This is the first
and oldest monthly feature of the BCAJ. Even before the BCAJ started, when
there were no means to obtain ITAT judgments – BCAS sent important judgments as
‘bulletins’. In fact, BCAJ has its origins in Tribunal Judgments. The first
BCAJ of January, 1969 contained full text of three judgments.
We are told that the first convenor of
the journal committee, B C Parikh used to collect and select the decisions to
be published for first decade or so. Ashok Dhere, under his guidance compiled
it for nearly five years till he got transferred to a new column Excise Law
Corner. Jagdish D Shah started to contribute from 1983 and it read “condensed
by Jagdish D Shah” indicating that full text was compressed. Jagdish D Shah was
joined over the years by Shailesh Kamdar (for 11 years), Pranav Sayta (for 6
years) amongst others. Jagdish T Punjabi joined in 2008-09; Bhadresh Doshi in
2009-10 till 2018. Devendra Jain and Tejaswini Ghag started to contribute from
2018. Jagdish D Shah remains a contributor for more than thirty years now.
While Part A covered Reported Decisions,
Part B carried unreported decisions that came from various sources. Dhishat
Mehta and Geeta Jani joined in 2007-08 to pen Part C containing International
tax decisions.
The decisions earlier were sourced from
counsels and CAs that required follow up and regular contact. Special bench
decisions were published in full. The compiling of this feature starts with the
process of identifying tribunal decisions from a number of sources. Selection
of cases is done on a number of grounds: relevance to readers, case not
repeating a settled ratio, and the rationale adopted by the bench members.
What keeps the contributors going for so
many years: “Contributing monthly keeps our academic journey going. It keeps
our quest for knowledge alive”; “it is a joy to work as a team and contributing
to the profession” were some of the answers. No wonder that the features
section since inception of the BCAJ starts with the Tribunal News!
10.
Asst. CIT vs. Subhodh Menon (Mumbai) Members: R. C. Sharma (A. M.) and Ram Lal Negi (J. M.)
ITA No.: 676/Mum/2015 A. Y.: 2010-11. Dated: 7th Decmber, 2018
Counsel for Revenue / Assessee: Tejveer
Singh and Abhijeet Deshmukh / S.E. Dastur
Section 56(2)(vii) –
Provisions do not apply to rights shares offered on a proportionate basis even
if the offer price is less than the FMV of the shares.
FACTS
The assessee was an executive director of
Dorf Ketal Chemicals India Pvt. Ltd. (“Dorf Ketal”). He filed his return of
income showing total income of Rs. 25.04 crore (revised). On 28.01.2010 the assessee acquired 20,94,032
shares in Dorf Ketal @ Rs.100/- per share i.e. @ face value for a consideration
of Rs.20.94 crore. According to the A.O., under Rule 11UA(c), the fair market
value of the share of Dorf Ketal was Rs.1,438.64. Therefore, the difference in
share value was brought to tax u/s. 56(2)(vii)(c) and the total income was
assessed at Rs. 326.32 crore. According to the AO, the assessee being a
salaried employee, the shares allotted to him could also be treated as
perquisite or profit in lieu of salary u/s. 17. Reliance was placed on the
ratio laid down by the Bombay High Court in the case of CIT vs D. R. Pathak (99
ITR 14). The CIT(A) on appeal, relying
on the decision of the Mumbai tribunal in the case of Sudhir Menon HUF vs.
Asst. CIT (I.T.A. No. 4887/Mum/2013 dated 12.03.2014) held in favour of the
assessee. Being aggrieved, the revenue
appealed before the Tribunal.
Before the Tribunal, the revenue justified
the order of the AO and contended that:
- The assessee has not disputed the valuation of
the shares at Rs.1,538.64 per share as on 31,03.2009, which was in accordance
with the Rules. As regards argument of the assessee that after the date of the
issue of fresh shares, the valuation of the shares has been drastically reduced
with inclusion of the new contribution of share capital, according to the revenue, the share value of
the company has to be valued as on date of issue or prior to the issue date to
determine the fair market value;
- The assessee was offered 21,78,204 shares at
face value of Rs. 100. However, he accepted only 20,94,032 shares. Thus,
according to the revenue, there has been disproportionate allotment in the case
of the assessee and thus the decision of the Mumbai Tribunal in the case of
Sudhir Menon HUF, relied on by the CIT(A), was distinguishable;
- The provisions of section 56(2)(vii) are in the
nature of anti-abuse provisions and therefore should be interpreted strictly.
For the purpose, it relied on the Circular No. 1/2011 dated 6th
April, 2011 and the decisions of the Hyderabad Tribunal in case of Rain Cement
Limited vs. DC IT (2017 1 NYPTTJ 362) and Kolkata Tribunal in the case of
Instrumentarium Corporation Ltd. (2016 (7) TMI 760 – ITAT Kolkata);
HELD
According to the Tribunal, the issue under
consideration was squarely covered by the order of the Mumbai Tribunal in the
case of Sudhir Menon HUF. As held under
the said decision, the Tribunal held that the provisions of section
56(2)(vii)(c) is not applicable to the facts and circumstances of the
appellant’s case.
As regards contention of
“disproportionate allotment” raised by the revenue, according to the
Tribunal, it is only when a higher than the proportionate allotment is received
by a shareholder, the provisions of section 56(2)(vii) get attracted. In the
instant case, the assessee applied for and was allotted a lesser than the
proportionate shares offered to him and his shareholding reduced from 34.57% to
33.30%.
The Tribunal further noted that the
transaction of issue of shares was carried out to comply with a covenant in the
loan agreement with the bank to fund the acquisition of the business by the subsidiary
in USA. Thus, the shares were issued by Dorf Ketal for a bonafide reason and as
a matter of business exigency. As per Circular No.1/2011 explaining the
provision of section 56(2)(vii) and relied on by the revenue, “the
intention was not to tax transactions carried out in the normal course of
business or trade, the profit of which are taxable under the specific
head of income”. Thus, the Circular supports the assessee’s case.
As regards the
alternated contention of the AO that the same should be considered for
taxability as perquisite u/s. 17, the tribunal held that the provisions of
section 17 do not apply to the shares allotted by Dorf Ketal to the assessee,
as the shares were not allotted to the assessee in his capacity of being an
employee of the company. The shares were offered and allotted to the assessee
by virtue of the assessee being a shareholder of the company. Therefore the
provisions of section 17 were not applicable. For the purpose, the Tribunal
referred to the Board Circular No. 710 dated 24th July, 1995 which
provides that where shares are offered by a company to a shareholder, who
happens to be an employee of the company, at the same price as have been
offered to other shareholders or the general public, there will be no perquisite
in the shareholder’s hands. In the instant case, the Tribunal noted that the
shares were offered to the assessee and other shareholders at a uniform rate of
Rs. 100 and therefore, the difference between the fair market value and issue
price cannot be brought to tax as a perquisite u/s. 17.
In the result, the appeal filed by the
revenue was dismissed.
