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TMI Blog2007 (2) TMI 240X X X X Extracts X X X X X X X X Extracts X X X X ..... not to give a decisive finding as to whether s. 69 is applicable or not. We have to mention here that it is not the case of the Revenue that the assessee company has paid certain amount in excess of what is recorded in the books of account for the purchase of the shares. There is not even an allegation much less any evidence that the apparent consideration is not the real consideration. The only grouse of the Revenue authorities have is that the assessee company has purchased the shares at a price which much lesser than the market price. This, as already stated is not a disputed fact. Thus on these facts we hold that no addition is sustainable under s. 69. Applicability Of u/s 28 - HELD THAT:- The purchase of shares at a particular price which is below the market price as an investment is not income by any stretch of imagination. It cannot also be deemed as income u/s 28 (iv) as it is neither benefit nor perquisite that has arisen to the assessee from the business or in the exercise of a profession. The Hon'ble Gujarat High Court in the case of CIT vs. Bhavnagar Bone Fertiliser Co. Ltd.[ 1986 (7) TMI 37 - GUJARAT HIGH COURT] has upheld the Tribunal's finding that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his order has rightly observed that, what in fact never accrued or was never received cannot be computed as capital gain. He relied on the decision of Calcutta High Court in the case of CIT vs. Smt. Nandini Nopany [ 1997 (12) TMI 102 - CALCUTTA HIGH COURT] . He rightly held that it is manifest that the consideration for the transfer of capital asset is what the transferor receives, in lieu of assets he parts with, i.e., money or monies worth and that the expression 'full consideration' cannot be construed as having reference to the market value of the assets transferred but refers to the price bargained for by the parties and it cannot refer to the adequacy of the consideration. He also rightly observed that the legislature has used the words 'full value of the consideration' and not 'FMV of the assets transferred'. He recorded that the AO has not brought on record any material to show that the assessee has received more than what has been disclosed in the books and under these circumstances the difference cannot be brought to tax under the head 'Capital gains'. We fully agree with these findings and the appeals filed by the Revenue fail. In the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 100 and that it is not registered nor was arrived at by an order of a Court. He further observed that it is not as per any arbitration award and that it is clearly reversible. Hence in the opinion of the AO, the MoU has no evidentiary value, as it is a self serving document. He quoted s. 63 of the IT Act, which gives certain situations where transfer shall be deemed to be revocable for the purpose of ss. 60, 61, 62 and 63 of the Act and was of the opinion that the same applies to the facts of this case. 2.1 The AO further observed that the persons, who sold the shares of the assessee company at below the market price had also applied for the share allotment from the assessee company and that these shares have been allotted to them in the subsequent year. Thus he concluded that by this methodology the persons who sold their shares to the assessee company at below the market price have reassumed power over the assets and management of the companies in which they earlier had control. Thereafter he relied on the decision of the Hon'ble Supreme Court in the case of McDowell Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC) and held that the propositions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in pursuance of a family arrangement. among family members and thus it would not be a transfer, the first appellate authority held that a compromise or family alignment is based on the assumption, that there is an antecedent title of some sort in the parties and the agreement acknowledges and defines what the title is, each party relinquishing all claims of property, other than that falling to his share and recognising the right of the others, as they had previously ascertained, to the proportions allotted to them, respectively. He further went on to hold that the claim of the assessee can be accepted only when the family settlement is arrived at, so as to decide family disputes and rival claims by fair and equitable division or allotment of properties, between the various members of the family. He observed that in the case of the assessee, there is no co-relation between the number of shares transferred by the family members and the number of shares allotted to them in the assessee-company. He further observed that there is no evidence on record to show that there is a dispute amongst the family members and that having shares in a public limited company cannot lead to dispute as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en a number of entities, individuals, etc. they were to be consolidated in one company and the shareholdings of those two companies was also to be held in agreed ratio. As per the MoU, shares have to be transferred at the cost at which the seller has purchased and not at the market rate and it was also a condition that such shares cannot be sold by the assessee for a period of 3 years which is a lock-in-period. The assessee had acquired shares of Essel Propack Ltd. from various members of Goel family at the cost at which the Goel family acquired the share in pursuance of this family arrangement. He took this Bench to the recitals of the MoU which are at p. 34 of the paper book to explain the object of the family arrangement. He submitted that as per the MoU, after transferring their shareholdings at cost to the assessee company, all the members of the family had applied for the shares of the assessee company in the ratio decided as per the MoU and the shares allotted. The holding pattern of the assessee company after such allotment was stated as follows: SC LN JG AG 40.11% 19.75% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assumption that there was an antecedent title with the parties and the agreement acknowledges and defines what the title is. Thus, it was for this reason the family arrangement, as per the learned counsel, does not amount to conveyance of property for a person who has title or a person who has no title. For this proposition, he relied on the following case laws: (i) S.K. Sattar S.K. Mohd. Choudhari vs. Gundappa Amabadas Bulcate (1996) 6 SCC 373 [referred in Kay Arr Enterprises vs. Jt. CIT (2006) 99 TTJ (Chennai) 411 : (2005) 97 ITD 291 (Chennai) (301)] (ii) CIT vs. A.L. Ramanathan (2000) 159 CTR (Mad) 255 : (2000) 245 ITR 494 (Mad) He further relied on the decision of the Tribunal in Kay Arr Enterprises vs. Jt. CIT (2006) 99 TTJ (Chennai) 411 : (2005) 97 ITD 291 (Chennai) and submitted that this decision was confirmed by the Hon'ble High Court vide order dt. 6th July, 2007 and the proposition therein supports his contention. He further submits that the Mumbai Bench of the Tribunal in the case of Pankaj Mansukhlal Doshi vs. ITO (ITA No. 8892/Bom/1990 for the asst. yr. 1987-88) D Bench order dt. 29th May, 1998 has considered a similar arrangement and held that it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of ss. 60, 61, 62 and 63, the learned counsel submits that the AO has confused himself as these sections relate to clubbing of income as head note to Chapter V itself reads that Income of other persons, included in assessee's total income . Without prejudice, he submits that ss. 60 to 66 can be applied to the transferor and not the transferee. He contends that a company is an artificial person and separate legal entity and an individual holder has power to appoint director and that the transferors were already having control and continued to have control over the companies but not over the assets of the company or its income. Thus, the MoU, as per Shri Shivram has provided for reorganisations of shares but without changing the control. He further submits that ss. 60 to 63 relate to income, that is revenue in nature and not capital receipts. Thus he contends that these sections were wrongly invoked by the AO. 4.5 On the applicability of s. 28(iv) the learned counsel submits that this section is not at all applicable to the facts of the assessee's case as the shares were held as investment and not as stock-in-trade and further there is a three year lock-in-period for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost on account of exchange of units. 4.7 He further submitted that the words benefit or perquisite have been used in the said s. 28(iv) have to be read together and would draw colour from each other. He argued that the term perquisite denotes meeting out of an obligation of one person by another person either directly or indirectly or provision of some facility or amenity by one person to another person and from the very beginning the person providing such facilities or concessions knows that whatever is being done is irretrievable to him and has been granted as a privilege or right of that person. For this proposition he relied on the decision of the Mumbai Bench of the Tribunal in the case of Helios Food improvers (P) Ltd. vs. Dy. CIT (2007) 14 SOT 546 (Mumbai) wherein the Hon'ble Tribunal has followed the ratio of the judgment of the jurisdictional High Court in the case of Mahindra Mahindra Ltd. vs. CIT (2003) 182 CTR (Bom) 34 : (2003) 261 ITR 501 (Bom). 4.8 The learned counsel further referred to the introduction of s. 50C by the Finance Act, 2002 w.e.f. 1st April, 2003 and submitted that even this section though introduced after the impugned assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficially juristic persons and their transactions should be looked into from that very point of view and cannot be equated with division or realignment of ancestral property held by family members who have common bondage or members who have some sort of a right or entitlement to certain assets. Thus he submits that the entire transactions should be viewed independent of the so-called family arrangement and transfer of shares from one company to another at a certain price, should be viewed as an independent transaction, and not coloured by the so-called family settlement. 5.1 To substantiate his argument that this is a colourable device he relied on the reasons given by the AO in the assessment order, as well as by the CIT(A) in his order. He relied on the propositions laid down in the case of CIT vs. L.N. Dalmia (1994) 207 ITR 89 (Cal). In this case the assessee had purchased shares to acquire the controlling interest in a company. Thereafter those shares were sold at a lower rate to other companies which were owned by the assessee himself. It was held that these transactions were to avoid tax, as the assessee still retained the controlling interest of that company and thus the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t title in the properties belonging to the family before a family arrangement could be made among various claimants to the title. The assessee's plea was dismissed on the ground that the same is not covered by the alleged family arrangement, as in this case, the groups of shareholders, though related somehow, belonged to altogether different families and there was nothing in common among them. 5.3 In this judgment there is an observation wherein it is stated that the company being a corporate entity, was in no way concerned with the dispute amongst the shareholders. It was also held that in the absence of a dispute it could not be concluded even if the corporate veil was penetrated and the arrangement was made to secure peace and harmony amongst the members. 5.4 Shri Srivastava further relied on the decision of the 'E' Bench of the Bombay 1ribunal in the case of Panalal Silk Mills (P) Ltd. vs. Dy. CIT (1993) 44 ITD 458 (Bom). Here also the company was managed by two groups of shareholders and they relied upon a family arrangement for arguing that there was no transfer. In such circumstances the Bench held as follows: 9..... A family arrangement is an agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company. The main object of the assessee company, he pointed out, was investment in shares. 6. Shri Shivram joining the issue submitted that the facts of case of L.N. Dalmiya of the Calcutta High Court are different and in that case also the loss was not allowed in the hands of the transferor of the company and this had not affected the transferee. He also submitted that this issue was considered by the Special Bench of the Tribunal in the case of Wallfort Shares Stock Brokers Ltd. vs. ITO (2005) 96 TTJ (Mumbai)(SB) 673 : (2005) 96 ITD 1 (Mumbai)(SB). On the judgment of Hon'ble Madras High Court in the case of K. Venugopal Shri Shivram submits that in that case also the amount was taxed in the hands of the transferor and not transferee. He further submits that in this case shares were purchased at cost and it was not a case of gifting of money. On the decision in the case of Kusumben Kantilal Shah he pointed out that gains were held as taxable in the hands of the transferor and not transferee and the Tribunal was concerned with s. 2(47) and not with s. 28(iv). Similarly in the case of Panalal Silk Mills (P) Ltd. Shri Shivram submits that the Tribunal was conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case. The first appellate authority possibly realising this difficulty has chosen to invoke s. 28(iv) and not to give a decisive finding as to whether s. 69 is applicable or not. We have to mention here that it is not the case of the Revenue that the assessee company has paid certain amount in excess of what is recorded in the books of account for the purchase of the shares. There is not even an allegation much less any evidence that the apparent consideration is not the real consideration. The only grouse of the Revenue authorities have is that the assessee company has purchased the shares at a price which much lesser than the market price. This, as already stated is not a disputed fact. Thus on these facts we hold that no addition is sustainable under s. 69. 7.3 This brings us to whether the difference in question can be considered as income under s. 28(iv)? The section reads as follows: 28. The following income shall be chargeable to income-tax under the head 'Profits and gains of business or profession',- (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. Circula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares, then the benefit of profit in question can be brought to tax in those particular years. In all the case laws relied upon by the Revenue have been discussed by us while narrating their arguments and in these cases the tax has been levied on the transferor and not the transferee. The effect of this section has been explained by the CBDT in the above cited circular and from this it is clear that, when an assessee purchases goods or assets at a price lower than the market price, under whatever circumstances, the same cannot be brought to tax under s. 28(iv). The section covers fringe benefits that are availed in addition to consideration earned in carrying out a profession or while doing business. A benefit that is passed on by one party to another, in addition to cost or sale price, is covered in this proviso. This is clear from the example quoted. In our humble opinion, this section cannot be invoked under the present facts and circumstances. 7.4 Be it as it may the co-ordinate Bench of the Tribunal (F-Bench, Mumbai) in the case of Helios Food Improvers (P) Ltd. held that s. 28 is a charging section and takes into account the receipts of specified categories of all incomes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business of the assessee and the benefit which the assessee has derived for the purpose of attracting provisions of s. 28(iv). At p. 320 it has observed as follows: After referring to various decisions, the Tribunal observed, these decisions make it abundantly clear that the benefit received or receivable by a person must be one which has intimate connection with business and even if such benefit is derived by way of bounty, nevertheless it would be taxable, if accrues to it or if received by it in the course of business or employment of office. In this case the Revenue has not demonstrated what is the business connection or the business done between the seller and the purchaser of the shares. No case has been made out that privilege or benefit or concession has been passed on by the seller to the buyer as part and parcel of a business transaction. A benefit has been assessed by the CIT(A). Mere purchase of shares by way of investment cannot be considered as business of the company though the objects of the company enable it to invest as well as deal in shares. As already stated there is no event which can be said to have resulted in accrual of income to the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act is only that one company sold shares to another company. Both are juristic entities and are not bound by family arrangement. Shares held by a company are its assets, and the shareholders, even if they are family members, do not own the shares of Essel Propack Ltd. The transaction cannot be looked into from the angle of the MoU or family arrangement. Mr. Shivram in the course his arguments stated that the companies' assets are different from the family assets. If so, we do not understand how sale by a company to its assets to another company can be part of a family arrangement. A company is a distinct juristic entity. Its assets cannot be mixed up with the assets of a shareholder. If the shareholder has sold his shares to another person in terms of a family arrangement, then only it can be claimed that s. 2(47) does not apply. The assessee in this case, wants the Tribunal to lift the corporate veil and assume that the assets of the companies controlled by the asses sees are that of the family members themselves. Company's assets cannot be dealt with in such a manner and the company law does not permit the same. For this sole reason we are of the considered opinion that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee in the records. At para 7.6 of the CIT(A)'s order in the case of Briggs Trading Co. (P) Ltd. the erstwhile s. 52(2) was considered and the introduction of s. 50C by the Finance Act, 2002 w.e.f. 1st April, 2003 was also considered. Thereafter he observed that the benefit received by the transferee company in receiving the shares at less than the market value could not be taxable under s. 28(iv) in the hands of the transferee company though this issue was not before him. The addition on account of capital gains has been deleted. Aggrieved, the Revenue is in appeal. 11. We have heard Shri S.D. Srivastava, the learned Department Representative and Shri Hemendra N. Shah, the learned counsel for the assessee. 12. On a careful consideration of the facts and circumstances of the case and on a perusal of the papers on record and the orders of the authorities below as well as the case laws cited we are of the considered opinion that the order of the first appellate authority has to be upheld in both these cases for the following reasons: 12.1 As already held in the order of Rupee Finance Management (P) Ltd. there is no allegation much less, any evidence to sho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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