Appeal details
Counselvise Citation
[2016] 132 COUNSELVISE.COM (IT) 8363 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
01-04-2016
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
E
Next Hearing Date
30-03-2016
Assessment Year
2010-2011
Appeal Filed On
31-03-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : E : NEW DELHI BEFORE SHRI R.S. SYAL, AM & MS BEENA A. PILLAI, JM ITA NO.1880/DEL/2014 ASSESSMENT YEAR : 2010-11 MRIDU HARI DALMIA PARIVAR TRUST, 4, SCINDIA HOUSE, NEW DELHI. PAN: AAATM5438Q VS. ASSESSING OFFICER, CIRCLE 31(1), NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI HIRO RAI, ADVOCATE & SHRI DHARAN V. GANDHI, ADVOCATE DEPARTMENT BY : SHRI P. DAM KANUNJNA, SR. DR DATE OF HEARING : 30.03.2016 DATE OF PRONOUNCEMENT : 01.04.2016 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY THE CIT(A) ON 15.01.2014 IN RELATION TO THE ASSESSM ENT YEAR 2010-11. 2. FIRST ISSUE RAISED IN THIS APPEAL IS AGAINST THE CONFIRMATION OF ADDITION OF RS.1,60,00,000 MADE BY THE ASSESSING OF FICER (AO) U/S ITA NO.1880/DEL/2014 2 56(2)(VI) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED `THE ACT). BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A BENEFICIARY TRUST WHICH WAS CONSTITUTED ON 28.5.1999 BY SHRI MR IDU HARI DALMIA AS SETTLOR WITH OTHER TRUSTEES INCLUDING HIMSELF, SHRI YADU HARI DALMIA AND SHRI PARAG DALMIA. AS PER THE TRUST DEED, THE BENE FICIARIES OF THE TRUST ARE SHRI M.H. DALMIA, SMT. ABHA DALMIA, SHRI GAURAV DALMIA, SMT. SHARMILA DALMIA, SMT. KANUPRIYA SOMANI, KM. DEVANSH I DALMIA, MASTER ARYMAN HARI DALMIA AND KM. ANANYA PRIYA DALM IA WITH THEIR RESPECTIVE SPOUSES AND CHILDREN. THE ASSESSEE FILE D ITS RETURN SHOWING INCOME FROM HOUSE PROPERTY, SHORT-TERM CAPITAL GAIN AND LONG-TERM CAPITAL GAIN. THE ASSESSEE DECLARED TO HAVE RECEIV ED A GIFT OF RS.1.60 CRORE FROM SMT. ABHA DALMIA DURING THE YEAR TOWARDS TRUST FUND ACCOUNT, WHICH WAS NOT INCLUDED IN TOTAL INCOME. T HE AO NOTED RELATIONSHIP BETWEEN THE DONOR AND BENEFICIARIES, B EING WIFE OF SHRI MRIDUL HARI DALMIA; MOTHER OF SHRI GAURAV DALMIA AN D SMT. KANUPRIYA SOMANI; AND GRANDMOTHER OF KM. DEVANSHI DALMIA, MAS TER ARYMAN HARI DALMIA AND KM. ANANYA PRIYA DALMIA. HE NOTICE D THE BENEFICIARIES OF THE TRUST TO BE THE RELATIVES OF T HE DONOR. PROVISIONS OF ITA NO.1880/DEL/2014 3 SECTION 56(2)(VI) OF THE ACT WERE INVOKED. IN THIS REGARD, THE ASSESSEE WAS FOUND TO BE ADMITTEDLY A BENEFICIARY TRUST ASSE SSED IN THE STATUS OF AOP AND, HENCE, NEITHER A FIRM NOR A COMPANY. THE AO FURTHER NOTICED THAT THE ASSESSEE RECEIVED A GIFT OF RS.1.60 CRORE THROUGH CHEQUE FROM MRS. ABHA DALMIA, WHICH WAS NOT A PROPERTY. AS THE TRANSACTION OF GIFT WAS EXECUTED ON 18.9.2009, I.E., PRIOR TO THE DATE OF 1 ST JUNE, 2010, THE AO HELD THAT THE CLAIM OF EXEMPTION BY THE ASSESSEE U/S 56(2)(VI) WAS NOT ACCEPTABLE. AFTER ANALYZING THE PROVISIONS OF SECTION 56(2)(VI), THE AO HELD THAT EXEMPTION OF A GIFT DEPENDED UPON FULF ILLMENT OF CERTAIN CONDITIONS, VIZ., FIRSTLY THE RECIPIENT OF THE GIFT SHOULD BE AN INDIVIDUAL OR HUF, SECONDLY, THE DONOR SHOULD BE COVERED IN THE L IST OF PERSONS MENTIONED IN THE PROVISO AND COVERED BY THE EXPLANA TION THEREOF AND, THIRDLY, THE GIFT SHOULD BE MADE ON THE OCCASION O F MARRIAGE OR RECEIVED UNDER WILL ETC. THEREAFTER, THE AO PROCEEDED TO TE ST THE APPLICABILITY OR OTHERWISE OF THESE THREE CONDITIONS ON THE FACTS OF THE INSTANT CASE. IN THIS REGARD, HE FOUND THAT THE ASSESSEE WAS NEITHER AN INDIVIDUAL NOR HUF, WHICH WAS THE FIRST CONDITION FOR MAKING GIFT EXEMPT IN THE HANDS OF THE RECIPIENT. AS REGARDS THE SECOND CONDITION, HE NOTICED THAT THE ITA NO.1880/DEL/2014 4 DONOR WAS A CLOSE RELATIVE, BEING WIFE OF SHRI MRID U HARI DALMIA AND MOTHER/GRANDDAUGHTER OF OTHER BENEFICIARIES. HE AC CENTUATED THAT NONE OF THE PERSONS MENTIONED ACTUALLY RECEIVED THE SAID GIFT AND IT WAS THE AOP ALONE WHO WAS RECIPIENT OF THE AMOUNT. THEN, H E WENT ON TO EXAMINE RELATIONSHIP BETWEEN THE BENEFICIARIES AND DONOR. ON THIS COUNT, HE HELD THAT THE ASSESSEE, NOT BEING AN INDI VIDUAL, COULD NOT BE CONNECTED WITH THE DONOR BY BLOOD OR MARRIAGE. HE EMPHASIZED ON THE ASSESSEES STATUS OF AOP GIVEN AS PER PAN DATA WHIC H WAS OTHER THAN INDIVIDUAL OR HUF. IN THE LIGHT OF THE ABOVE FACTS, HE HELD THAT THE AMOUNT OF RS.1.60 CRORE RECEIVED BY THE ASSESSEE TR UST FROM MRS. ABHA DALMIA WAS NOT ENTITLED TO ANY EXEMPTION. THAT IS HOW, HE MADE AN ADDITION FOR THE SUM OF RS.1.60 CRORE. THE LD. CI T(A) ECHOED THE ACTION OF THE AO IN THIS REGARD. THE ASSESSEE IS AGGRIEVE D AGAINST CONFIRMATION OF THE ADDITION. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE AO INVOKED THE PROVISIONS O F SECTION 56(2)(VI) FOR COMING TO THE CONCLUSION THAT THE AMOUNT OF GIF T RECEIVED BY THE ITA NO.1880/DEL/2014 5 ASSESSEE FROM MRS. ABHA DALMIA WAS NOT EXEMPT UNDER THIS PROVISION AND HENCE CHARGEABLE TO TAX. HE SATISFIED HIMSELF AS REGARDS THE FULFILLMENT OF THREE CONDITIONS AS NOTED BY HIM. AT THE OUTSET, WE FIND THAT THE VIEW POINT OF THE AO IN CONSTRUING SECTION 56(2) AS AN EXEMPTION PROVISION IS NOT CORRECT AS IT WILL BE SE EN INFRA THAT IT IS RATHER A CHARGING PROVISION. REVERTING TO THE POINT IN DI SPUTE, THE PRIMARY QUESTION WHICH FALLS FOR OUR CONSIDERATION IS WHETH ER OR NOT THE AMOUNT OF RS.1.60 CRORE IS CHARGEABLE TO TAX AS PER THE PR OVISIONS OF SECTION 56(2)(VI). 4. SECTION 56 FALLS UNDER CHAPTER IV-F OF THE ACT W ITH THE CAPTION INCOME FROM OTHER SOURCES. SUB-SECTION (1) OF THI S SECTION PROVIDES THAT INCOME OF EVERY KIND WHICH IS NOT TO BE EXCLUD ED FROM THE TOTAL INCOME UNDER THIS ACT SHALL BE CHARGEABLE TO INCOME -TAX UNDER THE HEAD INCOME FROM OTHER SOURCES, IF IT IS NOT CHARGEAB LE TO INCOME-TAX UNDER ANY OF THE HEADS SPECIFIED IN SECTION 14, ITEMS A T O E. THEN COMES SUB- SECTION (2) OF SECTION 56 WHICH PROVIDES IN PARTICU LAR AND WITHOUT PREJUDICE TO THE GENERALITY OF THE PROVISIONS OF SU B-SECTION (1) THAT THE ITA NO.1880/DEL/2014 6 INCOMES DISCUSSED UNDER VARIOUS CLAUSES OF THIS SUB -SECTION SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. CLAUSE (VI), WHICH IS RELEVANT FOR OUR PURPOSE, REA DS AS UNDER : - ( VI ) WHERE ANY SUM OF MONEY, THE AGGREGATE VALUE OF WH ICH EXCEEDS FIFTY THOUSAND RUPEES, IS RECEIVED WITHOUT CONSIDERATION, BY AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, IN ANY PREVIOUS YEAR FROM A NY PERSON OR PERSONS ON OR AFTER THE 1ST DAY OF APRIL, 2006 BUT BEFORE THE 1ST DAY OF OCTOBER, 2009, THE WHOLE OF THE AGGREGATE VALUE OF SUCH SUM: PROVIDED THAT THIS CLAUSE SHALL NOT APPLY TO ANY SUM OF MONE Y RECEIVED ( A ) FROM ANY RELATIVE; OR ( B ) ON THE OCCASION OF THE MARRIAGE OF THE INDIVIDUAL ; OR ( C ) UNDER A WILL OR BY WAY OF INHERITANCE; OR ( D ) IN CONTEMPLATION OF DEATH OF THE PAYER; OR ( E ) FROM ANY LOCAL AUTHORITY AS DEFINED IN THE EXPLANATION TO CLAUSE (20) OF SECTION 10 ; OR (F) FROM ANY FUND OR FOUNDATION OR UNIVERSITY OR OTHER EDUCATIONAL INSTITUTION OR HOSPITAL OR OTHER MEDICAL INSTITUTION OR ANY TRU ST OR INSTITUTION REFERRED TO IN CLAUSE (23C) OF SECTION 10 ; OR (G) FROM ANY TRUST OR INSTITUTION REGISTERED UNDE R SECTION 12AA . EXPLANATION. FOR THE PURPOSES OF THIS CLAUSE, 'RELATIVE' MEANS ( I ) SPOUSE OF THE INDIVIDUAL; ( II ) BROTHER OR SISTER OF THE INDIVIDUAL; ( III ) BROTHER OR SISTER OF THE SPOUSE OF THE INDIVIDUAL ; ( IV ) BROTHER OR SISTER OF EITHER OF THE PARENTS OF THE INDIVIDUAL; ITA NO.1880/DEL/2014 7 ( V ) ANY LINEAL ASCENDANT OR DESCENDANT OF THE INDIVID UAL; ( VI ) ANY LINEAL ASCENDANT OR DESCENDANT OF THE SPOUSE OF THE INDIVIDUAL; ( VII ) SPOUSE OF THE PERSON REFERRED TO IN CLAUSES ( II ) TO ( VI ); 5. A BARE PERUSAL OF THE ABOVE PROVISION INDICAT ES THAT WHERE ANY SUM OF MONEY EXCEEDING RS.50,000/- IS RECEIVED WITHOUT CONSIDERATION BY ANY INDIVIDUAL OR HUF, IN ANY PREVIOUS YEAR FROM AN Y PERSON OR PERSONS, THE WHOLE OF THE AGGREGATE VALUE OF SUCH SUM SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD INCOME FROM OTHER SOURCE S. A CURSORY GLANCE AT THE OPENING LINE OF SUB-SECTION (2) OF SE CTION 56 DIVULGES THAT IT IS A CHARGING PROVISION, WHICH CHARGES THE RECEIPT OF AN OTHERWISE GENUINE AMOUNT OF GIFT ETC. TO TAX, SUBJECT TO THE FULFILLMENT OF CERTAIN STIPULATED CONDITIONS. IT FOLLOWS THAT IN ORDER TO ATTRACT THE APPLICABILITY OF CLAUSE (VI) OF SECTION 56(2), THE FOLLOWING COND ITIONS SHOULD BE FULFILLED:- (I) AN AMOUNT EXCEEDING RS.50,000/- IN AGGREGATE SHOULD BE RECEIVED IN A YEAR; (II) SUCH RECEIPT SHOULD BE WITHOUT CONSIDERATION; ITA NO.1880/DEL/2014 8 (III) SUCH RECEIPT SHOULD BE BY AN INDIVIDUAL OR HUF; AND (IV) SUCH RECEIPT BY INDIVIDUAL OR HUF SHOULD BE FROM AN Y PERSON OR PERSONS WITHIN THE DESIGNATED PERIOD. 6. IT IS ON THE CUMULATIVE SATISFACTION OF THE ABOV E CONDITIONS THAT THE AMOUNT RECEIVED BECOMES CHARGEABLE TO TAX U/S 56(2) (VI). THEN, THERE IS A PROVISO TO THIS PROVISION WHICH FORBIDS THE APPLI CABILITY OF THE CHARGING PROVISION UNDER CERTAIN CIRCUMSTANCES ENSHRINED IN CLAUSES (A) TO (G). EXPLANATION TO THIS PROVISO GIVES MEANING TO THE TE RM RELATIVE, WHICH HAS BEEN USED IN CLAUSE (A) OF THE PROVISO TO SECTI ON 56(2)(VI). EFFECT OF THE PROVISO ALONG WITH EXPLANATION TO SECTION 56(2) (VI), TO THE EXTENT OF THE ISSUE UNDER CONSIDERATION, IS THAT WHERE ANY SU M OF MONEY EXCEEDING THE SPECIFIED LIMIT IS RECEIVED AS GIFT FROM ANY RE LATIVE AS DEFINED IN THE EXPLANATION, THAT SHALL NOT BE CHARGEABLE TO TAX U/ S 56(2)(VI). COMING BACK TO THE AFORENOTED FOUR CONDITIONS BRINGING REC EIPT WITHIN THE CHARGING PROVISION, WE FIND THAT THE FIRST CONDITIO N, NAMELY, RECEIPT OF MONEY IN EXCESS OF RS.50,000/- IS SATISFIED. THE S ECOND CONDITION IS THAT SUCH AMOUNT SHOULD BE RECEIVED WITHOUT CONSIDERATIO N. THIS CONDITION IS ITA NO.1880/DEL/2014 9 ALSO SATISFIED BECAUSE THE ASSESSEE TRUST RECEIVED A SUM OF RS.1.60 CRORE FROM SMT. ABHA DALMIA AS GIFT, WHICH IS OBVIOUSLY W ITHOUT ANY CONSIDERATION. THE FOURTH CONDITION ABOUT THE RECEI PT OF SUCH AMOUNT FROM ANY PERSON OR PERSONS BEFORE THE DESIGNATED DA TE IS ALSO SATISFIED. NOW WE ESPOUSE THE THIRD CONDITION AS PER WHICH THE RECEIPT OF SUCH SUM SHOULD BE BY AN INDIVIDUAL OR HUF. THIS CONDITION I S OBVIOUSLY WANTING BECAUSE AS PER THE AOS OWN VERSION THE STATUS OF T HE ASSESSEE IS ASSOCIATION OF PERSONS, WHICH IS OTHER THAN AN INDI VIDUAL OR HUF. SECTION 2(31) DEFINES 'PERSON' AS INCLUDING (I) AN INDIVIDUAL, (II) A HINDU UNDIVIDED FAMILY, (III) A COMPANY, (IV) A F IRM, (V) AN ASSOCIATION OF PERSONS OR A BODY OF INDIVIDUALS, WHETHER INCORP ORATED OR NOT,(VI) A LOCAL AUTHORITY, AND (VII) EVERY ARTIFICIAL JURIDIC AL PERSON, NOT FALLING WITHIN ANY OF THE PRECEDING SUB-CLAUSES . IT IS PALPABLE FROM THE DEFINITION OF `PERSON AS GIVEN IN SECTION 2(31) OF THE ACT THAT AOP IS A PERSON DIFFERENT FROM AN INDIVIDUAL OR A HUF. EVEN IF AN AOP CONSISTS OF SOME INDIVIDUALS, THE STATUS OF SUCH A GROUP OF INDIVIDUALS REMAINS AS THAT OF `AOP, IN THE SAME WAY IN WHICH WHEN SOME I NDIVIDUALS ENTER INTO PARTNERSHIP, THE BODY WHICH COMES INTO EXISTEN CE IS CALLED A `FIRM. ITA NO.1880/DEL/2014 10 THE AO HAS RIGHTLY ADMITTED THE STATUS OF THE ASSES SEE AS AN AOP AND NOT AN INDIVIDUAL OR HUF. IT IS AXIOMATIC FROM A PL AIN READING OF THE PROVISION THAT ANY SUM EXCEEDING RS.50,000/- CAN F ALL WITHIN THE AMBIT OF SECTION 56(2)(VI) OF THE ACT ONLY IF IT IS RECEI VED BY AN INDIVIDUAL OR HUF. SINCE THE ASSESSEE IN QUESTION IS AN AOP AND NOT ANY INDIVIDUAL OR HUF, WHO RECEIVED A SUM OF RS.1.60 CRORE WITHOUT CONSIDERATION, SUCH A RECEIPT IN OUR CONSIDERED OPINION CANNOT BE INCLUDED IN ITS TOTAL INCOME WITHIN THE FRAMEWORK OF SECTION 56(2)(VI). WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER ON THIS SCORE AND ORDER FO R THE DELETION OF THIS ADDITION. 7. THE ONLY OTHER ISSUE WHICH SURVIVES IN THIS AP PEAL IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF LOSS OF RS.1,86,86, 461/-. THE FACTS APROPOS THIS ISSUE ARE THAT THE ASSESSEE SUFFERED A LONG-TERM CAPITAL LOSS OF RS.1.86 CRORE ON SHARE TRANSACTIONS, WHICH AMOUN T WAS CARRIED FORWARD FOR FUTURE SET OFF. APART FROM THAT, THE A SSESSEE ALSO EARNED SHORT-TERM CAPITAL GAIN, THE TAXABILITY OF WHICH IS NOT IN DISPUTE. THE AO HAS DRAWN A CHART ON PAGES 2 AND 3 OF THE ASSESSMEN T ORDER CALCULATING ITA NO.1880/DEL/2014 11 THE AMOUNT OF LONG-TERM CAPITAL LOSS ALONG WITH SHO RT-TERM CAPITAL GAIN WITH STT AND SHORT-TERM CAPITAL GAIN WITHOUT STT. T HE AO OBSERVED FROM THIS CHART THAT THE ASSESSEE ENTERED INTO ALL THE SHARE TRANSACTIONS THROUGH NDA SECURITIES LTD., A REGISTERED SHARE BRO KER OF NATIONAL STOCK EXCHANGE, OTHER THAN THE SHARES OF BAJAJ HIN DUSTAN LTD., TATA CONSULTANCY LTD. AND RELIANCE COMMUNICATIONS LTD. , WHICH RESULTED IN LONG-TERM LOSS OF RS.1.86 CRORE. IT WAS NOTED THAT THE ASSESSEE DID NOT PAY ANY SECURITIES TRANSACTION TAX (STT) ON THESE T RANSACTIONS OF SALE OF SHARES TO SHRI M.H. DALMIA AND SMT. ABHA DALMIA. HE FOUND THAT THE ASSESSEE CLAIMED TO HAVE TRANSFERRED THESE SHARES T HROUGH OFF-MARKET SALE ON LOSS. SINCE THE PERSONS TO WHOM SUCH SHARES WER E SOLD HAPPENED TO BE THE TRUSTEES AND ALSO THE BENEFICIARIES OF THE A SSESSEE TRUST, THE AO CAME TO HOLD THAT SUCH OFF-MARKET SALE TRANSACTIONS WERE DONE INTENTIONALLY TO CLAIM BENEFIT OF LONG-TERM CAPITAL LOSS. ON BEING CALLED UPON TO JUSTIFY THE CLAIM, THE ASSESSEE SUBMITTED T HAT THESE SHARES WERE PURCHASED AND HELD FOR A PERIOD OF MORE THAN ONE YE AR AND, HENCE, WERE LONG-TERM CAPITAL ASSETS, WHICH THE AO DID NOT DISP UTE. THE ASSESSEE THEN ARGUED THAT SUCH SHARES, HELD AS INVESTMENT, W ERE SOLD AT PREVAILING ITA NO.1880/DEL/2014 12 MARKET RATES. IN SUPPORT OF THIS CONTENTION, THE A SSESSEE FURNISHED COPIES OF QUOTATIONS OF THESE SHARES FOR THE DATES ON WHIC H SUCH TRANSFERS WERE MADE. THESE QUOTATIONS HAVE BEEN REPRODUCED ON PAGE 5 OF THE ASSESSMENT ORDER. THE AO OBSERVED THAT THE SHARES WERE SOLD AT THE `CLOSING PRICE RATHER THAN THE HIGHEST PRICE OF T HE DAY. THE ASSESSEES CONTENTION THAT THE SHARES WERE TRANSFERRED ON THE RESPECTIVE DATES FROM THE DEMAT ACCOUNT OF THE ASSESSEE TRUST TO THE DEMA T ACCOUNTS OF THE BUYERS, WHO MADE PAYMENT OF THE REQUISITE SALE CONS IDERATION THROUGH BANKING CHANNEL, DID NOT CONVINCE THE AO TO ACCEPT THE GENUINENESS OF THE TRANSACTIONS. HE FELT THAT IF THESE TRANSACTIO NS HAD BEEN MADE THROUGH RECOGNIZED STOCK EXCHANGE WITH STT PAYMENT, THEN THE LOSS WOULD NOT HAVE BEEN CARRIED FORWARD WITHIN THE MEAN ING OF SECTION 10(38) OF THE ACT. AFTER CONSIDERING CERTAIN DECIS IONS, THE AO HELD THAT THE ASSESSEE USED A COLORABLE DEVICE TO AVOID TAX I N CONNIVANCE WITH THE TRUSTEES/BENEFICIARIES BY SIMPLY PLACING THE SHARES IN THE HANDS OF THE TRUSTEES AND SHOWING SUCH PLACEMENT AS OFF-MARKET S ALE. HE, THEREFORE, DISALLOWED SUCH LOSS BY HOLDING IT AS BOGUS. THE LD. CIT(A) APPROVED THE VIEW TAKEN BY THE AO ON THIS ISSUE. ITA NO.1880/DEL/2014 13 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL. THE AO HAS DISALLOWED THE LOSS AMOUNTING TO RS.1.86 CRORE BY TREATING THE TRANSACTIONS OF SALE OF SHARES BY THE ASSESSEE TO ITS TRUSTEES AS SHAM AND TAX AVOIDANCE DEVICE. THE QUESTION WHICH LOOMS LARGE FOR OUR CONSIDERATION IS TO DECIDE WHETHER OR NOT THE TRANS ACTIONS OF SALE OF SHARES BY THE ASSESSEE TO SHRI M.H. DALMIA AND SMT. ABHA DALMIA THROUGH OFF MARKET TRADE, WERE GENUINE. FIRSTLY, W E WANT TO MAKE IT CLEAR THAT IT IS NOT THE CASE OF THE REVENUE THAT A LL THE TRANSACTIONS OF OFF- MARKET SALE ARE NON-GENUINE. APART FROM MAKING A B ALD SUBMISSION, THE LD. DR COULD NOT POINT OUT ANY PROVISION DEBARRING OFF-MARKET TRADING OF LISTED SHARES. ON THE CONTRARY, THE LD. AR HAS INV ITED OUR ATTENTION TOWARDS CERTAIN DECISIONS IN WHICH OFF-MARKET SALE TRANSACTIONS HAVE BEEN RECOGNIZED AS VALID. THEREFORE, IT FOLLOWS TH AT AN OFF-MARKET TRANSACTION OF TRANSFER OF SHARES IS NOT PER SE ILLEGAL OR VOID. GENUINENESS OR OTHERWISE OF ANY TRANSACTION CAN BE TESTED ON THE TOUCHSTONE OF A HOST OF FACTORS, WHICH ARE NOT EXHA USTIVE. COMING TO THE FACTS OF THE EXTANT CASE, WE FIND THAT ALBEIT THESE WERE OFF-MARKET TRANSACTIONS TO BENEFICIARIES/TRUSTEES OF THE ASSES SEE TRUST, BUT, THE SALE ITA NO.1880/DEL/2014 14 CONSIDERATION IS EQUIVALENT TO THE CLOSING SALE RAT E OF THESE SHARES ON THE RESPECTIVE DATES. THE AO HAS OPINED THAT THE TRANS ACTIONS OUGHT TO HAVE BEEN ENTERED INTO AT THE HIGHEST RATE RATHER THAN T HE CLOSING RATE OF THE DAY. IN THIS REGARD, WE FIND THAT IN SO FAR AS THE SHARES OF BAJAJ HINDUSTAN LTD. ARE CONCERNED, THE HIGHEST QUOTATION ON 1.4.2009 WAS RS.51.25 AGAINST THE CLOSING RATE OF RS.50.50. SIM ILARLY, AS REGARDS THE SHARE OF TATA CONSULTANCY SERVICES LTD., THE HIGHES T QUOTATION AS ON 18.11.2009, BEING THE DATE OF SALE, WAS RS.693.00 A S AGAINST THE CLOSING RATE OF RS.690.45. SIMILARLY, FOR SHARES OF RELIAN CE COMMUNICATIONS LTD., QUOTATION AS ON 7.12.2009, BEING THE DATE OF SALE, HAD THE HIGHEST PRICE OF RS.182/- AS AGAINST THE CLOSING PRICE OF R S.178.95. IT IS FURTHER NOTICEABLE THAT THE LOWEST QUOTATION OF BAJAJ HINDU STAN LTD. ON THAT DAY WAS RS.47.50; THAT OF TATA CONSULTANCY LTD. AT RS.6 60/-; AND THAT OF RELIANCE COMMUNICATIONS LTD. AT RS.175.85. WE FAI L TO UNDERSTAND ANY LOGIC BEHIND THE AO CONSIDERING THE HIGHEST RATES A S RELEVANT AND IGNORING THE LOWEST OR THE OPENING OR CLOSING RATES . AS THE ASSESSEE SOLD THE SHARES AT THE CLOSING RATES OF THE RESPECTIVE S ALE DATES, WHICH LIE SOMEWHERE BETWEEN THE HIGHEST AND LOWEST RATES OF T HE DAY, THE SAME ITA NO.1880/DEL/2014 15 CANNOT BE CONSIDERED AS UNREASONABLE BY ANY STANDAR D. THIS DEMONSTRATES THAT THE SHARES WERE SOLD BY THE ASSES SEE AT THE PREVAILING MARKET RATES. IT IS FURTHER EVIDENT THAT EVEN THOU GH THESE WERE OFF- MARKET SALE TRANSACTIONS, BUT, THE ACTUAL TRANSFER OF SHARES TOOK PLACE ON RESPECTIVE DATES FROM THE DEMAT ACCOUNT OF THE ASSE SSEE TRUST TO THE DEMAT ACCOUNTS OF THE TRANSFEREES. IT IS FURTHER U NDISPUTED THAT PAYMENT OF SALE PRICE WAS MADE BY TRANSFEREES WHICH WAS CRE DITED TO THE BANK ACCOUNT OF THE ASSESSEE TRUST. ALL THESE FACTS AMP LY INDICATE THE GENUINENESS OF THE OFF-MARKET SALE TRANSACTIONS ENT ERED INTO BY THE ASSESSEE WITH ITS BENEFICIARIES. 9. THE AO HAS HARPED ON THE FACT THAT IF THE TRANSA CTIONS HAD BEEN MADE THROUGH RECOGNIZED STOCK EXCHANGE, THEN THE ST T WOULD HAVE BEEN PAYABLE AND RESULTANTLY THE LOSS WOULD HAVE BE COME INELIGIBLE FOR SET OFF OR CARRY FORWARD IN TERMS OF SECTION 10(38) OF THE ACT. SECTION 10 PROVIDES THAT : `IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YEAR OF ANY PERSON, ANY INCOME FALLING WITHIN ANY OF THE FOLLOW ING CLAUSES SHALL NOT ITA NO.1880/DEL/2014 16 BE INCLUDED . THIS MANIFESTS THAT SECTION 10 IS AN EXEMPTION P ROVISION. RELEVANT PART OF SUB-SECTION (38) OF SECTION 10 REA DS AS UNDER : - ` ( 38 ) ANY INCOME ARISING FROM THE TRANSFER OF A LONG-TE RM CAPITAL ASSET, BEING AN EQUITY SHARE IN A COMPANY OR A UNIT OF AN EQUITY ORIENTED FUND OR A UNIT OF A BUSINESS TRUST WHERE ( A ) THE TRANSACTION OF SALE OF SUCH EQUITY SHARE OR U NIT IS ENTERED INTO ON OR AFTER THE DATE ON WHICH CHAPTER VII OF THE FINANCE (NO. 2) ACT, 2004 COMES INTO FORCE; AND ( B ) SUCH TRANSACTION IS CHARGEABLE TO SECURITIES TRAN SACTION TAX UNDER THAT CHAPTER : 10. A PERUSAL OF SUB-SECTION (38) REVEALS THAT ANY INCOME ARISING FROM THE TRANSFER OF LONG-TERM CAPITAL ASSET, BEING AN EQUITY SHARE ETC., IS EXEMPT FROM TAX IF THE TRANSACTION OF SALE OF SUCH EQUITY SHARE ETC. IS CHARGEABLE TO SECURITIES TRANSACTION TAX UNDER CHAP TER VII OF THE FINANCE (NO.2) ACT, 2004. IT IS TRITE THAT `INCOME COVERS BOTH POSITIVE AND NEGATIVE INCOMES, THAT IS, GAINS AND LOSSES. TH E HONBLE SUMMIT COURT IN A CELEBRATED DECISION IN CIT VS. HARIPRASAD & CO. P. LTD (1975) 99 ITR 118 (SC) HAS HELD THAT THE WORDS 'INCOME' OR 'PROFITS AND GAINS' SHOULD BE UNDERSTOOD AS INCLUDING LOSSES ALSO, SO THAT, IN ONE SENSE 'PROFITS AND GAINS' REPRESENT 'PLUS INCOME', WHEREAS LOSSES ITA NO.1880/DEL/2014 17 REPRESENT 'MINUS INCOME'. IN SIMPLE WORDS, BOTH THE POSITIVE (GAINS) AND NEGATIVE (LOSSES) ARE SPECIES OF THE GENUS OF `INCO ME. 11. WE HAVE NOTICED THAT SECTION 10(38) IS AN EX EMPTION PROVISION AND NOT A DEDUCTION PROVISION. INCOME FROM AN EXEMPTION PROVISION DOES NOT AT ALL ENTER INTO COMPUTATION OF TOTAL INCOME. IF T HERE IS A POSITIVE INCOME, SUCH INCOME IS IGNORED AND THUS EXCLUDED FR OM TAXATION AND IF THERE IS A NEGATIVE INCOME, NAMELY, LOSS, THEN SUCH LOSS IS ALSO IGNORED AND THUS NEITHER QUALIFIES FOR SET OFF AGAINST OTHE R CHARGEABLE INCOMES NOR CAN BE CARRIED FORWARD FOR A FUTURE SET OFF AGA INST ANY OTHER INCOME CHARGEABLE TO TAX. THIS IS ON THE PRINCIPLE OF EQU ALITY THAT IF POSITIVE INCOME FROM A SOURCE IS NOT TO BE TAXED, THEN ON PA RITY, THE NEGATIVE INCOME FROM THE SAME SOURCE SHOULD ALSO NOT GET AN ADVANTAGE OF SET OFF OR CARRY FORWARD. ON THE OTHER HAND, IN THE CASE O F A DEDUCTION PROVISION, THE POSITIVE INCOME FROM THE DESIGNATED SOURCE FIRST ENTERS INTO COMPUTATION OF INCOME, BUT IS THEN DEDUCTED IN TERMS OF THE ELIGIBILITY OF DEDUCTION. IN THE LIKE MANNER, IF TH ERE IS A NEGATIVE INCOME FROM THAT DESIGNATED SOURCE, THEN SUCH LOSS AFTER E NTERING INTO ITA NO.1880/DEL/2014 18 COMPUTATION OF INCOME BECOMES ELIGIBLE FOR SET OFF AGAINST THE OTHER POSITIVE INCOMES SUBJECT TO OTHER RELEVANT PROVISIO NS. HERE AGAIN THE PRINCIPLE OF EQUALITY APPLIES. THE ESSENTIAL DIFFER ENCE BETWEEN AN EXEMPTION AND A DEDUCTION PROVISION THUS LIES IN TH E FACT THAT WHEREAS INCOME (BOTH POSITIVE AND NEGATIVE) FROM AN EXEMPTI ON PROVISION DOES NOT ENTER INTO COMPUTATION OF INCOME AT ALL AND IS TOTALLY IGNORED, INCOME (BOTH POSITIVE AND NEGATIVE) FROM A DEDUCTION PROVI SION ENTERS INTO COMPUTATION OF INCOME AND IS FIRST CHARGEABLE TO TA X AND THEN DEDUCTIBLE TO THE EXTENT PROVIDED. THE HONBLE BOMBAY HIGH COU RT IN HINDUSTAN UNILEVER LTD. DY. CIT (2010) 325 ITR 102 (BOM) QUASHED THE REOPENING OF AN ASSESSMENT ON THE GROUND THAT THE LOSS OF ELI GIBLE UNIT WAS WRONGLY SET OFF AGAINST THE NORMAL BUSINESS INCOME OF THE A SSESSEE BY NOTICING THAT SECTION 10B, AS IT NOW STANDS, IS NOT A PROVIS ION IN THE NATURE OF AN EXEMPTION BUT PROVIDES FOR A DEDUCTION AND THE LOSS SUSTAINED BY THE UNIT ELIGIBLE FOR DEDUCTION UNDER SECTION 10B COULD BE S ET OFF AGAINST THE NORMAL BUSINESS INCOME. ITA NO.1880/DEL/2014 19 12. COMING BACK TO OUR CONTEXT, WE FIND THAT SEC TION 10(38) IS AN EXEMPTION PROVISION. THIS EXEMPTION PROVISION STATE S THAT ANY INCOME ARISING FROM TRANSFER OF EQUITY SHARES ETC., HELD A S LONG-TERM CAPITAL ASSET ON WHICH STT IS PAID, WILL BE EXEMPT FROM TAXATION. AS INCOME INCLUDES LOSSES ALSO, THIS PROVISION APPLIES TO BOT H POSITIVE AND NEGATIVE INCOME. IN OTHER WORDS, IF THE CONDITIONS STIPULAT ED UNDER THIS PROVISION ARE FULFILLED, NAMELY, THERE IS A TRANSFER EQUITY SHARES ETC., HELD AS LONG TERM CAPITAL ASSET ON WHICH STT IS PAID, THEN THE R ESULTANT GAIN WILL NOT BE CHARGEABLE TO TAX AND THE RESULTANT LOSS, IF ANY , WILL EQUALLY NOT QUALIFY FOR SET OFF AND CARRY FORWARD. IN ORDER TO FALL WITHIN THE PURVIEW OF SECTION 10(38), IT IS SINE QUA NON THAT STT MUST HAVE BEEN PAID ON THE TRANSACTION OF SALE OF SUCH EQUITY SHARE HELD AS LO NG-TERM CAPITAL ASSET. IT IS UNDISPUTED THAT STT IS PAYABLE IN RESPECT OF TRANSACTIONS CARRIED THROUGH A STOCK EXCHANGE, WHICH ARE CALLED ON-MARKE T TRANSACTIONS. IF THERE IS SOME OFF-MARKET TRANSACTION, NAMELY, WHIC H IS UNDERTAKEN WITHOUT INVOLVEMENT OF A STOCK EXCHANGE AND IS DIRE CTLY BETWEEN THE BUYER AND SELLER, THEN NO STT IS PAYABLE THEREON. T HIS IMPLIES THAT IF THE TRANSACTION IS OFF-MARKET, THEN, NO STT WOULD BE PA YABLE AND, EX ITA NO.1880/DEL/2014 20 CONSEQUENTI, THE PROVISIONS OF SECTION 10(38) WOULD NOT BE MAGN ETIZED. ONCE THIS SECTION IS NOT APPLICABLE, THERE CAN NEIT HER BE ANY EXEMPTION OF INCOME NOR THERE CAN BE ANY QUESTION OF DENIAL O F BENEFIT OF SET OFF AND CARRY FORWARD OF LOSS. IN OTHER WORDS, LOSS AR ISING FROM TRANSFER OF SHARES ETC., HELD AS LONG TERM CAPITAL ASSETS, ON WHICH NO STT IS PAID BECAUSE OF OFF-MARKET SALE TRANSACTION, DOES NOT FA LL WITHIN PURVIEW OF SECTION 10(38) AND CONSEQUENTLY BECOMES ELIGIBLE FO R SET OFF AND CARRY FORWARD AS PER THE OTHER RELEVANT PROVISIONS. THIS IS A LACUNA IN THE PROVISION WHICH HAS BEEN LAWFULLY EXPLOITED BY THE ASSESSEE BY TRANSFERRING SHARES HELD AS LONG-TERM CAPITAL ASSET S THROUGH OFF MARKET TRANSACTIONS RESULTING INTO GENUINE LOSS AND THUS E SCAPING THE RIGOR OF THE EXEMPTION PROVISION CONTAINED IN SECTION 10(38), WH ICH WOULD HAVE OTHERWISE DISENTITLED IT TO CLAIM SET OFF AND CARRY FORWARD OF SUCH A LOSS. THE AO HAS HELD THESE OFF-MARKET SALE TRANSACTIONS AS A COLORABLE DEVICE AND TAX AVOIDANCE SCHEME ADOPTED BY THE ASSESSEE TO EVADE PAYMENT OF LEGITIMATE TAX DUE TO THE EXCHEQUER. IN OUR CONSIDE RED OPINION, THIS IS A GLARING EXAMPLE OF TAX PLANNING RATHER THAN THE TAX AVOIDANCE AS HAS BEEN HELD BY THE AO. IN VIEW OF THE FACT THAT THE ASSESSEE ENTERED INTO ITA NO.1880/DEL/2014 21 VALID TRANSACTIONS OF TRANSFER OF SHARES OF BAJAJ H INDUSTAN LTD., TATA CONSULTANCY LTD. AND RELIANCE COMMUNICATIONS LTD. T O SHRI M.H. DALMIA AND SMT. ABHA DALMIA, WE HOLD THAT THE LOSS SUFFERED ON SUCH TRANSACTIONS IS A GENUINE LOSS WHICH CANNOT BE DISA LLOWED AS IT DOES NOT FALL WITHIN THE AMBIT OF SECTION 10(38) BECAUSE OF NON-PAYMENT OF STT. OVERTURNING THE IMPUGNED ORDER ON THIS ISSUE, WE DI RECT THE ALLOWING OF CARRY FORWARD OF LOSS AMOUNTING TO RS.1.86 CRORE. 13. IN THE RESULT, THE APPEAL IS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 01.04.201 6. SD/- SD/- [BEENA A. PILLAI] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 01 ST APRIL, 2016. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.
