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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 ..... nd this was replied by the assessee by letter dated 24.03.2011 informing that this matter is already under inquiry by International Taxation Division of the Income-tax Department by issuance of a notice u/s 133(6) of the Act and, therefore, request was made that to avoid multiplicity of proceedings, the proceedings be dropped by Assistant Director of Income-tax (Inv.), Unit-5(3), New Delhi. The instances of disclosures to various government and statutory authorities and tax authorities sufficiently establish that the assessee was not acting in any surreptitious manner in regard to the share purchase transaction. Rather, as it appears to be a case where an Indian enterprise was not selling its stake to a foreign enterprise, but, purchasing the stake of a foreign enterprise of the stature of Honda. Which certainly must be looked upon as a sign of growing and strengthening of India as a emerging economy, for which, Hero group must have been eager to take credit and thus the information was not kept close to heart but shared at large. So much so that based on media reports only a notice dated 09/03/2011 was issued to the assessee by Director of Income Tax (International Taxation)-1, Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal assessment order dated 29.01.2014 available at pages 204-229 of the paper book. We find that the CIT(A) has rejected AO s conclusion of assessment u/s 143(3) that assessee was earning business income from sale and purchase of shares, etc., and CIT(A) concluded that shares were held as investments giving rise to capital gains only. Infact by reopening vide notice u/s 148 AO has tried to undo the findings of CIT(A) order dated 29.1.2014 where in it was categorically held that income from sale and purchase of shares was to be treated as capital gains and not business income. Thus when there was no business income from the selling shares held as investments, certainly provision of section 28(iv) of the Act could not have been invoked. Thus bringing the difference in the price of acquisition of shares with market price as benefit arising from business u/s 28(4) of the Act was in a way again holding that sale and purchase of shares gives rise to business income - we are of firm view that AO had fallen in error to invoke provision of section 28(iv) of the Act. Decided in favour of the assessee. - Shri G.S. Pannu, Vice President And Shri Anubhav Sharma, Judicial Member For the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JV by selling its entire stake to the Hero Group, to enable both Hero Group and Honda to independently focus on two-wheeler business in India. The said termination/ exit was publicly announced in December 2010 by way of Joint Press Release by both the JV partners. The break-up of shareholding between Hero Group and Honda (immediately prior to March 2011, i.e., before exit of Honda from JV) was - (1) 26% held by Honda; (ii) 26% held by Hero Group [including 17.33% held by appellant and 8.67% by Bahadur Chand Investment Pvt. Ltd. (BCIPL)] and (iii) 48% held by public. 2.2 A share transfer agreement dated 22.01.2011, was entered between Honda Motors co. Ltd., Hero Investment Pvt. Ltd. and Bhadur Chand Investment Private Ltd. by which the existing JV agreement dated 26.12.1983, as amended from time to time, and 1999 MOU between the JV partners stood terminated. Further, the existing technical know-how agreement entered between Honda and the HHML/JV Company was also terminated and fresh agreement(s), viz. License A products agreement and License B products agreements were entered to provide know-how with limited rights to the JV Company, by way of handholding for its survival after exit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t filed its return of income under section 139(1) of the Act on 28.09.2011 declaring income of Rs. 4,36,35,186, which was selected for scrutiny vide notice dated 7.9.2012 issued under section 143(2) of the Act by the jurisdictional assessing officer at Ludhiana. In the meantime, before the completion of assessment, HIPL/ assessee got amalgamated with HHML w.e.f. 01.01.2013 [now known as Hero Moto Corp Ltd. (HMCL)], pursuant to the scheme of amalgamation. Assessment was completed under section 143(3) of the Act by Assistant Commissioner of Income-tax, Circle-V, Ludhiana vide order dated 29.01.2014 at income of Rs. 6,11,79,857 after making the adjustments on account of - (i) treating profit on sale of investment and interest income as business income-Rs.7,50,07,419; and (ii) disallowance under section 14A- Rs. 1,01,82,707. The said assessed total income was subsequently rectified to Rs. 6,02,96,513 vide order dated 08.04.2015 passed under section 154/ 143(3) of the Act. The aforesaid assessment order was challenged in further appeal before the CIT(A)-Ludhiana, which was disposed off vide order dated 30.10.2018, in favor of the appellant. 3.1 Subsequently, a survey under section 133A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d shall be dealt at appropriate places ahead. 5.1 On the other hand, relying heavily on findings of AO, Sh. T. James Singson, Ld. DR has submitted that only after the survey carried out at the business premises of M / s Hero MotoCorp Ltd. (as successor of Hero Investment Pvt. Ltd.). the issue was noticed and accordingly, the AO has made addition u/s 28(iv) of the Act as the same has not been disclosed by the assessee in its income in the concerned year. It is submitted that the AO has explained the reasons of reopening in details in his assessment order from page no. 2 to 20. Further the AO has disposed the objections raised by the assessee with respect to challenging the reopening of the said case. The same has been explained by the AO in details from page no. 27 to 42. The same has been dismissed by the Ld. CIT(A) in a speaking order and detailed discussion of the same is mentioned in the para no. 7 of Ld. CIT (A) order for which reliance was placed on page no. 60 to 67 of the impugned order. 5.2 Ld. DR submitted that, the AO on page no. 45 of the order mentioned that the assessee had filed a writ petition before the Hon'ble High Court challenging the reopening of the case fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invalid and bad in law. Ld. Sr. Counsel has relied various judicial pronouncement and we will like to refer particularly to the judgment of Hon ble Supreme Court in the case Sheo Nath Singh vs. ACIT 82 ITR 148, wherein while construing the scope of expression reason to believe , it has been observed as under: There can be no manner of doubt that the words reason to believe suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income-tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court. 7. Further the words reason to believe cannot be equated with 'reason to suspect', as held by Hon ble Delhi High Court in the case of Krown Agro Foods (P) Ltd vs. ACIT: 375 ITR 460, as follows: The reason to believe recorded by the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share(s), whereas shares had been purchased at discount vide share transfer agreement dated 22.1.2011, whereby consideration for payment of share was agreed to be 50% of lower of the following: Average of weekly high and low of closing price of shares as quoted on NSE during six months preceding the date nine (9) business days prior to the transfer date; or Average of weekly high and low of closing price of shares as quoted on NSE during the two weeks preceding the date nine (9) business days prior to the transfer date. ii. Then AO, was of opinion that as per the Memorandum of Understanding dated 16.12.2010 between Honda and the Hero Group (through assessee), the assessee had an option to purchase the shares in two tranches upto 30.9.2011, but the assessee chose to buy all the shares in March 2011. It has been alleged that the assessee chose to expedite the transaction with a view to quickly freeze the benefit arising from purchase of shares at discount and jack up price of its shares thereafter and garner premium from fresh issue of shares to foreign investor, in the process incurring interest cost of Rs. 81.34 crores on interest bearing borrowed funds/ NCD. In this regard, the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO, we find that the most important document is the share transfer agreement dated 22.01.2011 available at page no. 304 to 335 of paper book. The first thing to keep in mind is that price of Rs. 739 per share was an off-market arrangement. So it is not a case of prices fixed in open market by way of call between available buyers or sellers. So to compare it with shares of HHML quoted on the stock exchange, is not objective. The transaction price of Rs. 739 per share was at negotiated price of the shares, acquired in the bulk deal. The deal here cannot be examined to be one of mere sale of stocks but has in its background a series of events, which are themselves on the basis of certain agreements and MOU. 9.2 If we examine these agreements and MOU, Clause 8 and 9 of the JV Agreement, available at page no. 305 to 335 of paper book, we find that same restricted the right of both the parties, which are unrelated, to unilaterally liquidate their interest in the JV. Both were required to obtain prior written consent of the other partner before selling their respective stakes. This made the holding of both the parties not a marketable security. That certainly made it inevitable that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntinued as a financial and technological partner, on one hand, and HHML post the exit of Honda, on the other, is most inappropriate as contended by Ld. Sr. Counsel it is like comparing apples and oranges. 9.5 We also take note of certain, peculiar aspects of practice in two wheeler industry where the overseas partners transfer their interest at substantial discount. Ld. SR, Counsel had cited some similar instances and we consider it appropriate to reproduce the same tabulated hereunder: S.No. Name of JV Discount % (quoted price-negotiated price/quoted price] 1. Kinetic-Honda 50% [(90-45)*100/90] 2. TVS-Suzuki 81% [(81-15)*100/81] 3. LML-Piaggio 72.2% [(50.60-14.06)*100/50.60] 9.6 At the same time Revenue cannot dispute the fact that the price of Rs. 739 per share received by Honda stood accepted in the hands of Honda, in a ruling of Authority for Advance Ruling reported as Honda Motor Co. Ltd., In Re: A.A.R. NO 1200 OF 2011/ [2018] 301 CTR 159 wherein Honda had filed application before AAR seeking advance ruling on the determination of the correct rate of tax, viz., 20% or 10% as per proviso to section 112 of the Act to be applied on the long term capital gains arising from the imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Cash Flow Method ( DCF Method ). As per the DCF Method, the value of shares of the appellant / HIPL was arrived at around Rs. 40 lakh per share, for the purpose of fresh allotment of shares to foreign investors. We find no justification in reasoning of AO to draw adverse inference on that basis as the DCF Method was applied being the acceptable method as per RBI/FDI Rules. The valuation subsequent to exit of Honda, has all together, different dynamics in terms of the expected realization on account of dividend from investment in shares of HHML in future. 11. There is an allegation, by the AO and which too has been pressed hard by the ld. DR, that the transaction was completed, hurriedly in March by raising interest bearing funds / NCDs, even when the appellant could have waited for fresh capital to be raised from the foreign investors and complete the transaction before September 2011, with a view to freeze the benefit arising from discount on purchase of shares and jack-up the price of company thereafter. 11.1 Ld. Sr. Counsel has submitted that this allegation is purely based on hypothesis. It was submitted that the appellant/ Indian Partners had already completed negotiations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is sufficient evidence to show, the sequence of event or timing, were curated, for a particular end, resulting into loss of Revenue, which is not alleged, what to say of proof of the same. In the case in hand, assessee has sufficiently demonstrated, that the sequence of event and the timing of same, has been for making out best deal. Even otherwise when two parties had decided to part their ways, out of the JV, the expeditious and prompt, exit was a prudent way. To draw adverse inference, and that too, at time of recording the reasons for re-opening, was not justified. 12. Now the critical, question is if at all there was any concession to Honda, for which there was alleged discount. The AO has observed that the JV agreement of 1983 had put several restrictions on business operations of Honda and with the growing Indian automobile market, Honda wanted to independently focus on its two-wheeler business carried on through its subsidiary in India, being so, for relaxation of such alleged restrictions imposed on Honda, consideration was paid to the assessee company in the form of discount in purchase price of shares from Honda. The assessing officer relied on clause 17.10 of the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Articles of JV agreement it comes up that standard restrictions, as are usually part of any JV agreement, were imposed on both the parties to protect any inter-se competition amongst the parties during subsistence of JV. Rather this reasoning of AO is not sustainable for the fact that the Indian partners had already permitted Honda to establish its subsidiary in India [i.c., Honda Motorcycle and Scooter India Pvt. Ltd (HMSI)], vide Memorandum of Understanding entered into on 12th July 1999 and independently manufacture scooters immediately and to manufacture motorcycles after 5 years from the date of agreement in India, without any consideration. Ld. Sr. Counsel has brought to our notice that the market share of HMSI in the two-wheeler space in India was already at 13% at the time of Share Transfer Agreement dated 22.01.2011. Further, Honda, during the subsistence of the JV agreement had also entered into JV with Firodia Group engaged in manufacturing of two-wheelers, popularly known as Kinetic Honda, which, too, substantiates that there were no restrictions on Honda in independently carrying on business of manufacturing of two-wheelers. In fact on termination of the JV and transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchased by the Hero Group from Honda, through the appellant company as a strategic restructuring of group for which the Revenue, cannot raise a question. 15. Thus we concluded that theory of discounted price of share transfer, out of concession advanced to Honda, as assumed by the assessing officer, had no substance. The above discussion reinforces our view that the AO while recording the reasons to believe has harped upon his own perception about the transaction of purchase of shares by the Hero group. As such, these inferences and perception of AO were independent of any tangible material from which it would be patent, to any prudent person, that there was a discounting of the share prices due to some concessions given by the Hero Group to Honda. The aforesaid examination of the facts and circumstances firmly establish that except for AO s own belief of the manner in which the parties to this share sale transaction may have acted upon, to benefit the assessee was miserably insufficient to even indicate escapement of income. The same can be called mere suspicion as there was no basis of this belief of escapement of income. The plea for recording reasons must be that of a reasona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appellant to disclose fully and truly all material facts. The Ld. Sr. Counsel has stressed on the fact that the transaction of purchase of shares of HHML by the appellant was disclosed at various stages commencing from (i) the time of public announcement of deal in December 2010, (ii) entering of the Shares Transfer Agreement, (iii) payment being made to Honda after deduction of tax at source under section 195 of the Act. (iv) filing of return of income along with accompanying annexures, and (v) during assessment proceedings under section 143(3) of the Act. As per ld. Sr. Counsel, the full and true disclosure was made by the appellant and specific reliance was placed on following facts and evidences on record. 1. In the assessment proceedings the AO had access to accounts/audit reports. The copy of same is on record at pages 30 to 52 of paper book. Ld. Sr. Counsel has submitted that investments aggregating to Rs. 3907,88,18,578 (as on 31.3.2011) had been disclosed on the face of the balance sheet, which had increased from Rs. 1,65,20,08,667 as on the last date of the immediately preceding year (31.03.2010). 2. Then in Schedule D (Investments), the fact of acquisition of shares o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . DCIT: WP(C) No. 2036/2016 (Del) 20. Ld. Sr. Counsel has also relied certain facts which, as per him, were in public domain, to contend that the AO, ought to be presumed to be aware of the same. He reffered to a Joint Press Release dated 16.12.2010, issued by the Hero Group and Honda to disclose the exit of Honda from the JV Company (HHML) by way of Hero group acquiring 26% stake Held by Honda in the JV Company. 20.1 Then reference was made to a July 2011, announcement of the CBDT, that Hero Group has paid Rs. 811 crores as capital gains tax while buying 26% stake from Honda. It was categorically mentioned by the CBDT that the entire tax was deducted and paid at the highest rate by the Hero Group who did not seek any tax concession. 20.2 Ld. Sr. Counsel has submitted that the factum of FIPB approval for foreign direct investment was also in public domain as is evident from the article/ newspaper report dated 14.7.2011 published in The Economic Times' which is featured alongwith aforesaid announcement of payment of TDS by CBDT. A copy of same is filed on pages 65 of paper book. 20.3 The factum of entering into Memorandum of Understanding dated 16.12.2010 and Share Transfer Agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanation/ information given earlier vide letter dated 11.03.2011 was reiterated. 20.7 Then notice dated 15.03.2011 was also issued by Assistant Director of Income-tax (Investigation) Unit-V(3) to HMCL (erstwhile HHML) raising queries regarding the impugned transaction which was duly replied by them vide reply dated 17.03.2011. Ld. Sr. Counsel has submitted that the Investigation Wing of the Department having pan India jurisdiction was fully aware of the transaction of acquisition of shares by the appellant from Honda and had accepted the same to have no further tax implication, after thorough examination and due application of mind, inasmuch as no adverse inference was drawn by the Investigation Wing. 20.8 Ld. Sr. Counsel has submitted that on 18.03.2011, the appellant duly filed Form 15CA before the Income tax Department clearly specifying that (a) consideration of Rs. 3841.83 crores was being paid by the appellant to Honda; (b) such consideration was towards sale proceeds of aforesaid shares; (c) tax of Rs. 811 crores was deducted by the appellant @20% as per the applicable provisions of the Act. 20.9 Further it was submitted that post-acquisition of 26% stake in HHML from Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details were duly furnished before the assessing officer during the course of original assessment proceedings and the same were duly examined by the assessing officer. 21.1 Then reference was made to reply dated 03.07.2013 (at Point No.10) [available at pages 176-181@179 of paper book] to point out to the AO, that the NCDs issued during the year were secured by way of pledge against the shares of HHML. Ld. Sr. Counsel has submitted that in the assessment order dated 29.01.2014 passed under section 143(3) of the Act, the assessing officer mentions that AO had thoroughly examined the books of account of the appellant as at Para no.4 at page no. 2 of order under section 143(3) of the Act and attention was drawn to following: - The assessee company has shown its total income as per return of income filed as under: Rs. Dividend Income 1123077807 Interest income 62324731 Capital gain income 37825154 1223227692 During the year assessee has earned capital gain on redemption switchover of investment into mutual funds and PMS (Portfolio Management Services). Schedule C of the Balance Sheet reveals that the total investment as on 31.03.2010 and 31.03.2011 are Rs. 1,65,20,08,667/- and Rs. 39, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court in Calcutta Discount Co. Ltd. v. ITO: 41 ITR 191 (SC). as reiterated in New Delhi Television Ltd. v. DCIT: 424 ITR 607 (SC). Reliance was also placed on ACIT vs. Oracle Financial Services Software Ltd.: [2023] 452 ITR 280 (SC). 25. As regards the argument of ld. DR about failure to not disclose concessions being allowed by the appellant to Honda, Ld. Sr. Counsel submitted that the reasons recorded have drawn inference of such alleged concessions being made available by the appellant to Honda as part of business restructuring without there being any evidence in support thereof, such allegation is thus not only contrary but de hors the facts of the transaction. In view of the same, since no concession was allowed on termination of JV agreement and consequential sale of shares of HHML, no failure could be attributed on part of the appellant to disclose the factum of such non-existent concessions. 25.1 It was emphasized that the allegation that the shares were purchased at a discount in lieu of concessions being allowed by the appellant to Honda, is a matter of inference drawn by the assessing officer and beyond scope of proviso to section 147 of the Act as following were in k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation was very sketchy and that the assessee had not specifically disclosed about the purchase of shares at discounted price. Further, in para 1.4 at page 60 of the paper book, the AO has observed as follows:- 1.4 A careful perusal of assessment proceedings in case of M/s HIPL which is now amalgamated has revealed that during the course of assessment proceedings the AO has examined and formed opinion on following issues as evident from order u/s 143(3) dated 29.01.2014: The AO noticed that during the year under consideration, the assessee had traded in shares of its group company and other unrelated entity along with mutual funds. Since, the assessee was engaged in trading of investment in form of shares and mutual funds, the AO characterized the nature of income earned from shares/ mutual funds as business income as against capital gain disclosed by the assessee. The AO also noticed that the assessee had earned tax free dividend income, accordingly, after examining the facts of this case, the expenditure relatable to exempt income were disallowed u/s 14A. 26.2 In the light of the aforesaid, when we consider the contentions of the ld. Sr. Counsel, we are of the considered view tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount has been claimed by the assessee. 6. Since no expenditure in relation to membership fee has been claimed in the computation, no disallowance is called for. 7. The assessee has an ICD of Rs. 5 crore recoverable from Majestic Auto Limited on which interest @12% has been charged and offered to tax under the head Income from Other Sources . 8. The assessee company has invested in shares, stock, debentures etc. in group companies and other market instrument including fixed deposits. All the above have always been shown as investments and have been valued as per Accounting Standard - 13 applicable to investments. The company has not made any investment with the motive of earning profit from day to day sale/purchase of these investments. This issue has already been reviewed by the Hon ble High Court in assessee s case for A.Y. 2007-08. The NCD was issued with the purpose of purchasing the shares of M/s. Hero Honda Motors Ltd, as per share transfer agreement dated 22.01.2011. Copy of agreement is enclosed as A . The interest earned on ICD s and FDR s has been shown as Income from Other Sources since many years and offered to tax @30% being the same applicable to business income. 9. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances of the case and in law, the tax payable by the Applicant on the long term capital gains arising on the sale of equity shares of the Hero Honda Motors Limited [now known as Hero MotoCorp Limited] (hereinafter referred to as 'HHML'), being listed securities, will be 10% (plus surcharge and cess) of the amount of capital gains as per the proviso to section 112(1) of the Act? 26.7 After examining all the aspects of the transaction, AAR had held as follows:- 8.1 Question No. (i): Yes, the tax payable by the Applicant on the long term capital gains arising on the sale of equity shares of Hero Honda Motors Limited being listed securities, will be 10% (plus surcharge and cess) of the amount of capital gains as per the proviso to section 112(1) of the Act. 26.8 We are of considered view that the instances of disclosures to various government and statutory authorities and tax authorities cited before us sufficiently establish that the assessee was not acting in any surreptitious manner in regard to the share purchase transaction. Rather, as it appears to be a case where an Indian enterprise was not selling its stake to a foreign enterprise, but, purchasing the stake of a fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax (International Taxation)-1, New Delhi, takes cognizance, an assessing officer, of such a company cannot claim to have been not aware of details of transaction, otherwise then, when informed by the Pr. CIT. In this context only as we consider the transaction as reported to various statutory authorities and the tax authorities in different proceedings we are of considered opinion that same could not have be out of the cognizance and knowledge of the AO so as to say that only on the information being received from PCIT-4, Delhi vide a letter dated 12.06.2017 the transaction of acquisition of shares came into the cognizance of the AO. 26.10 Though generally speaking information in public domain cannot be considered to be one to be always in the knowledge of the AO so as to take cognizance of all of it during the assessment proceedings, but, when a transaction of the nature under consideration is reported by the assessee to prominent authorities of the Department like Investigation Wing, International Tax Division and CBDT or AAR, then, the AO should be validly presumed to be aware of these information in public domain because the AO is not only an adjudicators, but also an invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Craft Ltd: 354 ITR 536 (Del.) Sarthak Securities Co. Pvt. Ltd. vs. ITO: 329 ITR 110 (Del.) Indivest Pte Ltd., Singapore vs. ADIT: 250 CTR 15 (Bom) Nitin P. Shah vs. DCIT 146 Taxman 536 (Guj.). CIT vs. Manohar Lal Gupta 213 CTR 93 (Raj.) 28. Now as with regard to grounds of appeal nos.4 to 8, which are also to great extent covered in the second issue, as framed above, to find out if addition under section 28(iv) is sustainable, it can be seen that in the reassessment order, addition of Rs. 3644,85,20,063 under section 28(iv) of the Act has been made alleging the same to be benefit accrued to the appellant on acquisition of 26% stake in HHML from Honda at alleged discount of 50%. It has been alleged that the discount offered by Honda to appellant on acquisition of shares in HHML was in lieu of/payment for concession granted by appellant to Honda in the form of right/ license to manufacture motorcycles in India which was allegedly not available to Honda earlier. The said alleged benefit has been added to income of the appellant under section 28(iv) of the Act. 29. Further, we will like to go into the merits of issue and at outset observe that in the determination of issue no. 1, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y when HIPL was not part of the New License Agreement, nor any separate/ independent agreement exists between HIPL and HHML for HHML to have made such payment on behalf of HIPL. It was also submitted that no evidence has been brought on record by the assessing officer to even remotely suggest that license fee was paid by HHML to Honda in lieu of alleged discount offered by Honda to HIPL on acquisition of 26% stake in HHML held by Honda. Moreover, no arrangement between HIPL and HHML to the said effect has been brought on record by the assessing officer. Ld. Sr. Counsel contended that it is settled law that the apparent is real unless the contrary is proved and the burden to prove the contrary is on the person, who alleges so and reference was made to the Hon ble Supreme Court judgement in CIT vs. Daulat Ram Rawatmull [1973] ITR 349 (SC)]. 30. We find substance in the arguments as it was incumbent upon the assessing officer to lead evidence to conclusively establish that (a) shares of HHML were sold by Honda to HIPL at a discount; (b) such (alleged) arrangement of selling Shares at a discount was in lieu of HHML paying one time license fee to Honda, and (c) there existed a tacit und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which has not been disputed by the Revenue. 30.5 Apart from the above, it is noted that in the reassessment order, it has, on one hand, been observed/ alleged that monetary benefit/ discount of Rs. 3644 crores has been availed by HIPL which was in lieu of concessions granted by HIPL to Honda in the form of right to manufacture motor cycles in India, while, on the other hand, it has been alleged that said discount offered by Honda to HIPL on acquisition of its stake in HHML was compensated by HHML by payment of Rs. 2151.80 crores of license fee to Honda. Being so, the stand of the Department qua the aforesaid alleged discount is contradictory and self-defeating. 31. In view of the aforesaid facts, we are of considered view that without establishing a nexus or linking price paid by the appellant to Honda for acquisition of shares held by Honda in HHML and the license fee paid by HHML, a distinct legal entity to Honda for use of technology, on mere assumptions, conjectures and surmises, the conclusion of alleged benefit for the purpose of Section 28(iv) of the Act is drawn. 31.2. This assertion of AO is well countered by the fact that in fact due to exit the Hero group had acquired ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... board (1) Ltd.: ITA No. 83/2010 (Cal.) Circular No. 4 of 2007, dated 15.6.2007- CBDT. Circular No.6/2016 dated 29.02.2016 34. Ld. Sr. Counsel has also pointed out that in the present case, original shareholding held by the appellant in HHML, and the subject shares acquired from Honda are held as capital asset and not as stock in trade, as can be gauged from the fact that under the original JV Agreement with Honda had acquired shares, in HHML in 1983, which were held over a period of approximately 25 years as capital asset/investment, without any dilution / trade therein. Then in the audited financial statement of the appellant prepared since inception, the appellant has shown shares and securities as Investments . Sales and purchase of shares are not credited/ debited to the profit and loss account. Further shares have always been valued at cost and not on NRV, based on Accounting Standard- 13 relating to 'Investments'. The income as shown by the appellant in its profit loss account for the relevant year, under Schedule-G, is in the nature of investment income from long term investments. The appellant held shares in HHM as a 'promotor' holding substantial interest. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scaped assessment. Against the initiation of reassessment proceedings, the assessee filed writ petition before the Hon'ble Court. The Hon'ble Court while quashing the reassessment proceedings also held that acquisition of shares which were held as investments at cost price which was lower than the book value computed as per net worth of the companies, did not give rise to any business income taxable under section 28(iv) of the Act. 36.2 Attention was also invited to the decision of the Mumbai Bench of the Tribunal in the case of Rupee Finance Management (P.) Ltd. v. ACIT: 120 ITD 539. Ld. Sr. Counsel has submitted that in that case, the assessee, an investment company, acquired shares for a group company to retain/ reorganize the controlling interest in the investee at a price much lower than the market price (with a lock-in period of 3 years). The assessing officer sought to tax, inter-alia, difference between the market price and cost price as benefit under section 28(iv) of the Act in the hands of purchaser assessee. CIT(A) affirmed the order of the assessing officer. On further appeal, the Tribunal held that purchase of shares as investments below the market price could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al funds held for more than one year are assessable as capital gains and not business income. 37. Then the Ld. Sr. Counsel has submitted that monetary benefit is outside purview of section 28(iv) of the Act. In the impugned order, benefit arising to the appellant is alleged to be monetary in nature inasmuch as, according to the assessing officer, the appellant had in effect paid Rs. 7484 cores for acquisition of shares and received Rs. 3644 crores from Honda in lieu of concessions, such that net payment of Rs. 3838 crores was made by the assessee to Honda for acquisition of additional 26% stake in HHML. Being so, benefit that arose to the assessee was, as per the Revenue, admittedly in money terms/ monetary shape. 38. Ld. Sr. Counsel has submitted that it is well settled that for invoking provisions of section 28(iv) of the Act, benefit received must be in some form other than in shape of money. Reliance in this regard in this regard is placed on the decision of the Hon'ble Supreme Court in the case of CIT v. Mahindra and Mahindra Ltd.: [2018] 302 CTR 213 wherein it was held that section 28(iv) of the Act is not applicable qua monetary benefits. Then the Mumbai Bench of the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion by Finance Act. 2023 provided that value of any benefit or perquisite, whether convertible into money or not, arising from business or exercise of a business or profession shall be chargeable to income-tax under head 'profits and gains of business or profession . Thus, to be taxable under this head the benefit or perquisite should arise from business or profession of the assessee. 41. In the present case, the issue arises that whether the impugned discount on the transaction can be treated as benefit or perquisite of the business. We observe that in general parlance discount would mean there is some instant benefit in terms of price paid by purchaser to the market price or price otherwise quoted by another seller. It means lower cost of acquiring anything when compared to market price. It is absolute benefit in the hands of purchaser. But, when discount as a benefit to fall under deemed business income for the purpose of section 28(iv) of the Act, is concerned, it has a special meaning. Here the discount is not the absolute benefit but becomes relative to time when the income accrues. In that sense the discount as benefit u/s 28(iv) of the Act in case of shares will be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh section 28(iv) deals with the benefit or perquisite, whether convertible into money or not, arising from business or exercise of a business or profession, however, Hon'ble Supreme Court, while interpretating scope of section 28(iv), as it was before the amendment made in section 28(iv) by Finance Act, 2023, has held in the case of CIT v. Mahindra and Mahindra Ltd. [2018] 302 CTR 213 that section 28(iv) of the Act is not applicable to monetary benefits. The relevant extracts of the judgment are reproduced as under: 12. The first issue is the applicability of Section 28 (iv) of the IT Act in the present case. Before moving further, we deem it apposite to reproduce the relevant provision herein below:- '28. Profits and gains of business or profession. The following income shall be chargeable to income-tax under the head Profits and gains of business profession ,- ** (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; ** ** 13. On a plain reading of Section 28 (iv) of the IT Act, prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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