Income Tax Appellate Tribunal - Ahmedabad
Bilakhia Holding P Ltd, Vapi vs Assessee on 8 March, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD ''D" BENCH - AHMEDABAD
Before S/Shri Rajpal Yadav, JM, & Manish Borad, AM.
ITA No.1505/Ahd/2012
Asst. Year: 2007-08
Bilakhia Holdings Pvt. Ltd. Vs. Addl. CIT, Vapi Range,
Bilakhia House, Muktanand Vapi
Marg, Chala, Vapi, Gujarat.
Appellant Respondent
PAN AADCS 4420J
AND
ITA No.1557/Ahd/2012
Asst. Year: 2007-08
Addl.CIT, Vapi Range, Vs. Bilakhia Holdings Pvt. Ltd.
Vapi. Bilakhia House, Muktanand
Marg, Chala, Vapi, Gujarat.
Appellant Respondent
Appellant by Shri M. K. Patel, AR
Respondent by Shri Sanjay Agrawal, CIT, DR
Date of hearing: 12/1/2016
Date of pronouncement: 8/ 03/2016
ORDER
PER Manish Borad, Accountant Member.
These two cross appeals -one by the assessee and the other by the Revenue are directed against the order of ld. CIT(A), Valsad, dated 31.03.2012 in appeal no.CIT(A).VLS/166/09-10 for Asst. Year ITA No. 1505 & 1557/And/2012 2 Asst. Year 2007-08 2007-08. Assessment was framed u/s 143(3) of the IT Act, 1961 (in short the Act) on 30/10/2009 by Addl. CIT, Vapi Range, Vapi.
2. We will take up first assessee's appeal in ITA No.1505/Ahd/2012 for Asst. Year 2007-08. Following grounds have been raised by the assessee in this appeal :-
1. The order of assessment is contrary to the facts and prejudicial to the assessee.
2. On appreciation of the facts and circumstances of the case and law, the additions made by the Learned Assessing Officer and confirmed by the Learned Commissioner of Income Tax (Appeals) are contrary to law and based on erroneous understanding of the facts.
3. On appreciation of the facts and circumstances of the case and law, the Learned Commissioner of Income Tax (Appeals) has erred in confirming the addition made by the Learned assessing Officer to the tune of Rs.
35,04,75,000/- being surplus on sale of shares received as gift to the book profit for taxation U/s. 115JB. The action of the Learned Commissioner of Income Tax (Appeals) is contrary to the facts and law and deserves to be deleted.
4. The appellant craves to add, amend, modify or alter the above grounds of appeal at any stage of appellate proceedings.
5. The appellant humbly prays that the appeal be allowed in to to.
3. Briefly stated facts are that the assessee is a private limited company which had filed its return of income on 19.10.2007 declaring total income of Rs.20,28,88,690/- under the regular provisions of the Act and Rs.7,91,99,923/- u/s 115JB of the Act. The case was selected for scrutiny assessment and notice u/s 143(2) of the Act was issued on 28.08.2008 and served upon the assessee on 1.9.2008. The company is basically an investment company, holding group investments. During the Financial Year under consideration, the ITA No. 1505 & 1557/And/2012 3 Asst. Year 2007-08 company has transacted in shares and securities and has shown income under the head capital gains, exempted income and income from other sources.
4. During the course of assessment proceedings Assessing Officer observed that there was a family arrangement in the Bilakhia Family of Vapi, pursuant to which various transactions took place in terms of redistribution of assets and some of the assets were transferred to one group company namely M/s Bilakhia Holding Pvt. Ltd. The transactions undertaken between the family members of Bilakhia family and M/s Bilakhia Holding Pvt. Ltd. were termed as gift to M/s Bilakhiya Holding Pvt. Ltd. The shares so received by the assessee were subsequently sold and the company claimed long term capital gain on sale of such shares. Even though receipt of shares took place in F.Y. 2000-01 relevant to Asst. Year 2001-02, the sales were under taken during F.Y. 2000-01, 2001-02, 2002-03, 2003-04, 2004-05, 2005-06, 2006-07 etc. During assessment proceedings u/s 143(3) of the Act r.w.s. 147 of the Act for Asst. Year 2001-02 to 2004-05 these transactions of receipt of shares were treated as discounted purchase and not as gift and also ld. Assessing Officer following the decision of first appellate authority for Asst. Year 2001-02 to Asst. Year 2006-07 treated long term capital gain from sale of shares at Rs.35,04,75,000/- to the book profit of assessee and accordingly assessed book profit u/s 115JB of the Act at Rs.42,96,74,923/-.
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5. Aggrieved, assessee went in appeal before ld. CIT(A) against the order of ld. Assessing Officer, treating the receipt of shares as discounted purchases and not as gift and also against the action of ld. Assessing Officer of adding long term capital gain from sale of shares at Rs.35,04,75,000/- to the book profit of assessee u/s 115JB of the Act. ld. CIT(A) allowed the first ground of assessee by treating the receipts of shares by the assessee company from Bilakhia family members as gifts and as regards the addition made by Assessing Officer of adding long term capital gain on sale of shares at Rs.35,04,75,000/- to the book profit u/s 115JB of the Act dismissed the ground of assessee by observing as under :-
"8. 1 have considered the observation of the AO in the assessment order as well as the contention raised by the AR of the appellant in the written submission. Admittedly the assessment for the year under consideration was framed by the AO solely based on the observations of his predecessor AO for Asstt. Year 2003-2004. It is seen that the AO had re-produced the observation of his predecessor AO for Asstt. Year 2003-2004 in the assessment order. It is also seen that for Asstt. Year 2003- 2004, my predecessor CIT(Appeal) had observed asunder:-
"I have perused the facts of the case and the arguments put forward by the appellant company. I agree with the appellant company that gifts do not constitute income and that gift cannot be treated as receipts in the profit and loss accounts as per the prevailing accounting standards. Any how the Long Term Capital Gains represent profits of the company which should have been credited to the profit and loss accounts as per the accounting principles. The decision of the Apex Court in the Apollo Tyres Ltd do not authorize the A.O. to scrutinize the net profit of the company prepared in accordance with the part It and III of schedule VI to the Companies Act. In this case the issue in dispute is different. Accordingly I am inclined to agree with the A.O. to the extent that profit on sale of shares should have been part of book profit to the extent it has been excluded as per the notes to the accounts adopted by the company. "
Since the facts of the case for the year under consideration are same as that of Asstt. Year 2003-2004 as held by my predecessor CIT(Appeals), I agree with the ITA No. 1505 & 1557/And/2012 5 Asst. Year 2007-08 AO as regards the re-computation of book profit. This ground of appeal is accordingly dismissed. :
6. Aggrieved, the assessee is now in appeal before the Tribunal.
7. Ground No,1,2,4 & 5 are of general nature, hence need no adjudication.
8. Therefore, we will adjudicate ground no.3 which relates to confirmation of addition made by the Learned assessing Officer to the tune of Rs. 35,04,75,000/- being surplus on sale of shares received as gift to the book profit for taxation U/s. 115JB of the Act.
8.1 At the outset the ld. DR submitted that similar issue has been dealt with by the co-ordinate Bench in assessee's own case in ITA Nos.981 to 985/Ahd/2009 for Asst. Years 2001-02 to 2006-07 and the assessee's appeals were dismissed.
8.2 The ld. AR did not object to the submissions made by ld. DR.
9. We have heard the rival contentions and perused the material on record and we find that similar ground regarding addition of surplus from sale of shares added to book profit u/s 115JB of the Act was held to be correct and the co-ordinate bench in the case of Addl.CIT vs. Bilakhia Holding Pvt. Ltd. & others in ITA Nos.981 to 985/Ahd/2009 for Asst. Years 2001-02 to 2006-07 vide its order dated 30.05.2014 has held as under :-
ITA No. 1505 & 1557/And/2012 6Asst. Year 2007-08
27. Ground no. 5 & 6 relate to adjustment to book profit u/s. 115JB of the Act. The AO during the assessment proceedings made an addition of Rs. 45,58,654/- being surplus to sale of shares to the book profit for taxation u/s. 115JB which has been confirmed by Ld.CIT(A). Before us reliance was placed on the following submission:-
"1. The AO has no authority to adjust book profits once the accounts are audited and accepted by the general body, save and except such adjustment as are provided for in Explanation to section 115JB. Reliance was placed on the decision of the Supreme Court in the case of the Apollo Tyres Vs. CIT (255 ITR 273), where the Supreme Court had held that while determining the book profit under Section 115JB, the Assessing Officer could not re-compute the profit and loss account by excluding the provisions made for arrears or depreciation. The decision of the Apex Court has been followed in the following other decisions:-
a. Malayala Manorama Co. Ltd vs. CIT [2008] 300 ITR 251 (SC) b. CIT vs. HCL Comnet Systems and Services Ltd [2008] 305 ITR 409 (SC), c. CIT-I Vs. Vijayashree Finance and Investment Co. Pvt. Ltd 2 DTR 38 [216 CTR (Madra) 191], d. CIT Vs. Rubamin P. Ltd [2009] 312 ITR 18 (Guj), e. CIT Vs. Kovai Maruthi Paper and Board P. Ltd [2007] 294 57 (Mad), f. CIT Vs. Adbhut Trading Co. P. Ltd [2011] 338 ITR 94 (Bom), and g. CIT Vs. Akshay Textiles Trading and Agencies P. Ltd [2008] 304 ITR (Bom)
2. Proceeds on sale of gifted shares cannot be credited to P &L A/c a. Shares received as gift do not constitute 'investment' and hence gains on sale of the aforesaid shares are not required to be routed through the profit and loss account. Learned Sr. Counsel submitted that since the gift cannot be equated with investment, the Appellant is justify in crediting the sale proceeds of the gifted shares directly to capital account without routing through profit and loss account. He therefore submitted that the said credit should not be taken into account for purposes of calculation of profits under Section 115JB and the provisions of Section 115JB is not applicable in such situation.
b. Reliance is placed on the following decisions:
i. CIT Vs. Insanyat Trust (173 ITR 248) ii. 203/349 (Guj) iii. 209/390 (Guj) iv. 209/865 (Guj) v. 252/610 (Guj) vi. 258/712 (Guj)
3. Adopting notes to accounts does not amount to qualification. Reliance is placed on Paragraph 3.9 and in particular 3.12 of the ICAI's guidelines specify the manner of ITA No. 1505 & 1557/And/2012 7 Asst. Year 2007-08 qualification-adoption of notes of accounts (as contained in Para 4.6 at Pg. 11 of the paper book) cannot amount to a qualification.
4. The decision in the case of Veekaylal (Bom)-249 ITR 597 relied upon by the AO is no longer good law in view of the later decisions of the Bombay High Court in the case of Commissioner of Income-tax Vs. Adbhut Trading Co. P. Ltd. [2011] 338 ITR 94 (Bom) and Commissioner of Income-tax Vs. Akshay Textiles Trading and Agencies P. Ltd [2008] 304 ITR 401 (Bom) which have held that in view of the decision of Apollo Tyres Vs. CIT (2555 ITR 273)."
Since in revenue's appeal we have held that shares received by the assessee-company were not gifts in the hands of assessee-company, the argument advanced on behalf of the assessee-company that shares received as gift do not constitute investment and hence gain on sale of these shares were not required to be routed through profit and loss account falls flat ( case laws in support of this argument are therefore not applicable to the facts of this case), the assessee was not justified in crediting the sale proceeds of the shares directly to capital reserve account without routing through profit and loss account. We are therefore of the considered opinion that AO has rightly taken these credits for the purpose of adjustment to book profit u/s. 115JB of the Act. The order passed by Ld. CIT(A) confirming the action of AO is hereby upheld. Ground No. 5 & 6 of assessee's appeal are also dismissed.
28. In the result, assessee's appeal is dismissed.
Respectfully following the decision of the co-ordinate bench in assessee's own case and going through the facts of the case of assessee before us are similar to the issue dealt by the co-ordinate bench in the decision referred above, we are of the view that ld. Assessing Officer has rightly added the long term capital gain from sale of shares to the book profits u/s 115JB of the Act and accordingly, we dismiss the ground of assessee.
10. Now we take up ITA No.1557/Ahd/2012 for Asst. Year 2007-08 (Revenue's appeal) wherein following grounds have been raised :-
ITA No. 1505 & 1557/And/2012 8Asst. Year 2007-08
1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in the shares received by the appellant company from the Bilakhia Family members constitutes a gift in the hands of the assessee.
2. It is therefore prayed that the order of the learned CIT(A) be set aside and that of the Assessing Officer be restored.
3. The appellant craves to add, alter or amend any grounds of appeal.
11. The only issue before us is to examine whether ld. CIT(A) has erred in holding the shares received by the assessee company from the Bilakhia family members constitutes a gift in the hands of the assessee.
11.1 We have heard the rival contentions and perused the material on record, we find that in the case of Addl.CIT vs. Bilakhia Holding Pvt. Ltd. & others in ITA Nos.981 to 985/Ahd/2009 for Asst. Years 2001-02 to 2006-07 vide its order dated 30.05.2014 has the co- ordinate bench has dealt with similar issue and held as under :-
10. The issue before us is whether the transfer of the shares of Nestle India Ltd and Hindustan Lever Ltd held by the members of Bilakhia family as investment by them to the assessee-company as per family arrangement dated 16-02-2001 claimed to have been transferred without any monetary consideration can be held to be gift or not?
10.1 As per Transfer of Property Act 1882 section 122 gift has been defined as under:-
"Gift as a transfer of certain existing moving or immovable property made voluntarily and without consideration by one person, called the doner, to another, called the donee and accepted or on behalf of the donee."
It is clear from the above that any transfer of any moveable or immovable property can be treated as gift only if the same is made voluntarily and without any consideration. The revenue's contention is that since this transfer of shares by the family members to the assessee-company has been made in pursuance of a family agreement, the same cannot be called voluntary or without consideration. For making this submission reliance was ITA No. 1505 & 1557/And/2012 9 Asst. Year 2007-08 placed on the decision of Supreme Court in the case of CWT vs. HH Vijayaba, Dowgner Maharani Saheb of Bhavnagar Palace (117 ITR 784) wherein it was held as under:-
"5. Taking the totality of the facts as found by the Tribunal and mentioned in the impugned judgment of the High Court it was a case of family settlement or family arrangement which is binding on the parties concerned. The assessee agreed to purchase peace for the family, and to pay to her son the amount which fell short of Rs. 50,00,000/- if her elder son did not pay any portion thereof. It is, well established that such a consideration is a good consideration which brings, about an enforceable agreement between the parties. Section 25 of the Contract Act does not hit this."
It is clear from the above that Hon'ble Apex Court held that family arrangement cannot be regarded as being without consideration so as to render them unenforceable. Since it is an admitted position that family arrangement in the present case is enforceable and binding, the assessee cannot take the plea that transfer of shares by the family members to the assessee in pursuance to the family arrangement was without consideration.
11. The next question arises whether this consideration can be measured in money or monies worth or not. To answer this question we will have to examine the various clauses of the family arrangement dated 16-02-2001. The main clauses of which are as under:-
"5. The various business and companies of the parties hereto are under the control and joint management of the three-brothers viz. Yunus, Anjum and Zakir
6. To avoid any future disputes, differences and disagreements which may affect the peace, harmony, honour, and prestige of the family or the parties as also affect the various business and assets and with a view to always remain a joint close knit family, the parties have agreed that each of the three brother: namely Yunus, Anjum and Zakir should have equal rights and owner ship in the various business and assets except when specifically provided otherwise.
7. Yunus, Anjum and Zakir have equal shareholding in Bilakhia Holdings P Limited ("BHL ") Each of Yunus, Anjum and Zakir shall create a separate trust and transfer to such trust and transfer to such trust their shareholding in BHL so that the existing share capital of BHL shall be held by the individual trusts so created.
8. Pursuant to the arrangement arrived at between the parties and with a view to consolidate their respective assets, investments and interests in the family business and assets, the parties hereto have agreed that BHL shall he the main holding company which shall hold all investments in other companies and business present and future.
9. The parties here to hold disproportionate and unequal shares and securities in the companies specified in Annexure "A" here to. the details of the shareholding ITA No. 1505 & 1557/And/2012 10 Asst. Year 2007-08 of the parties in the shares and securities of the Companies specified in Annexure "A. " here to are specified in Annexure "B-l" to ''B-12" respectively.
10. With a view to consolidate and equalize the holdings between the respective families of Yunus, Anjum and Zakir , it has been agreed by and between all the parties hereto that each party will gift and transfer to BHL all the shares and securities held by such party in the Companies specified in Annexure "A " hereto.
11. Yunus, Anjum, and Zakir will jointly fund separately family maintenance trusts to be created by each of Yunus, Anjum and Zakir for the maintenance and benefit of the respective families of Yunus, Anjum and Zakir.
12. In addition, Yunus, Anjum and Zakir will jointly fund separate trusts for each of the children of Yunus, Anjum and Zakir where by certain amount will be settled for benefit of each child.
13. The other investments held by the parties hereto i.e. the assets other than the shares and securities of the Companies specified in Annexure "A" hereto are specified in Annexure "C-1", "C-2", "C-3" and "C-4" respectively. With a view to consolidate and equalize the values of the assets held by each of the parties herein and specified in Annexure C-1 to C-4 hereto the parties will gift to BHL all the assets held by each party in the Companies specified in Annexure Cl to C-4. "
Emphasis provided) "
It is clear from the above that family arrangement was to equalize the holdings between the respective families of three brothers. Therefore, it cannot be said that consideration for transfer of shares cannot be measured in terms of money or monies worth. The equalization of wealth has only monetary connotation. It is also pertinent to mention that assessee-company in its synopsis of argument has emphasized on the fact that Bilakhia family was a closely knit family and was living in peace and to avoid any future dispute this family arrangement was signed and acted upon. To avoid disputes cannot be said to be without monetary consideration as it is common knowledge that family disputes ruin the family financially. The family disputes are being settled in monetary terms by resorting to arbitration and in case such settlements is not done, matter travels to the court and the family suffers heavily not only mentally but also financially. There is a proverb according to which it is said that a person who wins a case actually looses it as by the time matter is settled in his favour he is already a ruined person. Thus, in this case it cannot be said that the consideration for transfer of shares was not for monetary consideration. Now coming to the aspect whether this act of transfer of shares was voluntary or not. Since this transfer was in pursuance of family arrangement, the same was not voluntary as the family arrangement was enforceable and binding on the parties. The argument made on behalf of the assessee that since the family arrangement was voluntary the subsequent action of the parties to the arrangement was also be considered voluntary and for making this submission it was submitted that if ld. DR's contention is accepted then no transfer effected pursuant to an agreement be regarded as voluntary. We find this argument advanced by asssessee devoid of any merit because if this argument of ITA No. 1505 & 1557/And/2012 11 Asst. Year 2007-08 the assessee is accepted then what was the need of signing enforceable binding family agreement in the first place. We further find that in the Mitra's Legal and Commercial Dictionary word "voluntary" is defined as under:-
"Free choice; done with free will; without any compulsion, obligation or valuable consideration. Freely, without compulsion, not under any obligation. A-G v Ellis (1895) QB 466: 64 LJ QB 813"
Since transfer of shares was for equalization of wealth of the family members which had monetary connotation, the same cannot be said to be voluntary. In the light of the above facts and circumstances of the case, the judgment of Hon'ble Apex Court in the case of Kri Sonia Bhatia Vs. State of U.P. (AIR 1981 SC 1274) is of no help to the assessee rather it supports the case of revenue.
12. In view of our above discussion, we have no hesitation in holding that transfer of shares of Nestle India Ltd and Hindustan Lever Ltd held as investment by members of Bilakhia family to the assessee-company as per family arrangement dated 16-02-2001 claimed to have been transferred without any monetary consideration cannot be held to be a gift and therefore order passed by Ld. CIT(A) holding the transfer of shares as gift is hereby reversed and that of AO is restored.
Respectfully following the above decision of the co-ordinate Bench we are of the view that receipt of shares by assessee from Bilakhia under family arrangements, cannot be held to be a gift and, therefore, the decision of ld. CIT(A) on this issue is set aside and that of the Assessing Officer is restored.
12. In the result, appeal of assessee is dismissed and that of the Revenue is allowed.
Order pronounced in the open Court on 8th March, 2016 Sd/- Sd/-
(Rajpal Yadav) (Manish Borad)
Judicial Member Accountant Member
Dated 8/03/2016
Mahata/-
ITA No. 1505 & 1557/And/2012 12
Asst. Year 2007-08
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Asst. Registrar, ITAT, Ahmedabad
1. Date of dictation: 25/02/2016
2. Date on which the typed draft is placed before the
Dictating Member: 7/03/2016 other Member:
3. Date on which approved draft comes to the Sr. P. S./P.S.:
4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________
5. Date on which the fair order comes back to the Sr. P.S./P.S.:
6. Date on which the file goes to the Bench Clerk:8/3/2016
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order: