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DATE: June 29, 2018 (Date of pronouncement)
DATE: July 5, 2018 (Date of publication)
AY: 2014-15
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CITATION:
S. 56(2)(viia) is a counter evasion mechanism to prevent laundering of unaccounted income under the garb of gifts. The primary condition for invoking S. 56(2)(viia) is that the asset gifted should become a “capital asset” and property in the hands of recipient. If the assessee-company has purchased shares under a buyback scheme and the said shares are extinguished by writing down the share capital, the shares do not become capital asset of the assessee-company and hence s. 56(2)(viia) cannot be invoked in the hands of the assessee company

The provisions of sec. 56(2)(viia) should be applicable only in cases where the receipt of shares become property in the hands of recipient and the shares shall become property of the recipient only if it is “shares of any other company”. In the instant case, the assessee herein has purchased its own shares under buyback scheme and the same has been extinguished by reducing the capital and hence the tests of “becoming property” and also “shares of any other company” fail in this case. Accordingly we are of the view that the tax authorities are not justified in invoking the provisions of sec. 56(2)(viia) for buyback of own shares

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DATE: May 15, 2018 (Date of pronouncement)
DATE: May 24, 2018 (Date of publication)
AY: 2014-15
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CITATION:
S. 56(2)(viia)/ 47(iii): Capital gains on shares transferred via "Gift": Surprising that huge volume of shares in a public limited company is transferred by assessee to another company without any consideration, without any proper documentation being executed as per law and giving it a nomenclature of “gift”. Difficult to imagine Articles of Association of a company would provide for gifting of assets of the company to another company unless it be one which has been set up for some purpose. The assessee has to establish to the hilt, the factum, genuineness and validity of the transaction, the right to enter into such transaction and bonafides of such transaction, especially when, revenue challenges its genuineness. There is no agreement/document that has been executed between group companies forming part of family realignment. To postulate that a company can give away its assets free to another even orally, can only be aiding dubious attempts at avoidance of tax payable under the Act unless it is supported by documentary evidence

Under section 82 of Companies Act 1956, as it was applicable for the relevant assessment year, shares in a company is a moveable property, transferrable in the manner provided by its Articles of Association. Assessee has not shown/established the manner in which alleged transfer that has been effectuated, was authorized by its Articles. It is difficult to imagine Articles of Association of a company providing for gifting of assets in the company to another company by way of shares in a public limited company, unless it be one which has been set up for some purpose. Ld.A.O. had rightly raised question regarding the reality and genuineness of transaction, in addition to its validity. In fact when such transactions are entered into, involving assets substantially worth, it behoves the assessee before Ld. AO to establish to the hilt, the factum, genuineness and validity of such transaction, the right to enter into such transaction and bonafides of such transaction, especially when, revenue challenges genuineness of such transaction itself

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DATE: April 19, 2017 (Date of pronouncement)
DATE: May 19, 2017 (Date of publication)
AY: 2010-11
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CITATION:
S. 56(2)(vi): A HUF is a "group of relatives". Consequently, a gift received from a HUF by a member of the HUF is exempt from tax as provided in the Explanation to s. 56(2)(vi)

From a plain reading of section 56(2)(vi) along with the Explanation to that section and on understanding the intention of the legislature from the section, we find that a gift received from “relative”, irrespective of whether it is from an individual relative or from a group of relatives is exempt from tax under the provisions of section 56(2)(vi) of the Act as a group of relatives also falls within the Explanation to section 56(2)(vi) of the Act. It is not expressly defined in the Explanation that the word “relative” represents a single person. And it is not always necessary that singular remains singular. Sometimes a singular can mean more than one, as in the case before us. In the case before us the assessee received gift from his HUF. The word “Hindu Undivided Family”, though sounds singular unit in its form and assessed as such for income-tax purposes, finally at the end a “Hindu Undivided Family” is made up of ‘a group of relatives”

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DATE: March 28, 2017 (Date of pronouncement)
DATE: April 8, 2017 (Date of publication)
AY: -
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CITATION:
Capital gains: An amount received from a wholly-owned subsidiary in consideration of transfer of shares of the WOS to a group of shareholders is not taxable as capital gains. The Department cannot subject a transaction under the Gift-tax Act and also levy tax under the Income-tax Act.

It is not in dispute that M/s Annamalaiar Textiles (P) Ltd. did not pay any amount to the shareholders who ultimately got the shares transferred in their names. The respondent was holding 100 per cent shares of M/s Annamalaiar Textiles (P) Ltd., before it was transferred to Group B. No payment was made to the shareholders belonging to Group B and, therefore, the question of there being any capital gains at the hands of the respondent herein does not arise

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DATE: March 11, 2015 (Date of pronouncement)
DATE: March 23, 2015 (Date of publication)
AY: 2009-10
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CITATION:
Companies, if authorized by the MoA & AoA, are competent to make and receive gifts. Natural love and affection is a not necessary requirement for a gift. The gift is neither taxable as income s. 56 (pre-amendment) nor as capital gain nor as income u/s.2(22)(e) nor u/s.115JB

Three elements are essential in determining whether or not a gift has been made, a) delivery. b) donative intent,’ and c) acceptance by the donee. Companies are competent to make and receive gifts and natural love and affection are not necessary requirement. Only requirement for company is to make gifts as per respective memorandum and article of association, which authorize the company for the same

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