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DATE: October 31, 2018 (Date of pronouncement)
DATE: November 24, 2018 (Date of publication)
AY: 2007-08
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CITATION:
Gains on exercise of ESOP: ESOP options provide valuable right to the assessee to exercise and have allotment of shares. They are thus 'capital asset' held by the assessee from the date of grant. If the assessee transfers the option itself, the capital gains will have to be assessed as long-term capital gains if the options have been held for more than three years (All relevant judgements considered and followed/ distinguished)

It is not in dispute that ESOP options provided valuable right to the assessee to exercise and have allotment of shares. They were thus ‘capital asset’ held by the assessee from the date of grant i.e., 28.02.2003 and 02.02.2004 for which a consideration was paid to the assessee under the option Transfer Agreement. The contention that the assessee cannot exercise option in the absence of vesting is not relevant as the options were transferred without any exercise in the case on hand

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DATE: February 9, 2018 (Date of pronouncement)
DATE: March 3, 2018 (Date of publication)
AY: 2008-09
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S. 68 Bogus Share Capital: Share premium received can be assessed as undisclosed income if (a) directors are allotted shares at par while others are allotted at premium, (b) the high premium is not justified by a valuation report, (c) the high premium is not supported by the financials, (d) based on financials the value of shares is less and no genuine investor would invest at the premium, (e) there are discrepancies & abnormal features which show transaction as "made up" to camouflage real purpose

The argument of the assessee that the provisions of Sec.56(1)(viib) of the Act does not apply to the case on hand for the year under consideration as it has been introduced by Finance Act, 2012 w.e.f. 1.4.2013 is a misplaced one. From a reading of the order of assessment, it is clear that the Assessing Officer has invoked the provisions of Sec. 68 of the Act. This leads us to the question of whether the provisions of Sec. 68 of the Act can be invoked for the nature of transactions involved in the case, where sums of money are credited in the name of share premium. This question has been addressed by the Hon’ble Calcutta High Court in the case of Pragati Financial Management Pvt. Ltd. Vs. CIT in C.A. 887 & 998 of 2016 and others dt.7.3.2017. In its order (supra) on the issue of whether enquiry under Section 68 of the Act can be carried out for examining the genuineness of the share premium transaction, the Hon’ble High Court held that Sec. 68 of the Act can be invoked to conduct enquiry on the genuineness of share premium transactions

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DATE: October 23, 2017 (Date of pronouncement)
DATE: October 28, 2017 (Date of publication)
AY: 2007-08 to 2012-13
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CITATION:
Royalty u/s 9(1)(vi) & Article 12: The Google Adwords advertisement module is not merely an agreement to provide advertisement space but is an agreement for facilitating the display and publishing of an advertisement to the targeted customer using Google's patented algorithm, tools and software. Google Adwords uses data regarding the age, gender, region, language, taste habits, food habits, etc of the customer so as to maximize the impression and conversion to the ads of the advertisers. Consequently, the payments to Google Ireland are taxable as "royalty" and the assessee ought to have deducted TDS thereon u/s 195

If we look into the advertisement module of Adword program stated herein above, then we will come to an irresistible conclusion that it is not merely an agreement to provide the advertisement space but is an agreement for facilitating the display and publishing of an advertisement to the targeted customer. If we look into the submission made by the learned AR, it is clear that the advertiser, selects some key words and on the basis of key words, the advertisement is displayed on the website or along with the search result as and when the customer selects the key words relatable to the advertisement. The module as suggested does not merely work by providing the space in the Google search engine, but it works only with the help of various patented tools and software. As we have analyzed detailed functioning of Adword program, it is clear that with the help of the search tool/software / data base, the Google is able to identify the targeted consumer/person as per the requirement of the advertiser

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DATE: January 31, 2017 (Date of pronouncement)
DATE: February 8, 2017 (Date of publication)
AY: 2010-11
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CITATION:
S. 69C Bogus Purchases: Purchases cannot be treated as bogus merely on the basis of the statements and affidavits filed by the alleged vendors before the sales-tax department. The said statements cannot be relied upon without cross-examination of the parties. The fact that the parties did not respond to the s. 133(6) notices is not relevant if the assessee filed copies of purchase invoices, extracts of stock ledger showing entry/exit of materials, copies of bank statements to evidence that payments for these purchases were made through normal banking channels, etc to establish genuineness of the aforesaid purchases

Mere reliance by the AO on information obtained from the Sales Department or on statements/affidavits of the 12 parties before the Sales Tax Department or that these parties did not respond to notices issued under section 133(6) of the Act, would not in itself suffice to treat the purchases as bogus and make the addition under section 69C of the Act. If the AO doubted the genuineness of the said purchases, it was incumbent upon him to cause further inquiries in the matter in order to ascertain the genuineness or otherwise of these transactions. Without causing any further enquiries to be made in respect of the said purchases, the AO cannot make the addition under section 69C of the Act by merely relying on information obtained from the Sales Tax Department, the statements/ affidavits of third parties, without the assessee being afforded any opportunity of cross examination of those persons for non-response to information called for under section 133(6) of the Act

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DATE: January 18, 2017 (Date of pronouncement)
DATE: January 30, 2017 (Date of publication)
AY: 2009-10
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Bogus purchases: As a direct one to one relationship/nexus between the purchases and sales has not been established by the assessee, the purchases have to be treated as bogus and 12% of the purchase cost is assessable as profits (law on the subject noted)

It is also a settled legal proposition that if no evidence is given by the party on whom the burden is cast, the issue must be found against him. Therefore, onus is always on a person who asserts a proposition or fact, which is not self evident, The onus, as a determining factor of the whole case can only arise if the Tribunal, which is vested with the authority to determine, finally all questions of fact, finds the evidence pro & con, so evenly balanced that it can come to no conclusion, then, the onus will determine the matter

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DATE: August 24, 2016 (Date of pronouncement)
DATE: November 14, 2016 (Date of publication)
AY: 2008-09
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CITATION:
S. 41(1): Amounts shown as liabilities in the Balance Sheet cannot be deemed to be cases of "cessation of liability" only because the liabilities are outstanding for several years. The AO has to establish with evidence that there has been a cessation of liability with regard to the outstanding creditors

When the Assessing Officer was of the view that there was cessation of liability in the case on hand, it was incumbent upon him to cause necessary enquiries to be made in order to bring on record material evidence to establish the requirement for invoking the provisions of section 41(1) of the Act. The very fact that the assessee reflects these amounts as creditors in his Balance Sheet as on 31/3/2007, is an acknowledgement of his liability to these creditors and this also automatically extends the period of limitation under section18 of the Limitation Act. Once the assessee acknowledges that the debts to creditors are outstanding in his Balance Sheet, that he is liable to pay his creditors, Revenue cannot suo-moto conclude that the creditors have remitted their liability or that the liability has otherwise ceased to exist, without bringing on record any material evidence to the contrary

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DATE: August 10, 2016 (Date of pronouncement)
DATE: September 5, 2016 (Date of publication)
AY: 2009-10
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CITATION:
Capital Gains: Mere fact that the assessee is shown as a co-owner of the property does not mean that the capital gains are partly assessable in her hands if the facts show that the other co-owner bought the property from his own funds and showed it as his sole property in the balance sheet

Revenue has also not been able to controvert the factual finding rendered by the learned CIT(A), after examining documents and copies of bank statements, etc. placed before him, that even though the assessee is shown as the co-owner of the said property, the source of funds for investment in purchase of the said property is by the assessee’s husband and that the property was reflected in his Balance Sheet from the period relevant to A.Y. 2005-06 (i.e. 31.03.2005) till its sale, after which the STCG arising thereon was admittedly disclosed by the assessee’s husband in his return of income

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DATE: April 27, 2016 (Date of pronouncement)
DATE: June 13, 2016 (Date of publication)
AY: 2005-06
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CITATION:
S. 10(38)/ 68: Long-term capital gains on sale of "penny" stocks cannot be treated as bogus & unexplained cash credit if the documentation is in order & there is no allegation of manipulation by SEBI or the BSE. Denial of right of cross-examination is a fatal flaw which renders the assessment order a nullity

There is no evidence on record to show that any action or enquiry was carried out either by the SEBI or BSE in respect of the alleged manipulation or propping up of the price rate movement of the ‘said shares’ of Shukun Constructions Ltd., as has been assessed by the AO. The shares of Shukun Constructions Ltd. is listed on BSE and that the sale transaction of the ‘said shares’ by the assessee is at the rate quoted on the date of sale has been confirmed both by BSE and the concerned stock broker M/s. Khambatta Securities Ltd. It is strange that the AO has made the addition under section 68 of the Act treating the entire sale proceeds of the ‘said shares’ received by the assessee through regular banking channels from stock broker registered with SEBI, M/s. Khambatta Securities Ltd., which facts have been confirmed by the said stock broker. In our considered view, the assessee has discharged the onus required under section 68 of the Act as she has established the identity of the payer, source of funds received on sale of the same shares and the genuineness of the transaction

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DATE: May 13, 2016 (Date of pronouncement)
DATE: May 26, 2016 (Date of publication)
AY: 2009-10
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CITATION:
The amendment to Explanation to s. 73 by Finance (No. 2) Act, 2014 w.e.f. 01.04.2015 is clarificatory in nature and operates retrospectively from 01.04.1977, being the date the Explanation to s. 73 was placed on the statute. Therefore, the loss incurred in share trading business by companies whose principal business is trading in shares will not be treated as speculation loss but as normal business loss and the same can be adjusted against income from business or other sources

The insertion of the amendment in the Explanation to section 73 of the Act by the Finance (No. 2) Act, 2014, in our view, is curative and classificatory in nature. If the amendment is applied prospectively from A.Y. 2015-16, a piquant situation would arise that an assessee who has earned profit from purchase and sale of shares in A.Y. 2015-16 would be treated as normal business profit and not speculation business profit in view of the exception carried out by the amendment in Explanation to section 73 of the Act. In these circumstances, speculation business loss incurred by trading in shares in earlier years will not be allowed to be set off against such profit from purchase and sale of shares to such companies in A.Y. 2015-16. For this reason also, the amendment inserted to Explanation to section 73 of the Act by Finance (No. 2) Act, 2014 is to be applied retrospectively from the date of the insertion to Explanation to section 73 of the Act

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DATE: March 16, 2016 (Date of pronouncement)
DATE: April 13, 2016 (Date of publication)
AY: 2010-11
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CITATION:
S. 50C does not apply to transfer of leasehold rights in land

Section 50C of the Act provides that if the consideration received or accruing is less than the value adopted or assessed or assessable by the stamp valuation authority of the State Government for such transfer then the value so adopted or assessed or assessable shall be deemed to be the full value of consideration and the capital gains will be computed accordingly. The phraseology of section 50C of the Act clearly provides that it would apply only to “a capital asset, being land or building or both”. The moot question before us is as to whether such expression would cover the transfer of a capital asset being leasehold rights in land or building. There cannot be a dispute to the proposition that the expression land by itself cannot include within its fold leasehold right in land also. Of-course, leasehold right in land is also a capital asset and we find no fault with this stand of the Revenue. So however, every kind of a ‘capital asset’ is not covered within the scope of section 50C of the Act for the purposes of ascertaining the full value of consideration. Infact, the heading of section itself provides that it is “Special provision for full value of consideration in certain cases”. Therefore, there is a significance to the expression “a capital asset, being land or building or both” contained in section 50C of the Act. The significance is that only capital asset being land or building or both are covered within the scope of section 50C of the Act, and not all kinds of capital assets

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