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DATE: June 1, 2018 (Date of pronouncement)
DATE: June 2, 2018 (Date of publication)
AY: 2011-12
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S. 2(47)/ 45: Argument that the allotment of shares by the assessee's holding co to foreign investors at huge valuation results in a "transfer"/ "indirect transfer" of the assessee's assets to the foreign investors is not correct. Argument that a multi layered holding structure was deliberately created to avoid taxes in India and to conceal the information about the ultimate beneficiaries is also not correct

The AO had held that a multi layered holding structure was deliberately created to avoid taxes in India and to conceal the information about the ultimate beneficiaries. Having AE.s outside India in itself cannot be held against an assessee. Because of advancement of technology, the globe has become a villge. So, the nature of business has changed a lot. In our humble opinion, assessees are free to decide the manner in which they want to run their businesses.It is said that a citizen is perfectly entitled to exercise his ingenuity so to arrange his affairs as may make it possible for him legally and lawfully not to pay tax, and if his ingenuity succeeds, however reluctant the Court may be to acknowledge the cleverness of the assessee,the Court must give effect to the letter of the taxation law rather than strain that letter against the assessee.

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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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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 24, 2018 (Date of pronouncement)
DATE: April 26, 2018 (Date of publication)
AY: 1998-99
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CITATION:
Law on whether amount received by an employee from redemption of Stock Appreciation Rights (SARs) can be assessed as "perquisite" u/s 17(2) (iii) or as "profits of business" u/s 28 (iv) or as "capital gains" (despite no "cost of acquisition") u/s 45 explained. CBDT Circular No. 710 dated 24.07.1995 considered

The word “Perquisite” in common parlance may be defined as any perk or benefit attached to an employee or position besides salary or remuneration. Broadly speaking, these are usually noncash benefits given by an employer to an employee in addition to entitled salary or remuneration. It may be said that these benefits are generally provided by the employers in order to retain the talented employees in the organization. There are various instances of perquisite such as concessional rent accommodation provided by the employer, any sum paid by an employer in respect of an obligation which was actually payable by the employee etc. Section 17(2) of the IT Act was enacted by the legislature to give the broad view of term perquisite

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DATE: February 28, 2018 (Date of pronouncement)
DATE: March 29, 2018 (Date of publication)
AY: 2012-13
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Family Arrangement: It is not necessary for the validity of a family arrangement that there must be existing legal claims & disputes between the family members. The possibility of future disputes is sufficient. Family settlements entered into bona fide to maintain peace and harmony in the family are valid and binding on the authorities

Though conflict of legal claims in present or in future is generally a condition for the validity of a family arrangement, it is not necessarily so. Even bona fide disputes, present or possible, which may not involve legal claims will suffice. Members of a joint Hindu family may, to maintain peace or to bring about harmony in the family, enter into such a family arrangement. If such an arrangement is entered into bona fide and the terms thereof are fair in the circumstances of a particular case, Courts will more readily give assent to such an arrangement than to avoid it

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DATE: March 9, 2018 (Date of pronouncement)
DATE: March 29, 2018 (Date of publication)
AY: 2006-07
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Entire law on what constitutes a "Sham transaction"/ "Colourable device" explained. The sale of shares in a pvt ltd co by the assessee to a relative (son) in order to book losses so as to set-off the capital gains from on sale of property cannot be rejected as a sham transaction / colourable device if the transaction is within the four corners of law and valid

The transactions being genuine, merely because the assessee has claimed set-off of capital loss against the capital gain earned during the same period, cannot be said to be a colourable device or method adopted by assessee to avoid the tax. The shares were transferred by executing share transfer Form and after paying the requisite Stamp duty. The company NTPL also passed a Board Resolution for transfer of those shares. The consideration of share was effected to through banking channel. The fair market value arrived by assessee, as furnished before Commissioner (Appeals). In our view the transactions of sale of share were genuine and transacted at a proper valuation. The lower authority has not disputed the genuinity of transaction. The transactions carried by assessee are valid in law, cannot be treated as non-est merely on the basis of some economic detriment or it may be prejudicial to the interest of revenue

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DATE: March 22, 2018 (Date of pronouncement)
DATE: March 26, 2018 (Date of publication)
AY: 2011-12
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CITATION:
Gains from Penny Stocks: If the purchase of shares has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding them, the transaction is an "adventure in the nature of trade" and the gains are assessable as "business profits" and not as "short-term capital gains"

In cases where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it, the presence of such an intention is a relevant factory and unless it is offset by the present of other factors it would raise a strong presumption that the transaction is an adventure in the nature of trade

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DATE: March 19, 2018 (Date of pronouncement)
DATE: March 24, 2018 (Date of publication)
AY: 2014-15
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Bogus Capital gains from penny stocks: Capital gains from penny stocks cannot be assessed as unexplained cash credit u/s 68 if the assessee has produced documentary evidence to prove the source, identity and genuineness of the transaction and the AO has not found any fault with it. The fact that the investigation dept has alleged that there is a modus operandi of bogus LTCG scheme is not relevant if the same is not substantiated

I further note that the addition in dispute made by the AO and upheld by the Ld. CIT(A) u/s 68 as unexplained credit instead of long term capital gain as claimed by the assessee, however, the source, identity and genuineness of the transaction having been established by documentary evidences and there is no case for making addition u/s 68 of the Act, hence, the same deserve to be deleted. I note that in most of the case laws of the Hon’ble High Courts referred by the Ld. DR the reason on the basis of addition was confirmed was that the assessee had not tendered cogent evidence with regard to share transaction, however, in the present the case assessee has submitted all the documents / evidences, therefore, the case laws relied by the Ld. DR are based on distinguished facts and circumstances

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DATE: February 28, 2018 (Date of pronouncement)
DATE: March 13, 2018 (Date of publication)
AY: 2010-11
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CITATION:
S. 47(iv) Transfer/ Capital Gains: The term 'subsidiary company’ is not defined under the Income-tax Act and so will have to be given the meaning in s. 4(1)(c) of the Companies Act. A subsidiary of a subsidiary (step-down subsidiary) is also a subsidiary of the parent. Consequently, transfers between the holding company and the step-down subsidiary are not "transfers" which can give rise to capital gains or loss

The transaction in question cannot be regarded as transfer in view of provisions of section 47(iv) of the Act, as it is a transfer of capital asset by a company to its subsidiary company and as a second step down 100% subsidiary company is also as subsidiary of the assessee company under the Companies’ Act 1956 as the term ‘subsidiary company’ has not been defined under the Income-tax Act, 1961

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DATE: January 18, 2018 (Date of pronouncement)
DATE: January 25, 2018 (Date of publication)
AY: 2008-09
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Bogus capital gains from Penny stocks: The fact that the appreciation in the value of the shares is high does not justify the transactions being treated as fictitious and the capital gains being assessed as undisclosed income if (a) the shares are traded on the Stock Exchange, (b) the payments and receipts are routed through the bank, (c) there is no evidence to indicate it is a closely held company and (d) the trading on the Stock Exchange was manipulated in any manner

The assessee purchased shares of a company during the assessment year 2006-2007 at Rs 11/- and sold the same in the assessment year 2008-2009 at Rs 400/- per share. The Assessing Officer added the appreciation to the assessees’ income on the suspicion that these were fictitious transactions and that the appreciation actually represented the assessees’ income from undisclosed sources. The Tribunal held that the Assessing Officer had not produced any evidence whatsoever in support of the suspicion. On the other hand, although the appreciation is very high, the shares were traded on the National Stock Exchange and the payments and receipts were routed through the bank. There was no evidence to indicate for instance that this was a closely held company and that the trading on the National Stock Exchange was manipulated in any manner

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DATE: January 18, 2018 (Date of pronouncement)
DATE: January 23, 2018 (Date of publication)
AY: 2013-14
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S. 2(1A)/ 68: An assessee who understates the consideration received for sale of agricultural land to avoid payment of stamp duty is defrauding the exchequer. He cannot take advantage of his own wrong and is estopped from contending that the amount received from the purchaser is a higher amount than was stated in the agreement. The incremental amount is assessable as ‘income from other sources’ and not as ‘agricultural income’. However, penalty u/s 271(1)(c) cannot be levied for the said wrong claim

Both seller and purchaser are estopped from their act and conduct to take such a self -contradictory plea. Not only the earlier but the later authorities also are the public officers appointed for the collection of taxes contributing to the public exchequer (may be of the State or of the Union) and a person having represented the factum of the transaction in a particular manner at one stage to a public officer and getting a wrongful benefit is estopped to deny the same to the subsequent public authority, both authorities being employee and representative of the government . The principle of estoppel in the light of the provisions of section 115 of the Evidence Act gets attracted in such a case. Even otherwise, recognizing such a transaction will amount to over riding the provisions of Transfer of Property Act and Indian Registration Act. In view of the above discussion, it can be safely held that not only legally but also ethically and morally, the parties to a registered document are not allowed to deny the terms of the document until and unless the very validity or execution of such a document is disputed

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