Appeal Details
Counselvise Citation
[2012] 119 COUNSELVISE.COM (IT) 8717 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 month(s) 21 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
12-10-2012
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
D
Next Hearing Date
03-10-2012
Assessment Year
2008-2009
Appeal Filed On
22-05-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI D.MANMOHAN,VICE PRESIDENT AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO.3627/MUM/2012 ASSESSMENT YEAR-2008-09 M/S. DP WORLD PVT. LTD., DARABSHAW HOUSE, LEVEL 1, N.M. MARG, BALLARD ESTATE, MUMBAI-400 038 PAN-AAACP 6133A VS. THE DCIT-2(1), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) ITA NO.3841/MUM/2012 ASSESSMENT YEAR-2008-09 THE DCIT-2(1), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. DP WORLD PVT. LTD., DARABSHAW HOUSE, LEVEL 1, N.M. MARG, BALLARD ESTATE, MUMBAI-400 038 PAN-AAACP 6133A (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI RAJAN VORA & SHRI NIKHIL TIWARI DEPARTMENT BY: MRS. RUPNDER BRARI DATE OF HEARING :03.10.2012 DATE OF PRONOUNCEMENT: O R D E R PER N.K. BILLAIYA, AM: THESE CROSS APPEALS ARE FILED BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE VERY SAME ORDER OF LD. CIT(A)- 4, MUMBAI DT. 26.3.2012 PERTAINING TO ASSESSMENT YEAR 2008-09. AS COMMON I SSUES ARE INVOLVED, WE ITA NOS.3627 & 3841/M/12 . 2 HEARD BOTH THESE APPEALS TOGETHER AND DISPOSE OFF T HE SAME BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. THE ASSESSEE IS AGGRIEVED BY THE FINDINGS OF THE LD. CIT(A) WHO CONFIRMED THE ADDITION OF RS. 6,98,54,000/- MADE BY AO UNDER THE HEAD INCOME FROM OTHER SOURCES AS PROFIT AND GAINS FROM BUSINESS AND PROFESSION U/S. 28(IV) OF THE ACT. ON THE VERY SAME ISSUE THE REVENUE IS AGGRIEVED AGAINST THIS FINDING OF THE LD. CIT(A) ST ATING THAT THE AO WAS CORRECT IN MAKING THE ADDITION UNDER THE HEAD INCO ME FROM OTHER SOURCES. THE ASSESSEE IS FURTHER AGGRIEVED BY THE ADDITION O F NOTIONAL RENT UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND ON DISALLOWANC E OF EXPENSES AMOUNTING TO RS. 6,11,173/. REVENUE IS AGGRIEVED BY THE FINDING OF THE LD. CIT(A) WHO DELETED THE ADDITION MADE BY THE AO ON A CCOUNT OF UNDISCLOSED CONSULTANCY FEES. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT DU RING COURSE OF THE ASSESSMENT PROCEEDINGS FOR THE YEAR UNDER CONSIDERA TION, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS RECEIVED THR EE RESIDENTIAL FLATS AT HILL PARK FROM ITS SISTER CONCERN M/S. BRITISH INDIA STE AM NAVIGATION CO. (BISNCL) WHICH WAS CAPITALIZED IN THE SCHEDULE OF FIXED ASS ETS AT RS. 79,03,460/-. THE AO SOUGHT EXPLANATION FROM THE ASSESSEE COMPANY TO WHICH THE ASSESSEE REPLIED THAT IT HAS RECEIVED SHARES OF HILL PARK AS GIFT FROM M/S. BISNCL AS PER THE GIFT DEED EXECUTED IN THIS RESPECT. BOTH ASSES SEE AND M/S. BISNCL ARE 100% SUBSIDY OF PENINSULAR & ORIENTAL STEAM NAVIGAT ION CO., A U.K. BASED ENTITY WHICH IN ITS TURN IS 100% SUBSIDY OF DP WORL D LTD., A DUBAI BASED ENTITY. THE MARKET VALUE OF THE GIFTED PROPERTY AS PER REGISTRATION OF THE DEED OF GIFT AMOUNTED TO RS. 6,98,54,000/-. IN THE LIGHT OF THE ABOVE FACT, THE AO ASKED THE ASSESSEE TO EXPLAIN WHY THE RECEIP T OF THE FLATS AT HILL PARK SHOULD NOT BE TREATED AS INCOME IN ITS HAND U/S. 56 (1) OF THE ACT. THE ASSESSEE FILED A DETAILED REPLY DT. 2.12.2010 EXPLA INING THE NATURE OF TRANSACTION AND CLAIMED THAT THE TRANSACTION IS A G IFT OF SHARES AND THEREFORE IT IS A CAPITAL RECEIPT IN THE HANDS OF THE ASSESSEE. THE AO OBSERVED THAT THE ITA NOS.3627 & 3841/M/12 . 3 ASSESSEE IN ITS SUBMISSION HAS CHOSEN NOT TO REFER TO THE PROVISIONS OF SEC. 56(1) OF THE ACT. IN ITS SUBMISSION THOUGH IT WAS S PECIFICALLY ASKED TO EXPLAIN WHY THE GIFT RECEIVED SHOULD NOT BE TREATED AS ITS INCOME U/S. 56(1) OF THE ACT. THE AO WAS OF THE OPINION THAT A GIFT CANNOT BE LOGICALLY MADE BY ONE ARTIFICIAL JURIDICAL ENTITY TO ANOTHER BECAUSE THE BASIC CONDITION OF LOVE AND AFFECTION FOR MAKING GIFTS DOES NOT EXIST BETWEEN S UCH ARTIFICIAL ENTITIES WHICH ARE EMOTION NEUTRAL. THE AO FURTHER OBSERVED THAT THE TRANSFER THOUGH HAS BEEN GIVEN THE COLOUR OF A GIFT IS MADE FOR BUSINES S CONVENIENCE. THE AO CONCLUDED THAT THE SCHEME OF THE ACT IS SUCH THAT A NY INCOME CAN ONLY BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE IF T HE ACT SPECIFICALLY PROVIDES FOR SUCH EXEMPTION. HOWEVER, IN THE INSTANT CASE, N O EXEMPTION IS SPECIFICALLY PROVIDED FOR SUCH INCOME. THUS THE INCOME ARISING IN THE HANDS OF THE ASSESSEE ON RECEIPT OF PROPERTIES IS NOT TO BE EXCL UDED FROM ITS TOTAL INCOME. ON THE QUESTION OF THE AMOUNT TO BE TAXED, THE AO O BSERVED THAT THE ASSESSEE ITSELF HAS VALUED THE PROPERTIES AS ON 31. 3.2008 IN ITS WEALTH TAX RETURN AT RS. 22,74,82,450/-. ACCORDINGLY, THE AO TOOK THIS FIGURE AS INCOME FROM OTHER SOURCES AND ADDED TO THE RETURNED INCOME OF THE ASSESSEE. 4. THE ASSESSEE AGITATED THIS MATTER BEFORE THE LD. CIT(A). AFTER CONSIDERING THE FACTS AND SUBMISSIONS OF THE ASSESS EE, THOUGH THE LD. CIT(A) WAS CONVINCED THAT THE INCOME CANNOT BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES BUT WAS OF THE OPINION THAT THE SAME DESERVES TO BE TAXED U/S. 28(IV) OF THE ACT AND ACCORDINGLY ISSUED NOTICE U/S . 251(2) FOR MERELY CHANGING THE HEAD OF INCOME . HOWEVER, ON THE FIGU RE OF ADDITION, THE LD. CIT(A) DIRECTED TO TAX THE VALUE ADOPTED BY STAMP D UTY AUTHORITIES FOR LEVY OF STAMP DUTY AND MADE THE ADDITION AT RS. 6,98,54,000 /- UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION. 5. BOTH THE PARTIES ARE AGGRIEVED BY THIS FINDING O F LD. CIT(A) AND ARE BEFORE US IN CROSS APPEALS. ITA NOS.3627 & 3841/M/12 . 4 6. BEFORE GOING FURTHER WE MUST FIRST UNDERSTAND TH E FACTUAL MATRIX OF THE COMPANIES INVOLVED IN THE TRANSACTION OF GIFT WHICH IS EXHIBITED AS UNDER: 7. THE FACT OF THE MATTER IS THAT M/S. BISNCL WHICH IS A UK BASED COMPANY WAS HOLDING SHARES OF M/S. HILL PARK LTD., WHICH ENTITLED IT FOR USE AND OCCUPATION OF 3 FLATS. M/S. BISNCL DECIDED TO G IFT THE SHARES TO M/S. DP WORLD PVT. LTD. (ASSESSEE) BY WHICH THE ASSESSEE B ECAME ENTITLED FOR USE AND OCCUPATION OF THREE FLATS AT M/S. HILL PARK. TH IS TRANSACTION , IN THE EYES OF THE AO WAS A COLORABLE DEVICE WHO TAXED THE VALUE A DOPTED FOR WT PURPOSE ITA NOS.3627 & 3841/M/12 . 5 AS INCOME FROM OTHER SOURCES .HOWEVER THE SAME , IN THE EYES OF THE CIT[A], WAS NOTHING BUT A BENEFIT DERIVED BY THE DONEE OUT OF ITS BUSINESS RELATIONS WITH THE DONOR COMPANY AND THEREFORE SHOULD BE TAXE D AS PROFIT AND GAINS OF BUSINESS & PROFESSION . ALL THAT WE HAVE TO DECIDE IS WHETHER SUCH TRANSACTION CAN BE TERMED AS A GIFT OR INCOME IN THE HANDS OF THE DONEE . WE HAVE HEARD THE RIVAL SUBMISSIONS AT LENGTH AND PERUSED T HE ORDERS OF THE LOWER AUTHORITIES AND THE PAPER BOOK SUBMITTED BY THE APP ELLANT. 8. IT IS NOT UNCOMMON THAT TRANSFER OF SHARES BETWEE N CORPORATE GROUPS TAKES PLACE FOR INTERNAL REORGANIZATION. SUCH A TRA NSFER MAY TRIGGER CAPITAL GAINS RAMIFICATIONS IN INDIA SINCE THE SHARES OF AN INDIAN COMPANY ARE SITUATED IN INDIA AND WHEN THE TRANSFEROR IS A NON- RESIDENT, THE DEEMING PROVISIONS OF SEC. 9(I)(I) OF THE I.T. ACT, 1961 CO ME INTO PLAY. HOWEVER SEC. 47(III) CONTAINS LIST OF TRANSACTIONS WHICH ARE NOT TREATED AS TRANSFERS FOR THE PURPOSES OF SEC. 45 OF THE ACT. SEC. 47(III) OF T HE ACT RELATES TO TRANSFER OF A CAPITAL ASSET UNDER A GIFT, WILL OR AN IRREVOCABLE TRUST. THE FOLLOWING ISSUES ARISE IN THE APPLICATION OF SEC. 47(III) OF THE ACT IN A CORPORATE REORGANIZATION INVOLVING TRANSFER OF SHARES OF AN INDIAN COMPANY W ITHOUT CONSIDERATION : (A) SINCE THE TERM GIFT IS NOT DEFINED IN THE ACT, WH ICH MEANING SHOULD BE ASCRIBED TO IT AND (B) CAN A COMPANY BEING A CORPORATE ENTITY MAKE A GIFT? 9. AS GIFT IS NOT DEFINED UNDER THE ACT, THE SALE O F GOODS ACT, COMPANIES ACT AND THE INDIAN CONTRACT ACT, A REFERENCE IS MAD E TO THE GIFT TAX ACT, 1958 (GTA) AND THE TRANSFER OF PROPERTY ACT, 1882 (TP A). 10. GTA WAS IN FORCE WITH RESPECT TO GIFTS MADE TIL L 1 ST OCTOBER, 1998. SECTION 2 (XII) OF THE GTA DEFINED GIFT AS THE TRAN SFER BY ONE PERSON TO ANOTHER OF ANY EXISTING MOVABLE OR IMMOVABLE PROPER TY MADE VOLUNTARILY AND WITHOUT CONSIDERATION IN MONEY OR MONEYS WORTH AND INCLUDES THE TRANSFER OR CONVERSION OF ANY PROPERTY REFERRED TO IN SECTION 4 DEEMED TO BE A GIFT UNDER ITA NOS.3627 & 3841/M/12 . 6 THAT SECTION. TRANSFER OF PROPERTY FOR INADEQUATE CONSIDERATION WAS INTER ALIA TREATED AS DEEMED AS GIFT. THIS IS SIMILAR TO SECTION 56(2)(V II)(VIIA) OF THE I.T. ACT WHICH UNDER CERTAIN CIRCUMSTANCES, TREAT THE DI FFERENCE BETWEEN THE FAIR MARKET VALUE OF THE MOVABLE PROPERTY (INCLUDING SHA RES OF CLOSELY HELD COMPANY) AND THE CONSIDERATION FOR THE TRANSFER AS INCOME FROM OTHER SOURCES OF THE RECIPIENT OF SUCH MOVABLE PROPERTY. 11. SECTION 5 OF THE TPA PROVIDES THAT TRANSFER OF PROPERTY MEANS AN ACT BY WHICH A LIVING PERSON CONVEYS PROPERTY, IN PRESE NT OR IN FUTURE, TO ONE OR MORE OTHER LIVING PERSONS, OR TO HIMSELF AND ONE OR MORE OTHER LIVING PERSONS, AND TO TRANSFER PROPERTY IS TO PERFORM SUCH ACT. IT ALSO PROVIDES THAT LIVING PERSONS INCLUDES A COMPANY OR ASSOCIATION OR BODY OF INDIVIDUALS, WHETHER INCORPORATED OR NOT BUT NOTHING HEREIN CONTAINED SH ALL AFFECT ANY LAW FOR THE TIME BEING IN FORCE RELATING TO TRANSFER OF PROPERT Y TO OR BY COMPANIES, ASSOCIATIONS OR BODIES OF INDIVIDUALS. 12. SECTION 122 OF THE TPA , DEALING WITH GIFT , DE FINES THE SAME AS TRANSFER OF CERTAIN EXISTING MOVABLE OR IMMOVABLE P ROPERTY , MADE VOLUNTARILY AND WITHOUT CONSIDERATION, BY ONE PERSON, CALLED TH E DONOR , TO ANOTHER CALLED THE DONEE AND ACCEPTED BY OR ON BEHALF OF THE DONEE . 13. A PERUSAL OF THE AFORESAID PROVISIONS OF THE TP A INDICATE THAT THERE DO NOT SEEM TO BE ANY RESTRICTION ON THE CORPORATE TRA NSFER OF SHARES BY WAY OF GIFT PROVIDED IT IS MADE VOLUNTARILY AND WITHOUT CO NSIDERATION. IN OTHER WORDS, THERE IS NO REQUIREMENT IN THE TPA THAT A GIFT CA N BE MADE ONLY BETWEEN NATURAL PERSONS OUT OF NATURAL LOVE AND AFFECTION W HICH MEANS THAT AS LONG AS A DONOR COMPANY IS PERMITTED BY ITS ARTICLES OF ASS OCIATION TO MAKE A GIFT, IT CAN DO SO. SEC 82 OF THE COMPANIES ACT, 1956 ALSO P ROVIDE THAT SHARES IN A COMPANY CONSTITUTE MOVABLE PROPERTY TRANSFERABLE IN THE MANNER PROVIDED BY ITS ARTICLES OF ASSOCIATION. ITA NOS.3627 & 3841/M/12 . 7 14. NOW THE QUESTION ARISES WHETHER THE MEANING OF GIFT AS PER GIFT TAX ACT COULD BE IMPORTED FOR THE PURPOSE OF SEC. 47(II I) OF THE ACT. IN THE CASE OF CIT VS SHYAM NARAIN MEHROTRA (1981) 122 ITR 313 (CA L), THE HIGH COURT INTER ALIA OBSERVED THAT THE EXPRESSIONS SIMILAR TO SEC. 47(I II) OF THE ACT WAS PRESENT IN THE ERSTWHILE SEC. 12B OF THE INDIAN INC OME TAX ACT, 1922 I.E. EVEN BEFORE THE GTA CAME INTO FORCE. THIS OBSERVAT ION OF THE HONBLE HIGH COURT SUGGEST THAT MEANING OF GIFT AS PER GTA SHO ULD NOT BE IMPORTED FOR THE PURPOSE OF SEC. 47(III) OF THE ACT. 15. SIMILAR VIEW HAS TAKEN IN THE CASE OF ITO VS BU RAGADDA SATYANARAYAN (1977) 106 ITR 333 (AO) AND ACIT VS RANGA PAI (1975 ) 100 ITR 413 (KAR). ALTHOUGH THERE ARE OTHER DECISIONS TO THE CONTRARY HOWEVER THESE DECISIONS MAY NOT STRICTLY HOLD GOOD SINCE THE GTA HAS BEEN D ELETED W.E.F. 1.10.1998 AND SEC. 47(III) OF THE ACT CONTINUES IN ITS ORIGIN AL FORM. 16. CONSIDERING THE ABOVE DISCUSSION, THE DEFINITIO N GIVEN U/S 122 OF THE TPA HAS TO BE ACCEPTED, MEANING THEREBY THAT MEANIN G OF GIFT REFLECT NON- ELEMENT OF LOVE AND AFFECTION. THEREFORE, GIFT OF SHARES OF AN INDIAN COMPANY BY A FOREIGN COMPANY WITHOUT CONSIDERATION HAS TO BE TREATED AS GIFT WITHIN THE MEANING OF SEC. 47(III) OF THE ACT. 17. IT WOULD NOT BE OUT OF PLACE TO MENTION THAT A C OMBINED READING OF SEC. 82 OF THE COMPANIES ACT, SECTION 5 AND SECTION 122 OF THE TPA SUGGEST THAT A COMPANY CAN VALIDLY TRANSFER THE SHARES BY W AY OF GIFT, PROVIDED WHERE ARTICLES OF ASSOCIATION OF THE DONOR COMPANY PERMIT S THE SAME. IN CASE OF DONOR IS A FOREIGN COMPANY, THE RELEVANT CORPORATE/ COMMERCIAL LAW OF THE JURISDICTION WHERE THE DONOR IS BASED NEEDS TO BE C ONSIDERED. IN THE LIGHT OF THE ABOVE DISCUSSION, WE HAVE NO HESITATION TO HOLD THAT A COMPANY CAN GIFT SHARES AND SUCH TRANSACTION MAY APPEAR AS STRANGE TRANSACTION BUT CANNOT BE TREATED AS NON GENUINE TRANSACTION . ITA NOS.3627 & 3841/M/12 . 8 18. IN THE INSTANT CASE, THE DONOR IS A UK BASED COM PANY THEREFORE WE HAVE TO SEE WHETHER LAW APPLICABLE TO THE DONOR COM PANY PERMITS IT TO GIFT SHARES. WE DRAW SUPPORT FROM EXHIBIT 59 OF THE PAP ER BOOK WHICH IS CERTIFICATE AND ATTESTATION BY THE NOTARY PUBLIC OF THE CITY OF LONDON, ENGLAND WHEREIN THE AUTHORITY HAS INTER ALIA CERTIFIED AND ATTESTED AS UNDER: AND THAT THE SAID DEED OF GIFT BEING SO SIGNED, IS DULY EXECUTED BY AND BINDING ON THE SAID COMPANY IN ACCO RDANCE WITH THE RELEVANT PROVISIONS OF ENGLISH LAW. WITH THE ABOVE TESTIMONY, IT CAN BE SAFELY CONCLUDE D THAT THE DONOR COMPANY IS LEGALLY AUTHORIZED TO GIVE GIFT OF SHARE S , MORE SO WHEN THE REVENUE AUTHORITIES HAVE NOT BROUGHT ANY TANGIBLE M ATERIAL ON RECORDS TO PROVE THE CONTRARY . THIS GIFT OF SHARES IS DULY S UPPORTED BY A REGISTERED DEED OF GIFT EXECUTED BETWEEN THE DONOR COMPANY BRI TISH INDIA STEAM NAVIGATION CO. LTD., AND DP WORLD PVT. LTD. ON 27.1 2.2007 WHEREIN THE DONOR HAS UNCONDITIONALLY GIFT, TRANSFER AND ASSIGN TO TH E DONEE THE SHARES AND ALL ITS RIGHTS, TITLE AND INTEREST ATTACHING THEREON IN CLUDING ALL RIGHTS, TITLE AND INTEREST IN THE FLATS ALONG WITH BENEFITS OF ALL TH E AMOUNTS STANDING TO THE CREDIT OF THE DONOR IN THE BOOKS OF THE COMPANY. 19. THE AO HAS APPLIED THE PROVISIONS OF SEC. 56 AN D TREATED THE VALUE OF THE FLATS AS INCOME UNDER THE HEAD INCOME FROM OTHE R SOURCES AND THE LD. CIT(A) HAS MADE THE ADDITION U/S. 28(IV) OF THE ACT BY TREATING THE STAMP DUTY VALUE AS INCOME FROM PROFIT AND GAINS FROM BUS INESS AND PROFESSION. 20. WE HAVE CAREFULLY CONSIDERED BOTH THE PROVISION S. LET US FIRST EXAMINE THE PROVISIONS OF SEC.28[IV] OF THE ACT RELIED UPON BY THE CIT [A]. 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 OR PROFESSION',-- .. ITA NOS.3627 & 3841/M/12 . 9 (IV) THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHE R CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXE RCISE OF A PROFESSION ; IN OUR HUMBLE OPINION, THE TRANSACTION IS OF A GIF T WHICH IS A CAPITAL RECEIPT IN THE HANDS OF THE ASSESSEE AND THEREFORE IT CANNOT BE SAID TO BE A CASE OF ANY BENEFIT OR PERQUISITE ARISING FROM BUSI NESS . THE CONTENTION OF THE LD. DEPARTMENTAL REPRESENTATIVE THAT BY THE SAI D TRANSACTION THE ASSESSEE HAS DERIVED BENEFIT AND SUCH BENEFIT HAS ARISEN FRO M THE BUSINESS CONNECTION OF THE DONOR AND THE DONEE, CANNOT BE ACCEPTED AS N O DIRECT NEXUS HAS BEEN ESTABLISHED BY ANY TANGIBLE MATERIAL BROUGHT ON REC ORD BY THE LD.CIT [A ]. SIMPLY BECAUSE BOTH THE DONOR AND THE DONEE HAPPENE D TO BELONG TO THE SAME GROUP CANNOT IPSO FACTO ESTABLISH THAT THEY HAVE ANY BUSINESS DEALINGS. AS WE HAVE HELD THAT IT IS A CASE OF A VA LID GIFT WHICH IS TO BE TREATED AS CAPITAL RECEIPT IN THE HANDS OF THE ASSESSEE, IN THE ABSENCE OF ANY SPECIFIC PROVISION TAXING A GIFT AS A DEEMED BUSINESS INCOME , PROVISIONS OF SEC.28[IV] CANNOT BE APPLIED ON THE FACTS OF THE CASE . THE CI T [A] ERRED IN TAXING THE VALUE OF THE STAMP DUTY AS INCOME UNDER SEC.28[IV] OF THE ACT. 21. NOW LET US EXAMINE THE PROVISIONS OF SEC 56 OF THE ACT RELIED UPON BY THE AO. 56. INCOME FROM OTHER SOURCES.--(1) INCOME OF EVERY KIND WHICH IS NOT TO BE EXCLUDED FROM THE TOTAL INCOME UNDER THIS ACT SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD 'INCOME FRO M OTHER SOURCES' IF IT IS NOT CHARGEABLE TO INCOME-TAX UNDER ANY OF THE HEADS SPECIFIED IN SECTION 14, ITEMS A TO E. A PLAIN READING OF THE ABOVE PROVISION SHOW THAT NO T EVERY RECEIPT IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES BUT ONLY THOSE WHICH CAN BE SHOWN AS INCOME CAN BE BROUGHT TO TAX UNDER THIS HEAD , IF IT DOES NOT FALL DIRECTLY UNDER OTHER HEA DS OF INCOME SPECIFIED IN SEC. 14 OF THE ACT. ITA NOS.3627 & 3841/M/12 . 10 THE LEGISLATURE KEEPING IN MIND THE TAX PLANNING DO NE BY THE TAX PAYERS BY RESORTING TO GIFTS , WHICH CANNOT BE TERM ED AS INCOME , MADE CERTAIN AMENDMENTS BY INTRODUCING CLAUSE [ V ] TO S EC. 56[2] WHICH READS AS UNDER : V) WHERE ANY SUM OF MONEY EXCEEDING TWENTY-FIVE T HOUSAND RUPEES IS RECEIVED WITHOUT CONSIDERATION BY AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY FROM ANY PERSON ON OR AFTER THE 1ST DAY OF S EPTEMBER, 2004, ***BUT BEFORE THE 1ST DAY OF APRIL, 2006, THE WHOLE OF SUCH SUM : HOWEVER SUCH AMENDMENT DID NOT TAKE CARE OF THE TRA NSACTIONS INVOLVED IN THE INSTANT CASE. THE LEGISLATURE FURTH ER BROUGHT AMENDMENTS AS UNDER : (VII) WHERE AN INDIVIDUAL OR A HINDU UNDIVIDED FAMI LY RECEIVES, IN ANY PREVIOUS YEAR, FROM ANY PERSON OR PERSONS ON OR AFTER THE 1ST DAY OF OCTOBER, 2009, (A) ANY SUM OF MONEY, WITHOUT CONSIDERATION, THE AGGREG ATE VALUE OF WHICH EXCEEDS FIFTY THOUSAND RUPEES, THE W HOLE OF THE AGGREGATE VALUE OF SUCH SUM ; (B) ANY IMMOVABLE PROPERTY, (I) WITHOUT CONSIDERATION, THE STAMP DUTY VALUE OF WHIC H EXCEEDS FIFTY THOUSAND RUPEES, THE STAMP DUTY VALUE OF SUCH PROPERTY ; (II) FOR A CONSIDERATION WHICH IS LESS THAN THE ST AMP DUTY VALUE OF THE PROPERTY BY AN AMOUNT EXCEEDING FIFTY THOUSAND RUPEES, THE STAMP DUTY VALUE OF SUCH PROPE RTY AS EXCEEDS SUCH CONSIDERATION ; ITA NOS.3627 & 3841/M/12 . 11 (C) ANY PROPERTY, OTHER THAN IMMOVABLE PROPERTY, (I) WITHOUT CONSIDERATION, THE AGGREGATE FAIR MARKET VA LUE OF WHICH EXCEEDS FIFTY THOUSAND RUPEES, THE WHOLE OF T HE AGGREGATE FAIR MARKET VALUE OF SUCH PROPERTY ; (II) FOR A CONSIDERATION WHICH IS LESS THAN THE AGGREGAT E FAIR MARKET VALUE OF THE PROPERTY BY AN AMOUNT EXCEEDING FIFTY THOUSAND RUPEES, THE AGGREGATE FAIR MARKET VA LUE OF SUCH PROPERTY AS EXCEEDS SUCH CONSIDERATION : PROVIDED THAT WHERE THE STAMP DUTY VALUE OF IMMOVAB LE PROPERTY AS REFERRED TO IN SUB-CLAUSE (B) IS DISPUTED BY THE AS SESSEE ON GROUNDS MENTIONED IN SUB-SECTION (2) OF SECTION 50C, THE AS SESSING OFFICER MAY REFER THE VALUATION OF SUCH PROPERTY TO A VALUATION OFFICER, AND THE PROVISIONS OF SECTION 50C AND SUB-SECTION (15) OF S ECTION 155 SHALL, AS FAR AS MAY BE, APPLY IN RELATION TO THE STAMP DUTY VALUE OF SUCH PROPERTY FOR THE PURPOSE OF SUB-CLAUSE (B) AS THEY APPLY FOR VALUATION OF CAPITAL ASSET UNDER THOSE SECTIONS : EVEN THIS AMENDMENT DID NOT COVER THE ISSUES INVOLV ED IN THE PRESENT APPEAL . THE LEGISLATURE, IN ITS WISDOM, FURTHER ST RENGTHENED THE PROVISIONS OF SEC. 56[2] BY MAKING THE FOLLOWING AM ENDMENTS: VIIA) WHERE A FIRM OR A COMPANY NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, RECEIVES, IN ANY PREVIOUS YEAR, FROM ANY PERSON OR PERSONS , ON OR AFTER THE 1ST DAY OF JUNE, 2010 , ANY PROPERTY, BEING SHARES OF A COMPANY NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTER ESTED,- ITA NOS.3627 & 3841/M/12 . 12 (I) WITHOUT CONSIDERATION , THE AGGREGATE FAIR MARKET VALUE OF WHICH EXCEEDS FIFTY THOUSAND RUPEES, THE WHOLE OF T HE AGGREGATE FAIR MARKET VALUE OF SUCH PROPERTY ; (II) FOR A CONSIDERATION WHICH IS LESS THAN THE AGGREGAT E FAIR MARKET VALUE OF THE PROPERTY BY AN AMOUNT EXCEEDING FIFTY THOUSAND RUPEES, THE AGGREGATE FAIR MARKET VALUE OF SUCH PRO PERTY AS EXCEEDS SUCH CONSIDERATION : PROVIDED THAT THIS CLAUSE SHALL NOT APPLY TO ANY SU CH PROPERTY RECEIVED BY WAY OF A TRANSACTION NOT REGARDED AS TRANSFER UN DER CLAUSE (VIA) OR CLAUSE (VIC) OR CLAUSE (VICB) OR CLAUSE (VID) OR CL AUSE (VII) OF SECTION 47. EXPLANATION.- FOR THE PURPOSES OF THIS CLAUSE, 'FAI R MARKET VALUE' OF A PROPERTY, BEING SHARES OF A COMPANY NOT BEING A COM PANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, SHALL HAVE THE MEANING ASSIGNED TO IT IN THE EXPLANATION TO CLAUSE (VII) ; THE ABOVE AMENDMENT COVERS THE ISSUES INVOLVED IN T HE PRESENT APPEAL BUT THE LEGISLATURE IN ITS WISDOM MADE IT AP PLICABLE FOR THE TRANSACTIONS EFFECTED AFTER THE 1 ST DAY OF JUNE, 2010. CERTAIN LACUNA MAY HAVE STILL REMAINED TO BE ADDRE SSED THEREFORE THE LEGISLATURE DID NOT STOP HERE BUT WENT ON TO MAKE FURTHER AMENDMENTS BY INSERTING CLAUSE [ VIIB ] AS UNDER : (VIIB) WHERE A COMPANY, NOT BEING A COMPANY IN WHIC H THE PUBLIC ARE SUBSTANTIALLY INTERESTED, RECEIVES, IN ANY PREVIOUS YEAR, FROM ANY PERSON BEING A RESIDENT, ANY CONSIDERATION FOR ISSU E OF SHARES THAT EXCEEDS THE FACE VALUE OF SUCH SHARES, THE AGGREGAT E CONSIDERATION RECEIVED FOR SUCH SHARES AS EXCEEDS THE FAIR MARKET VALUE OF THE SHARES : ITA NOS.3627 & 3841/M/12 . 13 PROVIDED THAT THIS CLAUSE SHALL NOT APPLY WHERE THE CONSIDERATION FOR ISSUE OF SHARES IS RECEIVED I) BY A VENTURE CAPITAL UNDERTAKING FROM A VENTURE CAPITAL COMPANY OR A VENTURE CAPITAL FUND ; OR (II) BY A COMPANY FROM A CLASS OR CLASSES OF PERSON S AS MAY BE NOTIFIED BY THE CENTRAL GOVERNMENT IN THIS BEHALF. EXPLANATION. FOR THE PURPOSES OF THIS CLAUSE, (A) THE FAIR MARKET VALUE OF THE SHARES SHALL BE TH E VALUE (I) AS MAY BE DETERMINED IN ACCORDANCE WITH SUCH ME THOD AS MAY BE PRESCRIBED ; OR (II) AS MAY BE SUBSTANTIATED BY THE COMPANY TO THE SATISFACTION OF THE ASSESSING OFFICER, BASED ON THE VALUE, ON THE DATE OF ISSUE OF SHARES, OF ITS ASSETS, INCLUDING INTANGIBLE ASSETS BEING GO ODWILL, KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHIS ES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE , W HICHEVER IS HIGHER ; HOWEVER THIS AMENDMENT HAS NO DIRECT BEARING ON THE FACTS OF THE CASE IN HAND. 22. THUS, WE HAVE CONSIDERED THE APPLICATION OF THE PROVISIONS OF SEC. 28[IV] AND SEC 56 [1] & [ 2] FROM ALL THE POSSIBLE ANGLES ON THE FACTS OF THE CASE ,IN OUR HUMBLE OPINION THE TRANSACTION INVOLVED IN THE PRESENT APPEAL IS NOTHING BUT A GIFT AND THUS IT IS A CAPITAL RECEIPT NOT TAX ABLE UNDER THE ALLEGED PROVISIONS OF THE ACT. THEREFORE ,THE ASSESSEE SUCC EEDS AND REVENUE FAILS. ISSUES INVOLVED IN THIS GROUND ARE DECIDED IN FAVOR OF THE ASSESSEE AND AGAINST THE REVENUE. ITA NOS.3627 & 3841/M/12 . 14 23. THE SECOND GRIEVANCE OF THE ASSESSEE IS THAT TH E REVENUE AUTHORITIES HAVE ERRED IN TAXING NOTIONAL INCOME FROM THE FLATS AS INCOME FROM HOUSE PROPERTY. 24. THE ASSESSEE SAYS THAT THE FLATS ARE USED FOR T HE PURPOSE OF BUSINESS AND THEREFORE NO NOTIONAL RENT UNDER THE HEAD INCOME FROM HOUSE PROPERTY CAN BE TAXED. IT IS THE CONTENTION OF THE REVENUE T HAT THE ASSESSEE HAS FAILED TO ESTABLISH THAT THE FLATS ARE USED FOR THE PURPOS E OF THE BUSINESS. ON THE CONTRARY, THE ASSESSEE ITSELF HAS SHOWN THE VALUE O F THE FLAT AS TAXABLE IN ITS WEALTH TAX RETURN AS RESIDENTIAL FLATS. 25. AFTER CONSIDERING THE FACTS AND PERUSING THE OR DER OF THE LOWER AUTHORITIES AND THE PAPER BOOK SUBMITTED BY THE ASS ESSEE, WE FIND THAT THE SAID FLATS ARE SHOWN UNDER THE HEAD FIXED ASSETS IN THE BALANCE SHEET OF THE ASSESSEE COMPANY. THE CONTENTION OF THE ASSESSEE T HAT THE FLATS HAVE BEEN KEPT FOR USE FOR THE EMPLOYEES OF THE COMPANY CANNO T BE BRUSHED ASIDE LIGHTLY. HOWEVER, FOR THE YEAR UNDER CONSIDERATION , THE ASSESSEE COULD NOT ESTABLISH THE USAGE OF THE FLATS BY THE COMPANY FOR ITS BUSINESS PURPOSES, THEREFORE, ANNUAL LETTING VALUE OF THE FLATS IS LIA BLE TO BE TAXED. HOWEVER, THE ANNUAL LET OUT VALUE HAS TO BE TAXED AS PER THE MU NICIPAL RATEABLE VALUE AS HAS BEEN HELD BY US IN ITA NO. 3408/M/2002 IN THE C ASE OF PREMCHAND ROYCHAND & SONS VS ACIT, THEREFORE THIS ISSUE IS RE STORED BACK TO THE FILES OF THE AO. THE AO IS DIRECTED TO COMPUTE ANNUAL LET O UT VALUE AS PER MUNICIPAL RATABLE VALUE IN AND AROUND THE SAID LOCALITY, IN T HE LIGHT OF THE PROVISIONS OF SEC.23 OF THE ACT , AFTER GIVING REASONABLE OPPORTU NITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO. 6 AND 7 OF ASSESS EES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 26. THE NEXT GRIEVANCE OF THE ASSESSEE RELATES TO T HE DISALLOWANCE OF MAINTENANCE CHARGES AT RS. 2,16,000/- AND DEPRECIAT ION AT RS. 3,95,173/-. ITA NOS.3627 & 3841/M/12 . 15 27. AS WE HAVE HELD THAT ALV HAS TO BE TAXED FOR TH E YEAR UNDER CONSIDERATION, THE ASSESSEE WILL GET THE STATUTORY DEDUCTION OF 30% FROM THE ALV, THEREFORE NO SEPARATE DEDUCTION OF MAINTENANCE CHARGES IS TO BE ALLOWED. SIMILARLY, AS WE HAVE ALREADY HELD THAT T HE ASSESSEE HAS FAILED TO ESTABLISH THE FLATS HAVE BEEN USED FOR THE PURPOSES OF BUSINESS FOR THE YEAR UNDER CONSIDERATION, THE DEPRECIATION CLAIMED CANNO T BE ALLOWED. THIS GROUND OF THE ASSESSEE IS DISMISSED. 28 GROUND NO. 10 IS PREMATURE AND ACCORDINGLY DISMI SSED. 29. COMING BACK TO THE REVENUES APPEAL, THE ONLY G RIEVANCE REMAINS TO BE DECIDED RELATES TO THE DELETION OF THE ADDITION MADE BY THE AO ON ACCOUNT OF UNDISCLOSED CONSULTANCY FEES. 30. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS , THE AO OBSERVED THAT THE ASSESSEE HAS CREDITED AN AMOUNT OF RS. 5,3 5,92,500/- UNDER THE HEAD CONSULTANCY FEES. THE ASSESSEE WAS ASKED TO FILE THE DETAILS. FROM THE DETAILS SUBMITTED BY THE ASSESSEE, IT IS SEEN T HAT THE CONSULTANCY FEES WERE RECEIVED FROM TWO PARTIES (I) P&O STEAM NAVIGA TION CO., UK AMOUNTING TO RS. 4,60,92,500/- AND (II) JAFZA AMOUNTING TO RS . 75 LAKHS. THE AO FURTHER OBSERVED THAT AS PER THE AGREEMENT OF P&O STEAM NAVIGATION CO., THE SAID COMPANY WAS TO PAY US DOLLORS 2,00,000/- PER MONTH TOWARDS MONTHLY CONSULTING FEES FOR SERVICES TO INDIAN TER MINALS. ACCORDING TO THE AO, THE ASSESSEE WAS TO RECEIVE A TOTAL OF USD 24,00,00 0. HOWEVER, THE ASSESSEE HAS ACCOUNTED ONLY USD 10,50,000/-. THE AO SHOW CA USED TO THE ASSESSEE AS TO WHY THE DIFFERENCE OF USD 13,50,000/- SHOULD NOT BE ADDED AS ITS BUSINESS INCOME FOR THE YEAR UNDER CONSIDERATION TO WHICH THE ASSESSEE REPLIED THAT AS PER THE SAID AGREEMENT, THE CONSULT ANCY FEES COULD BE RENEGOTIATED AS PER MUTUAL CONVENIENCE AND HENCE TH E AMOUNT OFFERED IS THE ONLY AMOUNT RECEIVABLE DURING THE YEAR FROM P&O STE AM NAVIGATION CO. THE SAID EXPLANATION OF THE ASSESSEE WAS REJECTED AND T HE AO WENT ON TO MAKE AN ADDITION OF RS. 5,34,65,000/- WHICH IS EQUIVALEN T OF USD 13,50,000. ITA NOS.3627 & 3841/M/12 . 16 31. WHEN THE MATTER WAS AGITATED BEFORE THE LD. CIT (A), THE ASSESSEE REITERATED ITS STAND THAT THE FEES WAS NEGOTIABLE A ND THEREFORE THE ASSESSEE HAS ACCOUNTED FOR THE FEES ACTUALLY RECEIVABLE DUR ING THE YEAR UNDER CONSIDERATION. THE LD. CIT(A) WAS CONVINCED THAT F ROM THE AGREEMENT, IT IS CLEAR THAT THE CONSULTANCY FEES CAN BE CHANGED ANNU ALLY AND MUTUALLY AGREED TERMS AND SUCH CHANGED AND REVISED AS WELL AS REDUC ED CONSULTANCY FEES HAS BEEN RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THE LD. CIT(A) ACCEPTED THE MUTUALLY AGREED TERMS AND REVIS ED CONSULTANCY FEES OF USD 11,50,000/- FOR THE YEAR UNDER CONSIDERATION. HOWEVER, AT THE SAME TIME, THE LD. CIT(A) OBSERVED THAT IN THE LETTER DT . 6.12.2010, THE CONSULTANCY FEES RECEIVABLES HAS BEEN SHOWN AS USD 10,50,000/- WHEREAS IN LETTER DT. 7.6.2011 AND 28.2.2012, IT HAS BEEN SHOWN AS USD 11 ,50,000, AND ACCORDINGLY DIRECTED THE AO TO VERIFY THE CORRECT A MOUNT OF CONSULTANCY FEES. 32. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE FIL ED A DETAILED STATEMENT SHOWING YEAR WISE CONSULTANCY FEES RECEIVED AND REI TERATED THAT THE CONSULTANCY FEES VARY YEAR AFTER YEAR AND IS NEGOTI ABLE. 33. WE HAVE CONSIDERED THE CHART EXHIBITED AT PAGE- 53 OF THE PAPER BOOK AND AGREE WITH THE SUBMISSION OF THE COUNSEL THAT T HE FEE IS REVISED FROM TIME TO TIME. HOWEVER, AT THE SAME TIME, WE FIND F ORCE IN THE DIRECTION OF THE LD. CIT(A) TO VERIFY THE CORRECT FIGURE OF THE CONS ULTANCY FEE RECEIVABLE DURING THE YEAR WHETHER IT IS USD 10,50,000 OR USD 11,50,0 00. ACCORDINGLY, WHILE DELETING THE ADDITION MADE BY THE AO, WE CONFIRM TH E FINDINGS OF THE LD. CIT(A) AND DIRECT THE AO TO VERIFY THE ACTUAL FIGUR E OF CONSULTANCY FEE FOR THE YEAR UNDER CONSIDERATION. THE GRIEVANCE OF THE REV ENUE IS RESTORED BACK TO THE FILE OF THE AO AS PER ABOVE DIRECTIONS. NEEDLE SS TO MENTION THAT AO SHOULD GIVE REASONABLE OPPORTUNITY OF BEING HEARD T O THE ASSESSEE. GROUND NO. 4 OF REVENUES APPEAL IS ALLOWED FOR STATISTICA L PURPOSES. ITA NOS.3627 & 3841/M/12 . 17 34. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE AS WELL AS THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 12 TH DAY OF OCTOBER, 2012 SD/- SD/- (D.MANMOHAN) (N.K. BILLAIYA ) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED 12 TH OCTOBER, 2012 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR D BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI FIT FOR PUBLICATION UPTO PARA-22 VICE PRESIDENT AM
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