9911796707
TMI Blog2024 (12) TMI 980X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Even otherwise, the transaction of acquisition of shares or investment in shares of the companies for which there was no allegation about any unexplained investment or genuineness of the transaction falls in the capital field and not in the revenue field. Tribunal in SHREYANS INVESTMENTS (P.) LTD. [ 2013 (3) TMI 392 - ITAT KOLKATA] has elaborately considered the applicability of provisions of section 28 in respect of the transactions/benefit/perquisites not falling in the nature of revenue receipts as well as not arising from the business or profession. If the alleged benefit is not arisen from business or profession of the assessee or from exercise of the profession of the assessee, then the same cannot be brought to tax under the provisions of section 28(iv) of the I.T. Act, 1961. Further, if the alleged benefit is also in respect of transaction which falls in the capital field being investment in shares, then in the absence of any real income, the same cannot be brought to tax by invoking the provisions of section 28(iv) of the Act. It is pertinent to note that the income arising from sale of these shares would be taxed under the head Capital Gain then the transaction of acqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emium of Rs 350/- to other investors and therefore the assessee received benefit or perquisite out of allotment of said shares. (vii) The learned CIT(A) ought to have further appreciated that such benefit is on account of the conduct/management of the business of a closely held company by the assessee as a promoter/ director and hence the benefit, being nonmonetary benefit, arising out of the business nexus is taxable in the hands of the assessee u/s 28(iv) of the IT Act. (vii) The Appellant craves leave to add, delete, substitute and amend any ground of appeal before and or at the time of hearing of the appeal. For these and other grounds that may be canvassed at the time of hearing of the appeal, it is prayed that addition made by the assessing officer u/s 28(iv) of the IT Act be restored. 3. The Revenue has raised the following additional grounds: 1 The Learned CIT(A) having appreciated the fact that the assessee is a promoter director in (i). M/s. Alpha Avenues Pvt. Ltd., wherein 33,53,000 shares of the company were allotted to the assessee at the face value of Rs. 10/- per share, (ii) M/s. Alpha Villas Pvt. Ltd., wherein 30,75,000 shares of the company were allotted to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n merits by holding that the issuance of shares to the assessee by these companies at par, in comparison to the issuance of shares at premium to 3rd party M/s. Cornerstone Properties and Investments (P) Ltd, does not fall in the ambit of section 28(iv) of the I.T. Act, 1961 as this is not an income from his business activity or exercise of profession. 6. Aggrieved by the order of the learned CIT (A), the Revenue filed the present appeal. 7. Before the Tribunal, the learned DR has submitted that the decision of the CIT(A) is incorrect both on facts, and in law. According to the learned DR, in this case, the following undisputed facts are evident: (i) The three companies are investment companies. They have invested certain sums in lands and shares of other companies. The objective was to realize good profits from the said investments. (ii) Apart from the three companies mentioned in the above discussion, the assessee is a director in G2 Corporate Services Ltd, Vanpic Projects Pvt Ltd, Vanpic Ports Pvt Ltd and other companies. As per the own admission of Shri N. Prakash recorded in the Statement before Addl CIT, Range -1 u/s 131 on 25/11/2010, in proceedings u/s 144A in the case of M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ested by the said company in shares of the three companies at a huge premium. (v) It is also a claim of the assessee that the investment into shares of M/s Bharathi -Cements Ltd yielded high return. It is also an admitted fact that the three companies did not distribute any profits or (vi) dividend or any other benefit to M/s Cornerstone Property Investment Pvt Ltd even after the shares of M/s Bharati Cements Ltd were sold. The relevant portion of the statement of the assessee (cited above) is reproduced below: 9. What was the expectation of Shri Kumar or M/s Cornerstone Property Investments Pvt Ltd about the returns on the investment. Whether any return was given by your companies to them till date? Ans: I do not have much idea about his expectation in terms of percentage of return. Till date, we have not distributed any profits or dividends or amount any other form to M/s Cornerstone Property Investments Pvt Ltd. 10. Are you planning to pay any dividend or distribute profit now because in this year you sold shares of M/s Bharati Cements at profit? Ans: We are looking for further investment opportunity using the funds . When the issue of perquisite taxable in the hands of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es at the lower value. 9. The Hon'ble Supreme Court examined the issue of perquisite u/s 28(iv) in the case of Mahindra Mahindra Ltd (255 Taxmann 305) and held that: On a plain reading of section 28(iv), prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of section 28(iv), the benefit which is received has to be in some other form rather than in the shape of money . 10. Thus, the learned DR has contended that it is clear that the assessee has availed the benefit from these companies in the form of other than money and therefore, the same is taxable u/s 28(iv) of the I.T. Act, 1961. The assessee got non-monetary benefit in the form of shares of 3 companies at a value lower than the prevailing market value/fair market value and therefore, the difference in the amount paid by the assessee per share and the value of the share at which it was allotted to 3rd party is a benefit measurable in terms of money. The reliance by the learned CIT (A) on the judgment of the Hon'ble Supreme Court in the case of Infosys Technologies Ltd is misplaced. The b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Commissioner of Income-Tax, Patiala ... vs M/S. Shahzada Nand Sons Ors reported in 60 ITR 962 as well as in the case of A.V. Fernandez vs. State of Kerala (Civil Appeal No.232 of 1955, reported in (1957) 8 Sales Tax cases 561. The learned AR has further contended that section 28 set out income which are chargeable to tax under the head business and profession. Clause (iv) of section 28 refers to the value of any benefit or perquisite, whether convertible into money or not arising from the business or exercise of a profession. A plain reading of this provision shows that the 3 conditions precedents for such taxability i.e. there should be a benefit or perquisites; (ii) that such benefits or perquisites should arise from the business or exercise of the profession carried on by him and (iii) that it should be in revenue field but not in capital field. Therefore, the benefit must be arisen when business carried on or exercise of profession by the assessee during the relevant previous year to bring into the ambit of section 28(iv) of the I.T. Act, 1961. 12. The learned AR further contended that section 28 of the I.T. Act, 1961 contemplates only the benefit arising in the previous ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsent u/s 28 even as on today, in spite of multiple Supreme Court rulings emphasizing on such computation rules. Hence shares are not taxable as perquisites u/s 28 as held by the Hon'ble Supreme Court in case of VM Salgaocar Pvt Ltd (2000) 243 ITR 383 11. The difference in Full value consideration and Cost is taxable as capital gains on sale of shares. The purported perquisite value would then be taxed as part of capital gain. When two views are possible for taxing the income, the one favourable to the Assessee has to be adopted. There are no provisions u/s 49 to define cost of acquisition in case of shares treated as perquisite u/s 28(iv), whereas such provision exists u/s 49(2AA) for shares treated as perquisite u/s 17. In the absence of computation mechanism, value of benefit on shares, if any cannot be treated as perquisite u/s 28(iv). There are no uniform rules for valuing shares and FMV is defined differently for specific sections. FMV is not defined for a business asset. It is defined for a capital asset u/s 2(22 B) of the IT Act. The FMV computation of shares for purposes of Section 56 is defined at Sec 56(vib) or Section 56(2)(x) as the case may be. If shares are to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1961 does not arise. 18. We have considered the rival submissions as well as the relevant material available on record. The undisputed facts leading to the controversy are that the assessee is a Director in M/s. Alpha Avenues Pvt. Ltd, M/s. Alpha Villas Pvt. Ltd and M/s. Gilchrist Investments Pvt. Ltd. During the previous year relevant to the A.Y under consideration, these 3 companies have allotted the shares to the assessee as well as to M/s. Cornerstone Properties and Investments (P) Ltd, the details of the shares allotted are as under: Date of allotments Name of company Name of allottee No. of shares allotted Price per share 1/3/2008 Alpha Avenues Pvt Ltd N Prakash 33,53,000 10 3/3/2008 -do- Cornerstone Property Investment Pvt Ltd 4,16,666 360 1/3/2008 Alpha Villas Pvt Ltd N Prakash 30,75,000 10 3/3/2008 -do- Cornerstone Property Investment Pvt Ltd 4,16,666 360 1/3/2008 Gilchrist Inv Pvt. Ltd N Prakash 32,50,000 10 3/3/2008 -do- Cornerstone Property Investment Pvt Ltd 5,55,555 360 19. There is no dispute that, all these transactions were duly recorded in the books of account of the companies, as well as the books of the assessee. The Assessing Officer, while framing the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng out of the business nexus and taxed accordingly. 20. Thus, the Assessing Officer was of the view that, acquiring the shares of these 3 companies by the assessee at par has accrued a benefit of Rs. 350/- per share to the assessee being the premium charged by these companies from 3rd party i.e. Cornerstone Properties and Investments (P) Ltd. The Assessing Officer has observed that the assessee is the main promoter and director of these companies and therefore, the difference of premium amount is treated as income of the assessee u/s 28(iv) of the I.T. Act, 1961 being arisen out of the business nexus. However, as it is evident from the facts and records of the case that, the assessee has declared the income from house rent, capital gain and other sources and there is no income under the head business or profession . The transactions of the acquisition of shares by the assessee of these 3 companies are in the nature of investments and therefore, there is no involvement in business activity on the part of the assessee while acquiring the shares of these 3 companies. In any case, when the assessee has not carried out any business activity or exercise any profession of rendering any pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been paid by way of an account payee cheque or an account payee bank draft or by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, on or before the date of agreement for transfer of such immovable property: Provided also that where the stamp duty value of immovable property is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of this sub-clause as they apply for valuation of capital asset under those sections: (c) any property, other than immovable property, (A) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (B)for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise, the transaction of acquisition of shares or investment in shares of the companies for which there was no allegation about any unexplained investment or genuineness of the transaction falls in the capital field and not in the revenue field. 22. In case of CIT vs. Excel Industries Ltd (Supra), the Hon'ble Supreme Court has considered the issue of hypothetical income brought to tax by applying the provisions of section 28(iv) in Para 17 to 27 as under: 17. First of all, it is now well settled that income tax cannot be levied on hypothetical income. In CIT v. Shoorji Vallabhdas Co. [1962] 46 ITR 144 (SC) it was held as follows: Income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in bookkeeping, an entry is made about a 'hypothetical income', which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case that the assessee had a legal right to recover the consumption charge in dispute at the enhanced rate from the consumers. 24. This Court did not accept the view taken by the High Court on facts. Reference was made in this context to CITv. Birla Gwalior (P.) Ltd. [1973] 89 ITR 266 (SC) wherein it was held, after referring to Morvi Industries that real accrual of income and not a hypothetical accrual of income ought to be taken into consideration. For a similar conclusion, reference was made to Poona Electric Supply Co. Ltd. v. CIT, [1965] 57 ITR 521 (SC) wherein it was held that income tax is a tax on real income. 25. Finally, a reference was made to State Bank of Travancore v. CIT[1986] 158 ITR 102/24 Taxman 337 (SC) wherein the majority view was that accrual of income must be real, taking into account the actuality of the situation; whether the accrual had taken place or not must, in appropriate cases, be judged on the principles of real income theory. The majority opinion went on to say: 'What has really accrued to the assessee has to be found out and what has accrued must be considered from the point of view of real income taking the probability or improbability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal point of view. Therefore, until and unless the benefit is realized by the assessee, the alleged income cannot attract the provisions of section 28(iv) of the I.T. Act, 1961. Even otherwise, in the absence of any provisions to charge a particular transaction or a receipt or a benefit, the transaction cannot be brought to tax as held by the Hon'ble Supreme Court in the case of CIT vs. B.C. Srinivasa Setty (Supra) in para 8 of the order: 8. Section 45 charges the profits or gains arising from the transfer of a capital asset to income-tax. The asset must be one which falls within the contemplation of the section. It must bear that quality which brings section 45 into play. To determine whether the goodwill of a new business is such an asset, it is permissible, as we shall presently show, to refer to certain other section of the head Capital gains . Section 45 is a charging section. For the purpose of imposing the charge, Parliament has enacted detailed provisions in order to compute the profits or gains under that head. No existing principle or provision at variance with them can be applied for determining the chargeable profits and gains. All transactions encompassed by sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form rather than in the shape of money. In the 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. 25. Thus, it is observed that the capital receipts are inherently outside the scope of income which can be taxed u/s 28(iv) of the Act apart from lack of pre-conditions for taxing such benefit that there should be benefit or perquisites and such benefit or perquisites arise from the business or exercise of profession which means the benefit arisen or perquisites must be in the nature of business receipts or revenue receipts. 26. Considering all these binding precedents of the Hon'ble Supreme Court, the Kolkata Benches of the Tribunal in the case of Income Tax Officer Vs. Shreyans Investments Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital receipt, in principle, is outside the scope of income chargeable to tax. Of course, there are specific provisions under the Income Tax Act which provide that certain capital receipts can also be considered as income, such as under section 2 (24)(vi) which covers any capital gains chargeable under section 45 , but right now we are confined to normal connotations of the expression 'income'. Howsoever liberal or narrow be the interpretation of expression 'income', it cannot alter character of a receipt, i.e. convert a capital receipt into revenue receipt or vice versa. The crucial distinction between capital and revenue cannot be blurred or nullified by even the most liberal interpretation of expression 'income'. It is also important to bear in mind that, as held by Hon'ble Supreme Court in the case of Dr K George Thomas v. CIT [1985] 156 ITR 412/23 Taxman 46, the burden is on the revenue to establish that the receipt is of a revenue nature though once a receipt is found to be of revenue character, whether it comes under exemption or not, it is for the revenue to establish . It is thus clear that capital receipts are inherently outside the scope of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble jurisdictional High Court that this exercise is carried out. In the present case also, as stated in paragraph 4 of Part I of Schedule A (i.e. scheme of amalgamation) to Hon'ble Calcutta High Court's order dated 9th April 2008, for the purpose of better, efficient and economical management, control and running of the business and to withstand the recessionary trend in the economy of the business undertaking concerned and for administrative convenience and to obtain advantage of economies of large scale, the present scheme is proposed to amalgamate the transferor company (i.e. VVPL) with the transferee company (i.e. the assessee) . As a result of amalgamation, the assessee, being the transferee company, will increase its assets and liabilities, and, even if there be any benefit in the process, such a benefit can only be in the capital field because it is relatable to the non trading assets and capital. What it affects is the capital structure of the assessee company and the manner in which business is consolidated. As the Assessing Officer himself observes, this exercise of amalgamation is also aimed at bolstering the capability of the assessee to conduct business m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indicate that the benefit, even if accruing to the assessee, was in revenue field, in the course of assessee's business dealings or of trading nature. In view of these discussions, we are of the considered view that the benefit, if any, derived by the assessee on account of amalgamation by way of merger was not in revenue field, and not of an income nature. Accordingly, there was no occasion to invoke Section 28(iv) of the Act. Learned CIT(A) was quite justified in his observations that the amalgamation is not an adventure in the nature of trade and that this transaction is clearly a capital account transaction . Learned CIT(A) was quite justified in deleting the impugned addition, we uphold his conclusions, and we decline to interfere in the matter. 27. Thus, the Tribunal has elaborately considered the applicability of provisions of section 28 in respect of the transactions/benefit/perquisites not falling in the nature of revenue receipts as well as not arising from the business or profession. Following the said decision of the Kolkata Bench of the Tribunal, the Visakhapatnam Bench of the Tribunal in the case of Income Tax Officer vs. Undavalli Constructions (Supra) has again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mind the fact that section 28 only refers to the 'income' which can be charged to income tax under the head 'profits and gains from business or profession', and, therefore, when a particular advantage, perquisite or receipt is not in the nature of income, there cannot be any occasion to bring the same to tax under section 28(iv) (2) One more condition for applicability of section 28(iv) of the Act is that the benefit or perquisite must arise from business or exercise of profession. The phrase 'arise from business' in the context of section 28(iv) contemplates not some connection with the business undertaking of the assessee but it envisages that the benefit or perquisite must arise out from actual conduct of the business of the assessee. In other words, before sub-section (iv) of sec. 28 is invoked it is necessary to show and prove the proximate cause or nexus between the alleged benefit or perquisite and the business actually carried on by the assessee. The nexus or the proximate cause must be real, immediate and not illusionary or imaginary. The benefit or perquisite contemplated by sec. 28(iv) must necessarily have a live connection with the business car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this fact was established by the assessee as per the sanction order for conversion of land which was obtained on 16-12-2013 from the Commissioner, Municipal Corporation, Eluru. In this regard it is pertinent mention the decision of Hon'ble Gujarat High Court in the case of Bharat Kumar R.Panchal (supra), in para No. 4 which reads as under : 4. Without reference to any case law on the subject, in our considered opinion, on the plain language of cl.(iv) of s.28, the amount received by the assessee as a partner in the erstwhile partnership, on separation of some of the partners, cannot be described as a benefit or perquisite having arisen from the business or the exercise of a profession. The amount has been received by the assessee when four of his partners separated from the erstwhile partnership and shares of erstwhile partners in that firm were divided along with the assets . Though the decision was rendered in connection with the partnership firm the same is equally applies to this case, since the capital asset was divided on partition of co-ownership. The coordinate bench of ITAT, Kolakata in ITO v. Shreyans Investments (P.) Ltd. [2013] 31 taxmann.com 11/141 ITO 672 has con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court, in the case of Padmaraje R Kadambande v. CIT [1992] 195 ITR 877/62 Taxman 456 observed that, we hold that the amounts received by the assessee during the financial year in question have to be regarded as capital receipts, and, therefore, are not income within meaning of section 2(24) of the Income-tax Act. (Emphasis by underlining supplied by us). This clearly shows, as is the settled law, that a capital receipt, in principle, is outside the scope of income chargeable to tax. Of course, there are specific provisions under the Income-tax Act which provide that certain capital receipts can also be considered as income, such as under section 2 (24)(vi) which covers any capital gains chargeable under section 45 , but right now we are confined to normal connotations of the expression 'income'. Howsoever liberal or narrow be the interpretation of expression 'income', it cannot alter character of a receipt, i.e. convert a capital receipt into revenue receipt or vice versa. The crucial distinction between capital and revenue cannot be blurred or nullified by even the most liberal interpretation of expression 'income'. It is also important to bear in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 24488/- per sq.yard which is more than the value adopted by the AO in the assessment. The reason for postponement of taxation was explained by the assessee as disadvantageous location for marketing. The Ld.CIT(A) followed the decision of Hon'ble Supreme Court in the case of Excel Industries Ltd. (supra) and viewed that there was no loss of revenue. Therefore, we agree with the finding of the Ld.CIT(A) that the excess area of land received was not taxable u/s 28(iv) of the Act and there is no loss of revenue. Hence, we do not find any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. Appeal of the revenue is dismissed. 28. Therefore, it is a settled proposition of law that, if the alleged benefit is not arisen from business or profession of the assessee or from exercise of the profession of the assessee, then the same cannot be brought to tax under the provisions of section 28(iv) of the I.T. Act, 1961. Further, if the alleged benefit is also in respect of transaction which falls in the capital field being investment in shares, then in the absence of any real income, the same cannot be brought to tax by invoking the provisions of section 28(iv) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not arisen and, therefore, not taxable. Thus, what the Hon'ble Court sought to emphasize was that there must be a nexus between arising of a benefit in a transaction of which the assessee should be a direct beneficiary. The AO in the assessment order has not demonstrated as to how the assessee was a beneficiary of such benefits. 9.5 It is a settled principle that for computing the value of any benefit to be taxes, there shall be enabling mechanism in provisions or rules, in the absence of which the value cannot be ascertained and taxed. Such a mechanism does exist in Section 17(2)(c)(iii) w.e.f. 1-4-2001 for shares allotted under ESOP / sweat equity. Similarly, section 56(2)(vii) and (viia) provides to taxing the difference in consideration and the fair market value. Corresponding and related provisions are inserted in section 49, which defines cost. In the absence of such provisions, the value of the benefit in the form of shares allotted at face value, cannot be ascertained and taxed. In this regard the decision of the Supreme Court in the case of CIT Vs. Infosys Technologies Ltd (297 ITR 167) has been duly considered. 9.6 It is a vital aspect in tax jurisprudence that ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
