Transfer of Shares being an internal family realignment cannot be treated as Gift or Perquisites - Income Tax Appellate Tribunal) (12 May 2020)
The Assessee is an investment company. Return of income was electronically filed declaring total income of Rs. 2,75,836. During the course of assessment proceedings, the Assessing Officer observed that, the assessee company has claimed to receive shares of various companies from various companies as gift without paying any consideration.
The Assessing Officer further observed that, the financials filed by the assessee company clearly shows that Arti Jindal was holding 99.9% shares of the assessee company. However, during the Financial Year 2013-14 relating to the Assessment Year 2014-15, 99.6% of shares holding of Glebe Trading was transferred to P R J Holdings Private Trust as gift. The Assessing Officer made addition of Rs. 1593,19,34,79 in the hands of the beneficiary within the provisions of Section 2(24) (iv) of the Income Tax Act, 1961. There is no addition made in the hands of the assessee company. The assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
It is submitted that, the CIT(A) failed to adjudicate the grounds raised by the assessee, challenging the extraneous and extra-jurisdictional findings / observations of the Assessing Officer in the assessment order. Further, Assessing Officer failed to appreciate that the shares of listed companies received by the assessee company as gift without consideration, as part of internal family realignment amongst members of the family, could not be regarded as valid “gift”, and further grossly erred in alleging the same to be sham and colourable transactions, without any cogent reasons.
The Assessing Officer did not make any addition in the hands of the assessee but held that benefit arose to the assessee through receipt of shares from various companies and holding the same to be taxable under Section 2(24)(iv) of the Income Tax Act, 1961 in the hands of Arti Jindal as the beneficiary.
As per 2(24)(iv) of Act, “income” includes the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person.
The words benefit and perquisite are used in sub-section (24) to Section 2. Whether gifting shares amounts any benefit or perquisite has to be looked into. In the present case, at one point the Assessing Officer has stated that there is benefit to Assessee company but at the same time states that the transaction of gift of shares held by Arti Jindal in the Assessee company to PRJ Holding Private Trust was not valid and was a sham and void transaction which was undertaken to avoid tax. But from the MOU submitted by the Assessee company, it can be clearly seen that it a family arrangement and internal family realignment amongst the members of the family of Late Shri O.P. Jindal and cannot be taken as gift.
It is not a gift but a family arrangement and these kind of family arrangement cannot be termed as gift/benefit or perquisite. The Assessing Officer by lifting the corporate veil, without providing any cogent reasons, and without appreciating that the beneficiary never obtained any benefit from this transaction at any time cannot comment on the said transaction as sham and bogus. Thus, the observations made by the Assessing Officer in the present assessment order are without any jurisdiction.
In fact, the Assessing Officer overstepped the provisions of the Income Tax Act wherein the Assessment is nil in the case of present Assessee company and commented on the third party assessee which is not permissible under the Act. The appeal of the assessee is allowed.
For Full Text Judgement - MANU/ID/0462/2020
