JAIDEV R. SHROFF, MUMBAI V. DCIT CC- 6(3) EARSTWHILE ACIT - CC-38, MUMBAI

ITA 4660/MUM/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3281 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2016
• Appeal Filed By: Assessee
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 12-08-2015
• Court: TRIBUNAL
• Department Lawyers: N P SINGH
• Assessee Lawyers: AANSH DESAI
• Keywords: Capital asset; Gift; Fair market value
• Section: 143(3); 56(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 4660/M/2015 (AY 2010 - 2011) JAIDEV R. SHROFF, CD MARG, KHAR (W), MUMBAI 400 052. / VS. ACIT, CENTRAL CIRCLE - 38, (AFTER RESTRUCTURING NEW JURISDICTION DCIT, CC 6(3)), MUMBAI. ./ PAN : AALPS9283N ( / APPELLANT) .. ( / RESPONDENT ) ITA NO. 4359/M/2015 (AY 2010 - 2011) RAJNIKANT D. SHROFF, UNIPHOS HOUSE, 11 TH ROAD, CD MARG, KHAR (W), MUMBAI 400 052. / VS. ACIT, CENTRAL CIRCLE - 38, MUMBAI. ./ PAN : AALPS9281Q ( / APPELLANT) .. ( / RESPONDENT ) ITA NO. 4583/M/2015 (AY 2010 - 2011) VIKRAM R. SHROFF, CD MARG, KHAR (W), MUMBAI 400 052. / VS. ACIT, CENTRAL CIRCLE - 38, (AFTER RESTRUCTURING NEW JURISDICTION DCIT, CC 6(3)), MUMBAI. ./ PAN : AAOPS8597C ( / APPELLANT) .. ( / RESPONDENT ) ITA NO. 4584/M/2015 (AY 2010 - 2011) SANDRA R. SHROFF, CD MARG, KHAR (W), MUMBAI 400 052. / VS. ACIT, CENTRAL CIRCLE - 38, (AFTER RESTRUCTURING NEW JURISDICTION DCIT, CC 6(3)), MUMBAI. ./ PAN : AHHPS2731G ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI PRECY PARDIWALA, MR. JAS SANGHAVI AND MR. AANSH DESAI / RESPONDENT BY : SHRI N.P. SINGH, DR / DATE OF HEARING : 22.08.2016 2 / DATE OF PRONOUNCEMENT : 09.09 .2016 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE FOUR APPEALS UNDER CONSIDERATION COMMONLY FOR THE ASSESSMENT YEAR 2010 - 2011. ALL THESE APPEALS ARE FILED BY THE ASSESSEES AGAINST VARIOUS ORDERS OF THE CIT (A) COMMONLY DATED 31.3.2015. THE ISSUES INVOLVED IN ALL THESE APPEALS ARE MORE OR LESS ARE IDENTICAL. THEREFORE, FOR THE CONVENIENCE, THEY ARE CLUBBED, HEARD COMBINEDLY AND DISPOSED OFF IN THIS CONSOLIDATED ORDER. APPEAL WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAS OF THIS ORDER. I. ITA NO.4660/M/2015 (AY: 2010 - 2011) (IN THE CASE OF JAIDEV R. SHORFF) 2. THIS APPEAL FILED BY THE ASSESSEE ON 12.8.2015 IS AGAINST THE ORDER OF THE CIT (A) - 54, MUMBAI DATED 31.3.2015 FOR THE ASSESSMENT YEAR 2010 - 2011. IN THIS APPEAL, ASSESSEE RAISED FOUR MAIN GROUNDS ALL OF THEM RELATES TO TRANSACTION OF TRANSFER OF SHARES OF UPL AND UEL THE COMPANY NAMED NECRA CHEMICALS P LTD - NCPL VIZ (I) DIVIDEND AND TAXABILITY U/S 2(22)(A) OF THE ACT; (II) TAXABILITY OF DONOR COMPANIES U/S 115 - O; (III) GIFT AND ITS TAXABILITY U/S 56(2)(VII) OF THE ACT; AND (IV) TRANSACTION OF GIFT OF UPL A ND UEL SHARES TO NCPL AS A COLOURABLE DEVICE. 3. BRIEFLY STATED RELEVANT FACTS ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND FILED THE RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. 9.48 CRS (ROUNDED OFF). ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT AND THE ASSESSED INCOME WAS DETERMINED AT RS. 96.91 CRS (ROUNDED OFF). IN THE ASSESSMENT, AO MADE ADDITIONS ON ACCOUNT OF LONG TERM CAPITAL GAINS (LTCG) AMOUNTING TO RS. 87,44,79,700/ - APART FROM OTHER ADDITIONS. THIS ISSUE RELATING TO THE LTCG IS THE SUB JECT MATTER OF THE APPEAL BEFORE THE TRIBUNAL. 4. RELEVANT FACTS INCLUDE THAT THE ASSESSEE - INDIVIDUAL OWNS 55,27,644 SHARES OF UNITED PHOSPHOROUS LTD - UPL AND 5,52,965 SHARES OF UNITED ENTERPRISES LTD - UEL. THESE SHARES WERE TRANSFERRED VOLUNTARILY TO M/S . NERKA CHEMICALS PRIVATE LIMITED (NCPL) WITHOUT ANY CONSIDERATION RECEIVED BY THE ASSESSEE.THE SAID TRANSFER IS EXECUTED UNDER THE TRANSFER AGREEMENT DATED 26.2.2010. THE COPY OF THE SAID 3 AGREEMENT IS PLACED IN THE PAPER BOOK. IN THE RETURN OF INCOME, ASSESSEE CONSIDERED THE SAID TRANSACTION OF SHARES AS GIFT MADE VOLUNTARILY WITHOUT CONSIDERATION. FURTHER, THE ASSESSEE RELIED ON THE PROVISIONS OF SECTION 47(III) OF THE ACT AND CLAIMED THE RELEVANT TRANSFERS OF SHARES AS EXEMPT TRANSFER. ASSESSEE CONSI DERED THE SAME AS GIFT TO THE NCPL AND IN THIS REGARD, THE ASSESSEE RELIED ON THE SAID TRANSFER AGREEMENT FOR THE FACT OF VOLUNTARY TRANSFER OF THE SAID SHARES WITHOUT CONSIDERATION. ASSESSEE SUBMITTED THAT THE SAID TRANSFER OF SHARES IS OUTSIDE THE PURV IEW OF TAXABLE CAPITAL GAINS IN VIEW OF THE EXEMPT NATURE OF THE TRANSFER U/S 47(III) OF THE ACT. HE ALSO ARGUED THAT THE SAME IS NOT CHARGEABLE TO TAX U/S 56(1)(VIIA) OF THE ACT. 4.1. IN THE ASSESSMENT PROCEEDINGS AO CONSIDERED THE SAME AND PERUSED TH E SAID TRANSFER AGREEMENT BETWEEN ASSESSEE AND THE NCPL AND REJECTED THE SAID SUBMISSION OF THE ASSESSEE. AO REASONED THAT THE SAID AGREEMENT DOES NOT CONSTITUTE GIFT DEED. STATED REASON INCLUDES THAT THE SAME IS TITLED AS TRANSFER AGREEMENT AND NOT TH E GIFT AGREEMENT AND THE EXPRESSION GIFT DOES NOT APPEAR ANYWHERE IN THE BODY OF THE SAID AGREEMENT. FURTHER, AO CONSIDERED THE ULTIMATE END BENEFICIARY OF THESE TRANSFER OF SHARES BY THE ASSESSEE AND HELD THAT IT IS NOT A STRAIGHT CASE OF GIFT TO NCP L. RELYING ON THE JUDGMENT OF THE APEX COURT IN THE CASE OF MCDOWELL & CO LTD (154 ITR 148) (SC), AO HELD THAT THE SAID TRANSFER OF SHARES CONSTITUTES A COLOURABLE DEVICE. FURTHER ALSO, THE AO REASONED THAT THE PROVISIONS OF SECTION 47(III) OF THE ACT A RE NOT APPLICABLE TO THESE TRANSFER TRANSACTIONS AS THESE ARE NOT GIFT TRANSACTIONS ALTHOUGH TRANSFER IS DONE WITHOUT INVOLVING ANY CONSIDERATION (PARA 4.11 OF THE AOS ORDER). FURTHER, AO IGNORED THE ASSESSEES ARGUMENTS ABOUT THE PROVISIONS OF SECTION 56(1)(VIIA) OF THE ACT. ULTIMATELY, FOR TAXING THE SAID TRANSACTIONS, AO INVOKED THE PROVISIONS OF SECTION 45(1) R.W.S 48 OF THE ACT AND WORKED OUT THE TAXABLE LONG TERM CAPITAL GAINS. FOR THE COMPUTATION OF GAINS, COST OF THE SHARES IS TAKEN AS NIL AN D MARKET VALUE OF THE SHARES IS TAKEN AT RS. 87,44,49,700/ - . EVENTUALLY, THE AO DETERMINED THE LTCG AT THE SAME FIGURE (RS. 87.45 CRS). MATTER TRAVELLED TO THE FIRST APPELLATE AUTHORITY. 5. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AS SESSEE REITERATED THE ABOVE SUBMISSIONS AND QUESTIONED THE ABOVE ADDITIONS. VIDE PARA 4.3.14.1 OF HIS ORDER, CIT (A) HELD THAT CONSIDERING THE ABSENCE OF CONSIDERATION, 4 THERE IS NO CASE FOR INVOKING THE PROVISIONS OF SECTION 45 R.W.S 48 OF THE ACT. HIS F INDING IN THIS REGARD IS EXTRACTED AS UNDER: - 4.3.14.1............SINCE, THE APPELLANT HAD ACTUALLY NOT RECEIVED ANY CONSIDERATION ON TRANSFER OF SHARES OF NCPL, THE PROVISIONS OF SECTION 45 R.W.S 48 WILL NOT APPLY AND, THEREFORE, THE ACTION OF THE AO IN ASSESSING A SUM OF RS. 87,44,79,700/ - AS LTCG IN THE HANDS OF THE APPELLANT CANNOT BE SUSTAINED AND THE ADDITION MADE BY THE AO ON THIS ACCOUNT IS ACCORDINGLY DELETED. 5.1. THUS, THE CIT(A) APPRECIATED THE FACT THAT THE TRANSFER OF SHARES TO NCPL, WAS DO NE WITHOUT RECEIVING ANY CONSIDERATION IN CASH OR KIND AND REJECTED THE AOS CONCLUSION OF INVOKING THE PROVISIONS OF SECTION 45(1) R W S 48 OF THE ACT. IN THE ORDER OF THE CIT(A) DATED 31.3.2015, THE ADDITION OF RS 84.45 CR (ROUNDED OFF) WAS SUSTAINED GIV ING OTHERS REASONS, WHICH ARE TAKEN UP IN THE SUCCEEDING PARAGRAPHS. 6. WE SHALL NOW DEAL WITH THE AFORESAID OTHER REASONS. TO START WITH, THE CIT (A) INVOKED THE PROVISIONS OF SECTION 2(22)(A) OF THE ACT AND CAME THE CONCLUSION THAT THE TRANSFER OF SHARE S IS THE CASE OF DISGUISED DISTRIBUTION OF ACCUMULATED PROFITS (PARA 4.3.14.3 OF THE CIT (A)S ORDER IS RELEVANT). IT IS THE CASE OF THE CIT(A) THAT THE INDIVIDUAL SHAREHOLDERS OF THE DONOR COMPANIES/MEMBERS OF THE SHROFF FAMILY HAVE EVENTUALLY RECEIVED SOME BENEFIT AND THE SAME SHOULD BE CONSIDERED AS DIVIDEND UNDER SECTION 2(22)(A) OF THE ACT. THUS, THE CIT(A) DIRECTED THE AO TO OBTAIN THE SHAREHOLDING OF THE DONOR COMPANIES AND WORK OUT THE FMV OF SHARES OF UPL AND UEL TRANSFERRED BY THE DONOR COMPAN IES TO NCPL AND TAX THE SAME UNDER SECTION 2(22)(A) OF THE ACT IN THE HANDS OF THE MEMBERS OF SHROFF FAMILY, THE DONORS OF THE SHARES. FURTHER, THE CIT(A) HELD THAT THE DONORS OF SHARES SHALL BE LIABLE TO PAY DIVIDEND DISTRIBUTION TAX U/S 115 - 0 OF THE ACT. 6.1. WITHOUT PREJUDICE, CIT (A) HELD THAT THE PROVISIONS OF SECTION 56(2)(VII) OF THE ACT ARE ALSO ATTRACTED TO THESE SHARE TRANSFER TRANSACTIONS WITHOUT CONSIDERATION (PARA 4.3.14.5 OF THE CIT (A)S ORDER IS RELEVANT). CIT (A) DIRECTED THE AO TO TAX MONETARY VALUE OF THE SHARES OF UPL & UEL HELD BY THE ASSESSEE U/S 56(2)(VII) READ WITH SECTION 2(24)(XV) OF THE ACT. THUS, THE CIT (A) CONSIDERED THE WHOLE BUNCH OF TRANSACTION INVOLVING THE TRANSFER OF SHARES TO HOLDING COMPANY AS A CASE OF TAX EVASION/ AVOIDANCE AND DISMISSED THE RELEVANT GROUNDS OF APPEAL OF THE ASSESSEE. AGGRIEVED, ASSESSEE FILED AN APPEAL BEFORE THE TRIBUNAL. 5 BEFORE THE ITAT 7. DURING THE PROCEEDINGS BEFORE US, SHRI PARCY PARDIWALA, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CI T (A) DISAPPROVED THE AOS DECISION OF INVOKING THE PROVISIONS OF SECTIN 45(1) AND DELETED THE ADDITION ON ACCOUNT OF LTCG ON THAT BASIS. HE ALSO APPRECIATED THE FACT NON PAYMENT OF ANY CONSIDERATION BY THE NCPL TO THE ASSESSEE AND CONCLUDED THAT IT IS IND EED THE CASE OF TRANSFER OF SHARES WITHOUT ANY CONSIDERATION IN CASH OR KIND. HOWEVER, CIT(A) CONFIRMED THE ADDITION BY VIRTUE OF THE PROVISIONS OF SECTION 2(22)(A), 115 - 0 AND SECTION 56(2)(VII) OF THE ACT. IN THIS REGARD, LD COUNSEL FOUND FAULT WITH THE IMPUGNED ORDER OF THE CIT(A) IN GENERAL AND ALSO WITH THE DIRECTION TO THE AO IN TAXING IN THE HANDS OF THE ASSESSEE, IN PARTICULAR. 8. WE SHALL NOW DEAL WITH THE ARGUMENT OF THE ASSESSEES COUNSEL ON THE TRANSFER AGREEMENT DATED 26/2/10. LD COUNSEL ARG UED VEHEMENTLY STATING THAT THE SAID AGREEMENT CONSTITUTES A GIFT AGREEMENT IN SPIRIT. REFERRING TO THE RECITAL B OF HTE SAID AGREEMENT, LD COUNSEL BROUGHT OUR ATTENTION TO THE EXPRESSIONS VOLUNTARY AND THE WITHOUT CONSIDERATION . HE REASONED THAT THE THESE EXPRESSIONS CONSTITUTE IMPORTANT ASPECTS OF ANY GIFT TRANSACTION AND THEREFORE, THE SAID TRANSFER AGREEMENT CONSTITUTES GIFT AGREEMENT IN SUBSTANCE. 8.1. IN THAT CASE, IF THE SAID AGREEMENT IS CONSIDERED GIFT AGREEMENT IN SU BSTANCE, RELEVANT TRANSFER CONSTITUTES AN EXEMPT TRANSFER WITHIN THE MEANING OF THE CLAUSE (III) OF SECTION 47 OF THE ACT. LD COUNSEL READ OUT THE SAID CLAUSE (III) AS UNDER: - 47. NOTHING CONTAINED IN SECTION 45 SHALL APPLY TO THE FOLLOWING TRANSFERS, - (I).... (II)... (III) ANY TRANSFER OF A CAPITAL ASSET UNDER A GIFT OR A WILL OR AN IRREVOCABLE TRUST 8.2. FURTHER, HE REASONED THAT IF THE ARGUMENT ON EXEMPT TRANSFER IS APPROVED, THERE IS NO CASE FOR INVOKING ANY OF THE SUBSECTION OF SECTION 45 OF THE ACT. IN ORDER TO MAKE OUT A CASE AGAINST THE GIFT, CIT(A) LABOURED A LOT ON THE SAID EXPRESSION OF GIFT AND BORROWED INFORMATION FROM VARIOUS SOURCES AND MENTIONED THAT THE EXPRESSION GIFT SHOULD HAVE ASPECTS OF LOVE AND AFFECTION AND SUMMED UP BY STATING THAT IT IS POSSIBLE WITH THE HUMAN AGENCIES LIKE INDIVIDUALS AND THE HUF ONLY. 6 ACCORDINGLY TO THE CIT(A) THE ANY GIFT MADE BY A CORPORATION TO ANOTHER CORPORATION WOULD NOT FALL WITHIN THE SCOPE OF SECTION 47(III) OF THE ACT. 9. FURTHER, BEFORE U S, LD COUNSEL FOR THE ASSESSEE STATED THAT THE GIFT CAN BE MADE BY ALL THE PERSONS SPECIFIED IN SECTION 2(31) OF THE ACT. FOR THAT PROPOSITION, HE BROUGHT OUT ATTENTION TO THE PROVISO TO SECTION 47(III) OF THE ACT WHERE THE PROVISIONS REFER TO A COMPANY G IFTS. FURTHER, HE ALSO RELIED HEAVILY ON THE ORDERS OF THE TRIBUNAL IN THE CASE OF DP WORLD (P) LTD VS. DCIT (2013) 140 ITD 694 (2014) AND THE DECISION IN THE CASE OF DCIT VS. KDA ENTERPRISES PVT LTD (2015) 39 ITR (TRIB.) 657 (PARAS, 27, 31 AND 39 OF THE SAID TRIBUNALS ORDER ARE RELEVANT) TO SUPPORT THE VIEW THAT THE GIFTS ARE GIVEN BY ALL THE PERSONS. FURTHER, HE SUBMITTED THAT IN THE PRESENT CASE, THE DONOR IS AN INDIVIDUAL AND DONEE IS THE COMPANY AND TRANSFER OF SHARES CONSTITUTES A VALID GIFT AND SA ID TRANSFER IS AN EXEMPT TRANSFER U/S 47(III) OF THE ACT. FURTHER, REFERRING TO JUDGMENT OF HONBLE HIGH COURT OF BOMBAY IN THE CASE OF NERKA CHEMICALS P LTD 371 ITR 280, LD COUNSEL MENTIONED THAT IT IS THE CASE OF THE DONEE AND IT IS PRIMA FACI E FINDING ON THE SAID TRANSFER TRANSACTIONS THAT TITLE OF THE TRANSFER AGREEMENT IS NOT DETERMINATIVE OF ITS TRUE CHARACTER. THE HONBLE HIGH COURT ALSO APPRECIATED THE FACT OF ABSENCE OF CONSIDERATION IN THE SAID TRANSACTION OF TRANSFER OF SHARES BY THE ASSESSEE TO NC PL. HE ALSO REFERRED TO ANOTHER JUDGMENT IN THE CASE OF ANOTHER DONOR OF SHARES (OUT OF 17 DONORS) IE PRAKRIYA PHARMACHEM SPL. CIVIL APPLICATION NO 20492 OF 2015 COPY PLACED AT PAGE 12 AND 21 OF THE PAPER BOOK, AND MENTIONED THAT THE SAID TRANSFER WAS CON SIDERED EXEMPT TRANSFER U/S 47(III) OF THE ACT. 10. FURTHER, REFERRING TO THE PROVISIONS OF SECTION 2(22)(A) OF THE ACT, LD AR SUBMITTED THAT THESE PROVISIONS ARE REQUIRED TO BE INTERPRETED STRICTLY. THE PROVISIONS OF SAID CLAUSE (A) VISUALIZES A SITUATION OF (I) A COMPANY HAVING ACCUMULATED PROFITS; (II) THEY ARE SUBJECT MATTER OF DISTRIBUTION TO THE SHARE HOLDERS OF THE SAID COMPANY; (III) AND SUCH DISTRIBUTION INVOLVES RELEASE OF ALL OR ANY PART OF THE ASSETS OF THE COMPANY BY THE COMPANY. EXPLAINING THE FACTS OF THE PRESENT CASE, LD AR SUBMITTED THAT T HE ASSESSEE IS AN INDIVIDUAL AND OWNS THE SHARES OF UPL AND UEL. THESE SHARES ARE TRANSFERRED TO NCPL WITHOUT CONSIDERATION. WITH THESE FACTS, LD AR SUBMITTED THAT THERE IS NO CASE FOR INVOKING THE PROVISIONS OF SECTION 2(22)(A) 7 OF THE ACT. LD AR RELIED ON THE JUDGMENT OF SC IN THE CASE OF CP SARATHY MUDALIAR 83 ITR 170 AND ARGUED THAT LOANS ADVANCED BY A COMPANY TO AN HUF ARE OUTSIDE THE SCOPE OF SAID PROVISIONS OF SECTION 2(6A(E) OF THE I T ACT, 1922 AS THE HUF PER SE ARE NOT THE SHARE HOLDERS OF THE CO MPANY. HE SUBMITTED THE PROVISIONS ARE SIMILAR TO THE PRESENT PROVISIONS OF SECTION 2(22) OF THE ACT. LD AR APPLIED THE SAID LAW TO THE PRESENT FACTS OF THE INDIVIDUALS AND STATED THAT THE PROVISIONS OF SECTION 2(22) ARE THE DEEMED PROVISIONS AND THEY HAVE TO BE CONSTRUED STRICTLY AND THEY ARE APPLICABLE TO THE PRESENT FACTS WHERE THE ASSESSEE - INDIVIDUAL - THE DONOR OF SHARES, IS NOT THE SHARE HOLDER OF THE NCPL. EXTENDING HIS REASONING, LD AR SUBMITTED THAT THE ASSESSEE IS THE DONOR OF SHARES AND NOT THE DO NEE AND NOT THE BENEFICIARY OF ANY DISTRIBUTION OF BY A COMPANY OF ACCUMULATED PROFITS BY ANY MEANS SPECIFIED IN SECTION 2(22)(A) OF THE ACT. REFERRING TO THE INTERPRETATION OF THE CIT(A) REGARDING THE ULTIMATE INDIRECT INDIVIDUAL BENEFIT TO THE MEMBERS OF THE SHROFF FAMILY, LD AR SUBMITTED THAT SAME IS UNINTENDED BY THE LEGISLATURE WHEN THESE PROVISIONS ARE LEGISLATED. BRINGING OUR ATTENTION TO VARIOUS OTHER PROVISIONS OF SECTION 2(22)(E), SECTION 64 AND THE JUDGMENT BOMBAY HC IN THE CASE OF CIT VS FRAMJI H COMMISSARIAT 64 ITR 588, LD AR SUBMITTED THAT LEGISLATURE MADE EXPLICIT REFERENCE TO SUCH INDIRECT BENEFITS AND INFORMED US OF THE DISAPPROVAL OF THE LIBERAL INTERPRETATION BY THE COURTS. THEREFORE, LD AR SUBMITTED THAT IN THE ABSENCE OF EXPLICIT PROVISI ONS IN THE ACT, THE PRESENT TRANSACTIONS ARE OUTSIDE THE SCOPE OF THE PROVISIONS OF SECTIN 2(22)(A) OF THE ACT. 11. FURTHER, REFERRING THE IMPUGNED ORDER, LD AR INFORMED THAT CIT(A) DIRECTED THE AO TO TAX THESE SHARE TRANSFER TRANSACTIONS AND INVOKED PR OVISIONS OF SECTION 56(2)(VII) OF THE ACT. CIT(A) IS OF THE VIEW THAT THE SHROFF FAMILY MEMBERS, BEING THE ULTIMATE THE SHARE HOLDERS OF THE DONEE COMPANY, ARE THE EVENTUAL BENEFICIARIES OF THESE TRANSACTIONS AND THEREFORE, THAT BENEFIT ACCRUED TO THE SHAR E HOLDERS NEEDS TO BE TAXED AS TAXABLE GIFT UNDER THE PROVISIONS OF SECTION 56(2)(C) OF THE ACT IN THE HANDS OF THE ASSESSEE - DONOR. IN THIS REGARD, LD AR BROUGHT OUR ATTENTION TO THE AOS ORDER DT 4.1.2016 GIVING EFFECT TO THE ORDER OF THE CIT(A) AND SUBMI TTED THAT THE AO MADE ADDITION OF RS 70,86,56,900/ - AS INCOME OTHER SOURCES U/S 56(2)(VII)(C) OF THE ACT. BRINGING OUR ATTENTION TO THE SAID PROVISIONS, LD COUNSEL SUBMITTED THAT THE SAID PROVISIONS OF CLAUSE (C) APPLY IN CASE OF RECEIPT OF PROPERTY BY AN INDIVIDUAL OR AN HUF WITHOUT CONSIDERATION. IN THE INSTANT CASE, THE FACTS ARE REVERSE AND THE 8 ASSESSEE IS THE DONOR AND THE COMPANY IS THE DONEE, THE RECIPIENT OF THE GIFT OF SHARES OF UPL AND UEL. FURTHER, AR SUBMITTED THAT THE INDIRECT BENEFITS IF ANY I N ANY CASE ARE OUTSIDE THESE PROVISIONS. LD AR BROUGHT OUR ATTENTION TO THE SAID PROVISIONS AND SUBMITTED THAT THE SAID PROVISIONS ARE INVOKED ON THE PRESUMPTION THAT IT IS A CASE OF TAX AVOIDANCE / COLOURABLE DEVICE. CIT (A) QUOTED WRONGLY THAT THE SUBST ANCE OF THE WHOLE SCHEME OF TRANSACTION OF TRANSFER OF SHARES ATTRACTS THE PROVISIONS OF SECTION 56(2)(VII) OF THE ACT. OTHERWISE, AS PER LD AR, THERE IS NO CASE FOR ATTRACTING THOSE PROVISIONS. THERE IS NO CASE OF COLOURABLE DEVICE, AS IT IS A CASE OF S TRAIGHT TRANSACTION OF TRANSFER OF SHARE BY THE ASSESSEE TO NCPL WITHOUT CONSIDERATION. HE ALSO SUBMITTED THAT THE AO / CIT (A) RANDOMLY APPLIED THE RATIO OF THE JUDGMENT IN CASE OF MCDOWELLS (SUPRA) IGNORING THE FACTS OF THE CASE. 12. PER CONTRA , LD D R FOR THE REVENUE HEAVILY RELIED ON THE ORDERS OF THE AO / CIT (A). THE DR IS OF THE OPINION THAT IN SUBSTANCE, THE FAMILY MEMBERS OF SHROFF ARE / WILL BE BENEFITTED AS AND WHEN THE SAID SHARES OF UPL / UEL ARE SOLD AND IN THAT SENSE OF THE MATTER, THE BE NEFIT AROSE TO THE ASSESSEE. LD DR ARGUED FOR CONFIRMING THE ORDERS OF THE CIT (A). DECISION OF THE TRIBUNAL 13 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. THE ASSESSEE IS AGGRIEVED WITH THE CONCLUSIONS OF THE CIT (A) RELATING TO THE INVALID INVOKING OF VARIOUS PROVISIONS OF SEC TION 2(22)(A); SECTION 115 - O; SECTION 56(2)(VII) AND COLOURABLE DEVICE RELATED ISSUES. TO LIST OF THE VARIOUS ASPECTS DISCUSSED BY THE CIT(A) IN HIS ORDER AND ACCORDING TO HIM THE SHARE TRANSFER TRANSACTION CONSTITUTES , - (A) A TRANSACTION OF TRANSFER OF SH ARES OF UPL/UEL IS CHARGEABLE TO TAX U/S 2(22)(A) OF THE ACT; (B) THE DONOR COMPANIES WHERE THE SHROFF FAMILY MEMBERS ARE THE SHARE HOLDERS NEED TO BE TAXED ON THE BENEFIT GRANTED TO THEM U/S 115 - 0 OF THE ACT; (C) THE SAID BENEFIT ALSO ATTRACTS THE PROVIS IONS OF SECTION 56(2)(VII) OF THE ACT; AND (D) EVENTUALLY WHOLE SCHEME OF TRANSFER OF SHARES OF UPL/UEL TO NCPL AND ULTIMATELY TO THE HOLDING COMPANY CONSTITUTES A CASE OF COLOURABLE DEVICE. IN THE PROCESS, CIT(A) REJECTED THE ASSESSEES CLAIM OF TRANSFER AGREEMENT AS GIFT AGREEMENT AND EVENTUALLY REJECTED TO APPLICABILITY OF THE PROVISIONS OF SECTION 47(III) WHICH CONSIDERS 9 SUCH GIFT TRANSFER AS EXEMPT TRANSFER FOR THE PURPOSE OF CAPITAL GAINS. HOWEVER, CIT(A) GRANTED RELIEF TO ASSESSEE ON HOLDING TH AT IT IS CASE OF TRANSFER WITHOUT CONSIDERATION. HE HOWEVER, CONFIRMED THE ADDITION FOR THE OTHER REASONS NARRATED ABOVE. WE SHALL NOW DEAL WITH EACH OF THEM IN THE SUCCEEDING PARAGRAPHS OF THIS ORDER. 14. APPLICABILITY OF THE PROVISIONS OF CLAUSE (A) OF SECTION 2(22) /SECTIN 115 - 0 OF THE ACT: IN THIS REGARD, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE RELEVANT PROVISIONS AND SUBMITTED THAT THE ASSESSEE IS AN INDIVIDUAL AND THEREFORE, THE QUESTION OF DISTRIBUTION OF DIVIDEND DOES NOT ARISE FO R INVOKING THE PROVISIONS OF CLAUSE (A) OF SECTION 2(22) OF THE ACT. 15. AFTER HEARING BOTH THE PARTIES, WE HAVE PERUSED THE RELEVANT PROVISIONS OF SECTION 2(22)(A) OF THE ACT AND THE SAME READS AS UNDER: - SEC. 2 (22) ' DIVIDEND' INCLUDES - (A) ANY DISTRIBUTION BY A COMPANY OF ACCUMULATED PROFITS, WHETHER CAPITALISED OR NOT, ............ TO ITS SHAREHOLDERS OF ALL OR ANY PART OF THE ASSETS OF THE COMPANY; 16. CONSIDERING THE ABOVE ARGUMENTS OF THE LD AR AND THE PLAIN READING OF THE ABOVE EXTRACTED PROVISIONS, WE FIND, THE CONCLUSION OF THE CIT (A) CONSTITUTES FAR STRETCHED ONE AND LEGALLY UNSUSTAINABLE. THESE DEEMED PROVISIONS ARE REQUIRED TO BE INTERPRETED STR ICTLY AND FOR THIS PROPOSITION WE RELY ON THE SC JUDGMENT IN THE CASE OF C P SARATHY MUDALIAR (SUPRA). AS SUCH, THERE IS NO DISPUTE ON THE FACTS AND THE ASSESSEE - INDIVIDUAL BELONGING TO THE SHROFF FAMILY ARE NOT THE SHARE HOLDERS IN THE NCPL DURING THE YEA R UNDER CONSIDERATION. OF COURSE, HE WAS NEVER SO. EVEN IF HE WERE A SHAREHOLDER IN NCPL, WHERE IS BENEFIT TO THE ASSESSEE, WHEN THE DONOR AND SUPPOSED ULTIMATE BENEFICIARY IS ONE AND THE SAME. FOR EXAMPLE, SRI JAIDEL R SHROFF, VIKRAM R SHROFF OR SRI RAJNI KANTH D SHROFF ARE THE DONORS OF SHARES TO NCPL. THE ALLEGED ULTIMATE BENEFICIARIES OF THE IMPUGNED TRANSAACTIONS ARE AGAIN THE SAME INDIVIDUAL OF THE SHROFF FAMILY. WE DONT FIND ANY BENEFIT ACCRUED TO THEM IN ANY MANNER. THEREFORE, THE ANALYSIS OF THE PR OVISIONS OF CLAUSE (A) OF SECTION 2(22) OF THE ACT REVEALS THAT THE SAME ARE INAPPLICABLE TO THE SHARE TRANSACTION UNDER CONSIDERATION. IN OUR OPINION, THE CIT (A) HAS RANDOMLY APPLIED THESE PROVISIONS INVALIDLY AND WITHOUT HAVING ANY STRENGTH OF EXPLICIT LEGAL PROVISIONS. THERE ARE NO 10 PROVISIONS FOR TAXING THE SO CALLED INDIRECT BENEFIT ACCRUED TO THE SHAREHOLDERS OF THE COMPANY AND PROVISIONS OF SECTION 2(22)(E) AND THE THAT OF THE SECTION 64 HELPS THE ASSESSEE. THEREFORE, WE DIRECT THE AO TO DELETE THE ADDITION ON THIS ACCOUNT. 17. IN OUR VIEW, FURTHER, WE FIND LD CIT (A) EXCEEDED HIS JURISDICTION IN DIRECTING THE AO TO TAX THE DONOR COMPANIES U/S 115 - O OF THE ACT, WHICH MAY BE CONSEQUENT ONE, BUT THEY ARE NOT THE SUBJECT MATTER OF APPEALS BEFORE HIM. THEREFORE, WE ORDER FOR DELETION OF SUCH DIRECTION. THEREFORE, FURTHER, WE DIRECT THE AO TO DELETE THE ADDITION ON THIS ACCOUNT. 18. APPLICABILITY OF THE PROVISIONS OF SECTION 56(2)(VII)(A)/(C) OF THE ACT: REGARDING THE INVOKING OF THE PROVISIONS OF SECTION 56(2)(VII)(A)/(C) OF THE ACT, WE FIND THAT THE SAME BECOME TAXABLE IN THE HANDS OF DONEE. RELEVANT PROVISIONS READ AS UNDER: 56(2) (VII) WHERE AN INDIVIDUAL OR A HUF RECEIVES , AIN ANY PREVIOUS YEAR, FROM ANY PERSON OR PERSONS ON OR AFTER THE 1 ST DAY OF OCTOBER, 2009: (A)... (B).. (C) ANY PROPERTY, OTHER THAN IMMOVABLE PROPERTY, (I) WITHOUT CONSIDERATION,..... (II) FOR A CONSIDERATION WHICH IS LESS .... 18.1. BUT, IN THE PRESENT CASE, THE ASSESSEE IS THE DONOR AND NOT THE RECEIVER AS PER THE TRANSFER AGREEMENT HONOURED BY THE REVENUE AUTHORITIES. THEREFORE, IN OUR VIEW THE SAID PROVISIONS ARE NOT APPLICABLE TO THE FACTS ON RECORD. AS SUCH, THE CITS CONCLUSIONS RELATING TO THE INDIRECT TRANSFER OF BENEFIT SUFFERS FROM THE LACK LEGISLATIVE SUPPORT IN ANY FORM. THEREFORE, WE DIRECT THE AO TO DELETE THE ADDITION ON THIS ACCOUNT. 19. ISSUE S RELATING TO CONCLUSIONS OF COLOURBLE DEVICE: IN THE PRESENT CASE, THE FAC TS ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND OWNER OF SHARES OF THE UPL/UEL. HE GIFTED THE SHARES WITHOUT CONSIDERATION TO NCPL AND THE ASSESSEE CONSTITUTES A DONOR OF SHARES. REVENUE ALLEGES THAT THE ASSESSEE, BEING THE SHARES OF HOLDING COMPANY OF NCPL, RECEIVED A BENEFIT WHICH SHOULD BE TAXED AS PER THE SC JUDGMENT IN THE CASE OF MC DOWELLS (SUPRA). IN OTHER WORDS, THE DONOR AND DON EE OF THE BENEFIT ARE THE SAME. ON THIS FACTUAL MATRIX, WE DO NOT FIND ANY INDIRECT BENEFIT 11 UNFAIRLY ACCRUED TO THE ASSESSE E - INDIVIDUAL. EVEN IF THE TRANSFER IS NOT BONAFIDE, WE FIND IT IS CASE OF DONATING SHARE WITH RIGHT HAND AND RECEIVING THE BENEFIT FROM THE LEFT HAND OF THE SAME INDIVIDUAL. IN OUR VIEW, THE CONCLUSION OF THE CIT(A) IS FAR STRETCHED AND UNSUSTAINABLE. THER EFORE, THE ALLEGATION OF COLOURABLE DEVICE AND APPLYING THE JUDGMENT OF THE APEX COURT IN THE CASE OF MCDOWELLS (SUPRA), IS RANDOMLY AND ERRONEOUSLY DONE. THUS, WE DISMISS THE CONCLUSIONS OF THE CIT (A). 20. TO SUM UP, THE TRANSFER AGREEMENT DATED 26.2. 2010 NEEDS TO BE CONSIDERED AS THE GIFT AGREEMENT AS TITLE IS NOT DETERMINATIVE AND FOR THIS, WE RELY ON THE HONBLE BOMBAY HC JUDGMENT IN THE CASE OF NCPL (SUPRA) AND GUJARATH HIGH COURTS JUDGMENT IN THE CASE OF PRAKRIYA PHARMACHEM (SUPRA). SO FAR AS TH E ASSESSEE - INDIVIDUAL IS CONCERNED, THE IMPUGNED TRANSACTIONS ARE COVERED BY THE PROVISION OF SECTION 47(III) OF THE ACT AS PRIMA FACIE HELD BY THE SAID JUDGMENTS. THERE IS NO CASE OF INVOKING THE PROVISIONS OF SECTION 2(22)(A) OF THE ACT ON THE ASSESSEE - I NDIVIDUAL. SIMILARLY THERE IS NO CASE FOR DIRECTION TO AO FOR INVOKING TH PROVISIONS OF SECTION 115 - 0 OF THE ACT ON THE DONOR COMPANIES WHERE THE SHROFF FAMILY MEMBERS ARE THE SHARE HOLDERS. FINALLY WE DISAPPROVE THE CIT(A)S CLAIM OF COLOURABLE DEVICE IN THESE CASES OF INDIVIDUALS. CONSIDERING THE SAME, WE ARE OF THE OPINION THAT THE GROUNDS RAISED BY THE ASSESSEE ARE REQUIRED TO BE ALLOWED IN FAVOUR OF THE ASSESSEE. WE ORDER ACCORDINGLY. 21. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. II. ITA N O.4359/M2015 (AY 2010 - 2011) (IN THE CASE OF RAJNIKANT D. SHROFF) 22. THIS APPEAL FILED BY THE ASSESSEE ON 15.7.2015 IS AGAINST THE ORDER OF THE CIT (A) - 54, MUMBAI DATED 31.3.2015. IN THIS APPEAL, ASSESSEE RAISED FOUR MAIN GROUNDS VIZ (I) TAXABILITY U/S 2(22)(A) OF THE ACT; (II) TAXABILITY OF DONOR COMPANIES U/S 115 - O; (III) TAXABILITY U/S 56(2)(VII) OF THE ACT; AND (IV) GIFT OF UPL AND UEL SHARES AS A COLOURABLE DEVICE. 23. BEFORE US, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE FACTS, GROUN D OF APPEAL AND SUBMITTED THAT THE ISSUES RAISED IN THIS APPEAL ARE EXACTLY IDENTICAL TO THAT OF THE ISSUES RAISED IN THE APPEAL ITA NO.4660/M/2015. HE ALSO 12 SUBMITTED THAT HIS ARGUMENTS ARE EQUALLY RELEVANT AND APPLY TO THE GROUNDS UNDER CONSIDERATION. 24. ON HEARING BOTH THE PARTIES, WE FIND THAT BUT FOR THE FACTS AND FIGURES, THE ISSUES RAISED IN THIS APPEAL ARE EXACTLY IDENTICAL TO THAT OF THE ONES DECIDED BY US IN THE SAID APPEAL ITA NO.4660/M/2015. IN THE SAID APPEAL, WE ALLOWED THE GROUNDS IN FAV OUR OF THE ASSESSEE. CONSIDERING THE COMMONALITY OF THE ISSUES INVOLVED IN BOTH THE APPEALS, OUR CONCLUSION DRAWN THEREIN APPLIES TO THE PRESENT APPEAL TOO. ACCORDINGLY, GROUNDS NO.1 TO 4 RAISED BY THE ASSESSEE STAND ALLOWED IN FAVOUR OF THE ASSESSEE. 2 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. III. ITA NO.4583/M/2015 (AY 2010 - 2011) (IN THE CASE OF VIKRAM R SHROFF) 26. THIS APPEAL RAISED BY THE ASSESSEE ON 6.8.2015 IS AGAINST THE ORDER OF THE CIT (A) - 54, MUMBAI DATED 31.3.2015 FOR THE AY 201 0 - 2011. IN THIS APPEAL, ASSESSEE RAISED FIVE MAIN GROUNDS VIZ (I) TAXABILITY U/S 2(22)(A) OF THE ACT; (II) TAXABILITY OF DONOR COMPANIES U/S 115 - O; (III) TAXABILITY U/S 56(2)(VII) OF THE ACT; AND (IV) GIFT OF UPL AND UEL SHARES AS A COLOURABLE DEVICE AND (V) TAXABILITY OF RENTAL INCOME AS INCOME FROM HOUSE PROPERTY ON PROTECTIVE BASIS. 27. OUT OF ABOVE FIVE GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL, GROUNDS NO.1 TO 4 ARE IDENTICAL TO THE ONES RAISED BY THE ASSESSEE IN ITA NO. 4359 /M/2015 (AY: 2010 - 201 1) , WHICH IS ADJUDICATED BY US IN THE ABOVE PARAGRAPHS OF THIS ORDER. CONSIDERING THE COMMONALITY OF THE ISSUES RAISED, ARGUMENTS OF THE LD COUNSELS AND THE FACTS, OUR DECISION GIVEN THEREIN SQUARELY APPLIES TO THE PRESENT APPEAL TOO. ACCORDINGLY, GROUND S NO.1 TO 4 RAISED BY THE ASSESSEE ARE ALLOWED. 28. GROUND NO.5 RELATES TO THE TAXING OF RENTAL INCOME ON PROTECTIVE BASIS . IN THIS REGARD, LD REPRESENTATIVES OF BOTH THE PARTIES SUBMITTED THAT IT IS THE CASE OF PROTECTIVE ADDITION. FURTHER, THEY SUBMIT TED THAT THE SUBSTANTIVE ADDITION DONE BY THE AO IN THE AY 2009 - 2010 HAS BECOME FINAL IN ALL RESPECTS. CONSIDERING THE SAME, WE ARE OF THE OPINION, THE ASSESSEE IS ENTITLED TO RELIEF SINCE, THE SAID RENTAL INCOME 13 WAS SUBSTANTIVELY TAXED IN THE HANDS OF TH E ASSESSEE IN THE AY 2009 - 2010. ACCORDINGLY, GROUND NO.5 RAISED BY THE ASSESSEE IS ALLOWED. 29. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. IV. ITA NO.4584/M/2015 (AY 2010 - 2011) (IN THE CASE OF SANDRA R. SHROFF) 30. THIS APPEAL FILED BY THE ASSESSEE ON 6.8.2015 IS AGAINST THE ORDER OF THE CIT (A) - 54, MUMBAI DATED 31.3.2015 FOR THE ASSESSMENT YEAR 2010 - 2011. IN THIS APPEAL, ASSESSEE RAISED FIVE MAIN GROUNDS VIZ (I) TAXABILITY U/S 2(22)(A) OF THE ACT; (II) TAXABILITY OF DONOR COMPANIES U/S 115 - O; (III) TAXABILITY U/S 56(2)(VII) OF THE ACT; AND (IV) GIFT OF UPL AND UEL SHARES AS A COLOURABLE DEVICE AND (V) TAXABILITY OF RENTAL INCOME AS INCOME FROM HOUSE PROPERTY ON PROTECTIVE BASIS. 31. ALL THE ISSUES RAISED IN THIS APPEAL ARE IDENTICAL TO THE ONES RAISED BY THE ASSESSEE IN ITA NO. 4583/M/2015 (AY: 2010 - 2011) , WHICH IS ADJUDICATED BY US IN THE ABOVE PARAGRAPHS OF THIS ORDER. CONSIDERING THE COMMONALITY OF THE ISSUES RAISED, OUR DECISION GIVEN THEREIN SQUARELY APPLIES TO THE PRESENT APPEAL TOO. ACCORDINGLY, ALL THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 32. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. 33. CONCLUSIVELY, ALL THE FOUR APPEALS FILED BY THE ASSESSEES ARE ALLOWED. ORDER PRONO UNCED IN THE OPEN COURT ON 9 TH SEPTEMBER , 2016 . SD/ - SD/ - ( AMIT SHUKLA ) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 09.09 .2016 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 14 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI