SUDHIR MENON HUF, MUMBAI V. ACIT 21(2), MUMBAI

ITA 4887/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75884 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-12-2013
• Assessment Year: 2010-2011
• Appeal Filed On: 25-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SURINDER JIT SINGH
• Assessee Lawyers: S E DASTUR
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Gift; Transfer pricing; Share purchase agreement; Application of stay; Additional evidence; Cost of acquisition; Fair market value; Reason to believe
• Section: 56(2); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI , BEFORE SHRI D. MANMOHAN, VP AND SHRI SANJAY ARORA, AM I.T.A. NO. 4887/MUM/2013 ( / ASSESSMENT YEAR: 2010-11) & SA NO. 192/MUM/2013 (ARISING OUT OF ITA NO.4887/MUM/2013) ( / ASSESSMENT YEAR: 2010-11) SUDHIR MENON HUF 501, SWAPNALOK, MARVE ROAD, MALAD (WEST), MUMBAI-400 064 VS. ASST. CIT-21(2), BANDRA, MUMBAI ! ' ./PAN/GIR NO. AAPHS 2147 R ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) !#&' / APPELLANT BY : SHRI S. E. DASTUR & MS. AARTI VISSANJI $%!#&' / RESPONDENT BY : SHRI SURINDER JIT SINGH ( )*&+, / DATE OF HEARING : 19.12.2013 -./&+, / DATE OF PRONOUNCEMENT : 12.03.2014 0 O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-32, MUMBAI (CIT(A) FOR SH ORT) DATED 21.05.2013, DISMISSING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S .143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A. Y.) 2010-11 VIDE ORDER DATED 14.01.2013. 2 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT THE ISSUE 2. THE PRINCIPAL; RATHER, THE SOLE ISSUE ARISING IN THE INSTANT APPEAL; THE ASSESSEE NOT PRESSING ITS GROUND NO.1 ASSAILING THE IMPUGNED ASS ESSMENT ON THE QUESTION OF JURISDICTION (WHICH WE FIND TO HAVE BEEN, THOUGH AS SUMED, NOT PRESSED EVEN BEFORE THE FIRST APPELLATE AUTHORITY, WITHDRAWING THE OBJECTIO N VIDE LETTER DATED 07.01.2013), IS THE VALIDITY IN LAW OF THE ASSESSMENT AS INCOME OF THE DIFFERENCE BETWEEN THE VALUE OF THE SHARES ALLOTTED TO THE ASSESSEE AND THE CONSIDERATI ON PAID BY IT IN RESPECT THEREOF. THE FACTS 3. WE MAY, TO BEGIN WITH, BRIEF THE FACTS, WHICH AR E SIMPLE AND UNDISPUTED. THE ASSESSEE, HOLDING 15,000 SHARES (AS ON 01.04.2009, THE BEGINNING OF THE RELEVANT P REVIOUS YEAR) IN A COMPANY BY THE NAME DORF KETAL CHEMICALS PVT. LTD. (DKCPL FOR SHORT), THE ENTIRE (OR ALMOST THE WHOLE) CAPITAL IN WHICH IS HE LD BY THE FAMILY MEMBERS OF THE ASSESSEES KARTAS FAMILY, REPRESENTING 4.98% OF TH E SHARE CAPITAL (3,01,316 SHARES), WAS OFFERED 3,13,624 ADDITIONAL SHARES (WHICH WORKS TO ABOUT 21 SHARES F OR EACH SHARE HELD) AT THE FACE VALUE RATE OF RS.100/- EACH, ON A PROPORTI ONATE BASIS. IT SUBSCRIBED TO AND WAS ACCORDINGLY ALLOTTED 1,94,000 OF THOSE SHARES, ON 28.01.2010, I.E., ALONG WITH T HE OTHER SHAREHOLDERS, WHO WERE ALLOTTED - ON THE SAME TERMS , NOT ONLY THE SHARES SIMILARLY OFFERED TO THEM BUT ALSO THAT NOT SUBSCRIBED TO BY THE OTHE R SHAREHOLDER/S, AS 1,19,624 (313624 194000) SHARES BY THE ASSESSEE. THE SHARES, AS STAT ED, WERE RECEIVED BY THE ASSESSEE ON 10.02.2010. AS THE BOOK VALUE OF THE SHARES OF DKCPL AS ON 31. 03.2009 WAS RS.1,538/- PER SHARE, WHICH IS TO BE ADOPTED AS A MEASURE OF T HEIR FAIR MARKET VALUE (FMV) UNDER THE APPLICABLE RULES (RULE 11U AND R. 11UA), THE ASSESS ING OFFICER (A.O.), TREATING THE DIFFERENCE OF RS.1,438/- PER SHARE AS THE EXTENT OF THE INADEQUATE CONSIDER ATION, I.E., IN TERMS OF SECTION 56(2)(VII)(C) READ WITH THE RELEVA NT RULES, TOWARD THE ACQUISITION OF ADDITIONAL SHARES, BROUGHT THE SAME TO TAX THERE-UN DER. THE SAME BEING CONFIRMED IN APPEAL, THE ASSESSEE IS IN SECOND APPEAL BEFORE US. SECTION 56(2)(VII)(C) A DISCUSSION 3 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT 4.1 THE ISSUE IS PRINCIPALLY LEGAL. THE RELEVANT PR OVISIONS, INSERTED BY FINANCE (NO.2) ACT, 2009 W.E.F. 01.10.2009, IN THEIR RELEVANT PART , READ AS UNDER: A) SECTION 2(24)(XV) OF THE ACT READS AS UNDER: CHAPTER I PRELIMINARY DEFINITIONS. 2. IN THIS ACT, UNLESS THE CONTEXT OTHERWISE REQUIRES , (1) (2) (24) 'INCOME' INCLUDES (I) (II) (XV) ANY SUM OF MONEY OR VALUE OF PROPERTY REFERRED TO I N CLAUSE (VII) OF SUB-SECTION OF SECTION 56; B) SECTION 56(2)(VII) READS AS UNDER: CHAPTER IV COMPUTATION OF INCOME FROM OTHER SOURCES F.INCOME FROM OTHER SOURCES INCOME FROM OTHER SOURCES. 56. (1) 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 CHARGEABL E TO INCOME-TAX UNDER ANY OF THE HEADS SPECIFIED IN SECTION 14, ITEMS A T O E. (2) IN PARTICULAR, AND WITHOUT PREJUDICE TO THE GEN ERALITY OF THE PROVISIONS OF SUB-SECTION (1), THE FOLLOWING INCOMES, SHALL BE CH ARGEABLE TO INCOME-TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES', NAMELY: (I) . (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 AGGR EGATE VALUE OF WHICH EXCEEDS FIFTY THOUSAND RUPEES, THE W HOLE OF THE AGGREGATE VALUE OF SUCH SUM; ( B ) ANY IMMOVABLE PROPERTY, WITHOUT CONSIDERATION, TH E STAMP DUTY VALUE OF WHICH EXCEEDS FIFTY THOUSAND RUPEES, THE STAMP DUTY VALUE OF SUCH PROPERTY; (C ) ANY PROPERTY, OTHER THAN IMMOVABLE PROPERTY, 4 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT ( I ) WITHOUT CONSIDERATION, THE AGGREGATE FAIR MARKET VALUE OF WHICH EXCEEDS FIFTY THOUSAND RUPEES, THE WHOLE O F THE AGGREGATE FAIR MARKET VALUE OF SUCH PROPERTY; ( II ) FOR A CONSIDERATION WHICH IS LESS THAN THE AGGREG ATE FAIR MARKET VALUE OF THE PROPERTY BY AN AMOUNT EXCE EDING FIFTY THOUSAND RUPEES, THE AGGREGATE FAIR MARKET VA LUE OF SUCH PROPERTY AS EXCEEDS SUCH CONSIDERATION : PROVIDED THAT WHERE THE STAMP DUTY VALUE OF IMMOVABLE PROPER TY PROVIDED FURTHER THAT THIS CLAUSE SHALL NOT APPLY TO ANY SUM OF MONEY OR ANY PROPERTY 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 DONOR, AS THE CASE MAY BE; 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 OTHE R EDUCATIONAL INSTITUTION OR HOSPITAL OR OTHER MEDICAL INSTITUTIO N OR ANY TRUST OR INSTITUTION REFERRED TO IN CLAUSE (23C) OF SECTION 10; OR ( G ) FROM ANY TRUST OR INSTITUTION REGISTERED UNDER SE CTION 12AA. EXPLANATION. - FOR THE PURPOSES OF THIS CLAUSE, - (B) 'FAIR MARKET VALUE' OF A PROPERTY, OTHER THAN A N IMMOVABLE PROPERTY, MEANS THE VALUE DETERMINED IN ACCORDANCE WITH THE METHOD AS MAY BE PRESCRIBED. (D) 'PROPERTY' MEANS THE FOLLOWING CAPITAL ASSET OF THE ASSESSEE, NAMELY:- ( I ) IMMOVABLE PROPERTY BEING LAND OR BUILDING OR BOTH ; ( II ) SHARES AND SECURITIES; ( III ) JEWELLERY; ( IV ) ARCHAEOLOGICAL COLLECTIONS; ( V ) DRAWINGS; ( VI ) PAINTINGS; ( VII ) SCULPTURES; OR ( VIII ) ANY WORK OF ART; FURTHER, SECTION 49 ALSO STANDS SIMULTANEOUSLY AMEN DED BY INSERTING A NEW SUB-SECTION (4), PROVIDING THAT FOR THE PURPOSE OF COMPUTING CA PITAL GAINS, IF THE TRANSACTION OF RECEIPT 5 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT OF AN ASSET IS SUBJECT TO TAX UNDER CLAUSE (VII) OF SUB-SECTION (2) OF SECTION 56, THEN THE COST OF ACQUISITION OF THE ASSET SHALL BE THE STAMP DUTY VALUE OR THE FMV, WHERE THE ASSET IS AN IMMOVABLE PROPERTY OR MOVABLE PROPERTY AS THE CASE MAY BE. THIS WOULD AVOID DOUBLE TAXATION, I.E., ON THE SAME AMOUNT, ON THE T RANSFER OF THE RELEVANT CAPITAL ASSET. CLEARLY, THEREFORE, THE SECTION GETS ATTRACTED WHEN EVER AN INDIVIDUAL OR HINDU UNDIVIDED FAMILY (HUF) RECEIVES WITHOUT CONSIDERATI ON A PROPERTY (AS DEFINED) THE FMV OF WHICH IS IN EXCESS OF RS.50,000/-, OR WHERE AT A CONSIDERATION THE DIFFERENCE BETWEEN THE FMV AND SUCH CONSIDERATION EXCEEDS THE SAID AMO UNT. THE FIRST ISSUE THAT CONFRONTS US IS IF THE PROVISION/S IS AT ALL APPLICABLE TO A TRANSACTION AS THE ONE UNDER REFERENCE; THE ASSESSEE CONTENDING IT TO BE ONLY AN ISSUE OF RIGHT SHARES BY THE ISSUING-COMPANY (DKCPL). HOW COULD, IT IS ASSEVERATED, A PROVISION BROUGHT O N THE STATUTE TO CHECK BOGUS CAPITAL BUILDING OR MONEY LAUNDERING POSSIBLY APPLY TO A CASE AS A PRESENT ONE WHICH IS ONLY A CASE OF A RIGHTS ISSUE, I.E., THE I SSUE OF SHARES ON RIGHTS BASIS, AND WHICH ARE ORDINARILY ISSUED AT A DISCOUNT ? IT WOULD, GOING BY THE ARGUMENT, BE EQUALLY APPLICABLE TO BONUS SHARES, AND WHICH IS LUDICROUS INDEED, THE LD. AUTHORIZED REPRESENTATIVE (AR) WOULD CONTINUE. REFERENCE IN TH IS REGARD WAS MADE BY HIM TO THE BUDGET SPEECH FOR 2004-05 ON THE INSERTION OF SECTI ON 56(2)(V) (REPORTED AT [2004] 268 ITR (ST.) 22); PRESS NOTE NO. 402/92/2006-MC (21 OF 2009) ISSUED ON THE INSERTION OF SECTION 56(2)(VII) (REPORTED AT [2009] 317 ITR (ST. ) 51); CBDT CIRCULAR NO. 5 OF 2010 DATED 03.06.2010, EXPLAINING THE PROVISION OF CLAUS E (VII) OF SECTION 56(2) INSERTED BY FINANCE (NO.2) ACT, 2009 (REPORTED AT [2010] 324 IT R (ST.) 293 AT 319); EXPLANATORY MEMORANDUM OF THE FINANCE BILL, 2010 INSERTING CLAU SE (VII)(A) TO SECTION 56(2) (REPORTED AT [2010] 321 ITR (ST.) 110 AT PG.123); AND CBDT CI RCULAR NO.1 OF 2011 DATED 06.04.2011 EXPLAINING THE SAID CLAUSE, WHICH IS EFF ECTIVE FROM 01.06.2010. IT WAS, ACCORDING TO HIM, A FIT CASE FOR APPLYING THE RATIO AND THE PRINCIPLES LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF K.P. VARGHESE VS. ITO [1981] 131 ITR 597 (SC) INASMUCH AS THE APEX COURT TOOK INTO ACCOUNT ALL TH E RELEVANT FACTORS, INCLUDING THE PURPOSE FOR WHICH THE RELEVANT PROVISION OF SECTION 52 WAS BROUGHT ON THE STATUTE, AS CLARIFIED BY THE OFFICIAL PRONOUNCEMENTS PRECEDING IT OR IN THIS REGARD, INVOKING THE RULE 6 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT OF CONTEMPORANEA EXPOSITIO AS WELL AS THE PRINCIPLES OF CONSTRUCTION. IT, AFTE R NOTING, AS POINTED OUT BY LORD DENNING, THAT LANGUAGE IS AT BE ST AN IMPERFECT INSTRUMENT FOR THE EXPRESSION OF HUMAN THOUGHT, REFERRED TO THE WORDS OF LEARNED HAND THAT IT MUST ALWAYS BE REMEMBERED THAT STATUTES HAVE SOME PURPOSE OR OB JECT TO ACCOMPLISH, WHOSE SYMPATHETIC AND IMAGINATIVE DISCOVERY IS THE SUREST GUIDE TO THEIR MEANING (AT PG. 604). 4.2 WE SHALL, BEFORE PROCEEDING FURTHER, NEED TO FI RST RESOLVE IF THE PROVISION OF SECTION 56(2)(VII) INCLUDES THE PROPERTY UNDER REFERENCE, I .E., AS RECEIVED BY THE ASSESSEE. THIS IS AS THE WORD PROPERTY OCCURRING THEREIN IS DEFINED TO MEAN CAPITAL ASSETS AS SPECIFIED THEREIN (VIDE EXPLANATION TO THE PROVISION). THOUGH THE SAME LISTS SHARES A ND SECURITIES, ONE OF THE OBJECTIONS RAISED BY THE ASSESSEE IS THA T THE SHARES COME INTO EXISTENCE ONLY ON THEIR ALLOTMENT. HOWEVER, THE RIGHT TO ACQUIRE THE SHARES AT A CONCESSIONAL RATE, WHICH IS WHAT IS SOUGHT TO BE ANNEXED OR TARGETED BY THE REV ENUE THROUGH THE SAID PROVISION, COMES INTO EFFECT ON THE PASSING OF THE NECESSARY R ESOLUTION BY THE BOARD OF DIRECTORS (BOD) OF THE ISSUER-COMPANY. THIS IS ALSO PRESSED T O SUPPORT THE ARGUMENT OF THE PROVISION BEING NEVER INTENDED TO COVER A TRANSACTI ON OF THIS NATURE, I.E., WHERE THE SHARES ARE OFFERED TO THE EXISTING SHAREHOLDERS THOUGH B ELOW THEIR MARKET VALUE, ON RIGHTS BASIS. TRUE, THE SHAREHOLDERS GET THE RIGHT TO ACQUIRE THE ADDITIONAL SHARES ON THE PASSING OF THE BOARD RESOLUTION, BUT THE RECEIPT OF THE PRO PERTY IS ONLY ON THEIR ALLOTMENT, ON WHICH DATE THE SHARES, A SPECIFIED PROPERTY, IS IN EXISTE NCE [REFER: SHREE GOPAL AND COMPANY VS. CALCUTTA STOCK EXCHANGE LTD. [1963] 32 COMP. CAS. 862 (SC) AND KHODAY DISTILLERIES LTD. VS. CIT [2008] 307 ITR 312 (SC) (176 TAXMANN 142)], WHEREIN IT HAS BEEN EXPLAINED THAT ALLOTMENT IS GENERALLY NEITHER MORE NOR LESS THAN THE ACCEPTANCE BY THE COMPANY OF THE OFFER TO TAKE SHARES. ALL IT MEANS I S APPROPRIATION OUT OF THE PREVIOUSLY UN-APPROPRIATED CAPITAL OF A COMPANY OF A CERTAIN N UMBER OF SHARES TO A PARTICULAR PERSON. TILL SUCH ALLOTMENT THE SHARES DO NOT EXIST AS SUCH , AND IN A SENSE COME INTO EXISTENCE ON THEIR ALLOTMENT. IN THIS VIEW OF THE MATTER, THE PL EA OF THE RIGHTS UNDER REFERENCE BEING NOT A PROPERTY SPECIFIED UNDER THE PROVISION OR THE PRO VISION BEING SOUGHT TO BE APPLIED BY 7 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT THE REVENUE TO A NON-EXISTING PROPERTY, IS WITHOUT BASIS. IN FACT, BEFORE US EVEN THE DATE OF RECEIPT - WHICH ITSELF IMPLIES THAT THE PROPERTY EXISTS, I.E., WHETHER ON ALLOTMENT (28.01.2010) OR THE RECEIPT OF SHARES (10.02.2010), WAS A BONE OF CONTENTION. THIS IS RENDERED INCONSEQUENTIAL INASMUCH AS BOTH THE DATES FALL DURING THE RELEVANT PREVIOUS YEAR; AND BEING SEPARATED BY A SMALL TIME LAG, EVEN THE VALUATION WOULD NOT ALTER TO ANY MATERIAL EXTENT, AND WHICH BECOMES A RELEVANT CONSI DERATION INASMUCH AS THE VALUATION DATE UNDER R. 11U(J) IS THE DATE OF THE RECEIPT OF THE PROPERTY. IN OUR VIEW THOUGH, THE SHARES ARE RECEIVED ON THEIR ALLOTMENT. WHAT STANDS RECEIVED BY THE ASSESSEE SUBSEQUENTLY ON 10.02.2010 ARE THE SHARE CERTIFICATES, I.E., THE DOCUMENT EVIDENCING ITS TITLE THERETO. THE TWO ARE DIFFERENT, AND THE SHARES AS WELL AS TH E PROPERTY THEREIN VEST IN THE ASSESSEE ON THE ALLOTMENT OF THE SHARES, WHEREAT THE SAME ST AND CONSTRUCTIVELY RECEIVED; THE PAYMENT OF WHICH HAS ALSO BEEN MADE BY THAT DATE. COMING BACK TO THE QUESTION POSED, I.E., AS TO HOW COULD A TRANSACTION AS THE PRESENT ONE BE POSSIBLY COVERED BY SECTION 56(2)(VI I)(C), IN OUR VIEW THE CORRECT AND THE PROPER QUESTION TO BE ASKED IN THE MATTER INSTEAD I S: THE TRANSACTION PER SE BEING OSTENSIBLY COVERED BY THE CLEAR AND UNAMBIGUOUS LAN GUAGE OF THE PROVISION, WHAT IS ITS IMPORT IN A CASE AS A PRESENT ONE ? DOES IT, FOR EXAMPLE, LEAD TO ANY UNINTENDED OR A BSURD RESULTS WHICH, THOUGH APPARENTLY SHOULD NOT ARISE, GIVEN THE CLEAR AND PRECISE MANDATE OF THE PROVISION, I.E., TO TREAT GAINS BY WAY OF RECEI PT OF PROPERTY, WHICH ARE NOT EXPLICABLE IN TERMS OF NORMAL HUMAN CONDUCT, AS INCOME FROM OTHER SOURCES OF THE YEAR OF RECEIPT (OF THE RELEVANT ASSET). THE QUESTION BEING ASKED, ON T HE OTHER HAND, RATHER THAN ELICITING A CORRECT ANSWER WHICH IS THE PURPORT OF ANY QUESTI ON, OBFUSCATES THE ISSUE. THE SECTION WITHOUT DOUBT SEEKS TO SUBSTITUTE THE FMV AS THE NO RMATIVE BASIS FOR TRANSACTIONS INVOLVING THE RECEIPT OF PROPERTY BY A PERSON, BEIN G AN INDIVIDUAL OR HUF. THAT IS, IT DEEMS THE SAME TO BE A PROPER MEASURE OF THE ARMS LENGTH PRICE, WHICH PRINCIPLE OUGHT TO GUIDE OR OBTAIN IN CASE OF A TRANSACTION BETWEEN TWO UNRELATED PARTIES. EXCEPTIONS FOR TRANSACTIONS BETWEEN RELATIVES; ON INHERITANCE; ON THE OCCASION OF MARRIAGE; IN CONTEMPLATION OF DEATH, ETC. ARE PROVIDED, WHERE TH IS RULE MAY NOT APPLY IN THE NORMAL COURSE, I.E., OF HUMAN CONDUCT, INASMUCH AS NO CONS IDERATION IS PREDICATED IN SUCH CASES 8 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT OR, PUT DIFFERENTLY, CONSIDERATIONS OTHER THAN FINA NCIAL/MONETARY COME INTO PLAY. TO THAT EXTENT THE PROVISION IS WELL-FOUNDED AND ADEQUATELY EXCEPTED. THE PROVISION, BEGINNING WITH SECTION 56(2)(V) BY FINANCE (NO.2) ACT, 2004, WHICH HAD A THRESHOLD LIMIT OF RS.25,000/-, AS AGAINST THE PRESENT RS.50,000/-, HA S BEEN GRADUALLY ENHANCED IN SCOPE OVER TIME TO INCLUDE GIFTS-IN-KIND AND IMMOVABLE PR OPERTY AS WELL, WITH SECTION 56(2)(VII) TAKING EFFECT FROM 01.10.2009 ONWARDS, PHASING OUT SECTIONS 56(2)(V) AND 56(2)(VI) BY LIMITING THEIR APPLICATION TO SPECIFIED PERIODS IN THE INTERREGNUM. IN FACT, DEVELOPMENTS CONTINUE UNABATED, AND THE PROVISION IS FURTHER STR ENGTHENED AND BROADENED, WITH FINANCE ACT, 2010 INCLUDING A FIRM/COMPANY AMONG THE ELIGIB LE RECIPIENTS, I.E., WHERE THE PROPERTY INVOLVED IS SHARES IN UNLISTED COMPANIES, I.E., IN WHICH THE PUBLIC IS NOT SUBSTANTIALLY INTERESTED, AS THE PRESENT ONE, EXCLU DING TRANSACTIONS OF BUSINESS REORGANIZATION, AMALGAMATION, DEMERGER, ETC. PER CL AUSE (VIIA). THE SAME ARE EXPLAINED AS AN ANTI-ABUSE MEASURE, FOLLOWING THE ABOLITION OF T HE GIFT TAX ACT, 1958, WHICH IT IS WELL- SETTLED, AS ALSO EXPLAINED BY THE APEX COURT IN KHODAY DISTILLERIES LTD. (SUPRA), TO, TOGETHER WITH THE WEALTH TAX ACT, 1957 AND THE ACT, FORM AN INTEGRATED CODE. WHILE THE GIFT TAX ACT HAD SOUGHT TO BRING TO TAX THE SHORTFA LL IN CONSIDERATION IN THE HANDS OF THE DONOR, THE PRESENT PROVISION/S SEEK TO BRING THE SA ME TO TAX AS INCOME IN THE HANDS OF THE RECIPIENT OF THE RELEVANT ASSETS. THE REVENUE IN VI EW OF THE LAW PROVIDING FOR THE FMV AS THE NORMATIVE BASIS FOR THE ACQUISITION OF THE PROP ERTY, ABSOLVED OF PROVING, A FORMIDABLE, IF NOT AN IMPOSSIBLE TASK BY ANY STANDARDS, THAT TH E SHORTFALL IN THE CONSIDERATION IS SOURCED BY OR ON BEHALF OF THE RECIPIENT OF THE PRO PERTY, AND IS THUS HIS INCOME. IT IS IN FACT NOT DIFFICULT TO VISUALIZE SITUATIONS WHERE TH ROUGH THE MEDIUM OF ADDITIONAL SHARES THE CONTROLLING INTEREST IN A COMPANY OR BUSINESS O R INTEREST IN PROPERTY MOVABLE OR IMMOVABLE, IS PASSED ON TO ANOTHER AT CONSIDERATION S FAR BELOW THE GOING RATE OF THE RELEVANT OR THE UNDERLYING ASSETS/INTEREST. ONLY A PRO-RATA ALLOTMENT OR, WHERE NOT SO, ONE THAT IS ADEQUATELY PRICED, WOULD EFFECTIVELY ENSURE AN EXCHANGE OF THE ASSETS OR INTEREST THEREIN AT PAR VALUES . THE PROVISION, THUS PREMISED, IS ON A FIRM, COGEN T AND SOUND FOOTING. 9 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT WE MAY, BEFORE WE CONCLUDE OUR DISCUSSION ON THIS A SPECT OF THE MATTER, DILATE ON THE APPLICATION OF THE PROVISION TO THE TRANSACTION OF THE NATURE UNDER REFERENCE. THE PROVISION, FIRSTLY, WOULD NOT APPLY TO BONUS SHARES , AND THE ARGUMENT ALLUDING THERETO ARISES ONLY ON ACCOUNT OF MISCONCEPTION IN RESPECT THEREOF. THOUGH THE SHARES UNDER REFERENCE ARE ADMITTEDLY NOT BONUS SHARES, WE CONSI DER IT RELEVANT TO DWELL THEREON, NOT ONLY TO MEET THE ARGUMENT IN THEIR RESPECT, MADE EM PHATICALLY BEFORE US, BUT ALSO TO DEMONSTRATE THE WHOLESOMENESS OF THE PROVISION, WHI CH IS IN FACT WHAT WAS BEING SOUGHT TO BE IMPUGNED. ISSUE OF BONUS SHARES IS BY DEFINIT ION CAPITALIZATION OF ITS PROFIT BY THE ISSUING-COMPANY. THERE IS NEITHER ANY INCREASE NOR DECREASE IN THE WEALTH OF THE SHAREHOLDER (OR OF THE ISSUING COMPANY) ON ACCOUNT OF A BONUS ISSUE, AND HIS PERCENTAGE HOLDING THEREIN REMAINS CONSTANT. WHAT IN EFFECT TR ANSPIRES IS THAT A SHARE GETS SPLIT (IN THE SAME PROPORTION FOR ALL THE SHAREHOLDERS), AS FOR E XAMPLE BY A FACTOR OF TWO IN CASE OF A 1:1 BONUS ISSUE. REFERENCE IN THIS REGARD MAY BE MA DE TO THE DECISION IN CIT VS. DALMIA INVESTMENT CO. LTD. [1964] 52 ITR 567 (SC) AS WELL AS IN KHODAY DISTILLERIES LTD. (SUPRA), WHEREIN REFERENCE STANDS MADE TO THE FORME R, ALSO QUOTING THERE-FROM, BESIDES INTER ALIA TO HUNSUR PLYWOOD WORKS LTD. VS. CIT [1998] 229 ITR 112 (SC), WHERE THE SAME WERE REFERRED TO AS CAPITALIZATION SHARES. IN OTHER WORDS, THERE IS NO RECEIPT OF ANY PROPERTY BY THE SHAREHOLDER, AND WHAT STANDS RECEIV ED BY HIM IS THE SPLIT SHARES OUT OF HIS OWN HOLDING . IT WOULD BE AKIN TO SOMEBODY EXCHANGING A ONE THO USAND RUPEE NOTE FOR TWO FIVE HUNDRED OR TEN HUNDRED RUPEE NOTES. THERE IS, ACCORDINGLY, NO QUESTION OF ANY GIFT OF OR ACCRETION TO PROPERTY; THE SHARE-HOLDER GETTING ONLY THE VALUE OF HIS EXISTING SHARES, WHICH STANDS REDUCED TO THE SAME EXTENT. TH E SAME HAS THE EFFECT OF REDUCING THE VALUE PER SHARE, INCREASING ITS MOBILITY AND, THUS, LIQUIDITY, IN THE SENSE THAT THE SHARES BECOME MORE ACCESSIBLE FOR TRANSACTIONS AND, THUS, TRADING, I.E., CONSIDERED FROM THE HOLDERS POINT OF VIEW. WE MAY THOUGH ADD A NOTE OF CAUTION. THERE COULD BE A CASE OF BONUS ISSUE COUPLED WITH THE RELEASE OF ASSETS (OF THE ISSUING COMPANY) IN FAVOUR OF THE SHAREHOLDERS. THE SAME WOULD FALL TO BE CONSIDERED AS DIVIDEND U/S. 2(22)(A) OF THE ACT. 10 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT FINDINGS 4.3 WE MAY NEXT EXAMINE IF THE PROVISION, BEING OST ENSIBLY APPLICABLE, LEADS TO ANY ADDITION IN THE HANDS OF THE ASSESSEE WHOSE SHAREHO LDING GETS AS A RESULT OF THE TRANSACTION, IN FACT REDUCED FROM 4.98% TO (AS STAT ED) 3.17%. THE ARGUMENT AS WELL AS THE PREMISE ON WHICH WE FOUND THE ISSUE OF BONUS SHARES AS NOT APPLICABLE WOULD, TO THE EXTENT PARI MATERIA , APPLY IN EQUAL MEASURE TO THE ISSUE OF ADDITIONAL SHARES, I.E., WHERE AND TO THE EXTENT IT IS PROPORTIONAL TO THE EXISTIN G SHARE-HOLDING. WE MAY THOUGH, AT THE OUTSET, CLARIFY THAT THE INSTANT ISSUE CANNOT BE CA LLED A RIGHTS ISSUE. SECTION 81 OF THE COMPANIES ACT, 1956 IS NOT APPLICABLE TO A PRIVATE COMPANY (S.81(3)), SO THAT IT IS FIRSTLY NOT OBLIGED TO ISSUE SHARES TO THE EXISTING SHAREHO LDERS ONLY, AND AGAIN, EVEN SO, ON A PROPORTIONATE BASIS. THAT APART, WE STATE SO AS THE SCHEME DOES NOT HAVE A PROVISION FOR THE RENUNCIATION OF RIGHTS BY THE EXISTING SHAREHOL DERS. THE SAME COULD THUS AT THE OPTION OF THE ISSUING COMPANY BE OFFERED FOR ALLOTMENT TO ANY OTHER, I.E., WHETHER EXISTING SHAREHOLDER OR NOT. THUS, THOUGH THE ISSUE HAS ELEM ENTS OF A RIGHT ISSUE INASMUCH AS THE OFFER IS MADE IN THE FIRST INSTANCE TO THE EXISTING SHAREHOLDERS ON THE BASIS OF THEIR SHARE- HOLDING ON PROPORTIONAL BASIS, THE SAME CANNOT BE S TRICTLY TERMED AS ONE; THE COMPANY APPROPRIATING THAT RIGHT, WHICH COULD BE OFFERED TO ANOTHER. A RIGHTS ISSUE, AS INFORMED BY THE LD. AR UPON ENQUIRY BY THE BENCH, STANDS NOT DE FINED EITHER UNDER THE COMPANIES ACT OR UNDER THE SECURITIES CONTRACTS (REGULATION) ACT, 1956. THE COMPANY HAS, ACCORDINGLY, CORRECTLY TERMED THE ISSUE, NOT SATISFYING ALL ITS PARAMETERS, AS AKIN TO A RIGHTS ISSUE, BEFORE THE LD. CIT(A), WHICH THE LD. AR WAS BEFORE US AT PAINS TO DISLODGE. NOTHING, HOWEVER, TURNS ON THE SAME, AS WOULD APPARENT FROM THE FOREGOING DISCUSSION, AND AS WE SHALL PRESENTLY SEE IN MORE DETAIL. WE SAY SO AS TO THE EXTENT THE VALUE OF THE PROPERTY IN THE ADDITIONAL SHARES IS DERIVED FROM THAT OF THE E XISTING SHAREHOLDING, ON THE BASIS OF WHICH THE SAME ARE ALLOTTED, NO ADDITIONAL PROPERTY CAN BE SAID TO HAVE BEEN RECEIVED BY THE SHAREHOLDER. THE REVENUE ARGUES OTHERWISE, CONT ENDING THAT THE FALL IN THE VALUE OF THE EXISTING HOLDING, IF ANY, IS NOT TO BE TAKEN IN TO ACCOUNT OR RECKONING. THE ARGUMENT IS EQUALLY MISCONCEIVED, I.E., AS THAT BY THE ASSESSEE QUA THE APPLICABILITY OF THE PROVISION TO BONUS SHARES. IT FAILS TO TAKE INTO ACCOUNT THE NAT URE OF THE TRANSACTION. TO EXEMPLIFY, 11 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT SHARES IN THE RATIO (SAY) 1:1 ARE OFFERED FOR SUBSC RIPTION AT THE FACE VALUE OF RS.100/- AS AGAINST THE CURRENT BOOK VALUE OF RS.1,500/- (SAY). THE MOMENT A RIGHT SHARE IS ALLOTTED, THE BOOK VALUE SHALL FALL TO RS.800/- PER SHARE. IT IS EASY TO SEE THAT THE NEW SHARE PARTAKES A PART OF THE VALUE OF THE EXISTING SHARE, WHICH IS ONLY ON THE BASIS OF THE UNDERLYING ASSETS ON THE COMPANYS BOOKS. THE EXCESS (OVER FAC E VALUE), OR RS.1,400/-, GETS APPORTIONED OVER TWO SHARES AS AGAINST ONE EARLIER, WHICH IS ALREADY THE SHAREHOLDERS PROPERTY. THIS IS ALSO THE BASIS AND THE PREMISE OF THE DECISIONS IN THE CASE OF DHUN DADABHOY KAPADIA VS. CIT [1967] 63 ITR 651 (SC) AND H. HOLCK LARSEN VS. CIT [1972] 85 ITR 285 (BOM), RELIED UPON AND REFERRED TO BY TH E PARTIES BEFORE US. AS LONG AS, THEREFORE, THERE IS NO DISPROPORTIONATE ALLOTMENT, I.E., SHARES ARE ALLOTTED PRO-RATA TO THE SHAREHOLDERS, BASED ON THEIR EXISTING HOLDINGS, TH ERE IS NO SCOPE FOR ANY PROPERTY BEING RECEIVED BY THEM ON THE SAID ALLOTMENT OF SHARES; T HERE BEING ONLY AN APPORTIONMENT OF THE VALUE OF THEIR EXISTING HOLDING OVER A LARGER N UMBER OF SHARES. THERE IS, ACCORDINGLY, NO QUESTION OF SECTION 56(2)(VII)(C), THOUGH PER SE APPLICABLE TO THE TRANSACTION, I.E., OF THIS GENRE, GETTING ATTRACTED IN SUCH A CASE. A HIG HER THAN PROPORTIONATE OR A NON-UNIFORM ALLOTMENT THOUGH WOULD, AND ON THE SAME PREMISE, AT TRACT THE RIGOR OF THE PROVISION. THIS IS ONLY UNDERSTANDABLE INASMUCH AS THE SAME WOULD O NLY BE TO THE EXTENT OF THE DISPROPORTIONATE ALLOTMENT AND, FURTHER, BY SUITABL Y FACTORING IN THE DECLINE IN THE VALUE OF THE EXISTING HOLDING. IN THE CONTEXT OF THE EXAMPLE CITED, BY TAKING THE DIFFERENCE AT RS.700/- PER SHARE FOR SUCH SHARES. WE EMPHASIZE EQ UALLY ON A UNIFORM ALLOTMENT AS WELL. THIS IS AS A DISPROPORTIONATE ALLOTMENT COULD ALSO RESULT ON A PROPORTIONATE OFFER, WHERE ON A SELECTIVE BASIS, I.E., WITH SOME SHAREHOLDERS ABSTAINING FROM EXERCISING THEIR RIGHTS (WHOLLY OR IN PART) AND, ACCORDINGLY, TRANSFER OF V ALUE/PROPERTY. TAKE, FOR EXAMPLE, A CASE OF A SHAREHOLDING DISTRIBUTED EQUALLY OVER TWO SHAR EHOLDER GROUPS, I.E., AT 50% FOR EACH. A 1:1 RIGHTS ISSUE, ABSTAINED BY ONE GROUP WOULD RE SULT IN THE OTHER HAVING A 2/3 RD HOLDING. A HIGHER PROPORTION OF RIGHTS SHARES (AS 2:1, 3:1, ETC.) WOULD, IT IS EASY TO SEE, YIELD A MORE SKEWED HOLDING IN FAVOUR OF THE RESULT ING DOMINANT GROUP. WE OBSERVE NO ABSURDITY OR UNINTENDED CONSEQUENCES AS FLOWING FRO M THE PER SE APPLICATION OF THE PROVISION OF S. 56(2)(VII)(C) TO RIGHT SHARES, WHIC H BY FACTORING IN THE VALUE OF THE EXISTING 12 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT HOLDING OPERATES EQUITABLY. IT WOULD BE NOTED THAT THE SECTION, AS CONSTRUED, WOULD APPLY UNIFORMLY FOR ALL CAPITAL ASSETS, I.E., DRAWING NO EXCEPTION FOR ANY PARTICULAR CLASS OR CATEGORY OF THE SPECIFIED ASSETS, AS THE RIGHT SH ARES. NO ADDITION U/S. 56(2)(VII)(C) WOULD THUS ARISE IN THE UNDISPUTED FACTS OF THE INSTANT C ASE, AND THE ASSESSEE SUCCEEDS . 4.4 THE FOREGOING ARGUMENTS AND PREMISES WOULD ALSO MEET AND STATE THE BASIS FOR OUR NOT ACCEPTING THE REVENUES ARGUMENT TOWARD NO COGN IZANCE BEING TAKEN OF THE EXISTING SHAREHOLDING ON THE STRENGTH OF WHICH ONLY THE AD DITIONAL SHARES ARE ALLOTTED TO THE ASSESSEE OR THE DECLINE IN THEIR VALUE CONSEQUENT T O THE ISSUE OF ADDITIONAL SHARES IN-AS- MUCH AS THE SAME ARE NOT THE SUBJECT MATTER OF RECE IPT, I.E., TO WHICH THE PROVISION PERTAINS AND IS RESTRICTED TO. IT STOOD FURTHER CON TENDED BEFORE US THAT THE RATIO OF THE DECISION IN THE CASE OF DHUN DADABHOY KAPADIA (SUPRA) WOULD BE NO LONGER APPLICABLE, I.E., EVEN IN PRINCIPLE, SO THAT THE SAID DECLINE W OULD BE OF NO CONSEQUENCE IN VIEW OF THE SPECIFIC PROVISIONS BEING SINCE INCORPORATED UNDER SECTION 55 OF THE ACT, PROVIDING FOR THE COST OF SHARES UNDER SUCH SITUATIONS, AS FOR EXAMPL E A NIL COST FOR BONUS SHARES. THE CAPITAL ASSET RECEIVED BY THE ASSESSEE (SHARES IN T HE PRESENT CASE), IT MAY BE APPRECIATED, ARE TO BE VALUED AS ON THE DATE OF ITS RECEIPT. THA T IS, IT IS ONLY THE ASSET RECEIVED THAT IS TO BE VALUED. IN-AS-MUCH AS THEREFORE THE VALUE OF THE ADDITIONAL SHARES IS DERIVED - IF ONLY IN PART - FROM THAT OF THE EXISTING SHARES, THE DECLIN E IN THE VALUE THEREOF CANNOT BE EXCLUDED OR IGNORED THOUGH ONLY BY FOLLOWING THE VALUATION METHOD PRESCRIBED UNDER THE RULES IN ARRIVING AT THE PROPERTY BY WAY OF ADDITIONAL SH ARES RECEIVED BY THE ASSESSEE. THE PROVISION OF SECTION 55(2)(AA) PROVIDES FOR THE COS T OF A CAPITAL ASSET, BEING A SHARE OR SECURITY, WHICH THE ASSESSEE BECOMES ENTITLED TO SU BSCRIBE TO BY VIRTUE OF HIS HOLDING SUCH A CAPITAL ASSET. IN OUR VIEW, THE SAME, ON THE CONT RARY, PROVIDES STATUTORY SUPPORT, I.E., IN PRINCIPLE, TO OUR DECISION IN-AS-MUCH AS IT CLARIFI ES THAT THE VALUES OF THE TWO, I.E., THE ORIGINAL AND THE ADDITIONAL FINANCIAL ASSETS (WHICH IS HOW THE SAME ARE REFERRED TO IN THE SAID PROVISION) ARE INTERLINKED AND, ACCORDINGLY, A GAIN CANNOT BE COMPUTED INDEPENDENT OF EACH OTHER. IT IS IN FACT IN ACKNOWLEDGMENT THER EOF THAT THE LEGISLATURE HAS CONSIDERED IT PROPER AND NECESSARY TO PROVIDE FOR DETERMINATIO N OF COST IN SUCH CASES, I.E., FOR 13 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT UNIFORM APPLICATION. THE SAME THOUGH WOULD OPERATE FOR THE PURPOSE OF COMPUTING CAPITAL GAINS, WHICH WOULD ARISE ON THE SUBSEQUENT TRANSFER OF SUCH ASSETS. WE HAVE ALREADY NOTED AN INTERNAL CONSISTENCY BETWEEN THE T WO SETS OF PROVISIONS IN-AS-MUCH AS SECTION 49(4) STANDS SIMULTANEOUSLY INCORPORATED TO DEEM THE VALUE ADOPTED OR TAKEN FOR THE PURPOSE OF SECTION 56(2)(VII) (OR (VIIA)) AS TH E COST OF ACQUISITION OF THE RELEVANT ASSET (REFER PARA 4.1). IN FACT, THE ARGUMENT BECOMES IR RELEVANT IN VIEW OF OUR DECISION HOLDING THAT SECTION 56(2)(VII) SHALL NOT HAVE EFFECT, IRRE SPECTIVE OF THE VALUE AT WHICH THE ADDITIONAL SHARES ARE ALLOTTED, WHERE AND TO THE EX TENT THEY ARE SO ON THE STRENGTH OF AND AGAINST THE EXISTING SHAREHOLDINGS, MADE UNIFORMLY OR SUBJECT TO ADEQUATE PRICING. MUCH WAS MADE BEFORE US OF THE REVENUE NOT TREATING THE TRANSACTION AS A RIGHTS ISSUE OF SHARES, AS WELL AS OF THE POWER OF THE TRIBUNAL IN ENTERTAI NING SUCH A PLEA, EVEN WHERE TAKEN BEFORE IT FOR THE FIRST TIME, INCLUDING QUA THE ADMISSION OF ADDITIONAL EVIDENCE. WE HAVE ALREADY CLARIFIED THE SAME TO BE NOT A RIGHTS ISSUE , I.E., IN THE STRICT SENSE OF THE TERM, ALSO STATING OUR REASONS, ON THE BASIS OF ADMITTED FACTS , THEREFOR. THE PLEA IS ALSO RENDERED INCONSEQUENTIAL IN VIEW OF OUR AFORE-SAID DECISION. THIS WOULD ALSO MEET THE ASSESSEES ARGUMENT OF IT BECOMING, AS A RESULT OF THE TRANSAC TION, POORER IN-AS-MUCH AS THE VALUE OF HIS HOLDING WITNESSES A DECLINE AFTER TAKING INTO A CCOUNT THE PAYMENT MADE FOR THE ACQUISITION OF THE ADDITIONAL SHARES. THE SAID ARGU MENT THUS, RATHER THAN DETRACTING FROM LENDS FURTHER SUPPORT TO OUR DECISION. THE ASSESSEE S ARGUMENT, WITH REFERENCE TO THE SHARES IN THE RESULTING COMPANY RECEIVED BY A SHARE HOLDER ON DEMERGER, WHICH IS WITHOUT CONSIDERATION, WOULD THUS ALSO BE OF NO MOMENT. THE SAME IS AGAIN MISCONCEIVED IN-AS- MUCH AS THE SHAREHOLDER ONLY RECEIVES THE VALUE OF HIS EXISTING HOLDING IN THE FORM OF THE SHARES IN THE RESULTING COMPANY. WE HAVE IN FACT AL READY NOTED THAT THESE PROVISIONS, I.E., CLAUSE (VII), TOGETHER WITH CLAUSES (V) AND (VI) PR ECEDING IT, AND CLAUSES (VIIA) AND (VIIB) FOLLOWING IT, OF SECTION 56(2), EXCLUDE TRANSACTION S OF BUSINESS REORGANIZATION, MERGER, DEMERGER, ETC. (REFER PARA 4.2). AS SHALL BE NOTED, IT IS ONLY THE SHARES OR INTEREST IN A COMPANY IN WHICH PUBLIC IS NOT SUBSTANTIALLY INTERE STED, ARBITRAGE OR LEVERAGING OF INTEREST IN WHICH, BEING LARGELY OUTSIDE THE PUBLIC DOMAIN, THAT THE PROVISION/S SEEK TO CAPTURE FOR 14 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT TAX PURPOSES. A DEMERGER STANDS, FURTHER, ALSO SPEC IFICALLY EXCLUDED FROM THE DEFINITION OF DIVIDEND PER CLAUSE (V) OF SECTION 2(22). 4.5 WE MAY NEXT MEET THE VARIOUS ARGUMENTS ADVANCED BY EITHER SIDE. THE ASSESSEE CLAIMS OF SECTION BEING NOT PER SE APPLICABLE AS NEITHER IS THERE ANY TRANSFER IN ITS FAVOUR NOR IS THE ISSUER-COMPANY THE OWNER OF THE SHARES, WHICH STAND ACQUIRED BY WAY OF SUBSCRIPTION. WE ARE UNABLE TO APPRECIATE THE ARGUM ENT. HOW ELSE, WE WONDER, IS THE ISSUED CAPITAL IN A COMPANY SUPPOSED TO BE ACQUIRED ? THE SECTION NOWHERE STIPULATES TRANSFER AS THE PRESCRIBED MODE OF ACQUISITION. T HE TRANSFER OF A CAPITAL ASSET IS EVEN OTHERWISE A RELEVANT CONSIDERATION IN RESPECT OF IN COME BY WAY OF CAPITAL GAINS, CHARGEABLE U/S.45. A PARALLEL, IF AT ALL, IN-AS-MUC H AS THE PROVISION, WHICH IS TO BE CONSIDERED AS VALID, WAS REQUIRED TO BE PLACED IN P ERSPECTIVE AND WITHIN THE SCHEME OF THE ACT, COULD BE DRAWN TO THE DEEMING PROVISIONS OF IT S CHAPTER VI TITLED AGGREGATION OF INCOME AND SET OFF OR CARRY FORWARD OF LOSS. AN IN VESTMENT OR ASSET FOUND NOT RECORDED, WHOLLY OR PARTLY, IN THE BOOKS OF ACCOUNT MAINTAINE D BY THE ASSESSEE (FOR ANY SOURCE OF INCOME), AND IN RESPECT OF ACQUISITION OR OWNERSHIP OF WHICH HE IS UNABLE TO FURNISH A SATISFACTORY EXPLANATION, I.E., AS TO THE NATURE AN D SOURCE OF ACQUISITION, THE VALUE THEREOF OR THE EXCESS (UNRECORDED) VALUE, AS THE CASE MAY B E, IS DEEMED AS THE ASSESSEES INCOME. THE APEX COURT IN CHUHARMAL VS. CIT [1988] 172 ITR 250 (SC) EXPLAINED THAT THE PROVISION OF SECTION 110 OF THE INDIAN EVIDENCE ACT , 1872, RAISING A PRESUMPTION OF OWNERSHIP IN FAVOUR OF THE PERSON IN POSSESSION (IN -AS-MUCH AS POSSESSION IS A PRIMA FACIE PROOF OF OWNERSHIP) IS APPLICABLE UNDER TAX JURISPRUDENCE AS WELL, SO THAT THE ONUS TO SHOW THAT HE WAS NOT THE ACTUAL OWNER IS UPON SUCH A PERSON. IT, ACCORDINGLY, FOUND NOTHING AMISS IN THE CHARGE TO TAX AS INCOME, THE A SSETS, PROPERLY VALUED, WHERE UNEXPLAINED (OR NOT SATISFACTORILY EXPLAINED) IN TE RMS OF THE NATURE AND SOURCE OF THEIR ACQUISITION. THE PRINCIPLE STANDS IN FACT DWELT WIT H AND EXPLAINED AT LENGTH BY IT OVER A NUMBER OF DECISIONS EVEN PRIOR THERETO. THE RECEIPT OF MONEY, SPEAKING IN THE CONTEXT OF A CREDIT ENTRY APPEARING IN THE ASSESSEES BOOKS OF ACCOUNT, EVEN AS THERE WAS NO PROVISION CORRESPONDING TO SECTION 68 OF THE ACT IN THE EARLIER 1922 ACT, IT EXPLAINED, IS 15 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT ITSELF AN EVIDENCE AGAINST THE ASSESSEE OF BEING IN RECEIPT OF INCOME, SO THAT THE ONUS TO SHOW THAT IT IS NOT SO IS UPON HIM (REFER: A. GOVINDA RAJULU MUDALIAR V. CIT (1958) 34 ITR 807 (SC); SREELEKHA BANERJI VS. CIT [1963] 49 ITR 112 (SC); KALE KHAN MOHAMMAD HANIF VS. CIT [1963] 50 ITR 1 (SC); CIT V. DURGA PRASAD MORE (1971) 82 ITR 540 (SC)). SECTION 68, ON ONE HAND, AND SECTION S 69/69A/69B/69C ON THE OTHER ARE PARI MATERIA , BOTH SEEKING EXPLANATION FOR THE ASSETS, BEING RE CORDED IN THE FIRST CASE AND NOT OR ONLY PARTLY SO IN THE OTHER. NO DOUBT, THE O NUS UNDER THE LATTER CATEGORY OF SECTIONS IS ON THE REVENUE. HOWEVER, THE ONUS ON THE REVENUE IS LIMITED ONLY TO SHOWING THE ASSESSEE TO BE THE OWNER OR IN POSSESSION OF THE RE LEVANT ASSET. IN FACT, EVEN THIS IS TO BE REGARDED AS DISCHARGED WHERE IT IS ABLE TO EXHIBIT CIRCUMSTANCES THAT LEAD TO THE INFERENCE OF THE ASSESSEE BEING THE OWNER, EVEN AS CLARIFIED BY THE APEX COURT IN K.P. VARGHESE (SUPRA) (ALSO REFER C.K. SUDHAKARAN VS. ITO [2005] 279 ITR 533 (KER)). THE RECEIPT OF AN ASSET BY THE ASSESSEE, AND IN HIS OWN RIGHT, IS, ON THE OTHER HAND, THE VERY BASIS OR THE EDIFICE ON WHICH THE PROVISION OF SECTION 56(2)(VII ) RESTS, SO THAT IT PROCEEDS ON THE BASIS OR THE FOOTING OF THE BURDEN OF THE REVENUE BEING S ATISFIED. THE RECEIPT OF A CAPITAL ASSET IS ACCORDINGLY MADE THE BASIS OR THE CONDITION FOR THE CHARGE TO TAX AS INCOME, UNLESS FALLING UNDER ANY OF THE EXCEPTED CATEGORIES, AND W HICH IT WOULD BE NOTED IS A VALID BASIS U/S. 2(45) R/W S.5 OF THE ACT. IT IS THIS IN FACT T HAT HAD LED US TO STATE EARLIER OF THE RECEIPT (OF AN ASSET) AS HAVING BEEN ADOPTED AS THE BASIS O R THE CONDITION OF DEEMING AS INCOME U/S. 56(2)(VII) (OR CLAUSES (V) AND (VI)), AND OF T HE PROVISION AS BEING ON A FIRM FOOTING. WHAT THE PROVISION ESSENTIALLY DOES IS TO WIDEN THE SCOPE OF THE AFORE-REFERRED PROVISIONS OF CHAPTER VI, WHICH IS ESSENTIALLY A STATUTORY REC OGNITION OF THE RULES OF EVIDENCE, EVEN FURTHER. THE EXPLANATION REFERRED TO THEREIN IS DIS PENSED WITH WHERE THE RECEIPT IS IN RESPECT OF A CAPITAL ASSET, AS DEFINED, AND, FURTHE R, DOES NOT FALL UNDER ANY OF THE EXCEPTED CATEGORIES IN-AS-MUCH AS THE SAME IS REGARDED AS NO T NORMATIVE OR OUTSIDE THE REALM OF ACCEPTED HUMAN BEHAVIOR, BASED ON PREPONDERANCE OF PROBABILITIES (OF HUMAN CONDUCT). TO ARGUE OF THE RECEIPT AS BEING A SYNONYM FOR TRAN SFER, OR OF IT AS NOT FLOWING FROM ITS OWNER, IS, THUS, INCONSISTENT, BOTH IN THE CONTEXT OF THE PROVISION AS WELL AS ITS CLEAR LANGUAGE. REFERENCE IN THIS CONTEXT WAS ALSO MADE B Y THE LD. AR TO SECTION 122 OF THE 16 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT TRANSFER OF PROPERTY ACT, 1882 AND SECTION 25 OF TH E INDIAN CONTRACT ACT, 1872. A TRANSACTION COULD BE EITHER WITH OR WITHOUT CONSIDE RATION. CONSIDERATION SIGNIFIES A PRICE, SO THAT IT IS A CASE OF TRANSFER, WHICH THE IMPUGNE D TRANSACTION IS NOT, WHILE IF CONSIDERED AS WITHOUT CONSIDERATION, THE TRANSACTION IS VOID I N LAW, BEING NOT A GIFT IN-AS-MUCH AS THE COMPANY IS NOT THE OWNER OF ITS SHARES. THE ARGUMEN T SEEKS TO SUPPORT THE CONTENTION THAT THE TRANSACTION IN ORDER TO QUALIFY AS VALID IN LAW HAS TO BE A CASE OF TRANSFER IN-AS-MUCH AS THE CONSIDERATION IMPLIES PRICE, SO THAT THE WOR D RECEIPT OCCURRING IN SECTION 56(2)(VII) HAS TO BE READ AS A SYNONYM FOR OR EQUAT ED WITH PURCHASE OR TRANSFER. THE SHARES UNDER QUESTION BEING NOT ACQUIRED THROUGH TR ANSFER, THE TRANSACTIONS FALLS OUTSIDE THE AMBIT OF SECTION 56(2)(VII). WE ARE COMPLETELY UNIMPRESSED. THE ARGUMENT, ATTRACTIVE ON ITS FACE, FAILS MISERABLY THE MOMENT THE NATURE OF THE TRANSACTION, I.E., THE ALLOTMENT OF THE SHARES (THROUGH WHICH THE RELEVANT SHARES STAND ACQUIRED OR RECEIVED), UPON WHICH ONLY THE SHARES COME INTO EXISTENCE AND ARE RECEIVE D BY THE ALLOTTEE THEREOF, IS CLARIFIED. THE SAME HAS BEEN SUBJECT TO DILATION AND ELUCIDATI ON BY THE APEX COURT INTER ALIA IN SHREE GOPAL AND COMPANY (SUPRA) AND KHODAY DISTILLERIES LTD . (SUPRA) RELIED UPON BY THE PARTIES THEMSELVES BEFORE US. AS STATED EXPLICI TLY IN THE FORMER CASE, A SHARE IS A CHOSE IN ACTION. A CHOSE IN ACTION IMPLIES THE EXISTENCE OF SOME PERSON ENTITLED TO THE RIGHTS, WHICH ARE RIGHTS IN ACTION AS DISTINCT FROM RIGHTS IN POSSESSION, AND, UNTIL THE SHARE IS ISSUED, NO SUCH PERSON EXISTS. A SHARE DOES NOT EXI ST PRIOR TO ITS ALLOTMENT, AND IN THAT SENSE COMES INTO EXISTENCE ONLY ON ITS ALLOTMENT. A LLOTMENT OF A SHARE IS ONLY THE APPROPRIATION OF THE AUTHORIZED SHARE CAPITAL, BEIN G UN-APPROPRIATED, TO A PARTICULAR PERSON. IN NUTSHELL, THE DIFFERENCE BETWEEN THE ISS UE OF A SHARE TO A SUBSCRIBER AND A PURCHASE OF A SHARE FROM AN EXISTING SHAREHOLDER IS THE DIFFERENCE BETWEEN THE CREATION AND TRANSFER OF A CHOSE IN ACTION (REFER PGS.865, 8 66). HOW COULD, THEREFORE, PURCHASE BE EQUATED WITH ALLOTMENT ? IN FACT, THE PURCHASE OR TRANSFER IMPLIES EXISTEN CE OF A PROPERTY, WHILE THE SHARES, WHERE OUT OF UN-APPROPRIATED CAPI TAL, COME INTO EXISTENCE ONLY ON THEIR ALLOTMENT. IT BECOMES, THUS, IN THE CONTEXT OF THE PROVISION, COMPLETELY IRRELEVANT AND OF NO CONSEQUENCE THAT THE SHARES IN THE ISSUING COMPA NY ARE NOT ITS PROPERTY, AND THAT IT DOES NOT BECOME, THEREFORE, ANY POORER AS A RESULT OF THE ALLOTMENT OF SHARES THEREIN. 17 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT RECEIPT IS A WORD OR TERM OF WIDE IMPORT, AND WOU LD INCLUDE ACQUISITION OF THE SUBJECT MATTER OF RECEIPT DEFINED CAPITAL ASSETS IN THE P RESENT CONTEXT, BY MODES OTHER THAN BY WAY OF TRANSFER AS WELL. WE FIND NO REASON TO LIMIT OR RESTRICT THE SCOPE OF THE WORD RECEIPT IN THE PROVISION TO CASES OF TRANSFER O NLY. DOING SO WOULD NOT ONLY AMOUNT TO READING DOWN THE PROVISION, WHICH THE TRIBUNAL IS E VEN OTHERWISE NOT COMPETENT TO, BEING NOT A COURT OF LAW, BUT READING IT IN A MANNER TOTA LLY INCONSISTENT WITH THE UNAMBIGUOUS LANGUAGE AND THE CLEAR INTENT (OF THE LEGISLATURE) CONVEYED THEREBY, BUT ALSO ITS CONTEXT AS WELL AS THE DRIFT OF SECTION, IN COMPLETE VIOLENCE THERETO. IN THE CASE OF ISSUE OF BONUS SHARES (AS ALSO ON DE MERGER), NO PROPERTY IS BEING CONVEYED TO THE SHAREHOLDER IN-AS-MUCH AS THE PROPE RTY THEREIN IS COMPRISED IN THE EXISTING SHAREHOLDING OF THE ALLOTTEE. THERE IS AS SUCH NO CASE OF A GIFT; THE SHAREHOLDER ONLY RECEIVING HIS OWN PROPERTY, ALBEIT IN A DIFFER ENT FORM. A RIGHT SHARE, ON THE OTHER HAND, IS PLACED DIFFERENTLY. TO THE EXTENT IT IS AL LOTTED TO A PERSON NOT AGAINST HIS EXISTING SHAREHOLDING OR, EVEN SO, ALBEIT DISPROPORTIONATELY , THERE IS, DEPENDING ON THE TERMS OF THE ALLOTMENT, WHICH IS THE MODE OF ACQUISITION AND, TH US, ITS RECEIPT, SCOPE FOR VALUE OR PROPERTY BEING PASSED ON TO HIM, WHICH CANNOT BE SA ID TO BE IN LIEU OF OR AS RECOMPENSE OF HIS EXISTING PROPERTY. THE SECTION WOULD, AS AFORE-STATED, THEREFORE, APPL Y, THOUGH THE EXTENT OF INCOME, IF ANY, CHARGEABLE THERE-UNDER WO ULD DEPEND ON THE ACTUAL ALLOTMENT AND ITS TERMS . THUS, CONSIDERING THE ASSESSEES CASE FROM THIS A NGLE ALSO LEADS US TO THE SAME CONCLUSION. WE MAY AT THIS STAGE ADVERT TO THE ERSTWHILE SECTIO N 52 OF THE ACT OR, TO PUT IT MORE PRECISELY, ITS INTERPRETATION AS MADE BY THE APEX C OURT IN K.P. VARGHESE (SUPRA), ON WHICH HEAVY RELIANCE WAS PLACED BY THE LD. AR BEFORE US. WE HAVE PERUSED THE JUDGMENT; ITS RATIO/S BEING BINDING ON US. THOUGH THE APEX COURT PER A DETAILED JUDGMENT DISCUSSED VARIOUS ASPECTS OF THE MATTER, REFERRING TO THE OFF ICIAL PRONOUNCEMENTS EXPLAINING THE PROVISION, IN THE FINAL ANALYSIS, WHAT PREVAILED WI TH IT IS THAT THE PROVISION, AS BEING READ AND APPLIED BY THE REVENUE, EXCEEDED ITS MANDATE. THE PROVISION IS NOT A CHARGING SECTION . AS EXPLAINED BY IT, IT DOES NOT CREATE ANY FICTIO NAL RECEIPT; DOES NOT DEEM AS RECEIVED SOMETHING WHICH IS IN FACT NOT RECEIVED. I T MERELY PROVIDES A STATUTORY BEST 18 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT JUDGMENT ASSESSMENT OF THE CONSIDERATION ACTUALLY R ECEIVED BY THE ASSESSEE, AND BRINGS TO TAX THE CAPITAL GAINS ON THE FOOTING THAT THE FMV O F THE CAPITAL ASSET REPRESENTS THE ACTUAL CONSIDERATION RECEIVED BY THE ASSESSEE AS AGAINST T HE CONSIDERATION DECLARED OR DISCLOSED BY HIM. ACCORDINGLY, ONCE IT IS ESTABLISHED THAT TH E CONSIDERATION ACTUALLY RECEIVED BY THE ASSESSEE IS MORE THAN WHAT IS DECLARED OR DISCLOSED BY HIM, THE REVENUE IS NOT REQUIRED TO SHOW THE PRECISE EXTENT OF THE UNDERSTATEMENT OR TH E EXACT CONSIDERATION RECEIVED BY THE ASSESSEE AN IMPOSSIBLE TASK IN MOST CASES. THAT I S TO SAY THAT UNLESS, THEREFORE, THE PRIMARY CONDITION OF AN INACCURATE OR INCORRECT DIS CLOSURE OR DECLARATION; RATHER, AN UNDER- STATEMENT THEREOF, WAS SATISFIED, THE SECTION, WHIC H AGAIN PROVIDED A SURROGATE MEASURE IN THE FORM OF THE FMV OF THE RELEVANT ASSET, AS DOES SECTION 56(2)(VII), COULD NOT BE INVOKED. NOT DOING SO WOULD, IN ITS WORDS, WOULD BE TO READ INTO THE STATUTORY PROVISION SOMETHING WHICH IS NOT THERE. IT IS NOT DIFFICULT T O SEE THAT THE REVENUE, IN APPLYING THE PROVISION OF SECTION 52(2) IN THE MANNER IT DID, I. E., WITHOUT ESTABLISHING THE CONDITION OF ITS INVOCATION, WAS PUTTING THE CART BEFORE THE HOR SE. THE PROCESS LED TO A FUNDAMENTAL FLAW IN-AS-MUCH AS IT PROCEEDED TO ESTIMATE WHICH IS A PROCESS INTEGRAL TO ASSESSMENT SOMETHING (CONSIDERATION) THAT COULD NOT BE SAID TO EXIST, I.E., CREATED A FICTIONAL RECEIPT, WHICH WAS BEYOND ITS SCOPE . ONE COULD POSSIBLY ARGUE THAT SECTION 52(2) BEING NO LONGER ON THE STATUTE, ALL THIS IS NOT RELEVANT, AND THE ABIDING LEGACY OF THE DECI SION, AND THE PURPOSE FOR WHICH IT WAS REFERRED TO WAS INTER ALIA ITS RELEVANCE ON THE PRINCIPLE OF CONTEMPORANEA EXPOSITIO AND THE STATEMENT OF THE OBJECTS PER THE EXTANT OFFICIA L COMMUNICATIONS. THE ARGUMENT IS, IN THE CONTEXT OF THE PRESENT CASE, MISCONCEIVED. THIS IS AS WE HAVE FIRSTLY POINTED OUT A FUNDAMENTAL INFIRMITY IN THE INTERPRETATION PLACED ON OR ACCORDED TO SECTION 52(2) BY THE REVENUE. SECTION 52(1), WHICH AGAIN ONLY ENABLED TH E A.O. TO SUBSTITUTE THE FMV AS THE CONSIDERATION AS AGAINST THAT DECLARED BY THE ASSES SEE ON TRANSFER, SUBJECT TO HIS HAVING REASON TO BELIEVE THAT THE TRANSFER WAS EFFECTED WI TH THE OBJECT OF EVADING OR REDUCING THE LIABILITY TO TAX U/S.45, WAS NOT ADVERSELY COMMENTE D UPON BY THE APEX COURT. IT IS EASY TO SEE THAT ALL THE OFFICIAL PRONOUNCEMENTS NOTWITHSTA NDING, THE APEX COURT WOULD OR RATHER COULD NOT HAVE OPINED IN THE MANNER IT DID BUT FOR THE FUNDAMENTAL FLAW OBSERVED BY IT IN- 19 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT AS-MUCH AS THE PROVISION HAS TO BE READ WITHIN ITS LEGAL FRAMEWORK, GIVING A PURPOSEFUL MEANING TO ITS CLEAR WORDS. NO SUCH INFIRMITY INFLICTS THE SECTION UNDER REFERE NCE OR HAS BEEN SHOWN TO EXIST . WE HAVE ALREADY FOUND RECEIPT AS A VALID BASIS FO R DEEMING INCOME, WHICH IS SUPPORTED BY THE PRINCIPLES OF COMMON LAW JURISPRUDENCE. THAT INCOME UNDER THE ACT IS A WORD OR TERM OF WIDE IMPORT, AND WOULD INCLUDE ANYTHING WHICH COMES IN OR RESULTS IN GAIN IS ALSO WELL SETTLED. THE PROVISION CASTS EXCEPTIONS, AGAIN AS AFORE-NOTED, WHERE IN THE NORMAL COURSE CONSIDERATIONS OTHER THA N FINANCIAL/MONETARY ARE AT PLAY, SO THAT IT APPLIES TO COMMERCIAL TRANSACTIONS FOR WHIC H AN ARMS LENGTH BASIS CAN BE REASONABLY REGARDED AS THE NORMATIVE BASIS FOR COND UCTING OR CONCLUDING TRANSACTIONS. FURTHER, EVEN THE OFFICIAL PRONOUNCEMENTS, WHICH AR E NOT TO BE READ AS ONE DOES A STATUTE, DO NOT IN ANY MANNER DETRACT FROM OR OPERATE TO DIL UTE THE RIGOR OF THE SECTION; THE SAME ITSELF EXPLAINING IT AS AN ANTI-ABUSE MEASURE. THE REASON IS NOT FAR TO FATHOM; IT BEING WELL NEIGH IMPOSSIBLE, EVEN AS OBSERVED BY THE APEX COUR T IN K.P. VARGHESE (SUPRA), FOR THE REVENUE TO EXHIBIT THE ACTUAL CONSIDERATION THAT EX CHANGES HANDS. WHY, THIS IN FACT IS THE BASIS FOR THE TRANSFER PRICING LEGISLATION, WHICH I S BY NOW AN INTEGRAL PART OF THE TAX LAW OF MOST COUNTRIES . THAT THE PROVISION MAY OPERATE HARSHLY IN SOME CA SES IS NO REASON FOR IT TO BE NOT READ IN THE MANNER IT OUGHT TO BE, I.E ., GIVEN ITS CLEAR MANDATE. THE PROPOSITION, APART FROM BEING WELL SETTLED, HAS BEE N SOUGHT TO BE ADVANCED BEFORE US BY THE REVENUE BY RELYING ON THE DECISION IN THE CASE OF TURNER MORRISON & CO. LTD. VS. CIT [1953] 23 ITR 152 (SC). IN FACT, EVEN THE ASSESSEE S CASE IS LIMITED TO RIGHT SHARES ONLY, AND DOES NOT SPEAK OF ANY OTHER CAPITAL ASSET COVER ED BY THE PROVISION, INCLUDING SHARES AND SECURITIES. WE HAVE ALREADY EXPLAINED THAT TO T HE EXTENT THE SHARES SUBSCRIBED TO ARE RIGHT SHARES, I.E., ALLOTTED PRO-RATA ON THE BASIS OF THE EXISTING SHARE-HOLDING (AS ON A CUT- OFF DATE), THE PROVISION, THOUGH PER SE APPLICABLE, DOES NOT OPERATE ADVERSELY. A DISPROPORTIONATE ALLOTMENT, WHICH CANNOT, THEREFORE , STRICTLY BE REGARDED AS RIGHT SHARES, THOUGH COULD BE ALLOTTED UNDER A RIGHTS ISSUE, WOUL D HOWEVER INVITE THE RIGOR OF THE PROVISION, I.E., TO THAT EXTENT. IT IS TO BE NOTED THAT THE FRESH SHARES RANK PARRI PASSU WITH THE EXISTING HOLDING AND, THEREFORE, WE SEE NO REAS ON WHY THE PROVISION SHALL NOT APPLY WITH FULL FORCE IN SUCH CASES. 20 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT CONCLUSION 4.6 WE MAY FINALLY DISCUSS THE ISSUE FROM THE STAND POINT OF INTERPRETATION OF STATUTES, WHICH WAS URGED BEFORE US WITH REFERENCE TO SOME CA SE LAW, VIZ., C.W.S. (INDIA) LTD. VS. CIT [1994] 208 ITR 649 (SC); CIT VS. J. H. GOTLA [1985] 156 ITR 323 (SC); ADDL. CIT VS. SURAT ART SILK CLOTH MANUFACTURERS ASSOCIATION [1980] 121 ITR 1 (SC), BESIDES IN THE CASE OF K. P. VARGHESE (SUPRA), ALSO CONCLUDING THE MATTER. THE GIST THERE OF, OR ATLEAST TO A SUBSTANTIAL EXTENT, STANDS IN FACT ALREADY BROUGHT OUT IN THE EARLIER PART OF THIS ORDER WHILE DISCUSSING THE SEVERAL ARGUMENTS URGED BEFORE US. A LL THAT IS LOGICAL RELEVANT, YIELDING INSIGHT INTO THE PURPOSE AND OBJECT FOR AND TOWARD WHICH THE AMENDMENT STANDS BROUGHT, SHOULD BE ADMISSIBLE. A CASUS OMISSUS CANNOT BE READILY INFERRED, AND THE COURTS ESCHEW SUPPLYING THE SAME EXCEPT IN THE CASE OF CLEAR NECE SSITY. THE COURT CANNOT READ ANYTHING INTO A STATUTORY PROVISION WHICH IS PLAIN AND UNAMB IGUOUS; A STATUTE BEING AN EDICT OF THE LEGISLATURE. THE LANGUAGE EMPLOYED IN A STATUE IS A DETERMINATIVE FACTOR OF THE LEGISLATIVE INTENT, THE FOUNDATIONAL BASIS OF ANY INTERPRETATIO N, IS TO BE FOUND FROM THE WORDS USED BY THE LEGISLATURE ITSELF. THE PRINCIPLE IS IN FACT WE LL SETTLED AND TRITE (REFER PADMASUNDRA RAO AND OTHERS VS. STATE OF TAMIL NADU [2002] 255 ITR 147 (SC); AND BRITANNIA INDUSTRIES LTD. VS. CIT [2005] 278 ITR 546 (SC). AS EXPLAINED IN SURAT ART SILK CLOTH MFRS. ASSOC. (SUPRA) (PG.17), THE CONSEQUENCES CANNOT ALTER THE MEANING OF A STATUTORY PROVISION WHERE SUCH MEANING IS PLAIN AND UNAMBIGUO US, THOUGH COULD CERTAINLY HELP TO FIX ITS MEANING IN CASE OF DOUBT AND AMBIGUITY. THE AMENDMENT/S UNDER REFERENCE, AS EXPLAINED IN THE FINANCE MINISTERS SPEECH ITSELF W HILE INTRODUCING THE PROVISION, FOLLOWS THE ABOLITION OF THE GIFT TAX ACT WHICH, AS ALSO OB SERVED EARLIER, SOUGHT TO BRING THE DIFFERENCE IN THE CONSIDERATION TO TAX IN THE HANDS OF THE DONOR. THAT THE SAID ACT, TOGETHER WITH THE WEALTH TAX ACT AND THE ACT FORM A N INTEGRATED CODE IS WELL SETTLED. INCOME UNDER THE ACT, IT IS AGAIN WELL SETTLED, I S A WORD OF WIDEST AMPLITUDE, AND COULD INCLUDE GAINS DERIVED IN ANY MANNER. TO OUR MIND, T HEREFORE, THE PROVISIONS/S, THOUGH NO DOUBT A CHARGING PROVISION, IS AN EXTENSION OF THE DEEMING PROVISIONS OF CHAPTER VI OF THE ACT, LAYING DOWN THE STATUTORY RULES OF EVIDENC E, INCORPORATING THE PRINCIPLES OF COMMON LAW JURISPRUDENCE. IN SUM, AS ALSO IN FINE, THE PROVISION, BROUGHT AS AN ANTI- 21 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT ABUSE MEASURE, ONLY SEEKS TO TAX THE UNDERSTATEMENT IN CONSIDERATION AS THE INCOME IN THE HANDS OF THE RECIPIENT (OF THE CORRESPONDING ASSET) AS AGAINST THE DONOR IN THE CASE OF GIFT TAX ACT, SINCE NO LONGER IN FORCE, PARTICULARLY CON SIDERING THE BURDEN THAT THE REVENUE WOULD OTHERWISE BE CALLED UPON TO DISCHARGE, I.E., TO PROVE OTHERWISE, EVEN AS THE RECEIPT OF THE ASSET BY THE ASSESSEE IS ESTABLISHED. NO AMB IGUITY OR ABSURDITY OR UNINTENDED CONSEQUENCE HAS BEEN EITHER OBSERVED BY US OR BROUG HT TO OUR NOTICE, EVEN AS WE HAVE ENDEAVOURED TO EXAMINE THE PROVISION FROM ALL ANGLE S; IT BEING WELL EXCEPTED, ALSO EXCLUDING CASES OF BUSINESS REORGANIZATION. THE PRO VISION IS WELL FOUNDED, EVEN AS IT IS SETTLED THAT HARDSHIP IN A CASE WOULD NOT BY ITSELF LEAD TO SUPPLYING CASUS OMISSUS OR READING DOWN THE PROVISION. IN FACT, WE HAVE ALSO O BSERVED THE SAME TO BE IN ACCORD WITH THE TREND IN THE LEGISLATIVE FIELD IN THE RECENT PA ST WHERE IN VIEW OF THE INCREASING COMPLEXITY OF BUSINESS OR ECONOMIC TRANSACTIONS, FA IR MARKET VALUE, ALSO PROVIDING RULES FOR ITS DETERMINATION, IS BEING INCREASINGLY ADOPTE D FOR UNIFORM APPLICATION AS A BASIS FOR COMMERCIAL TRANSACTIONS FOR THE PURPOSE OF TAXING S TATUTES. THE RELIANCE ON THE ARGUMENT MADE IN THIS REGARD WOULD THUS BE OF NO ASSISTANCE TO THE ASSESSEE. NO PROPERTY HOWEVER BEING PASSED ON TO THE ASSESSEE IN THE INSTANT CASE , I.E., ON THE ALLOTMENT OF THE ADDITIONAL SHARES, NO ADDITION IN TERMS OF THE PROVISION ITSEL F SHALL ARISE IN THE FACTS OF THE CASE. WE ACCORDINGLY ANSWER THE QUESTION RAISED AT THE BEGIN NING OF THIS ORDER (REFER PARA 2) IN THE NEGATIVE. DECISION 5.1 IN VIEW OF THE FOREGOING, THEREFORE, THE PROVIS ION OF S. 56(2)(VII)(C), IN THE FACTS AND CIRCUMSTANCES OF THE CASE, SHALL NOT APPLY AND, HENCE, THE AMOUNT OF RS.27,89,02,160/- CANNOT BE ASSESSED AS INCOME IN T HE HANDS OF THE ASSESSEE ON THE GROUND OF INADEQUATE CONSIDERATION. THIS ANSWERS GR OUND NOS. 2 TO 4. GROUND # 1 STANDS DISMISSED AS NOT PRESSED. WE DECIDE ACCORDINGLY. 5.2 THE ASSESSEE HAS ALSO MOVED A STAY APPLICATION. IN VIEW OF OUR HAVING DECIDED THE APPEAL ITSELF, THE SAME BECOMES INFRUCTUOUS. 22 ITA NO. 4887/MUM/2013 (A.Y. 2010-11) SUDHIR MENON HUF VS. ASST. CIT RESULT 6. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED AND STAY APPLICATION IS DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 12, 201 4 SD/- SD/- (D. MANMOHAN) (SA NJAY ARORA) / VICE PRESIDENT / ACCOUNTANT MEMBER ( 1* MUMBAI; 2 DATED : 12.03.2014 )3 ROSHANI , SR. PS ! ' #$%& ' &$ COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. ( 4+ 5 6 / THE CIT(A) 4. ( 4+ / CIT CONCERNED 5. 7)89$3+3:; ,:;/ ( 1* / DR, ITAT, MUMBAI 6. 9<=* GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , ( 1* / ITAT, MUMBAI