI Blog2024 (7) TMI 1371X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the Hero Group and Honda ( here in after also referred as 'parties') holding 26% equity each, pursuant to shareholder agreement dated 26.12.1983 ('JV Agreement'). The parties, agreed to participate in manufacture, assembly, import, sale and service of motorcycles and parts thereof in India with technical assistance of Honda. The JV Agreement dated 26.12.1983, had certain restrictions related to the management and existence of the JV company on the parties qua (a) right to transfer/ sell/ assign shares held in the JV company, without any prior consent of the other (b) arrangement of funds to meet requirements of JV company ; (c) right to terminate the JV in certain cases. Further, restrictions vide Article 11 of JV agreement were placed on the JV Company and the Indian Partners in the said JV agreement by which the Indian Partners were prohibited to directly/ indirectly engage in the manufacture, sale or distribution of any motorcycles and other two-wheelers. Subsequently, vide Memorandum of Understanding (MOU) entered into on 12th July 1999 [referred also as '1999 MOU') the Indian partners permitted Honda to establish its subsidiary in India, namely, Honda Motorcycle an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to freely export motorcycles (other than License B products) to any country across the globe with restriction on use of brand "Honda" in case of export to new overseas distributors. 2.3 The 26% stake held by Honda in HHML (JV) was agreed to be taken over by Hero Group through erstwhile Hero Investment Pvt. Ltd. (HIPL/ assessee /appellant). Accordingly, the appellant (representing Hero Group), in an off-market deal on 22.03.2011 acquired 5.19 crore equity shares, representing 26% stake in HHML, from Honda at a mutually negotiated price of Rs. 739 per share, for a total consideration of Rs. 3,841.83 crores being paid to Honda, on which due tax was deducted and deposited as per the provisions of section 195 of the Act. 2.4 The case of assessee is that to acquire the aforesaid shares, apart from utilizing the accumulated reserves and surplus available with the appellant, interest bearing borrowed funds were sourced through issue of secured Non-Convertible Debentures (NCDs) to the tune of Rs. 2900 crores, which were secured against the shares of HHML. Further pursuant to the acquisition of aforesaid shares from Honda, the appellant also arranged funds to the extent of Rs. 2,580.43 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3644,85,20,063 under section 28(iv) of the Act, alleging the same to be "benefit" accrued to the appellant on acquisition of 26% stake in HHML from Honda, at discount. On first appeal, the CIT(A), vide impugned order dated 28.03.2023, agreed to the contentions of the assessing officer in toto and dismissed the appeal of the appellant for which the assessee is in appeal here in Tribunal. 4. On hearing both the side, it is pertinent to observe that the grounds as raised by appellant/ assessee, bring forth the precise controversy, on facts and law, between the parties and for convenient discussion same can be concised in the form of following two issues:- Issue No. 1: Whether the reassessment order dated 29.12.2018 lacked valid 'reason to believe that income of the appellant had escaped assessment' in terms of absence of tangible material and beyond the scope of first proviso to section 147 of the Act, inasmuch as there was no failure on part of the appellant to fully and truly disclose all material facts relating to the impugned transaction? Issue No. 2: Whether for the purpose of section 28(iv) of the Act, any 'benefit', accrued to assessee, by way of discount arising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shareholder's agreement of 1983 regarding termination of JV in terms of transfer of share by terminating party at the market price. The terms and condition of the framework agreement 1983 provided purchase and sale of share at fair market price. Reliance is placed byLd. DR on findings of CIT(A) at page no. 63 and para no. 7.6, that during the course of post survey enquires, the appellant was called upon to furnish various documents related to the negotiation between the transacting parties namely HIPL, HHML and M/s Honda Japan. It is noted by the AO that the appellant was able to provide only a few documents and had not provided crucial documents relating to negotiation and determination of payments for concession allowed by the parties including the reason for allowing appellant a 50% discount on purchase of share of M/s HHML during the year under consideration. 6. Now in regard to issue no. 1, it is settled proposition of law that under the scheme of the Act, the assessing officer can initiate proceedings under section 147 of the Act only if he has "reason to believe" that any income has escaped assessment. Such belief has to be arrived at by the assessing officer on the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at income has escaped assessment. No such reasonable belief can be inferred from the purported reasons to believe recorded. [Para 13] The words "reason to believe" indicate that the belief must be that of a reasonable person based on reasonable grounds emerging from direct or circumstantial evidence and not on mere suspicion, gossip or rumor. The "reason to believe" recorded did not refer to any material that came to the knowledge of the Assessing Officer whereby it could be inferred that he could have formed a reasonable belief that amount in question had escaped assessment. ..... In view of the above, the reassessment proceedings initiated pursuant to the notice issued under section 148 are hereby quashed. [Para 15]" 8. Now coming to the facts of present case, the broad allegations made by the assessing officer in the reasons recorded, which forms the basis of impugned proceedings are: i. It has been alleged by AO that benefit by way of discount in purchase of shares had been extended by Honda to the assessee. AO was of view that shares were purchased at a 50% discounted price of Rs. 739 per share arrived as per clause 3.1 of the Share Purchase Agreement, whereas the share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion, support was drawn by AO from clause 17.10 of the Share Purchase Agreement- "No objection for future business". iv. AO, records in the "reason to believe" that this was new information coming to the knowledge of Revenue, and the facts whereof were not fully and truly disclosed by the assessee. v. The assessing officer has further tried to justify the reopening on the premise that following issues raised during the course of survey/ post survey enquiries remain to be answered by the assessee- (i) authorization to Board of Directors in AGM permitting issue of shares to foreign investors at premium was not provided; and (ii) entire 26% stake was sold by Honda to HIPL/ assessee and not to BCIPL who was also another major shareholder in HHML. 9. As we examine the reasons recorded by the assessing officer available at page 653 to 673 of paper book, we find that what the AO, harps upon, as 'reasons to believe', was not on the basis of any tangible material, from which certain fact would emanate with consequences to follow without any process of drawing some presumption. But here in the case it was AO's own perception about how the whole transaction has actuated and cryst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the Hero Group, holding only 26%. 9.4 Then the price of Rs. 1439 (approx.) quoted at the stock exchange, as taken by AO, was for Hero Honda Motors Ltd., a JV, with substantial brand value, having developed its reputation/ brand over a period of more than 25 years, however, the new Company HMCL, would have to prove its mettle all over. So how fair it would have been for a investor is stock exchange to buy a share of HHML at Rs. 1439. The market perception, about capability of new company, due to exit of Honda, would have certainly been open to different sentiments. Taking notice of fact that during the subsistence of the JV Agreement, HHML was benefitted by the technical know-how for manufacture of two wheelers from Honda, the exit of Honda, from JV, was likely to raise lot of apprehension on HHML's ability to sustain further in the competitive market. This was to be further complicated with the competition that Honda would put to HHML, post exit, as Honda was to independently enter in the two-wheeler market in India. These factors could have resulted in any sort of speculation in the price of the shares of the new entity HMCL. So, it was all the more necessary that these parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase of shares between the JV Partners at fair market value. This clause 14.6 of the JV agreement, was to be effective only in the event that the agreement was terminated by virtue of certain specified contingencies as contemplated in clauses 14.2, 14.3 or 14.5(a) or (b) or (c). It was in those circumstances that the terminating party was vested rights to require the other party to purchase their stake/ shares at the then current fair market price. However, to our understanding, as there was termination of agreement by a mutual decision and not due to triggering of any of the aforesaid default clauses, the clause 14.6 was not applicable. We appreciate the contention of Ld. Sr. Counsel that Section 62 of the Indian Contract Act, 1872, enables the parties to a contract to mutually modify the terms of the original contract, so substitution of original recital, of method of valuation of shares, at time of exit, from fair market value to mutually negotiable price, cannot be relied by the AO, as an estoppel, against the contracting parties. 10. Ld. DR has heavily relied the fact that after acquiring shares of HHML from Honda, when the assessee issued fresh shares to foreign investor B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that the facts relating to the MoU dated 16.12.2010 and the aforesaid proposed acquisition were fully disclosed and the permission for foreign inward remittance was sought keeping in mind the valuation of the appellant company post such acquisition. Thus on unsubstantiated allegation the transaction is questioned. 11.2 Ld. Sr. Counsel submitted that even otherwise, the decision to consummate the transaction at the earliest was commercially prudent for the appellant as the purchase price was to be computed on the basis of average of weekly high or low of the quoted price of preceding nine business days prior to date of transfer. Being so, since the acquisition price was dependent on the volatile quoted price of shares prior to transfer date, the appellant in order to avoid any future volatility in price, decided to close the transaction as early as possible. It was submitted that since all the announcements relating to the deal and exit of Honda from the JV were made public, the appellant, in its commercial wisdom, decided to close the deal at the earliest possible to avoid any adverse speculations and uncertainties amongst its associates such as vendors, dealers, customer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the said restrictions which related to the management and existence of the JV Company, were equally placed on the Indian partner as well. No restrictions on carrying on independent business operations by Honda in India was placed in the aforesaid initial JV Agreement. Ld. Sr. Counsel has cited certain clauses of the JV agreement, where restrictions are placed on the JV Company and the Indian Partners. We consider it appropriate to reproduce the same here under: "1. Article 5.1 of the agreement restricted the JV company to directly/ indirectly sell/ export the products or parts to any country where Honda was present. 2. Article 5.2 provided that the company could only export the Products, viz, motorcycles that too only through Honda, to countries other than countries where Honda or its subsidiaries/ affiliates had any licensing arrangement. 3. Article 5.5 to 5.7, which provide various conditions relating to warranty/ quality of the product was placed on the JV company. 4. Article 6 provided various restrictions on use of trademark as placed on the JV company and Indian partners. 5. Article 11 regarding Non-Competition and Non-Disclosure of Information. Indian Partners w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O has in fact fallen in error in putting assessee under an onus to prove that no concession was given. Thus the failure of appellant to not furnish any documents/ communications/ correspondences in respect of negotiations with Honda relating to the deal, cannot be basis to draw inferences of concession being granted to Honda. 12.5 On the contrary, the benefit came to share of assessee as after termination of JV, the Hero group was permitted to use technology owned by Honda in respect of manufacture of Licence 'A' products in perpetuity. 13. We can also conveniently discuss here the allegations of AO as made during assessment with regard to non-submission of authorization to Board of Directors in AGM for issue of shares at premium to foreign investors. It is submitted by Ld. Sr. Counsel that the said allegation is factually incorrect as during the course of survey proceedings, minutes of meeting were submitted before the assessing officer. Reliance was placed on pages 530 to 574 of paper book. Same could not be controverted by the Ld. DR. The perusal of the minutes of meetings of the shareholders dated 7.4.2011, show that the Board of Directors was duly authorized to do all acts/d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate reassessment proceedings beyond the period of 4 years from the end of the relevant assessment year, where the assessment has been completed under section 143(3) of the Act unless income has escaped assessment by reason of the failure of the assessee to disclose fully and truly all material facts necessary for assessment. 17. The settled proposition of law being that where there was no failure on the part of the assessee to truly disclose all material facts and it was only a question of drawing an inference from these facts, reopening of assessment beyond the four years period is invalid. Reliance in this regard can be placed on following judgments, as cited by Ld. Sr. Counsel. 1. CIT v. Foramer France: 264 ITR 566 (SC) 2. Purolator India Ltd: 343 ITR 155 (Del.) 3. CIT v. Motor & General Finance: 184 Taxman 465 (Del.) 4. Titanor Components Ltd. v. ACIT: 343 ITR 183 (Bom.) 5. D.T. & T.D.C. Ltd. vs. ACIT: 232 CTR 260 (Del.) 6. Haryana Acrylic Manufacturing Company: 308 ITR 38 (Del.) 7. German Remedies Ltd. v. DCIT: 287 ITR 494 (Bom.) 8. Hindustan Lever Ltd. v. ACIT: 268 ITR 339 (Bom.) 9. Grindwell Norton v. ACIT: 267 ITR 673(Bom.) 10. Orient Beverages Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant year. 5. As stated by the assessing officer in the reasons recorded, the appellant had partly financed the said acquisition by issue of Short Term Non- Convertible Debentures (NCDs). The details of such NCDs were also disclosed in the balance sheet. 6. Schedule C Loan liability captures the details of NCDs which are stated to be secured against equity shares of Hero Honda Motors Limited. Notes to accounts at around No. B(11) also states the details of issue of such NCDs during the relevant year. 6. Clause (xvii) to Annexure to auditor's report discloses that appellant has raised funds by issuing NCDs of Rs. 2900 Crores which was utilized for long term investment in equity shares of Hero Honda Motors Ltd. 7. Schedule H 'Administrative and other expenses' also reflects debenture issue expenses and interest paid on NCDs. 8. The books of accounts of the appellant were also examined by the tax auditors, who at clause No.13 of the tax audit report clearly reported that no item has been found during the course of the audit which may fall within the scope of section 28 of the Act. 19. As regards detailed disclosure in the annual accounts made by the appellant, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liance of SEBI Regulations 4. Reports to SEBI and enquires conducted by SEBI 20.5 Ld. Sr. Counsel has submitted that most importantly, the aforesaid transaction of acquisition of shares by erstwhile HIPL (appellant) from Honda was duly disclosed, monitored and examined by the various tax authorities. He refered to the fact that on 9th March 2011, the Income-tax Officer, Ward 1(2) International Taxation, New Delhi issued notice under section 133(6) of the Act to appellant (available at page 156 of paperbook) to furnish various details/information, including, inter alia: Details of payment of sale consideration and tax deduction thereon; Valuation of such shares acquired by the appellant; Explanation regarding materialization of the transaction on 50% of the market value. It was submitted that the aforesaid queries were duly replied by the assessee vide reply dated 11.03.2011 wherein the appellant categorically stated that (a) sale of shares by Honda to the appellant would attract capital gains tax in the hands of Honda and accordingly, in terms of section 195 of the Act; (b) FEMA regulations would be complied with; (iii) no valuation report valuing the shares acquired from Honda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at all the details/ documents relating to the aforesaid transaction of acquisition of shares by the appellant was already available with the Tax Department inasmuch as Honda had filed an application, seeking determination of tax rate on the capital gains accrued to Honda before the Authority for Advance Ruling, copy of which was available to the Department. 21. Ld. Sr. Counsel has then submitted that the issue was examined by the assessing officer during course of assessment proceedings as during the course of original assessment proceedings, the appellant vide reply dated 16.01.2014 [available at pages 171-175 of paperbook], duly placed on record copy of Share Transfer Agreement dated 22.01.2011 entered between the appellant and Honda towards acquisition of impugned shares of HHML from Honda. Being so, all the facts and the contours, including the price and the factum of alleged discount was known to the assessing officer and were duly examined. Reference was specifically made to Point No.8 read with Annexure A of the reply. It was submitted that vide Point No. 1 of the said reply, it was pointed out that NCDs were issued by the appellant for the purposes of making investments in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he investment pattern of the assessee-company clearly shows that the investments of the company during the year is 100% in shares to the tune of Rs. 39,07,88,18,578/-. Moreover investment in shares have also been made in many companies other than group companies." 22. Ld. Sr. Counsel has emphasized that in the original assessment order passed under section 143(3), the assessing officer specifically made disallowance under section 14A on the ground that the assessee had incurred expenses in relation to investments, resulting in exempt dividend income. It was contended that while making the aforesaid disallowance, the impugned investment in shares of HHML was duly considered by the assessing officer. He pointed out that in fact, substantial amount of disallowance of expenses under section 14A of the Act, was attributed to the aforesaid investment in shares of HHML. Thus, it was submitted, the investment in shares of HHML was in the full knowledge of assessing officer, which was accepted after due application of mind, on the basis of various disclosures made by the appellant at various stages. 23. It was also submitted that other documents particularly the JV agreement dated 26.12.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (v) the alleged concession made available to Honda (in lieu of discount in price as alleged by the assessing officer) is a non-existent fact, for which no evidence has been brought on record by the assessing officer. 26. Having considered the aforesaid contentions and material relied, by Ld. Sr. Counsel, we observe that when objections against re-opening, dated 06.06.2018, were filed before the AO as available at page 675 of the paper book, the assessee had taken specific pleas, as taken before us also, as to how the reopening is not based on a tangible material and purchase of shares of HIPL from Honda, was duly disclosed to and monitored or otherwise examined by the different tax authorities. 26.1 The AO dismissed these objections by order dated 09.08.2018 which is available at page 739-767 of the paper book and as we go through the same, we find that with regard to the legality of reopening at page 753 onwards, the AO has made the discussion. The AO admits of the fact that the assessee had disclosed increase in investment of shares of HHML in Schedule-D of audited balance sheet. The AO also admitted that Accounting Policy and Notes to Account which are disclosed in Schedule- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. Asstt.Year: 2011-12 With reference to our further discussion, it is submitted as under: 1. The assesses company has claimed an amount of Rs. 2.51 Crores, as a deduction u/s 57 expended wholly and exclusively for earning interest income taxed under the head ''Income from Other Sources". The above amount relates to interest cost incurred in relation to NCD's issued during the year. The company had issued the above NCD's for the purpose of making investments in the shares of M/s. Hero Honda Motors Ltd, a group company. Since there was a gap of few days between issuing NCD's & making the investment, the idle funds had been parked in an FDR with Kotak Mahindra Bank on which interest income amounting to Rs. 2.51 crores was earned. Since the FDR was made out of borrowed funds the interest paid in relation to these funds was claimed as deduction u/s 57 limited to the amount of income. The interest paid thereafter had not been claimed. Copy of statement of Kotak Mahindra showing the making & en-cashing of FDR is enclosed. 2. As explained above, the TDS of the company has been deducted on the gross interest earned on FDR with Kotak Mahindra Bank at a flat rate of 10 % with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eatment in the computation of income tax is enclosed at Annexure- IV. 12. Details of Tax Credit u/s 115JAA of as hereunder:- AY MAT Credit Available MAT Credit Utilised in Asstt. Year 2011-12 MAT Credit C/F 2007-08 67,08,332 67,08,332 TOTAL 67,08,332 67,08,332 The aforesaid MAT credit has been adjusted from the Net Tax Liability of the assessee for the year under consideration in accordance with provisions of section 115JAA." 26.3 Thus we find that the share agreement dated 22.01.2011 and reconciliation of investments capturing quantity and value of opening investment, investment purchased and sold during the year were provided to the AO during assessment and infact AO made a incorrect observation while disposing the objections to the reopening that agreement dated 22.01.2011 was not provided. 26.4 There is also substance in the contention of ld. Sr. Counsel that when AO was examining disallowances for purpose of Section 14A of the Act, certainly AO had material before him to also examine the prices of acquisition of investments and any hidden cost or advantages. 26.5 We further find that the Assistant Director of Income-tax (Investigations) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Director of Income Tax (International Taxation)-1, New Delhi, to examine the purchase of 26% stake in Hero Honda Motors Ltd. by Hero Investment Pvt. Ltd. from Honda Moto Company Ltd., Japan, and information u/s 133(6) of the Act, was called on the following questionnaire:- "Please refer to the recent media reports regarding sale of 26% stake in Hero Honda Motor Limited by Honda Motor Company, Japan to Hero Investment Pvt Limited. It has been reported that Hero Investment is purchasing 26% shares for a price of Rs. 739.97 per share while the current market price as per stock exchange is around Rs. 1551 per share. You would be aware that payment/ credit of sale consideration of shares of Indian company to a non resident attracts withholding provisions under Section 195 of the Income Tax Act, 1961. In connection with the above deal, you are requested to furnish the following information:- 1. Details of payment of sale consideration and the schedule for complying with the withholding provisions on payment to Honda Motor Corporation limited, Japan. 2. Copy of application filed before FIPB along with all annexures. 3. Copy of due diligence Report of Hero Honda Motor Limited. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les of prudence. 27 Thus, the AO had opportunity to examine all the terms and conditions of share transfer. It is not justified on part of AO to say that though all these relevant information were there in the financials or provided by assessee, but it was not disclosed that purchase was on discount. As such assessee never claimed to have made purchase on discount so as to have mentioned it in return of income. 27.1. As we conclude that there was no failure on the part of the assessee to furnish full and true material facts at the time of assessment and the content and information in the return of income, annual report, books of accounts, specific queries raised, and replies filed etc., as discussed in detail above, were quite supposedly examined by AO while completing the assessment u/s 143(3) of the Act, thus making the same set of information as basis of recording of reasons u/s 148 of the Act, is merely change of opinion. Thus my merely mentioning in the reasons recorded that certain fresh information was received from the office of Pr. CIT regarding alleged benefit received by the appellant in transaction of purchase of shares of HHML from Honda, which was not disclosed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the impugned order, the assessing officer has alleged that one-time lump-sum license fee of Rs. 2151.80 crores paid by HHML to Honda pursuant to the share purchase transaction by HIPL from Honda was in lieu of discount availed by HIPL for acquiring 26% controlling stake from Honda. 29.1 Then it was submitted that Honda had exited the JV by selling its stake in the JV/ HHML to HIPL, which had led to consequential termination of existing license agreement, denying HHML access to technology owned by Honda to survive/ continue its operations. In absence of access to technology, the operations of HHML could have, it is stated, come to a halt. Thus, the aforesaid licensee agreement was entered between HHML and Honda to acquire right to use technology in respect of certain models, to continue business operations in India for its survival. In that background, HHML had paid one time license fee of Rs. 2151.80 crores to Honda pursuant to New License Agreement dated 22.01.2011 between Honda and HMCL wherein the former had granted to the latter, the right and license to manufacture, assemble, sell and distribute certain products/parts and export license for certain products and their servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of HHML for assessment year 2011-12. The TPO after detailed examination, expressly accepted such payment at arm's length vide order dated 29.01.2015 passed under section 92CA of the Act. 30.1 Then HHML was an entity listed on recognized stock exchanges in India and governed by norms/ regulations of Securities and Exchange Board of India (SEBI). No competent authority has raised any doubts on the payment of license fee by HHML to Honda nor alleged that the same was paid by HHML (on behalf of HIPL) in lieu of discount allowed by Honda to HIPL qua acquisition of shares of HHML by JIPL from Honda. All statutory compliances relating to the payment of license fee were made by HHML before RBI, which have not been doubted. 30.2 Further, the payment of aforesaid licensee fee was capitalized by HHML, and depreciation thereon was claimed w.e.f. assessment year 2012-13, which undisputedly stands allowed in the completed assessments in the case of HHML till date. Being so, the fact that the payment of license fee was for the business purposes of HHML stands accepted by the Revenue Department. 30.3 Then it can be observed that as per the new agreement, HHML. has paid a sum of JPY 45 Bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, is applicable only to tax income arising on account of business transaction. Since no income/ benefit in form of alleged discount on purchase of shares had flown to the appellant, no addition was liable to be made in the hands of the appellant. 33. Further Ld. Sr. Counsel has submitted that the alleged benefit, in any case, could not be taxed as business income under section 28 of the Act as shares of HHML are not held as business asset but 'investment'/capital asset. Ld. Sr. Counsel has stressed on the fact that appellant was not engaged in the business of dealing in shares/ mutual funds. It was submitted that in so far as shares of HHML are concerned, the shares were, in any case, not held for the purposes of trading; but were acquired for holding controlling stake in HHML to be held as investment/ capital asset and therefore the alleged benefit by way of discount, though not so as per Ld. Sr. Counsel, if any, was on capital account and outside the scope of business income under section 28 of the Act. In this context he submitted that the nature of income arising from shares depends upon the nature of asset, viz., whether the shares were held as "capital asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel has placed reliance, on the following decisions, wherein shares acquired with a view to have controlling interest in the companies were held to be 'capital asset' and profit arising from sale thereof was held as resulting in income taxable under the head 'capital gains': Accra Investments (P) Ltd. v. ITO: 359 ITR 116 (Bom.) CIT v. Nadatur Holdings and Investment (P) Ltd.: 210 Taxman 597 (Kar.) Gomti Credits (P) Limited vs. DCIT: 100 TTJ 1132 (Del.) Pace Industries Ltd.: ITA 1106 / Del / 2004 (Del Trib.) Everplus Securities and Finance Ltd. vs DCIT: 101 ITD 151 (Del.) Slocum Investment (P) Ltd. vs. DCIT: 106 ITD 1 (Del.) 36. Specific reliance, in this regard, was placed on the decision of the Hon'ble Gujarat High Court in the case of Elscope P. Ltd vs. CIT: 313 ITR 293 (Guj), wherein the Hon'ble Court while dealing with the issue of taxability of profit arising to the assessee company on reduction of liabilities observed that for purposes of taxability under section 28(iv) of the Act, there must be nexus or connection between the business of the assessee and the benefit/perquisite sought to be taxed. To similar effect the decision in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessing officer has relied upon the order of Punjab and Haryana High Court in the appellant's own case for AY 2006-07 in ITA No. 226 of 2012 wherein profit arising from sale and purchase of investments in unit of Tata Service Industries Fund (Dividend Plan) within short span of time was held to be business income. In this regard, it is submitted that the aforesaid decision is peculiar to facts of that case and has no precedent value qua long term investments held by the appellant in HHML, which are subject matter of dispute, wherein dominant intention behind holding entire equity share/stake in HHML as capital asset/investment. That apart, it is submitted that the aforesaid decision has been challenged by the appellant before the Hon'ble Apex Court in SLP No. 21902/2014 which has been admitted and appeal (Civil Appeal No.669/2015) is pending for disposal. Thus it was submitted that no adverse inference can be drawn from the aforesaid decision of the Punjab and Haryana High Court. 36.4 Ld. Sr. Counsel has submitted that the assessing officer has, in the aforesaid order, had held that CBDT Circular No. 6 of 2016 is not applicable on the facts of the present case as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 28(iv) as said receipt in hands of assessee was in form of cash/money and, further, such proceeds were utilised partly for ongoing capitalization programs and, thus, same was capital receipt. 39. Ld. Sr. Counsel also submitted, though without prejudice, that alleged benefit being only notional, cannot be taxed. The actual benefit, in the given situation, would arise only when the shares so purchased are sold in future, which would result in real income being subjected to tax at the time of sale. Considering that the entire differential between the sale consideration and purchase price would be subject to tax in the year of sale, the tax on alleged notional benefit in the year under consideration is impermissible in law. In this context, he relied the settled principle of law that only real income and not notional income can be taxed in the hands of an assessee and reference was made to judgment of Hon'ble Supreme Court in Shoorji Vallabhdas& Co.: 46 ITR 144 (SC) and Godhra Electricity Co. Ltd. v. CIT: 225 ITR 746 (SC)]. Specific reliance, in this regard, is also placed on the decision of Hon'ble Andhra Pradesh High Court in the case of CIT v. K.N.B. Investments (P.) Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate recognition of discount, as a benefit u/s 28(iv) of the Act would mean deemed acceleration of the sale consideration or part thereof without actually effecting any sale and certainly not a real income. At most it can be a notional benefit or hypothetical income. The actual benefit, to assessee, if any, would arise only when the shares so purchased are sold in future. The settled law being that it is not a hypothetical accrual of income that has got to be taken into consideration but the real accrual of the income. Thus the reliance placed by Ld. Sr. Counsel on the judgment of Hon'ble Supreme Court in case of Shoorji Vallabhdas & Co.: 46 ITR 144 (SC), and, in Godhra Electricity Co. Ltd. v. CIT: 225 ITR 746 (SC), has to be sustained, to hold that AO, has adventured to tax, the hypothetical income, of alleged discounting of shares, as benefit u/s 28(iv) of the Act. 42. We then consider it beneficial for bolstering out aforesaid conclusion to rely on judgments cited by the Id. Sr. Counsel, with particular reference to similar instances of discount to be out of ambit of section 28(iv) of the Act. Hon'ble Delhi High Court in the case of Unitech Holdings Ltd. v. DCIT: 240 Taxman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present case, it is a matter of record that the amount of Rs. 57,74,064/- is having received as cash receipt due to the waiver of loan. Therefore, the very first condition of Section 28 (iv) of the IT Act which says any benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money, is not satisfied in the present case. Hence, in our view, in no circumstances, it can be said that the amount of Rs 57,74,064/- can be taxed under the provisions of Section 28 (iv) of the IT Act." 44. Then considering the agreements and MOU executed between the Honda and Hero groups of companies, the acquisition of shares by Honda is only strategic investment to consolidate the holding in JV. Thus, we find substance in the submissions that provisions of section 28(iv) per se does not apply to the disputed transaction, as the assessee has held such shares in the capacity of promoter shareholder and not for the purpose of trading and has been consistently showing it as long term capital investment in the books of accounts and balance sheet. It is established that assessee has held the shares of HHML since inception for more than 25 years ..... X X X X Extracts X X X X X X X X Extracts X X X X
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