Whether transfer of shares under a family agreement are for a determinable "consideration" or "voluntary", whether the shares are received under a "gift" and benefit of cost and holding period be claimed by transferee?

Judgment and Facts of the case

IN THE INCOME TAX APPELLATE TRIBUNAL

AHMEDABAD “A” BENCH

Before: Sri D.K Tyagi, Judicial Member

and Shri T.R. Meena Accountant Member

Revenue by: Sri Subhash Bains, CIT-DR

with Sri O.P. Batheja, Sr.D.R.

Assessee by: Shri S.E. Dastur, Sr. Advocate

with Sri M.K. Patel, A.R.

Date of hearing: 21-03-2014

Date of pronouncement: 30-05-2014

ORDER

PER BENCH:

All these cross appeals have been filed against the separate orders of Ld. CIT(A) dated 20-01-2009. Since all these appeals belong to same assessee, we are disposing them by passing a consolidated order.

2. At the time of hearing both the parties agreed that ITA Nos. 982/Ahd/2009 & 1035/Ahd/2009 for assessment year 2002-03 are lead cases as Ld. CIT(A) has followed the order for assessment year 2002-03 in rest of the assessment years. So both the parties advanced their arguments in respect of grounds for assessment year 2002-03 which will take care rest of the years as grounds in those years are similar. Synopsis of the arguments was also filed on behalf of the assessee, Revenue did not file any such synopsis despite opportunity for the same was given on 21.03.2014. Ld. CIT-DR was of the view that revenue’s submission/arguments have been fairly incorporated in the synopsis of arguments filed by assesssee-company. So these synopsis were relied upon by us for the arguments advanced by both the parties.

We will first take up revenue’s appeal in ITA No. 982/Ahd/2009 A.Y.2002-03

3. Revenue has taken following grounds:-

“1) On the facts and circumstances of the case and in law, the learned CIT(A) erred in holding that shares were received by the assessee as gift without consideration whereas the same were received under Family Arrangement.

2) On the facts and circumstances of the case and in law, the learned CIT(A) failed to appreciate that transfer under Family Arrangement is for a consideration which is monetary and therefore cannot be termed as gift.

3) On the facts and circumstances of the case and in law, the learned CIT(A) failed to appreciate that Clause-6 of Family Arrangement clearly records the consideration being "to avoid any further disputes ,.,.„ " and therefore transfer being a consideration cannot be termed as gift.

4) On the facts and circumstances of the case and in law, the learned CIT(A) failed to appreciate that basic ingredient i.e. natural love and affection was not there in these share transactions and hence these share transaction cannot be treated as gift.

5) The leaned CIT(A) has erred in observing that the AO has considered the transactions as a discounted purchase when in fact the AO has held that in view of Family Arrangement, the transaction cannot be considered as gift without consideration.

6) On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs. 14,17,11,839/- being amount received by the assessee from its directors by way of gift and on account of assignment of right to receive back the loans without considering the facts brought in by the AO in its entirety.”

4. Ground No. 1 to 5 relate to nature of receipts of shares by the assessee-company

5. Brief facts of the case are that assessee-company filed its return of income on 28-10-2002 declaring total income of Rs. 89,960/- under regular proceedings of the Act. The original proceedings u/s. 143(3) of the Act was completed on 16-02-2005. Subsequently, the same was re-opened and assessment was completed u/s. 143(3) r.w.s. 147 of the Act on 12th December, 2007. During assessment proceedings on perusal of the return of the income and having submissions it was found that assessee-company has credited Rs. 45,58,654/- directly to its capital reserve being profit on sale of shares of Nestle India Ltd and Hindustan Lever Ltd. received as gift. This sum was not routed through the profit and loss account of the company and hence was not considered for calculation of book profit u/s. 115JB of the Act. As per the details of capital gain arising from the transfer of shares which was transferred to capital reserve account, the asssessee-company earned capital gain of Rs. 45,58,654/-. The capital reserve was also credited by a sum of Rs. 14,17,11,839/- being gift/loans from the promoters of the company. Before AO assessee-company’s claim was that the transaction of transfer of shares as per family arrangement from various persons belonging to Bilakhia family was gift to the assessee. However AO was of the view that since the members of the Bilakhia family have transferred their shares to the asssessee –company in pursuance of deed of family arrangement dated 16-02-2001, the transfer of shares was not voluntary and without consideration. In view of these facts, the amounts of Rs. 45,58,654/- and Rs. 14,17,11,839/- were added to the total income of the assessee.

5.1 Moreover, the profit shown on sale of shares amounting to Rs. 45,58,654/- was added to the book profit computed u/s. 115JB of the Act on the ground that book profit was not computed as per the provisions of Companies Act read with Part II and III of Schedule VI of Companies Act. While doing so, ratio laid down in the case of Hon’ble Mumbai High Court in the case of CIT vs. Veekayalal 249 ITR 597 was followed. Assessment u/s. 143(3) r.w.s. 147 of the Act was completed determining the total income at Rs. 14,18,1800/- under regular provisions of the Act and Rs. 14,09,37,186/- under special provisions of Section 115JB of the Act.

6. Aggrieved by this order of AO, assessee went in appeal before Ld. CIT(A) who decided the appeal of the assessee as under:-

To read the full judgment, please find the attached file:

Attached file:

http://www.itatonline.in:8080/itat/upload/-636439885068507533713$5%5E1REFNOita_nos_981-985_&_1034-1038_of_2009.pdf