Chartered Accountant Finance: [aaykarbhavan] Fw: Pre-Print Highlights of ITR(Trib) from CLI, ITR , Judgments and information,

  IT : Where additional shares of a company were allotted pro rata to   shareholders including assessee based on their existing shareholding,   there was no scope for any property being received on said allotment of   shares and, consequently, provisions of section 56(2)(vii)(c) did not   apply to difference in book value and face value of additional shares
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  [2014] 45 taxmann.com 176 (Mumbai - Trib.)
  IN THE ITAT MUMBAI BENCH 'A'
Sudhir Menon HUF
v.
  Assistant Commissioner of Income-tax -21(2), Bendra Mumbai*
D.MANMOHAN, VICE-PRESIDENT 
  AND SANJAY ARORA, ACCOUNTANT MEMBER
  IT APPEAL NO. 4887 (MUM.) OF 2013 
SA NO. 192 (MUM.) OF 2013
[ASSESSMENT YEAR 2010-11]
  MARCH  12, 2014 
Section   56 of the Income-tax Act, 1961 - Income from other sources - Chargeable   as (Gifts) - Assessment year 2010-11 - Whether where additional shares   of a company were allotted pro rata to shareholders including assessee   based on their existing shareholding, there was no scope for any   property being received on said allotment of shares and, therefore,   provisions of section 56(2)(vii)(c) did not apply to difference in book   value and face value of additional shares - Held, yes [Para 4.3] [In   favour of assessee]
  FACTS
 
  ■   The   assessee was holding 4.98 per cent share capital of company 'D'. The   assessee was offered additional shares at the face value of Rs. 100   each, on a proportionate basis along with other shareholders.  
■   The   assessee subscribed to and was accordingly allotted on the same terms,   not only the shares similarly offered to them but also that not   subscribed to by the other shareholders.  
■   As   the book value of the shares of company 'D' as on 31-3-2009 was Rs.   1,538 per share, which was to be adopted as a measure of their fair   market value (FMV) under the applicable rules (Rule 11U and rule 11UA),   the Assessing Officer (A.O.), treating the difference of Rs. 1,438 per   share as the extent of the inadequate consideration, i.e., in terms of section 56(2)(vii)(c) towards the acquisition of additional shares, brought the same to tax.  
■   The Commissioner (Appeals) confirmed said addition.
  ■ On second appeal:  
HELD
   
  ■ Firstly, it is necessary to resolve if the provision of section 56(2)(vii) includes the property under reference, i.e., as   received by the assessee. This is as the word 'property' occurring   therein is defined to mean capital assets as specified therein (vide Explanation to   the provision). Though the same lists 'shares and securities', one of   the objections raised by the assessee is that the shares come into   existence only on their allotment. However, the right to acquire the   shares at a concessional rate, which is what is sought to be annexed or   targeted by the revenue through the said provision, comes into effect on   the passing of the necessary resolution by the Board of Directors (BOD)   of the issuer-company. This is also pressed to support the argument of   the provision being never intended to cover a transaction of this   nature, i.e., where the shares are offered to the existing shareholders - though below their market value, on rights basis.  
■   True,   the shareholders get the right to acquire the additional shares on the   passing of the board resolution, but the receipt of the property is only   on their allotment, on which date the shares, a specified property, is   in existence [refer: Shree Gopal & Co. v. Calcutta Stock Exchange Ltd.[1963] 32 Comp. Cas. 862 (SC) and Khoday Distilleries Ltd. v. CIT [2008] 307 ITR 312/176 Taxman 142 (SC),   wherein it has been explained that allotment is generally neither more   nor less than the acceptance by the company of the offer to take shares.   All it means is appropriation out of the previously unappropriated   capital of a company of a certain number of shares to a particular   person. Till such allotment the shares do not exist as such, and in a   sense come into existence on their allotment.  
■   In   this view of the matter, the plea of the rights under reference being   not a property specified under the provision or the provision being   sought to be applied by the revenue to a non-existing property, is   without basis. In fact, even the date of receipt - which itself implies   that the property exists, i.e., whether on allotment 28-1-2010 or   the receipt of shares 10-02-2010 was a bone of contention. This is   rendered inconsequential in as much as both the dates fall during the   relevant previous year; and being separated by a small time lag, even   the valuation would not alter to any material extent, and which becomes a   relevant consideration in as much as the valuation date under rule 11U(j) is the date of the receipt of the property.  
■   Though   the shares are received on their allotment, what stands received by the   assessee subsequently on 10-2-2010 are the share certificates, i.e., the   document evidencing its title thereto. The two are different, and the   shares as well as the property therein vest in the assessee on the   allotment of the shares, whereat the same stand constructively received;   the payment of which has also been made by that date.  
■   Coming back to the question posed, i.e., as to how could a transaction as the present one be possibly covered by section 56(2)(vii)(c),   the correct and the proper question to be asked in the matter instead   is: The transaction per se being ostensibly covered by the clear and   unambiguous language of the provision, what is its import in a case as a   present one? Does it, for example, lead to any unintended or absurd   results which, though apparently should not arise, given the clear and   precise mandate of the provision, i.e., to treat gains by way of   receipt of property, which are not explicable in terms of normal human   conduct, as income from other sources of the year of receipt (of the   relevant asset). The question being asked, on the other hand, rather   than eliciting a correct answer - which is the purport of any question,   obfuscates the issue.  
■   The   section without doubt seeks to substitute the FMV as the normative   basis for transactions involving the receipt of property by a person,   being an individual or HUF. That is, it deems the same to be a proper   measure of the arm's length price, which principle ought to guide or   obtain in case of a transaction between two unrelated parties.   Exceptions for transactions between relatives; on inheritance; on the   occasion of marriage; in contemplation of death, etc. are provided,   where this rule may not apply in the normal course, i.e., of   human conduct, in as much as no consideration is predicated in such   cases or, put differently, considerations other than financial/monetary   come into play. To that extent the provision is well-founded and   adequately excepted.  
■   The provision, beginning with section 56(2)(v)   by Finance (No.2) Act, 2004, which had a threshold limit of   Rs.25,000/-, as against the present Rs.50,000/-, has been gradually   enhanced in scope over time to include gifts-in-kind and immovable   property as well, with section 56(2)(vii) taking effect from 1-10-2009 onwards, phasing out sections 56(2)(v) and 56(2)(vi)   by limiting their application to specified periods in the interregnum.   In fact, developments continue unabated, and the provision is further   strengthened and broadened, with Finance Act, 2010 including a   firm/company among the eligible recipients, i.e., where the property involved is shares in unlisted companies, i.e.,   in which the public is not substantially interested, as the present   one, excluding transactions of business reorganization, amalgamation,   demerger, etc. per clause (viia).  
■   The   revenue in view of the law providing for the FMV as the normative basis   for the acquisition of the property, absolved of proving, a formidable,   if not an impossible task by any standards, that the shortfall in the   consideration is sourced by or on behalf of the recipient of the   property, and is thus his income. It is in fact not difficult to   visualize situations where through the medium of additional shares the   controlling interest in a company or business or interest in property -   movable or immovable, is passed on to another at considerations far   below the going rate of the relevant or the underlying assets/interest.   Only a pro rata allotment or, where not so, one that is   adequately priced, would effectively ensure an exchange of the assets or   interest therein at par values. The provision, thus premised, is on a   firm, cogent and sound footing.  
■   The   provision, firstly, would not apply to bonus shares. Issue of bonus   shares is by definition capitalization of its profit by the   issuing-company. There is neither any increase nor decrease in the   wealth of the shareholder (or of the issuing company) on account of a   bonus issue, and his percentage holding therein remains constant. What   in effect transpires is that a share gets split (in the same proportion   for all the shareholders), as for example by a factor of two in case of   a1:1 bonus issue.  
■   In   other words, there is no receipt of any property by the shareholder,   and what stands received by him is the split shares out of his own   holding. It would be akin to somebody exchanging a one thousand rupee   note for two five hundred or ten hundred rupee notes. There is,   accordingly, no question of any gift of or accretion to property; the   shareholder getting only the value of his existing shares, which stands   reduced to the same extent. The same has the effect of reducing the   value per share, increasing its mobility and, thus, liquidity, in the   sense that the shares become more accessible for transactions and, thus,   trading, i.e., considered from the holders' point of view.   However, there could be a case of bonus issue coupled with the release   of assets (of the issuing company) in favour of the shareholders. The   same would fall to be considered as dividend under section 2(22)(a). [Para 4.2]  
■   One   may next examine if the provision, being ostensibly applicable, leads   to any addition in the hands of the assessee whose shareholding gets -   as a result of the transaction, in fact reduced from 4.98% to (as   stated) 3.17%. The argument as well as the premise on which we found the   issue of bonus shares as not applicable would, to the extent pari materia, apply in equal measure to the issue of additional shares,i.e., where   and to the extent it is proportional to the existing shareholding. One   may though, at the outset, clarify that the instant issue cannot be   called a rights issue.  
■   Section   81 of the Companies Act, 1956 is not applicable to a private company   (section 81(3)), so that it is firstly not obliged to issue shares to   the existing shareholders only, and again, even so, on a proportionate   basis. That apart, the scheme does not have a provision for the   renunciation of rights by the existing shareholders. The same could thus   at the option of the issuing company be offered for allotment to any   other, i.e., whether existing shareholder or not. Thus, though   the issue has elements of a right issue in as much as the offer is made   in the first instance to the existing shareholders on the basis of their   shareholding on proportional basis, the same cannot be strictly termed   as one; the company appropriating that right, which could be offered to   another.  
■   As long as, therefore, there is no disproportionate allotment, i.e., shares are allotted pro rata to   the shareholders, based on their existing holdings, there is no scope   for any property being received by them on the said allotment of shares;   there being only an apportionment of the value of their existing   holding over a larger number of shares. There is, accordingly, no   question of section 56(2)(vii)(c), though per se applicable   to the transaction, i.e., of this genre, getting attracted in such a   case. A higher than proportionate or a non-uniform allotment though   would, and on the same premise, attract the rigour of the provision.   This is only understandable in as much as the same would only be to the   extent of the disproportionate allotment and, further, by suitably   factoring in the decline in the value of the existing holding.  
■   It would be noted that the section, as construed, would apply uniformly for all capital assets, i.e.,drawing   no exception for any particular class or category of the specified   assets, as the 'right' shares. No addition under section 56(2)(vii)(c) would thus arise in the undisputed facts of the instant case, and the assessee succeeds. [Para 4.3]  
■   The   foregoing arguments and premises would also meet and state the basis   for not accepting the revenue's argument toward no cognizance being   taken of the existing shareholding - on the strength of which only the   additional shares are allotted to the assessee or the decline in their   value consequent to the issue of additional shares in as much as the   same are not the subject matter of receipt, i.e., to which the provision pertains and is restricted to.  
■   It stood further contended that the ratio of the decision in the case of Miss. Dhun Dadabhoy Kapadiav. CIT [1967] 63 ITR 651 (SC) would be no longer applicable, i.e., even   in principle, so that the said decline would be of no consequence in   view of the specific provisions being since incorporated under section   55, providing for the cost of shares under such situations, as for   example a nil cost for bonus shares. The capital asset received   by the assessee (shares in the present case), it may be appreciated, are   to be valued as on the date of its receipt. That is, it is only the   asset received that is to be valued. In as much as therefore the value   of the additional shares is derived - if only in part - from that of the   existing shares, the decline in the value thereof cannot be excluded or   ignored - though only by following the valuation method prescribed   under the rules - in arriving at the property by way of additional   shares received by the assessee.  
■   The provision of section 55(2)(aa)   provides for the cost of a capital asset, being a share or security,   which the assessee becomes entitled to subscribe to by virtue of his   holding such a capital asset. The same, on the contrary, provides   statutory support, i.e., in principle, to Tribunal decision in as much as it clarifies that the values of the two, i.e., the   original and the additional financial assets (which is how the same are   referred to in the said provision) are interlinked and, accordingly, a   gain cannot be computed independent of each other. It is in fact in   acknowledgement thereof that the Legislature has considered it proper   and necessary to provide for determination of cost in such cases, i.e., for   uniform application. The same though would operate for the purpose of   computing capital gains, which would arise on the subsequent transfer of   such assets.  
■   There   is an internal consistency between the two sets of provisions in as   much as section 49(4) stands simultaneously incorporated to deem the   value adopted or taken for the purpose of section 56(2)(vii) (or (viia))   as the cost of acquisition of the relevant asset. In fact, the argument   becomes irrelevant in view of holding that section 56(2)(vii)   shall not have effect, irrespective of the value at which the additional   shares are allotted, where and to the extent they are so on the   strength of and against the existing shareholdings, made uniformly or   subject to adequate pricing. [Para 4.4]  
■   A   transaction could be either with or without consideration.   Consideration signifies a price, so that it is a case of transfer, which   the impugned transaction is not, while if considered as without   consideration, the transaction is void in law, being not a gift   in-as-much as the company is not the owner of its shares. The argument   seeks to support the contention that the transaction in order to qualify   as valid in law has to be a case of transfer in as much as the   consideration implies price, so that the word 'receipt' occurring in   section 56(2)(vii) has to be read as a synonym for or equated   with 'purchase' or 'transfer'. The shares under question being not   acquired through transfer, the transactions falls outside the ambit of   section 56(2)(vii).  
■   The argument, attractive on its face, fails miserably the moment the nature of the transaction, i.e., the   allotment of the shares (through which the relevant shares stand   acquired or received), upon which only the shares come into existence   and are received by the allottee thereof, is clarified. The same has   been subject to dilation and elucidation by the Apex Court inter alia in Shree Gopal & Co. (supra) andKhoday Distilleries Ltd. (supra) relied upon by the parties themselves before us.  
■   As   stated explicitly in the former case, a share is a chose in action. A   chose in action implies the existence of some person entitled to the   rights, which are rights in action as distinct from rights in   possession, and, until the share is issued, no such person exists. A   share does not exist prior to its allotment, and in that sense comes   into existence only on its allotment. Allotment of a share is only the   appropriation of the authorized share capital, being un-appropriated, to   a particular person.  
■   In   nutshell, the difference between the issue of a share to a subscriber   and a purchase of a share from an existing shareholder is the difference   between the creation and transfer of a chose in action. How could,   therefore, purchase be equated with allotment? In fact, the purchase or   transfer implies existence of a property, while the shares, where out of   un-appropriated capital, come into existence only on their allotment.   It becomes, thus, in the context of the provision, completely irrelevant   and of no consequence that the shares in the issuing company are not   its property, and that it does not become, therefore, any poorer as a   result of the allotment of shares therein. 'Receipt' is a word or term   of wide import, and would include acquisition of the subject matter of   receipt - defined capital assets in the present context, by modes other   than by way of transfer as well.  
■   There   is no reason to limit or restrict the scope of the word 'receipt' in   the provision to cases of 'transfer' only. Doing so would not only   amount to reading down the provision, which the tribunal is even   otherwise not competent to, being not a court of law, but reading it in a   manner totally inconsistent with the unambiguous language and the clear   intent (of the Legislature) conveyed thereby, but also its context as   well as the drift of section, in complete violence thereto.  
■   In   the case of issue of bonus shares (as also on demerger), no property is   being conveyed to the shareholder in as much as the property therein is   comprised in the existing shareholding of the allottee. There is as   such no case of a gift; the shareholder only receiving his own   property, albeit in a different form. A 'right' share, on the   other hand, is placed differently. To the extent it is allotted to a   person not against his existing shareholding or, even so, albeit disproportionately,   there is, depending on the terms of the allotment, which is the mode of   acquisition and, thus, its receipt, scope for value or property being   passed on to him, which cannot be said to be in lieu of or as recompense   of his existing property. The section would, as aforestated, therefore,   apply, though the extent of income, if any, chargeable thereunder would   depend on the actual allotment and its terms. Thus, considering the   assessee's case from this angle also leads to the same conclusion. [Para   4.5]  
■   In view of the foregoing, therefore, the provision of section 56(2)(vii)(c),   in the facts and circumstances of the case, shall not apply and, hence,   the amount in question cannot be assessed as income in the hands of the   assessee on the ground of inadequate consideration. [Para 5.1]  
  CASES REFERRED TO
 
  K.P. Varghese v. ITO [1981] 131 ITR 597/7 Taxman 13 (SC) (para 4.1), Shree Gopal & Co. v.Calcutta Stock Exchange Ltd. [1963] 32 Comp. Cas. 862 (SC) (para 4.2), Khoday Distilleries Ltd. v.CIT [2008] 307 ITR 312/176 Taxman 142 (SC) (para 4.2), CIT v. Dalmia Investment Co. Ltd. [1964] 52 ITR 567 (SC) (para 4.2), Hunsur Plywood Works Ltd. v. CIT [1998] 229 ITR 112/[1997] 95 Taxman 460 (SC) (para 4.2), Miss Dhun Dadabhoy Kapadia v. CIT [1967] 63 ITR 651 (SC) (para 4.3), H. Holck   Larsen v. CIT [1972] 85 ITR 285 (Bom.) (para 4.3), Chuharmal v. CIT [1988] 172 ITR 250/38 Taxman 190 (SC) (para 4.5), A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC) (para 4.5),Sreelekha Banerjee v. CIT [1963] 49 ITR 112 (SC) (para 4.5), Kale Khan Mohammad Hanif v. CIT[1963] 50 ITR 1 (SC) (para 4.5), CIT v. Durga Prasad More [1971] 82 ITR 540   (SC) (para 4.5), C.K. Sudhakaran v. ITO [2005] 279 ITR 533/[2006] 150 Taxman 241 (Ker.) (para 4.5), Turner Morrison & Co. Ltd. v. CIT [1953] 23 ITR 152 (SC) (para 4.5), C.W.S. (India) Ltd. v. CIT [1994] 208 ITR 649/73 Taxman 174 (SC) (para 4.6), CIT v. J.H. Gotla [1985] 156 ITR 323/23 Taxman 14J (SC) (para 4.6), Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1/[1979] 2 Taxman 501 (SC) (para 4.6), Padmasundara   Rao v. State of Tamil   Nadu [2002] 255 ITR 147 (SC) (para 4.6) and Britannia Industries Ltd. v. CIT [2005] 278 ITR 546/148 Taxman 468 (SC) (para 4.6).
S.E. Dastur and Ms. Aarti Vissanji for the Appellant. Surinder Jit Singh for the Respondent.
  ORDER
 
  Sanjay Arora, Accountant Member - This is an Appeal by the   Assessee directed against the Order by the Commissioner of Income Tax   (Appeals)-32, Mumbai ('CIT(A)' for short) dated 21.05.2013, dismissing   the assessee's appeal contesting its assessment u/s.143(3) of the Income   Tax Act, 1961 ('the Act' hereinafter) for the assessment year (A.Y.)   2010-11 vide order dated 14.01.2013.
The issue
  2. The principal; rather, the sole issue arising in the instant   appeal; the assessee not pressing its ground no.1 assailing the impugned   assessment on the question of jurisdiction (which we find to have been,   though assumed, not pressed even before the first appellate authority,   withdrawing the objection vide letter dated 07.01.2013), is the validity   in law of the assessment as income of the difference between the value   of the shares allotted to the assessee and the consideration paid by it   in respect thereof.
The facts
  3. We may, to begin with, brief the facts, which are simple and   undisputed. The assessee, holding 15,000 shares (as on 01.04.2009, the   beginning of the relevant previous year) in a company by the name Dorf   Ketal Chemicals Pvt. Ltd. ('DKCPL' for short), the entire (or almost the   whole) capital in which is held by the family members of the assessee's   karta's family, representing 4.98% of the share capital (3,01,316   shares), was offered 3,13,624 additional shares (which works to about 21   shares for each share held) at the face value rate of Rs.100/- each, on   a proportionate basis. It subscribed to and was accordingly allotted   1,94,000 of those shares, on 28.01.2010, i.e., along with the other   shareholders, who were allotted - on the same terms, not only the shares   similarly offered to them but also that not subscribed to by the other   shareholder/s, as 1,19,624 (313624 - 194000) shares by the assessee. The   shares, as stated, were received by the assessee on 10.02.2010. As the   book value of the shares of DKCPL as on 31.03.2009 was Rs.1,538/- per   share, which is to be adopted as a measure of their fair market value   (FMV) under the applicable rules (Rule 11U and r. 11UA), the Assessing   Officer (A.O.), treating the difference of Rs.1,438/- per share as the   extent of the inadequate consideration, i.e., in terms of section   56(2)(vii)(c) read with the relevant rules, toward the acquisition of   additional shares, brought the same to tax there-under. The same being   confirmed in appeal, the assessee is in second appeal before us.
Section 56(2)(vii)(c) - A Discussion
  4.1 The issue is principally legal. The relevant provisions,   inserted by Finance (No.2) Act, 2009 w.e.f. 01.10.2009, in their   relevant part, read as under:
  '(a)   Section 2(24)(xv) of the Act reads as under:
  ' CHAPTER I
PRELIMINARY
  
   Definitions.
  
 2. In this Act, unless the context otherwise requires,—  
   (1) & (2)******
  
  
 (24) "income" includes—  
   (i) & (ii)******
  
  
 (xv) any sum of money or value of property referred to in clause (vii) of sub-section of section 56;'  
(b)   Section 56(2)(vii) reads as under:
  CHAPTER IV
COMPUTATION OF INCOME FROM OTHER SOURCES
  F.—Income from other sources
56. Income from other sources.—   (1) Income of every kind which is not to be excluded from the total   income under this Act shall be chargeable to income-tax under the head   "Income from other sources", if it is not chargeable to income-tax under   any of the heads specified in section 14, items A to E.
(2)   In particular, and without prejudice to the generality of the   provisions of sub-section (1), the following incomes, shall be   chargeable to income-tax under the head "Income from other sources",   namely:—
 (i)**  ****
  (vii) where an individual or a Hindu undivided family receives,   in any previous year, from any person or persons on or after the 1st day   of October, 2009,—
  (a)   any   sum of money, without consideration, the aggregate value of which   exceeds fifty thousand rupees, the whole of the aggregate value of such   sum;  
(b)   any   immovable property, without consideration, the stamp duty value of   which exceeds fifty thousand rupees, the stamp duty value of such   property;  
(c)   (any property, other than immovable property,—
  (i)   without   consideration, the aggregate fair market value of which exceeds fifty   thousand rupees, the whole of the aggregate fair market value of such   property;  
(ii)   for   a consideration which is less than the aggregate fair market value of   the property by an amount exceeding fifty thousand rupees, the aggregate   fair market value of such property as exceeds such consideration :  
Provided that where the stamp duty value of immovable property
 **  ****
  Provided further that this clause shall not apply to any sum of money or any property received—
  (a)   from any relative; or
  (b)   on the occasion of the marriage of the individual; or
(c)   under a will or by way of inheritance; or
  (d)   in contemplation of death of the payer or donor, as the case may be; or
(e)   from any local authority as defined in the Explanation to clause (20) of section 10; or  
(f)   from   any fund or foundation or university or other educational institution   or hospital or other medical institution or any trust or institution   referred to in clause (23C) of section 10; or  
(g)   from any trust or institution registered under section 12AA.
  Explanation. — For the purposes of this clause, —
(b)   "fair market value" of a property, other than an immovable property,   means the value determined in accordance with the method as may be   prescribed.
(d) "property" means the following capital asset of the assessee, namely:-
  (i)   immovable property being land or building or both;
(ii)   shares and securities;
  (iii)   jewellery;
(iv)   archaeological collections;
  (v)   drawings;
(vi)   paintings;
  (vii)   sculptures; or
(viii)   any work of art;'
  Further, section 49 also stands simultaneously amended by inserting a   new sub-section (4), providing that for the purpose of computing capital   gains, if the transaction of receipt of an asset is subject to tax   under clause (vii) of sub-section (2) of section 56, then the cost of   acquisition of the asset shall be the stamp duty value or the FMV, where   the asset is an immovable property or movable property as the case may   be. This would avoid double taxation, i.e., on the same amount, on the   transfer of the relevant capital asset.
Clearly,   therefore, the section gets attracted whenever an individual or Hindu   undivided family (HUF) receives without consideration a property (as   defined) the FMV of which is in excess of Rs.50,000/-, or where at a   consideration the difference between the FMV and such consideration   exceeds the said amount. The first issue that confronts us is if the   provision/s is at all applicable to a transaction as the one under   reference; the assessee contending it to be only an issue of right   shares by the issuing-company (DKCPL). How could, it is asseverated, a   provision brought on the statute to check bogus capital building or   money laundering possibly apply to a case as a present one which is only   a case of a rights issue, i.e., the issue of shares on rights basis,   and which are ordinarily issued at a discount? It would, going by the   argument, be equally applicable to bonus shares, and which is ludicrous   indeed, the ld. Authorized Representative (AR) would continue. Reference   in this regard was made by him to the Budget Speech for 2004-05 on the   insertion of section 56(2)(v) (reported at [2004] 268 ITR (St.) 22);   Press Note No. 402/92/2006-MC (21 of 2009) issued on the insertion of   section 56(2)(vii) (reported at [2009] 317 ITR (St.) 51); CBDT Circular   No. 5 of 2010 dated 03.06.2010, explaining the provision of clause (vii)   of section 56(2) inserted by Finance (No.2) Act, 2009 (reported at   [2010] 324 ITR (St.) 293 at 319); Explanatory Memorandum of the Finance   Bill, 2010 inserting clause (vii)(a) to section 56(2) (reported at   [2010] 321 ITR (St.) 110 at pg.123); and CBDT Circular No.1 of 2011   dated 06.04.2011 explaining the said clause, which is effective from   01.06.2010. It was, according to him, a fit case for applying the ratio   and the principles laid down by the hon'ble apex court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597/7 Taxman 13 (SC)inasmuch   as the apex court took into account all the relevant factors, including   the purpose for which the relevant provision of section 52 was brought   on the statute, as clarified by the official pronouncements preceding it   or in this regard, invoking the rule of contemporanea expositio as   well as the principles of construction. It, after noting, as pointed   out by Lord Denning, that language is at best an imperfect instrument   for the expression of human thought, referred to the words of Learned   Hand that it must always be remembered that statutes have some purpose   or object to accomplish, whose sympathetic and imaginative discovery is   the surest guide to their meaning (at pg. 604).
4.2 We   shall, before proceeding further, need to first resolve if the   provision of section 56(2)(vii) includes the property under reference,   i.e., as received by the assessee. This is as the word 'property'   occurring therein is defined to mean capital assets as specified therein   (vide Explanation to the provision). Though the same lists   'shares and securities', one of the objections raised by the assessee is   that the shares come into existence only on their allotment. However,   the right to acquire the shares at a concessional rate, which is what is   sought to be annexed or targeted by the Revenue through the said   provision, comes into effect on the passing of the necessary resolution   by the Board of Directors (BOD) of the issuer-company. This is also   pressed to support the argument of the provision being never intended to   cover a transaction of this nature, i.e., where the shares are offered   to the existing shareholders - though below their market value, on   rights basis.
True,   the shareholders get the right to acquire the additional shares on the   passing of the board resolution, but the receipt of the property is only   on their allotment, on which date the shares, a specified property, is   in existence [refer: Shree Gopal & Co. v. Calcutta Stock Exchange Ltd. [1963] 32 Comp. Cas. 862 (SC) and Khoday Distilleries Ltd. v. CIT [2008] 307 ITR 312/176 Taxman 142 (SC),   wherein it has been explained that allotment is generally neither more   nor less than the acceptance by the company of the offer to take shares.   All it means is appropriation out of the previously un-appropriated   capital of a company of a certain number of shares to a particular   person. Till such allotment the shares do not exist as such, and in a   sense come into existence on their allotment. In this view of the   matter, the plea of the rights under reference being not a property   specified under the provision or the provision being sought to be   applied by the Revenue to a non-existing property, is without basis. In   fact, before us even the date of receipt - which itself implies that the   property exists, i.e., whether on allotment (28.01.2010) or the receipt   of shares (10.02.2010), was a bone of contention. This is rendered   inconsequential inasmuch as both the dates fall during the relevant   previous year; and being separated by a small time lag, even the   valuation would not alter to any material extent, and which becomes a   relevant consideration inasmuch as the valuation date under r. 11U(j) is   the date of the receipt of the property. In our view though, the shares   are received on their allotment. What stands received by the assessee   subsequently on 10.02.2010 are the share certificates, i.e., the   document evidencing its title thereto. The two are different, and the   shares as well as the property therein vest in the assessee on the   allotment of the shares, whereat the same stand constructively received;   the payment of which has also been made by that date.
Coming   back to the question posed, i.e., as to how could a transaction as the   present one be possibly covered by section 56(2)(vii)(c), in our view   the correct and the proper question to be asked in the matter instead   is: The transaction per se being ostensibly covered by the clear and   unambiguous language of the provision, what is its import in a case as a   present one? Does it, for example, lead to any unintended or absurd   results which, though apparently should not arise, given the clear and   precise mandate of the provision, i.e., to treat gains by way of receipt   of property, which are not explicable in terms of normal human conduct,   as income from other sources of the year of receipt (of the relevant   asset). The question being asked, on the other hand, rather than   eliciting a correct answer - which is the purport of any question,   obfuscates the issue. The section without doubt seeks to substitute the   FMV as the normative basis for transactions involving the receipt of   property by a person, being an individual or HUF. That is, it deems the   same to be a proper measure of the arm's length price, which principle   ought to guide or obtain in case of a transaction between two unrelated   parties. Exceptions for transactions between relatives; on inheritance;   on the occasion of marriage; in contemplation of death, etc. are   provided, where this rule may not apply in the normal course, i.e., of   human conduct, inasmuch as no consideration is predicated in such cases   or, put differently, considerations other than financial/monetary come   into play. To that extent the provision is well-founded and adequately   excepted. The provision, beginning with section 56(2)(v) by Finance   (No.2) Act, 2004, which had a threshold limit of Rs.25,000/-, as against   the present Rs.50,000/-, has been gradually enhanced in scope over time   to include gifts-in-kind and immovable property as well, with section   56(2)(vii) taking effect from 01.10.2009 onwards, phasing out sections   56(2)(v) and 56(2)(vi) by limiting their application to specified   periods in the interregnum. In fact, developments continue unabated, and   the provision is further strengthened and broadened, with Finance Act,   2010 including a firm/company among the eligible recipients, i.e., where   the property involved is shares in unlisted companies, i.e., in which   the public is not substantially interested, as the present one,   excluding transactions of business reorganization, amalgamation,   demerger, etc. per clause (viia). The same are explained as an   anti-abuse measure, following the abolition of the Gift Tax Act, 1958,   which it is well-settled, as also explained by the apex court inKhoday Distilleries Ltd. (supra),   to, together with the Wealth Tax Act, 1957 and the Act, form an   integrated code. While the Gift Tax Act had sought to bring to tax the   shortfall in consideration in the hands of the donor, the present   provision/s seek to bring the same to tax as income in the hands of the   recipient of the relevant assets. The Revenue in view of the law   providing for the FMV as the normative basis for the acquisition of the   property, absolved of proving, a formidable, if not an impossible task   by any standards, that the shortfall in the consideration is sourced by   or on behalf of the recipient of the property, and is thus his income.   It is in fact not difficult to visualize situations where through the   medium of additional shares the controlling interest in a company or   business or interest in property - movable or immovable, is passed on to   another at considerations far below the going rate of the relevant or   the underlying assets/interest. Only a pro-rata allotment or, where not   so, one that is adequately priced, would effectively ensure an exchange   of the assets or interest therein at par values. The provision, thus   premised, is on a firm, cogent and sound footing.
We   may, before we conclude our discussion on this aspect of the matter,   dilate on the application of the provision to the transaction of the   nature under reference. The provision, firstly, would not apply to bonus   shares, and the argument alluding thereto arises only on account of   misconception in respect thereof. Though the shares under reference are   admittedly not bonus shares, we consider it relevant to dwell thereon,   not only to meet the argument in their respect, made emphatically before   us, but also to demonstrate the wholesomeness of the provision, which   is in fact what was being sought to be impugned. Issue of bonus shares   is by definition capitalization of its profit by the issuing-company.   There is neither any increase nor decrease in the wealth of the   shareholder (or of the issuing company) on account of a bonus issue, and   his percentage holding therein remains constant. What in effect   transpires is that a share gets split (in the same proportion for all   the shareholders), as for example by a factor of two in case of a 1:1   bonus issue. Reference in this regard may be made to the decision in CIT v. Dalmia Investment Co. Ltd. [1964] 52 ITR 567 (SC) as well as in Khoday Distilleries Ltd. (supra), wherein reference stands made to the former, also quoting there-from, besides inter alia to Hunsur Plywood Works Ltd. v. CIT [1998] 229 ITR 112/[1997] 95 Taxman 460   (SC),   where the same were referred to as 'capitalization shares'. In other   words, there is no receipt of any property by the shareholder, and what   stands received by him is the split shares out of his own holding. It   would be akin to somebody exchanging a one thousand rupee note for two   five hundred or ten hundred rupee notes. There is, accordingly, no   question of any gift of or accretion to property; the share-holder   getting only the value of his existing shares, which stands reduced to   the same extent. The same has the effect of reducing the value per   share, increasing its mobility and, thus, liquidity, in the sense that   the shares become more accessible for transactions and, thus, trading,   i.e., considered from the holders' point of view. We may though add a   note of caution. There could be a case of bonus issue coupled with the   release of assets (of the issuing company) in favour of the   shareholders. The same would fall to be considered as dividend u/s.   2(22)(a) of the Act.
Findings
  4.3 We may next examine if the provision, being ostensibly   applicable, leads to any addition in the hands of the assessee whose   shareholding gets - as a result of the transaction, in fact reduced from   4.98% to (as stated) 3.17%. The argument as well as the premise on   which we found the issue of bonus shares as not applicable would, to the   extent pari materia, apply in equal measure to the issue of   additional shares, i.e., where and to the extent it is proportional to   the existing share-holding. We may though, at the outset, clarify that   the instant issue cannot be called a rights issue. Section 81 of the   Companies Act, 1956 is not applicable to a private company (s.81(3)), so   that it is firstly not obliged to issue shares to the existing   shareholders only, and again, even so, on a proportionate basis. That   apart, we state so as the scheme does not have a provision for the   renunciation of rights by the existing shareholders. The same could thus   at the option of the issuing company be offered for allotment to any   other, i.e., whether existing shareholder or not. Thus, though the issue   has elements of a right issue inasmuch as the offer is made in the   first instance to the existing shareholders on the basis of their   share-holding on proportional basis, the same cannot be strictly termed   as one; the company appropriating that right, which could be offered to   another. A rights issue, as informed by the ld. AR upon enquiry by the   Bench, stands not defined either under the Companies Act or under the   Securities Contracts (Regulation) Act, 1956. The company has,   accordingly, correctly termed the issue, not satisfying all its   parameters, as akin to a rights issue, before the ld. CIT(A), which the   ld. AR was before us at pains to dislodge. Nothing, however, turns on   the same, as would apparent from the foregoing discussion, and as we   shall presently see in more detail. We say so as to the extent the value   of the property in the additional shares is derived from that of the   existing shareholding, on the basis of which the same are allotted, no   additional property can be said to have been received by the   shareholder. The Revenue argues otherwise, contending that the fall in   the value of the existing holding, if any, is not to be taken into   account or reckoning. The argument is equally misconceived, i.e., as   that by the assessee qua the applicability of the provision to   bonus shares. It fails to take into account the nature of the   transaction. To exemplify, shares in the ratio (say) 1:1 are offered for   subscription at the face value of Rs.100/- as against the current book   value of Rs.1,500/- (say). The moment a right share is allotted, the   book value shall fall to Rs.800/- per share. It is easy to see that the   new share partakes a part of the value of the existing share, which is   only on the basis of the underlying assets on the company's books. The   excess (over face value), or Rs.1,400/-, gets apportioned over two   shares as against one earlier, which is already the shareholders'   property. This is also the basis and the premise of the decisions in the   case of Miss Dhun Dadabhoy Kapadia v. CIT [1967] 63 ITR 651 (SC)and H. Holck Larsen v. CIT [1972] 85 ITR 285 (Bom),   relied upon and referred to by the parties before us. As long as,   therefore, there is no disproportionate allotment, i.e., shares are   allotted pro-rata to the shareholders, based on their existing holdings,   there is no scope for any property being received by them on the said   allotment of shares; there being only an apportionment of the value of   their existing holding over a larger number of shares. There is,   accordingly, no question of section 56(2)(vii)(c), though per se applicable   to the transaction, i.e., of this genre, getting attracted in such a   case. A higher than proportionate or a non-uniform allotment though   would, and on the same premise, attract the rigor of the provision. This   is only understandable inasmuch as the same would only be to the extent   of the disproportionate allotment and, further, by suitably factoring   in the decline in the value of the existing holding. In the context of   the example cited, by taking the difference at Rs.700/- per share for   such shares. We emphasize equally on a uniform allotment as well. This   is as a disproportionate allotment could also result on a proportionate   offer, where on a selective basis, i.e., with some shareholders   abstaining from exercising their rights (wholly or in part) and,   accordingly, transfer of value/property. Take, for example, a case of a   shareholding distributed equally over two shareholder groups, i.e., at   50% for each. A 1:1 rights issue, abstained by one group would result in   the other having a 2/3rd holding. A higher proportion of 'rights'   shares (as 2:1, 3:1, etc.) would, it is easy to see, yield a more skewed   holding in favour of the resulting dominant group. We observe no   absurdity or unintended consequences as flowing from the per se application   of the provision of s. 56(2)(vii)(c) to right shares, which by   factoring in the value of the existing holding operates equitably. It   would be noted that the section, as construed, would apply uniformly for   all capital assets, i.e., drawing no exception for any particular class   or category of the specified assets, as the 'right' shares. No addition   u/s. 56(2)(vii)(c) would thus arise in the undisputed facts of the   instant case, and the assessee succeeds.
4.4 The   foregoing arguments and premises would also meet and state the basis   for our not accepting the Revenue's argument toward no cognizance being   taken of the existing shareholding - on the strength of which only the   additional shares are allotted to the assessee or the decline in their   value consequent to the issue of additional shares in-as-much as the   same are not the subject matter of receipt, i.e., to which the provision   pertains and is restricted to. It stood further contended before us   that the ratio of the decision in the case ofMiss Dhun Dadabhoy Kapadia (supra)   would be no longer applicable, i.e., even in principle, so that the   said decline would be of no consequence in view of the specific   provisions being since incorporated under section 55 of the Act,   providing for the cost of shares under such situations, as for example a   nil cost for bonus shares. The capital asset received by the assessee   (shares in the present case), it may be appreciated, are to be valued as   on the date of its receipt. That is, it is only the asset received that   is to be valued. In-as-much as therefore the value of the additional   shares is derived - if only in part - from that of the existing shares,   the decline in the value thereof cannot be excluded or ignored - though   only by following the valuation method prescribed under the rules - in   arriving at the property by way of additional shares received by the   assessee. The provision of section 55(2)(aa) provides for the cost of a   capital asset, being a share or security, which the assessee becomes   entitled to subscribe to by virtue of his holding such a capital asset.   In our view, the same, on the contrary, provides statutory support,   i.e., in principle, to our decision in-as-much as it clarifies that the   values of the two, i.e., the original and the additional financial   assets (which is how the same are referred to in the said provision) are   interlinked and, accordingly, a gain cannot be computed independent of   each other. It is in fact in acknowledgment thereof that the Legislature   has considered it proper and necessary to provide for determination of   cost in such cases, i.e., for uniform application. The same though would   operate for the purpose of computing capital gains, which would arise   on the subsequent transfer of such assets. We have already noted an   internal consistency between the two sets of provisions in-as-much as   section 49(4) stands simultaneously incorporated to deem the value   adopted or taken for the purpose of section 56(2)(vii) (or (viia)) as   the cost of acquisition of the relevant asset (refer para 4.1). In fact,   the argument becomes irrelevant in view of our decision holding that   section 56(2)(vii) shall not have effect, irrespective of the value at   which the additional shares are allotted, where and to the extent they   are so on the strength of and against the existing shareholdings, made   uniformly or subject to adequate pricing. Much was made before us of the   Revenue not treating the transaction as a rights issue of shares, as   well as of the power of the tribunal in entertaining such a plea, even   where taken before it for the first time, includingqua the   admission of additional evidence. We have already clarified the same to   be not a rights issue, i.e., in the strict sense of the term, also   stating our reasons, on the basis of admitted facts, therefor. The plea   is also rendered inconsequential in view of our afore-said decision.   This would also meet the assessee's argument of it becoming, as a result   of the transaction, poorer in-as-much as the value of his holding   witnesses a decline after taking into account the payment made for the   acquisition of the additional shares. The said argument thus, rather   than detracting from lends further support to our decision. The   assessee's argument, with reference to the shares in the resulting   company received by a shareholder on demerger, which is without   consideration, would thus also be of no moment. The same is again   misconceived in-as-much as the shareholder only receives the value of   his existing holding in the form of the shares in the resulting company.   We have in fact already noted that these provisions, i.e., clause   (vii), together with clauses (v) and (vi) preceding it, and clauses   (viia) and (viib) following it, of section 56(2), exclude transactions   of business reorganization, merger, demerger, etc. (refer para 4.2). As   shall be noted, it is only the shares or interest in a company in which   public is not substantially interested, arbitrage or leveraging of   interest in which, being largely outside the public domain, that the   provision/s seek to capture for tax purposes. A demerger stands,   further, also specifically excluded from the definition of dividend per   clause (v) of section 2(22).
4.5 We may next meet the various arguments advanced by either side. The assessee claims of section being not per se applicable   as neither is there any transfer in its favour nor is the   issuer-company the owner of the shares, which stand acquired by way of   subscription. We are unable to appreciate the argument. How else, we   wonder, is the issued capital in a company supposed to be acquired? The   section nowhere stipulates 'transfer' as the prescribed mode of   acquisition. The transfer of a capital asset is even otherwise a   relevant consideration in respect of income by way of capital gains,   chargeable u/s.45. A parallel, if at all, in-as-much as the provision,   which is to be considered as valid, was required to be placed in   perspective and within the scheme of the Act, could be drawn to the   deeming provisions of its Chapter VI titled 'Aggregation of income and   set off or carry forward of loss'. An investment or asset found not   recorded, wholly or partly, in the books of account maintained by the   assessee (for any source of income), and in respect of acquisition or   ownership of which he is unable to furnish a satisfactory explanation,   i.e., as to the nature and source of acquisition, the value thereof or   the excess (unrecorded) value, as the case may be, is deemed as the   assessee's income. The apex court in Chuharmal v. CIT [1988] 172 ITR 250/38 Taxman 190 explained   that the provision of section 110 of the Indian Evidence Act, 1872,   raising a presumption of ownership in favour of the person in possession   (in-as-much as possession is a prima facie proof of ownership)   is applicable under tax jurisprudence as well, so that the onus to show   that he was not the actual owner is upon such a person. It, accordingly,   found nothing amiss in the charge to tax as income, the assets,   properly valued, where unexplained (or not satisfactorily explained) in   terms of the nature and source of their acquisition. The principle   stands in fact dwelt with and explained at length by it over a number of   decisions even prior thereto. The receipt of money, speaking in the   context of a credit entry appearing in the assessee's books of account,   even as there was no provision corresponding to section 68 of the Act in   the earlier 1922 Act, it explained, is itself an evidence against the   assessee of being in receipt of income, so that the onus to show that it   is not so is upon him (refer: A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC);Sreelekha Banerjee v. CIT [1963] 49 ITR 112 (SC); Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1   (SC); CIT v. Durga Prasad More [1971] 82 ITR 540 (SC)). Section 68, on one hand, and sections 69/69A/69B/69C on the other are pari materia,   both seeking explanation for the assets, being recorded in the first   case and not or only partly so in the other. No doubt, the onus under   the latter category of sections is on the Revenue. However, the onus on   the Revenue is limited only to showing the assessee to be the owner or   in possession of the relevant asset. In fact, even this is to be   regarded as discharged where it is able to exhibit circumstances that   lead to the inference of the assessee being the owner, even as clarified   by the apex court in K.P. Varghese (supra) (also refer C.K. Sudhakaran v. ITO [2005] 279 ITR 533/[2006] 150 Taxman 241 (Ker.).   The receipt of an asset by the assessee, and in his own right, is, on   the other hand, the very basis or the edifice on which the provision of   section 56(2)(vii) rests, so that it proceeds on the basis or the   footing of the burden of the Revenue being satisfied. The receipt of a   capital asset is accordingly made the basis or the condition for the   charge to tax as income, unless falling under any of the excepted   categories, and which it would be noted is a valid basis u/s. 2(45) r/w   s.5 of the Act. It is this in fact that had led us to state earlier of   the receipt (of an asset) as having been adopted as the basis or the   condition of deeming as income u/s. 56(2)(vii) (or clauses (v) and   (vi)), and of the provision as being on a firm footing. What the   provision essentially does is to widen the scope of the afore-referred   provisions of Chapter VI, which is essentially a statutory recognition   of the rules of evidence, even further. The explanation referred to   therein is dispensed with where the receipt is in respect of a capital   asset, as defined, and, further, does not fall under any of the excepted   categories in-as-much as the same is regarded as not normative or   outside the realm of accepted human behavior, based on preponderance of   probabilities (of human conduct). To argue of the receipt as being a   synonym for transfer, or of it as not flowing from its owner, is, thus,   inconsistent, both in the context of the provision as well as its clear   language. Reference in this context was also made by the ld. AR to   section 122 of the Transfer of Property Act, 1882 and section 25 of the   Indian Contract Act, 1872. A transaction could be either with or without   consideration. Consideration signifies a price, so that it is a case of   transfer, which the impugned transaction is not, while if considered as   without consideration, the transaction is void in law, being not a gift   in-as-much as the company is not the owner of its shares. The argument   seeks to support the contention that the transaction in order to qualify   as valid in law has to be a case of transfer in-as-much as the   consideration implies price, so that the word 'receipt' occurring in   section 56(2)(vii) has to be read as a synonym for or equated with   'purchase' or 'transfer'. The shares under question being not acquired   through transfer, the transactions falls outside the ambit of section   56(2)(vii). We are completely unimpressed. The argument, attractive on   its face, fails miserably the moment the nature of the transaction,   i.e., the allotment of the shares (through which the relevant shares   stand acquired or received), upon which only the shares come into   existence and are received by the allottee thereof, is clarified. The   same has been subject to dilation and elucidation by the apex court inter alia in Shree Gopal & Co.(supra) and Khoday Distilleries Ltd. (supra)   relied upon by the parties themselves before us. As stated explicitly   in the former case, a share is a chose in action. A chose in action   implies the existence of some person entitled to the rights, which are   rights in action as distinct from rights in possession, and, until the   share is issued, no such person exists. A share does not exist prior to   its allotment, and in that sense comes into existence only on its   allotment. Allotment of a share is only the appropriation of the   authorized share capital, being un-appropriated, to a particular person.   In nutshell, the difference between the issue of a share to a   subscriber and a purchase of a share from an existing shareholder is the   difference between the creation and transfer of a chose in action   (refer pgs.865, 866). How could, therefore, purchase be equated with allotment?   In fact, the purchase or transfer implies existence of a property,   while the shares, where out of un-appropriated capital, come into   existence only on their allotment. It becomes, thus, in the context of   the provision, completely irrelevant and of no consequence that the   shares in the issuing company are not its property, and that it does not   become, therefore, any poorer as a result of the allotment of shares   therein. 'Receipt' is a word or term of wide import, and would include   acquisition of the subject matter of receipt - defined capital assets in   the present context, by modes other than by way of transfer as well. We   find no reason to limit or restrict the scope of the word 'receipt' in   the provision to cases of 'transfer' only. Doing so would not only   amount to reading down the provision, which the tribunal is even   otherwise not competent to, being not a court of law, but reading it in a   manner totally inconsistent with the unambiguous language and the clear   intent (of the Legislature) conveyed thereby, but also its context as   well as the drift of section, in complete violence thereto.
In   the case of issue of bonus shares (as also on demerger), no property is   being conveyed to the shareholder in-as-much as the property therein is   comprised in the existing shareholding of the allottee. There is as   such no case of a gift; the shareholder only receiving his own property,   albeit in a different form. A 'right' share, on the other hand, is   placed differently. To the extent it is allotted to a person not against   his existing shareholding or, even so, albeit disproportionately, there   is, depending on the terms of the allotment, which is the mode of   acquisition and, thus, it's receipt, scope for value or property being   passed on to him, which cannot be said to be in lieu of or as recompense of   his existing property. The section would, as afore-stated, therefore,   apply, though the extent of income, if any, chargeable there-under would   depend on the actual allotment and its terms. Thus, considering the   assessee's case from this angle also leads us to the same conclusion.
We   may at this stage advert to the erstwhile section 52 of the Act or, to   put it more precisely, its interpretation as made by the apex court in K.P. Varghese (supra),   on which heavy reliance was placed by the ld. AR before us. We have   perused the judgment; its ratio/s being binding on us. Though the apex   court per a detailed judgment discussed various aspects of the matter,   referring to the official pronouncements explaining the provision, in   the final analysis, what prevailed with it is that the provision, as   being read and applied by the Revenue, exceeded its mandate. The provision is not a charging section.   As explained by it, it does not create any fictional receipt; does not   deem as received something which is in fact not received. It merely   provides a statutory best judgment assessment of the consideration   actually received by the assessee, and brings to tax the capital gains   on the footing that the FMV of the capital asset represents the actual   consideration received by the assessee as against the consideration   declared or disclosed by him. Accordingly, once it is established that   the consideration actually received by the assessee is more than what is   declared or disclosed by him, the Revenue is not required to show the   precise extent of the understatement or the exact consideration received   by the assessee - an impossible task in most cases. That is to say that   unless, therefore, the primary condition of an inaccurate or incorrect   disclosure or declaration; rather, an under-statement thereof, was   satisfied, the section, which again provided a surrogate measure in the   form of the FMV of the relevant asset, as does section 56(2)(vii), could   not be invoked. Not doing so would, in its words, would be to read into   the statutory provision something which is not there. It is not   difficult to see that the Revenue, in applying the provision of section   52(2) in the manner it did, i.e., without establishing the condition of   its invocation, was putting the cart before the horse. The process led   to a fundamental flaw in-as-much as it proceeded to estimate - which is a   process integral to assessment - something (consideration) that could   not be said to exist, i.e., created a fictional receipt, which was   beyond its scope.
One   could possibly argue that section 52(2) being no longer on the statute,   all this is not relevant, and the abiding legacy of the decision, and   the purpose for which it was referred to was inter alia its relevance on the principle of contemporanea expositio and   the statement of the objects per the extant official communications.   The argument is, in the context of the present case, misconceived. This   is as we have firstly pointed out a fundamental infirmity in the   interpretation placed on or accorded to section 52(2) by the Revenue.   Section 52(1), which again only enabled the A.O. to substitute the FMV   as the consideration as against that declared by the assessee on   transfer, subject to his having reason to believe that the transfer was   effected with the object of evading or reducing the liability to tax   u/s.45, was not adversely commented upon by the apex court. It is easy   to see that all the official pronouncements notwithstanding, the apex   court would or rather could not have opined in the manner it did but for   the fundamental flaw observed by it in-as-much as the provision has to   be read within its legal framework, giving a purposeful meaning to its   clear words. No such infirmity inflicts the section under reference or has been shown to exist.   We have already found receipt as a valid basis for deeming income,   which is supported by the principles of common law jurisprudence. That   'income' under the Act is a word or term of wide import, and would   include anything which comes in or results in gain is also well settled.   The provision casts exceptions, again as afore-noted, where in the   normal course considerations other than financial/monetary are at play,   so that it applies to commercial transactions for which an arm's length   basis can be reasonably regarded as the normative basis for conducting   or concluding transactions. Further, even the official pronouncements,   which are not to be read as one does a statute, do not in any manner   detract from or operate to dilute the rigor of the section; the same   itself explaining it as an anti-abuse measure. The reason is not far to   fathom; it being well neigh impossible, even as observed by the apex   court in K.P. Varghese (supra), for the Revenue to exhibit   the actual consideration that exchanges hands. Why, this in fact is the   basis for the transfer pricing legislation, which is by now an integral   part of the tax law of most countries. That the provision may operate   harshly in some cases is no reason for it to be not read in the manner   it ought to be, i.e., given its clear mandate. The proposition, apart   from being well settled, has been sought to be advanced before us by the   Revenue by relying on the decision in the case of Turner Morrison & Co. Ltd. v. CIT [1953] 23 ITR 152 (SC).   In fact, even the assessee's case is limited to right shares only, and   does not speak of any other capital asset covered by the provision,   including shares and securities. We have already explained that to the   extent the shares subscribed to are right shares, i.e., allotted   pro-rata on the basis of the existing share-holding (as on a cut-off   date), the provision, though per se applicable, does not operate   adversely. A disproportionate allotment, which cannot, therefore,   strictly be regarded as right shares, though could be allotted under a   rights issue, would however invite the rigor of the provision, i.e., to   that extent. It is to be noted that the fresh shares rankparri passu with the existing holding and, therefore, we see no reason why the provision shall not apply with full force in such cases.
Conclusion
  4.6 We may finally discuss the issue from the stand point of   interpretation of statutes, which was urged before us with reference to   some case law, viz., C.W.S. (India) Ltd. v. CIT [1994] 208 ITR 649/73 Taxman 174 (SC); CIT v. J. H. Gotla [1985] 156 ITR 323/23 Taxman 14J (SC); Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1980] 121 ITR 1/[1979] 2 Taxman 501 (SC), besides in the case of K. P. Varghese (supra),   also concluding the matter. The gist thereof, or atleast to a   substantial extent, stands in fact already brought out in the earlier   part of this order while discussing the several arguments urged before   us. All that is logical relevant, yielding insight into the purpose and   object for and toward which the amendment stands brought, should be   admissible. A casus omissus cannot be readily inferred, and the   courts eschew supplying the same except in the case of clear necessity.   The court cannot read anything into a statutory provision which is plain   and unambiguous; a statute being an edict of the Legislature. The   language employed in a statue is a determinative factor of the   legislative intent, the foundational basis of any interpretation, is to   be found from the words used by the Legislature itself. The principle is   in fact well settled and trite (refer Padmasundara Rao v. State of Tamil Nadu [2002] 255 ITR 147 (SC); and Britannia Industries Ltd. v. CIT [2005] 278 ITR 546/148 Taxman 468 (SC). As explained in Surat Art Silk Cloth Mfrs. Association (supra)   (pg.17), the consequences cannot alter the meaning of a statutory   provision where such meaning is plain and unambiguous, though could   certainly help to fix its meaning in case of doubt and ambiguity. The   amendment/s under reference, as explained in the Finance Minister's   speech itself while introducing the provision, follows the abolition of   the Gift Tax Act which, as also observed earlier, sought to bring the   difference in the consideration to tax in the hands of the donor. That   the said Act, together with the Wealth Tax Act and the Act form an   integrated code is well settled. 'Income' under the Act, it is again   well settled, is a word of widest amplitude, and could include gains   derived in any manner. To our mind, therefore, the provisions/s, though   no doubt a charging provision, is an extension of the deeming provisions   of Chapter VI of the Act, laying down the statutory rules of evidence,   incorporating the principles of common law jurisprudence. In sum, as   also in fine, the provision, brought as an anti-abuse measure, only   seeks to tax the understatement in consideration as the income in the   hands of the recipient (of the corresponding asset) as against the donor   in the case of Gift Tax Act, since no longer in force, particularly   considering the burden that the Revenue would otherwise be called upon   to discharge, i.e., to prove otherwise, even as the receipt of the asset   by the assessee is established. No ambiguity or absurdity or unintended   consequence has been either observed by us or brought to our notice,   even as we have endeavoured to examine the provision from all angles; it   being well excepted, also excluding cases of business reorganization.   The provision is well founded, even as it is settled that hardship in a   case would not by itself lead to supplying casus omissus or   reading down the provision. In fact, we have also observed the same to   be in accord with the trend in the legislative field in the recent past   where in view of the increasing complexity of business or economic   transactions, fair market value, also providing rules for its   determination, is being increasingly adopted for uniform application as a   basis for commercial transactions for the purpose of taxing statutes.   The reliance on the argument made in this regard would thus be of no   assistance to the assessee. No property however being passed on to the   assessee in the instant case, i.e., on the allotment of the additional   shares, no addition in terms of the provision itself shall arise in the   facts of the case. We accordingly answer the question raised at the   beginning of this order (refer para 2) in the negative.
Decision
  5.1 In view of the foregoing, therefore, the provision of s.   56(2)(vii)(c), in the facts and circumstances of the case, shall not   apply and, hence, the amount of Rs.27,89,02,160/- cannot be assessed as   income in the hands of the assessee on the ground of inadequate   consideration. This answers ground nos. 2 to 4. Ground # 1 stands   dismissed as not pressed. We decide accordingly.
5.2 The assessee has also moved a stay application. In view of our having decided the appeal itself, the same becomes infructuous.
Result
  6. In the result, the assessee's appeal is partly allowed and stay application is dismissed as infructuous.
SUNIL
*In favour of assessee.

-- 
  IT : High Court could not dismiss an appeal without addressing   substantial question of law, by a cryptic and non-speaking order without   assigning appropriate reasons
  ■■■
[2014] 45 taxmann.com 233 (SC)
SUPREME COURT OF INDIA
Commissioner of Income-tax-IV, Nagpur
  v.
Rattan Babulal Poddar*
H.L. DATTU AND S.A. BOBDE, JJ.
CIVIL APPEAL NOS. 1951-1952 OF 2014†
FEBRUARY  7, 2014 
  Section 260A, read with section 194C of the Income-tax Act, 1961 - High   Courts, appeals to (Dismissed of appeal) - Tribunal deleted addition   made, under section 194C holding that there were no contracts between   assessee and truck owners to whom freight payments were made and   assessee could not be held as defaulter for non-deduction of tax - High   Court dismissed appeal, without addressing substantial question of law   by a cryptic and non speaking order - High Court also did not provide   any appropriate reasons - Whether order of High Court was required to be   set aside and matter was to be remanded back - Held, yes [Matter   remanded]
  Gaurab Banerjee, Rupesh Kumar, S.A. Haseeb and Mrs. Anil Katiyar for the Appellant. Uday U. Lalit, Gagan Sanghi and Rameshwar Prasad Goyal for the Respondent.
  ORDER
 
  1. Delay condoned.
2. Leave granted.
  3. These appeals are directed against the order passed by the   High Court of Bombay in Income Tax Appeal Nos. 49 and 152 of 2010 dated   12.10.2011.
  4. By the impugned order(s) the High Court has dismissed the   appeals filed by the revenue. The said order passed by the High Court   reads as under:
  "Heard.
Perusal   of Para 13 of the order passed by Commissioner of Income Tax   [Appeals-II], Nagpur, reveals that there are concurrent findings that   for the period from 1st October, 2004 upto 31 March, 2005, the   provisions of Section 194C of the Income Tax Act, 1961 [as amended with   effect from 01.10.2004] have been applied.
We, therefore, find no substantial question of law arising in the matter. Appeal is rejected."
5. The   revenue being aggrieved by the order(s) passed by the Income Tax   Appellate Tribunal, Nagpur Bench in ITA No. 75/NAG/2009 and ITA   76/NAG/2009 for the assessment year 2005-2006 had filed Income Tax   Appeal(s) before the High Court. In the said appeals, the revenue had   taken up four questions of law for consideration and decision by the   High Court. The questions of law that were raised by the Revenue are as   under:
  "(1)   Whether on the facts and circumstances of the case the Hon'ble ITAT was   justified in law in holding that there were no contracts between the   assessee and the truck owners to whom the freight payments were made to   be hit by the provision of section 194C of the Act?
(2)   Whether   on the facts and circumstances of the case the ITAT was justified in   law in holding that in view of the CBDT circular No. 715 dated 8.8.1995   the assessee could not be held as defaulter within the meaning of   provision of Section 194C of the I.T. Act, 1961?
(3)   Whether   on the facts and circumstances of the case the ITAT was justified in   laws in confirming the order of the CIT(A) and thereby upholding   deletion of disallowance of Rs. 1,53,79,209/- made u/s 40(a)(ia) of the   I.T. Act?
(4)   Whether   on the facts and circumstances of the case the ITAT has perversely   appreciated the facts resulting in serious miscarriage of justice   warranting interference at the hands of the Hon'ble Court?"
6. The   High Court without even adverting to any one of the questions of law   that were raised and canvassed before it, by a cryptic and non-speaking   order had dismissed the Income Tax Appeals. Aggrieved by the order   passed by the High Court the revenue is before us in these civil   appeals.
7. This   Court has time and again said that High Court while disposing of an   appeal should first raise substantial question of law for consideration   and decision and thereafter decide the same by a speaking order by   assigning appropriate reasons. To say the least, the order passed by the   High Court dated 12.10.2011 does not contain any reasons whatsoever for   dismissal of the Income Tax Appeals. In our opinion, an order which   does not contain reasons is no order in the eye of law and requires to   be set aside.
8. Therefore,   we set aside the order(s) passed by the High Court and remand the   matter back to the High Court for fresh disposal in accordance with law.   We request the High Court to consider each question of law framed by   the Revenue after affording opportunity of hearing to the parties   concerned.
9. The appeals are, accordingly, disposed of.
  10. All the contentions raised by both the parties are kept open to be agitated before the High Court.
  11. We clarify that we have not expressed any opinion on the merits or de-merits of the case.
  Ordered accordingly.
■■
  
  *Matter remanded.
  †Arising out of order of High Court of Bombay in IT Appeal Nos. 49 and 152 of 2010, dated 12-10-2011.

  Cenvat Credit : Components and Services utilised only in activity of   trading are not eligible for credit, when they are utilised only for   export of such traded items which are not used in stream of manufacture
  ■■■
[2014] 45 taxmann.com 239 (Ahmedabad - CESTAT)
CESTAT/CEGAT/CCE, AHMEDABAD BENCH
Crossword Agro Industries
  v.
Commissioner of Central Excise, Rajkot*
H.K. THAKUR, TECHNICAL MEMBER
FINAL ORDER NO. A/10458/2013-WZB/AHD 
APPEAL NO. E/672/2012
MARCH  28, 2013 
  Rule 3 , read with rules 4 and 6 of the Cenvat Credit Rules, 2004 -   CENVAT Credit - General - Assessee claimed credit of services used for   goods exported as such without being used in manufacture - Department   denied said credit on ground that no credit could be allowed, as goods   were never used in manufacture - HELD : Bought out items exported by   assessee were never used in manufacture of finished excisable goods -   Components and Services utilised only in activity of trading are not   eligible for credit, when they are utilised only for export of such   traded items which are not used in stream of manufacture [Para 3] [In   favour of revenue]
Circulars and Notifications : Circular No. 283/117/96-CX, dated 13-12-1996
  CASE REVIEW
 
  Flat Products Equipments (I) Ltd. v. CCE 2011 (272) ELT 104 (Trib. - Mum.) (para 3) distinguished.
  Ford India (P.) Ltd. v. CCE 2007 (214) ELT 40 (Trib. - Chennai) (para 3) relied on.
  CASES REFERRED TO
 
  Flat Products Equipments (I) Ltd. v. CCE 2011 (272) ELT 104 (Trib. - Mum.) (para 1), Plus Paper Foodpac Ltd. v. CCE [2013] 42 GST 217/33 taxmann.com 411 (Mum. – CESTAT) (para 1) and Ford India (P.) Ltd. v.CCE 2007 (214) ELT 40 (Trib. - Chennai) (para 3).
M. Kutty for the Respondent.
ORDER
   
1. This   is an appeal filed by the appellant against Order-in-Appeal No.   280/2012/COMMR(A)/RBT/RAJ, dated 23-5-2012 under which the   Order-in-Original dated 9-1-2012 with respect to credit taken on the   services with respect to certain trading goods was upheld by   Commissioner (Appeals). Aggrieved by the impugned order appellant filed   this appeal on the ground that as per C.B.E. & C. Circular No.   283/117/96-CX, dated 13-12-1996 the credit taken on utilised services   with respect to traded goods is admissible. Appellant also relied upon   the judgment of CESTAT Mumbai in the case of Flat Products Equipments (I) Ltd. v. CCE 2011   (272) ELT 104 (Tri.-Mum.). None appeared on behalf of the appellant   during the hearing fixed but they filed the written submission dated   28-3-2013 and relied upon TIOL news service that as per CESTAT Mumbai   Bench decision in Plus Paper Foodpac Ltd. v. CCE [2013] 42 GST 217/33 taxmann.com 411 (Mum. - CESTAT) the issue is settled in their favour.
2. On   the other hand ld. A.R. relied upon the following judgments in support   of the fact that services in relation to trading activity are not   eligible for taking Cenvat credit under Rule 4 of the Cenvat Credit   Rules.
3. The   issue involved in this case is admissibility of Cenvat credit on the   services related to the inputs which are not used in the manufacture of   goods which are exported. The inputs received by the appellants are   exported as such without being used in the manufacturing activity. The   point for consideration is whether the inputs which do not go in the   stream of manufacture will be eligible for Cenvat credit or not.   Appellant has relied upon the judgment of CESTAT Mumbai in the case of Flat Products Equipments (I) Ltd. (supra).   It is observed from this judgment that the bought out items received by   the appellant were used in the manufacture of excisable goods the value   of which was also included in the total sale price of the goods.   Similarly their reliance placed by the appellant on C.B.E. & C.   Circular No. 283/117/96-CX, dated 13-12-1996 the situation covered those   inputs which were also used in the manufacture of the finished goods   and at times are also exported under bond for which it was clarified   that such inputs can be exported under bond without any reversal of   credit. However in the present case of the appellant the bought out   items exported by the appellants are never used in the manufacture of   the finished excisable goods as per the claim of the department. In this   regard ld. A.R. has rightly relied upon the judgment of Ford India (P.) Ltd. v. CCE 2007   (214) ELT 40 (Tri.-Chennai) where the clarification dated 13-12-1996   relied upon by the appellant was also considered. After considering all   the aspects of the case it was held by Chennai CESTAT Bench that credit,   with respect services utilised only in the activity of trading of   components, no Cenvat credit is available on such components. On the   same analogy the services used with respect to traded items will not be   admissible when the services are utilised only for export of such traded   items which are not used in the stream of manufacture. Based on the   above view, the appeal filed by the appellant is accordingly dismissed.
VINEET
  
  *In favour of revenue.

IN THE ITAT INDORE BENCH
  Income-tax Officer-5(1), Indore
  Versus
  Ashok Shukla
  IT Appeal No. 207(Ind.) of 2012
[Assessment year 2008-09]
August 31, 2012
  ORDER
Joginder Singh , Judicial Member
  
The   Revenue is aggrieved by the impugned order dated 31.1.2012 broadly on   the ground that on the facts and in the circumstances of the case, the   learned first appellate authority erred in treating the land sold as   agricultural land when the assessee failed to substantiate that any   agricultural activity was carried out on the said land and further erred   in holding that the land sold was beyond 8 kms from the municipal   limit.
2. During   hearing, we have heard Shri Keshave Saxena, ld. CIT/DR and Shri S.S.   Sheetal, learned Counsel for the assessee. The crux of arguments on   behalf of the Revenue is identical to the ground raised by further   submitting that firstly the assessee has to prove that any agricultural   operation was done by the assessee as the assessee himself is not doing   any agricultural operation being advocate. It was also pleaded that the   Tehsildar is not a competent authority to issue a certificate regarding   distance of land from the municipal limit. A plea was also raised that   the land was sold to developer. Our attention as invited to various   pages of the paper book. Reliance was placed on the decision in Arundhati Balkrishna v. CIT[1982] 138 ITR 245 (Guj), CIT v. Smt. Sarifabibi Mohmed Ibrahim [1982] 136 ITR 621,Kalpetta Estates Ltd. v. CIT [1990] 185 ITR 318, CIT v. Gemini Pictures Circuit (P.) Ltd.[1996] 220 ITR 43 and Fazalbhoy Investment Co. (P.) Ltd. v. CIT [1989]   176 ITR 523. On the other hand, the learned Counsel for the assessee   defended the impugned order by submitting that the impugned land was   inherited by all the brothers and was also sold as a composite sale   being composite land. It was explained that one of the brothers was   carrying out agricultural operation and it is not necessary that every   brother will tilt the land himself. A plea was also raised that the   Assessing Officer as well as the Inspector of the Income Tax Department   visited the land, the map was prepared by the Inspector himself. The   learned counsel took us to various pages of the paper book through which   he tried to explain that the land in question is situated beyond 9 kms   from the municipal limit. Reliance was also placed upon the decision of   the Tribunal in ITA No. 506/Ind/2010 along with the decision in CIT v.Smt. Debbie Alemao [2011] 331 ITR 59.
3. We   have considered the rival submissions and perused the material   available on record. The facts, in brief, are that the assessee is an   advocate practising in High Court of Madhya Pradesh at Indore. The   assessee earned income from house property, pension being Ex-MLA in   State Legislative Assembly, declared income of Rs. 4,04,690/- on   5.9.2008. The assessee claimed exemption from capital gains on sale of   land by claiming the same to be agricultural land situated in the   revenue record of village Lasudia Parmar (Teh. Sanver) bearing Khasra   No. 184, etc. The stamp duty and registration fees were borne by the   purchaser and the sale consideration amounting to Rs. 1,29,21,582/- was   received through cheque. The Assessing Officer concluded that the   impugned land is situated within 8 kms from the municipal limit and then   mentioned the provisions of section 10(37) of the IT Act which are   applicable in the case of compulsory acquisition, therefore, is not   applicable to the facts of the case as the land was sold by private deal   and no exemption u/s 54B of the Act was claimed. So far as the argument   of the learned CIT DR and observation of the Assessing Officer that   since the land was not cultivated by the assessee himself and was   carried on by the brother, therefore, it cannot be treated as   agricultural land. We are not absolutely convinced by this   argument/observation because there is no requirement in any Act more   especially the Income Tax Act that only the self cultivated land will be   treated as agricultural land. The Tehsildar is the concerned revenue   Officer who on the basis information/report of revenue Patwari issues a   certificate. Since the brother of the assessee was doing agricultural   operation, therefore, any income derived out of it will be treated as   agricultural income. Even if less income has been shown, the assessee   cannot be denied the character of agricultural income.
4. So   far as the question of distance from Municipal limit is concerned, we   have perused the record and find that even as per the report of the   Income Tax Inspector (pages 9 and 10 of the paper book) it has been   mentioned that the land is situated 9.7 kms by road from the municipal   limit by a straight distance method. The map of the land (page 10) was   prepared by the Income Tax Inspector himself, therefore, disregard to   such document is not justified. A certificate has been issued by the   Executive Engineer, Public Works Department (page 11 of the paper book)   wherein it has been specifically mentioned that the impugned land is 9.6   kms from the municipal limit. The Land Revenue Officer (Tehsildar) had   also mentioned the Survey No. 95 Area 4.22 acre, Survey No. 96/1 area   1.20 acre and has mentioned that the land in question is about 10 kms   from the municipal limit and the population of the village is about 2000   persons. The assessee has also produced a certificate from the land   Surveyor (page 14) wherein it has been mentioned that the impugned land   is situated at 9.09 kms from the Municipal limit. The assessee has also   placed on record the google map (page 13). All these certificates   clearly say that the impugned land is situated beyond 9 kms from the   municipal limit, therefore, as per section 2(14)(iii) of the Act, the   impugned agricultural land is situated in the revenue record of village   Lasudia Parmar whose population is about 2000 people which is less than   the condition mentioned in section 2(14)(iii)(a) of the Act. So far as   the condition mentioned in sub-clause (b) of the aforesaid section is   concerned, from record it is clear that the impugned land is beyond the   prescribed limit of 8 kms from the municipal limit. From this angle   also, there is no mistake in the conclusion drawn in the impugned order.   We further find that some cases like Laukik Developers v. Dy. CIT [2007]   105 ITD 657 (Mum.) have been relied upon in the impugned   order/assessment order wherein the issue was examined with respect to   section 80IB of the Act whereas the issue before us pertains to section   2(14) with respect to agricultural income, therefore, not applicable to   the facts of the present case.
The learned CIT DR placed reliance on the decision of the Hon'ble Gujarat High Court inArundhati Balkrishna (supra).   We find that in that case, the land was situated within municipal   limits of Ahmedabad and the surrounding land was developed and since the   land was not agricultural land, the gains from sale of such land was   held to be exigible to capital gains tax. However, the land in question   is clearly agricultural land situated beyond 9 kms from the municipal   limit, therefore, this case may not help the revenue, moreso one fact   pertinent to mention here that part of the same land, owned by one of   the brothers, was treated as agricultural land, therefore, it is quite   unjustified to treat part of the same land/chunk to be non-agricultural.   Another case relied upon is from Hon'ble Bombay High Court in Fazalbhoy Investment Co. (P.). Ltd. (supra)   wherein there was no evidence showing that no agricultural operations   were carried out on the land. The Hon'ble Court held that land was not   agricultural. However, in the impugned land, agricultural operation was   done by one of the brothers, therefore, with utmost regard, this   judicial pronouncement may not help the revenue. Another decision relied   on is Gemini Pictures Circuit (P.) Ltd. (supra).   The land was situated in most important business centre of a city and   was entered in the municipal record as urban land and tax was paid   thereon. Part of the land was used for construction of non-residential   building. In that situation, profit on sale of such land was held to be   exigible to capital gains. However, in the impugned case, the facts are   altogether different, therefore, may not help the revenue. A decision   from Hon'ble Kerala High Court in Kalpetta Estates Ltd.(supra) was   relied upon. In that case, it was held that burden of proof is on the   assessee to prove that the land was agricultural land at the time of   transfer and forest lands were acquired with the intention of extending   plantation. Since no agricultural operation was carried out, it was held   that it gives rise to capital gain on the sale of such land. In the   case of Smt. Sarifabibi Mohmed Ibrahim (supra)   the land was situated near railway station and was sold on square yard   basis to housing society. The profit from the sale of such land was held   to be assessable to capital gains tax. Keeping in view the location and   other attendant circumstances, it was held to be assessable to capital   gains tax.
5. The learned counsel for the assessee relied on the decision of the Hon'ble Bombay High Court in Smt. Debbie Alemao (supra)   wherein the land, in question, was shown in the revenue record as   agricultural land and no permission was taken for conversion of land   use. It was held that since no agricultural income was shown in the   return is not the material for the purposes of gains from sale of such   land. It is pertinent to mention here that this case also pertains to   section 45, 54, 54B, etc. of the Act.
6. If   the totality of facts available on record is kept in juxtaposition with   the judicial pronouncements discussed hereinabove and the intention of   the legislature along with relevant sections, we are of the considered   opinion that a particular land is agricultural land or not depends upon   so many factors. Any agricultural income derived from agricultural   operations will qualify for agricultural income. So far as capital gains   on the sale of such land is concerned, it also depends upon factors   like location of the land, use of the land, distance from municipal   limit, whether land use was changed, etc. If all these factors are   cumulatively kept in mind, one clear fact is oozing out that the   impugned land is situated beyond the prescribed limit from the   municipality, recorded as agricultural land in the revenue record,   agricultural operation was done by one of the brothers, we are of the   considered opinion that the no capital gains tax is exigible on sale of   such land. So far as the objection of the learned CIT DR that the   Tehsildar is not a competent authority for measuring the distance, we   are not satisfied with such submission especially when the Inspector of   the department of Income tax and Tehsildar both have certified that the   land is situated beyond 8 kms from the municipal limit. We are of the   considered opinion that Tehsildar is the most competent revenue Officer   to certify the proof of agricultural operation, distance of land from a   particular place, rate of land, etc. Our view is further fortified by   the decision from Hon'ble Punjab & Haryana High Court in CIT v. Lal Singh [2010]   195 Taxman 420. So far as the issue of measuring the land through   straight method/aerial method is concerned, we are of the view that for   measuring the land we are supposed to go by the road, therefore, road   distance is the most appropriate method and not the crow's flies i.e.   straight line distance. This view is further supported by the decision   in Laukik Developers (supra) and the decision from Hon'ble Punjab & Haryana High Court in CIT v. Satinder Pal Singh [2010] 188 Taxman 54. The Hon'ble Court held as under :-
"The   maximum distance prescribed by sc. 2(14)(iii)(b) which may be   incorporated in the notification could not be more than 8 kms from the   local limits of municipal committee or cantonment board, etc. The   notification has to take into account the extent of and scope for   urbanisation of that area and other relevant considerations. The   reckoning of urbanisation as a factor for prescribing the distance is of   significance which would yield to the principle of measuring distance   in terms of approach road rather than by straight line on horizontal   plane. If principle of measurement of distance is considered straight   line distance on horizontal plane or as per crow's flight then it would   have no relationship with the statutory requirement of keeping in view   the extent of urbanisation. Such a course would be illusory. It is in   pursuance of the aforesaid provision that Notification No. 9447 dt. 6th   Jan., 1994 has been issued by the Central Government. In respect of the   State of Punjab, at item No. 18 the sub-division Khanna has been listed   at serial No. 19. It has inter alia been specified that area upto 2 kms   from the municipal limits in all directions has to be regarded other   than agricultural land. Once the statutory guidance of taking into   account the extent and scope of urbanisation of the area has to be   reckoned while issuing any such notification then it would be   incongruous to the argument of the Revenue that the distance of land   should be measured by the method of straight line on horizontal planes   or as per crow's flight because any measurement by crow's flight is   bound to ignore the urbanisation which has taken place. Tribunal was   therefore justified in holding that distance of 2 kms from the municipal   limits of city of Khanna has to be reckoned for the purposes of s.   2(14)(iii) by measuring the same as per the road distance and not as per   straight line distance on a horizontal plane or as per crow's flight – Laukik Developers v. Dy. CIT [2007] 108 TTJ (Mumbai) 364 : [2007] 105 ITD 657 (Mumbai) approved."
The above conclusion by the Hon'ble High Court clearly supports the case of the assessee. In the case of Lal Singh (supra)   the Hon'ble High Court concluded that "the report of the Tehsildar   having certified that the assessee's land was 8 kms away from the   municipal limit, the land constituted agricultural land entitling the   assessee to exemption u/s 54B of the Act.
7. If   the assessment order is analysed, we are of the view that the learned   Assessing Officer is more guided by section 45 of the Act which speaks   about capital gains arising from the transfer of capital asset. Section   54B of the Act speaks about non-charging of gains of the cases where   there is a transfer of land used for agricultural purposes. An amendment   was effected with effect from 1.4.1970 so as to include lands situated   in certain specified areas within the ambit of non-agricultural land.   However, burden is on the assessee to prove that the land is   agricultural land and at the same time, onus is on the department to   prove that the land is non-agricultural or it forms part of business   asset. For the purposes of land being agricultural land, actual   agricultural operation or cultivation or tilting of land is always not   necessary. What is to be seen is whether such land is capable of   agricultural operation being carried on. Our view is fortified by   Hon'ble Calcutta High Court CIT v. Borhat Tea Co. Ltd.   [1982] 138 ITR 783. The correct test that has to be applied is whether   on the date of sale, the land was agricultural land or not, whether land   use was changed or not. Just because after the sale, the purchaser was   going to put the land to non-agricultural use, it does not mean that on   the date of sale the land has ceased to be agricultural land. If in the   revenue record, the particular land is recorded as agricultural land and   till the date of sale, it is exploited as agricultural land and the   owner of the land has not taken any step to indicate his intention to   exploit the land for non-agricultural purposes then such land to be   regarded as agricultural land. The purpose for which such land is sold   is not of much importance and weight. If the department is in a position   to prove that it was used as agricultural land as a stop gap   arrangement and its land use was changed before the sale then the   situation may be different. Whether the land is an agricultural land or   not is essentially a question of fact. A close reading of section   2(14)(iii)(a) seems to suggest that it is the population of the   municipality that has to be taken into account and not the population of   any area within the municipality. It may be that a municipality may   comprise of many villages, wards and street and each assessee may claim   that the limit of population is provided with reference to a place, ward   or street. In such an event, the section will have no uniform   application and will lead to many anomalies. Panchayat is different from   municipality. Municipality is always understood differently from   Panchayat, therefore, the land situated beyond prescribed municipal   limit and is recorded as agricultural land in the revenue record is to   be considered as agricultural land until proved otherwise. Admittedly,   the term "capital asset" has an all embracing connotation and includes   every kind of property as generally understood except those are   expressly excluded from the definition. It is exactly the case here   because section 2(14)(iii) expressly defines agricultural land with   regard to its location and distance from the municipal limit. It seems   that the learned Assessing Officer has not examined the documents   produced by the assessee establishing the distance of land beyond   prescribed municipal limit and more specifically when Khasra number,   etc. has been duly mentioned in the report of Tehsildar. So far as the   argument of the learned CIT DR that the land was sold at a substantial   amount is not the relevant factor to prove that it was non-agricultural   land because it depends upon so many factors. Even in the grounds of   appeal, the revenue has raised a ground that the documentary evidences   produced by the assessee belong to the land of Shri Rakesh Shukla,   brother of the assessee. We are not convinced with this argument also   because the total land is adjoining to each other and is from one chunk.   This claim of the revenue rather supports the case of the assessee. As   mentioned earlier, in the case of one of the brothers, it has been   allowed as agricultural land, therefore, no different yard stick can be   adopted in the case of another brother, being the land is part of the   same chunk. The totality of facts clearly leads to the conclusion, under   the facts narrated hereinabove, that the impugned land is agricultural   land, therefore, the stand of the learned CIT(A) is affirmed.
Finally, the appeal of the revenue is having not merit, therefore, dismissed.

Compensation received for the breach of agreement for sale
Another   major issue arising out of the transfer of lands is the Compensation   received for the breach of agreement for sale. The Gujarat High Court in   CIT v. Hiralal Manilal Mody [1981] 131 ITR 421 (Guj) has held that the   mere right to sue for specific performance is not a right which can be   transferred under Section 6(e) of the Transfer of Property Act. It is   also a proprietary personal right exempt under the definition of capital   asset. At any rate, there is no transfer so as to justify liability for   capital gains. The Calcutta High Court in the case of CIT v. Dhanraj   Dugar [1982] 137 ITR 350 (Cal) held that the amount was neither revenue   nor was there liability for capital gains on such capital receipt. The   High Court held that since there is no transfer and, hence, no liability   to capital gains tax following the view taken earlier by the same High   Court in CIT v. Ashoka Marketing Ltd. [1987] 164 ITR 664 (Cal).
However   the other High Courts have taken a different view. Right to specific   performance, which the assessee had under the agreement for sale was   found to be a capital asset and since the amount received was for the   surrender of such right, charging of capital gains on such receipt was   upheld in the case of K.R. Srinath v. Asst. CIT [2004] 268 ITR 436   (Mad). In coming to the conclusion, the High Court followed the decision   of the Bombay High Court in the case of CIT v. Vijay Flexible   Containers [1990] 186 ITR 693 (Bom). A similar view had been taken by   the Bombay High Court in the case of CIT v. Tata Services Ltd. [1980]   122 ITR 594 (Bom) and CIT v. Sterling Investment Corporation [1980] 123   ITR 441 (Bom).
The   proposition that compensation for giving up the right to specific   performance for such contractual right relating to capital asset would   be liable for capital gains tax was accepted in the case of CIT v. Smt.   Laxmidevi Ratani [2008] 296 ITR 363 (MP). The amount received as   compensation for relinquishment of right under agreement of sale was   held taxable in the case of J.K. Kashyap v. Asst. CIT [2008] 302 ITR 255   (Delhi).
- 

-- 
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  Pawan Singla , LLB
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 F Unabsorbed depreciation and investment   allowance partly adjusted against other income to show nil liability not   permissible : Himatsingka Seide Ltd. v. CIT p. 467
 
 F Deletion of additions by Tribunal reversed   by High Court : No interference : Narendra Mohan Paliwal v. CIT p.   468
 
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 F Unclaimed salaries, credit balances not   claimed by suppliers and customers and uncashed cheques : Amounts written   back in accounts : Not includible in income of assessee : CIT v. Mohan   Meakin Ltd. (Delhi) p. 434
 
 F Penalty under section 271D justified where   no proof of reasonable cause for receiving cash : K. V. George v. CIT (Ker) p.   445
 
 F Sale of shares at less than market value :   Difference between sale price and market price not assessable as unexplained   investment : CIT v. Associate Techno Plastics P. Ltd. (Delhi) p.   449
 
 F AO passing order following direction of   Tribunal : Successor-in-office had no jurisdiction to pass another order :   Classic Share and Stock Broking Services Ltd. v. Asst. CIT   (Bom) p. 470
 
 F Consideration received by assessee on   transfer of its project finance business and assets based financing   business, including its shareholding : Taxable as slump sale : SREI   Infrastructure Finance Ltd. v. ITSC (Delhi) p. 474
 
 F Judgment of High Court relating to prior   assessment year favourable to assessee : Recovery of tax : Stay granted :   UTI   Mutual Fund v. ITO (Bom) p. 486
 
 
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 F Activities of trust both charitable and   religious : Benefits not exclusively meant for particular religious   community : Trust entitled to exemption : CIT v. Dawoodi Bohra Jamat   (20-2-14) p. 31
 
 F Appeal to High Court : Where question   involves legal effect of proven facts or documents : Question of law arises   : CIT   v. Dawoodi Bohra Jamat (20-2-14) p. 31
 
 F Sale of scrap not includible in turnover   for purposes of section 80HHC : CIT v. Punjab Stainless Steel Industries (5-5-14)   p. 144
 
 
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 F Expenditure on replacement of dies and   moulds allowable as current repairs : CIT v. TVS Motors Ltd. (9-1-14) (Mad) p.   1
 
 F Scientific research expenditure :   Expenditure on work-in-progress allowable : CIT v. TVS Motors Ltd.   (9-1-14) (Mad) p. 1
 
 F Business expenditure : Entry tax allowable   if paid : CIT v. TVS Motors Ltd. (9-1-14) (Mad) p.   1
 
 F Depreciation : Temporary sheds for parking   vehicles : Allowable at rate applicable to building : CIT v. TVS Motors Ltd.   (9-1-14) (Mad) p. 1
 
 F Appeal to Appellate Tribunal : Starting   point of limitation : Actual date of receipt of order of Tribunal : Peterplast   Synthetics P. Ltd. v. Asst. CIT (Guj) p. 16
 
 F Stock appreciation rights : Employee   entitled to take into account amount of tax deductible though not actually   deducted : CIT v. Anil Kumar Nehru (15-4-14) (Bom) p.   26
 
 F Finding that transaction of share   application was not genuine : Addition of amount under section 68 justified   : Onassis Axles P. Ltd. v. CIT (13-2-2014) (Delhi) p.   53
 
 F Settlement Commission rejecting application   without considering issues not valid : MARC Bathing Luxuries Ltd. v. ITSC (Delhi)   p. 64
 
 F Money borrowed for purchasing workover rigs   for drilling for ONGC : Contract stipulating that work included preparation   of well for production : Interest entitled to exemption : Dewan Chand   Ram Chandra Industries P. Ltd. v. Union of India (14-3-2014) (Delhi) p.   70
 
 F Loans or deposits in cash exceeding   prescribed limit : Assessee to explain transactions of Rs. 20,000 and above   before AO : N. S. S. Karayogam v. CIT (25-2-2014) (Ker) p.   81
 
 F Trustees given power to amend trust deed :   Amended trust deed can be relied upon for purpose of registration : Director of   I. T. (Exemptions) v. Ramoji Foundation (AP) p. 85
 
 F Special capital incentive : Capital receipt   : CIT   v. Kirloskar Oil Engines Ltd. (17-4-14) (Bom) p. 88
 
 F Lease of commercial vehicles entitled to   depreciation : CIT v. K and Co. (Delhi) p. 93
 
 F Unsold tickets to be returned one day   before draw of lottery : No sale till date of draw of lottery : Accrual of   income only at that point of time : CIT v. K and Co. (Delhi) p.   93
 
 F Tickets dispatched to stockists shown as   not sold but also not shown as part of stock : Change in method of   accounting not valid : CIT v. K and Co. (Delhi) p.   93
 
 Lottery tickets : Interest earned on margin money   business income : CIT v. K and Co. (Delhi) p. 93
 
 F Assessee importing raw materials from   foreign holding company under high seas sales : Payments made by assessee to   holding company for goods not tax deductible  : Allowable as deduction :   Samsung India Electronics P. Ltd. v. Deputy Director of   Income-tax (International Taxation) (25-4-14) (Delhi) p.   103
 
 F Provision of passive infrastructure   facilities to mobile operators by assessee : Tax deduction at source to be   at rate prescribed in section 194-I(a) : Indus Towers Ltd. v. CIT   (31-3-14) (Delhi) p. 114
 
 F Provision for bad debts under RBI   guidelines and subsequently amounts written back into accounts : Not   assessable under section 41(4) : CIT v. Jain Co-operative Bank Ltd. (4-3-14)   (Delhi) p. 137
 
 F Stay to be granted in respect of entire   demand where prima facie case against enhancement : Saipem   Triune Engineering P. Ltd. v. Asst. CIT (Delhi) p. 154
 
 F Deemed dividend : Tribunal finding since   lender companies did not carry on money-lending business, advances to   assessee not in ordinary course of business : Not proper test : Kishori Lal   Agrawal v. CIT (17-4-14) (All) p. 158
 
 F Assessee a statutory body controlling   activities at a major port for utilising and creating facilities : Assessee   entitled to registration : CIT v. Kandla Port Trust   (23-4-2014) (Guj) p. 164
 
 F Shares treated as investment in   balance-sheets for several years : Profits from sale to be treated as   long-term capital gains : Short duration of holding of shares and lack of   clarity in account books : Profits from sale not short-term capital gains   but business income : CIT v. D & M Components Ltd. (21-4-14) (Delhi)   p. 179
 
 F Deduction on account of interest claimed   knowingly on wrong basis : Penalty rightly imposed : Gourav Goenka v. Asst. CIT   (21-3-14) (Cal) p. 186
 
 F KVSS : Designated authority not entitled to   consider motive of assessee in seeking revision : Y. V. Chander v. Union of   India (6-3-14) (AP) p. 190
 
 
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 F Export : Profit allowed as deduction u/s   80-IA not to be reduced from profits of business while computing deduction   u/s 80HHC : Merck Ltd. v. Dy. CIT (Mumbai) p. 629
 
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 F Non-resident : Taxability in India : Where   no discrepancy found in details of sales in India, direction to AO to accept   assessee's sales figure : Alcatel-Lucent France v. Asst. DIT (Delhi) p.   1
 
 F Non-resident : Receipts from supply of   equipment including hardware and software to be taxed as business profits as   per art. 7 of DTAA : Alcatel-Lucent France v. Asst. DIT (Delhi) p.   1
 
 F Where withdrawal from capital account and   deposit of cash in capital account not a case of loan, penalty cannot be   levied u/s. 271E : Dy. CIT v. Chetan M. Kakaria (Mumbai) p.   24
 
 F Royalty expenditure is revenue in nature :   ITO   v. Cryobanks International (I) P. Ltd. (Delhi) p. 31
 
 F Depreciation at 60 per cent. allowable for   computer peripherals : ITO v. Cryobanks International (I) P. Ltd. (Delhi)   p. 31
 
 F International transactions : Transfer   pricing : Where no proper justification for application of TNMM and   rejection of profit split method, addition to be deleted : Hyper   Quality India P. Ltd. v. Asst. CIT (Delhi) p. 37
 
 F International transactions: ALP: TPO has no   jurisdiction to question business decision of assessee to make payment :   TNS   India P. Ltd. v. Asst. CIT (Hyd) p. 44
 
 F Assessee engaged in export of data   processing entitled to deduction u/s. 80HHE : TNS India P. Ltd. v. Asst.   CIT (Hyd) p. 44
 
 F Scientific research and development:   Approval granted by prescribed authority fully conscious that assessee a   contract research organisation, AO not entitled to go behind approval: Quintiles   Research (India) P. Ltd. v. Dy. CIT (Bangalore) p. 73
 
 F Business loss : Set off of losses arising   out of section 10A units against income of other undertakings and carry   forward of unabsorbed losses and depreciation permissible : Dy. CIT v.   Birla Soft India Ltd. (Delhi) p. 117
 
 F Exemption : Notice pay recovered from   employees to be treated as income derived from eligible undertaking and   deduction allowable u/s. 10A: Dy. CIT v. Birla Soft India Ltd. (Delhi) p.   117
 
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■		The assessee was holding 4.98 per cent share capital of company 'D'. The assessee was offered additional shares at the face value of Rs. 100 each, on a proportionate basis along with other shareholders.
■		The assessee subscribed to and was accordingly allotted on the same terms, not only the shares similarly offered to them but also that not subscribed to by the other shareholders.
■		As the book value of the shares of company 'D' as on 31-3-2009 was Rs. 1,538 per share, which was to be adopted as a measure of their fair market value (FMV) under the applicable rules (Rule 11U and rule 11UA), the Assessing Officer (A.O.), treating the difference of Rs. 1,438 per share as the extent of the inadequate consideration, i.e., in terms of section 56(2)(vii)(c) towards the acquisition of additional shares, brought the same to tax.
■		The Commissioner (Appeals) confirmed said addition.
■		On second appeal:

■		Firstly, it is necessary to resolve if the provision of section 56(2)(vii) includes the property under reference, i.e., as received by the assessee. This is as the word 'property' occurring therein is defined to mean capital assets as specified therein (vide Explanation to the provision). Though the same lists 'shares and securities', one of the objections raised by the assessee is that the shares come into existence only on their allotment. However, the right to acquire the shares at a concessional rate, which is what is sought to be annexed or targeted by the revenue through the said provision, comes into effect on the passing of the necessary resolution by the Board of Directors (BOD) of the issuer-company. This is also pressed to support the argument of the provision being never intended to cover a transaction of this nature, i.e., where the shares are offered to the existing shareholders - though below their market value, on rights basis.
■		True, the shareholders get the right to acquire the additional shares on the passing of the board resolution, but the receipt of the property is only on their allotment, on which date the shares, a specified property, is in existence [refer: Shree Gopal & Co. v. Calcutta Stock Exchange Ltd.[1963] 32 Comp. Cas. 862 (SC) and Khoday Distilleries Ltd. v. CIT [2008] 307 ITR 312/176 Taxman 142 (SC), wherein it has been explained that allotment is generally neither more nor less than the acceptance by the company of the offer to take shares. All it means is appropriation out of the previously unappropriated capital of a company of a certain number of shares to a particular person. Till such allotment the shares do not exist as such, and in a sense come into existence on their allotment.
■		In this view of the matter, the plea of the rights under reference being not a property specified under the provision or the provision being sought to be applied by the revenue to a non-existing property, is without basis. In fact, even the date of receipt - which itself implies that the property exists, i.e., whether on allotment 28-1-2010 or the receipt of shares 10-02-2010 was a bone of contention. This is rendered inconsequential in as much as both the dates fall during the relevant previous year; and being separated by a small time lag, even the valuation would not alter to any material extent, and which becomes a relevant consideration in as much as the valuation date under rule 11U(j) is the date of the receipt of the property.
■		Though the shares are received on their allotment, what stands received by the assessee subsequently on 10-2-2010 are the share certificates, i.e., the document evidencing its title thereto. The two are different, and the shares as well as the property therein vest in the assessee on the allotment of the shares, whereat the same stand constructively received; the payment of which has also been made by that date.
■		Coming back to the question posed, i.e., as to how could a transaction as the present one be possibly covered by section 56(2)(vii)(c), the correct and the proper question to be asked in the matter instead is: The transaction per se being ostensibly covered by the clear and unambiguous language of the provision, what is its import in a case as a present one? Does it, for example, lead to any unintended or absurd results which, though apparently should not arise, given the clear and precise mandate of the provision, i.e., to treat gains by way of receipt of property, which are not explicable in terms of normal human conduct, as income from other sources of the year of receipt (of the relevant asset). The question being asked, on the other hand, rather than eliciting a correct answer - which is the purport of any question, obfuscates the issue.
■		The section without doubt seeks to substitute the FMV as the normative basis for transactions involving the receipt of property by a person, being an individual or HUF. That is, it deems the same to be a proper measure of the arm's length price, which principle ought to guide or obtain in case of a transaction between two unrelated parties. Exceptions for transactions between relatives; on inheritance; on the occasion of marriage; in contemplation of death, etc. are provided, where this rule may not apply in the normal course, i.e., of human conduct, in as much as no consideration is predicated in such cases or, put differently, considerations other than financial/monetary come into play. To that extent the provision is well-founded and adequately excepted.
■		The provision, beginning with section 56(2)(v) by Finance (No.2) Act, 2004, which had a threshold limit of Rs.25,000/-, as against the present Rs.50,000/-, has been gradually enhanced in scope over time to include gifts-in-kind and immovable property as well, with section 56(2)(vii) taking effect from 1-10-2009 onwards, phasing out sections 56(2)(v) and 56(2)(vi) by limiting their application to specified periods in the interregnum. In fact, developments continue unabated, and the provision is further strengthened and broadened, with Finance Act, 2010 including a firm/company among the eligible recipients, i.e., where the property involved is shares in unlisted companies, i.e., in which the public is not substantially interested, as the present one, excluding transactions of business reorganization, amalgamation, demerger, etc. per clause (viia).
■		The revenue in view of the law providing for the FMV as the normative basis for the acquisition of the property, absolved of proving, a formidable, if not an impossible task by any standards, that the shortfall in the consideration is sourced by or on behalf of the recipient of the property, and is thus his income. It is in fact not difficult to visualize situations where through the medium of additional shares the controlling interest in a company or business or interest in property - movable or immovable, is passed on to another at considerations far below the going rate of the relevant or the underlying assets/interest. Only a pro rata allotment or, where not so, one that is adequately priced, would effectively ensure an exchange of the assets or interest therein at par values. The provision, thus premised, is on a firm, cogent and sound footing.
■		The provision, firstly, would not apply to bonus shares. Issue of bonus shares is by definition capitalization of its profit by the issuing-company. There is neither any increase nor decrease in the wealth of the shareholder (or of the issuing company) on account of a bonus issue, and his percentage holding therein remains constant. What in effect transpires is that a share gets split (in the same proportion for all the shareholders), as for example by a factor of two in case of a1:1 bonus issue.
■		In other words, there is no receipt of any property by the shareholder, and what stands received by him is the split shares out of his own holding. It would be akin to somebody exchanging a one thousand rupee note for two five hundred or ten hundred rupee notes. There is, accordingly, no question of any gift of or accretion to property; the shareholder getting only the value of his existing shares, which stands reduced to the same extent. The same has the effect of reducing the value per share, increasing its mobility and, thus, liquidity, in the sense that the shares become more accessible for transactions and, thus, trading, i.e., considered from the holders' point of view. However, there could be a case of bonus issue coupled with the release of assets (of the issuing company) in favour of the shareholders. The same would fall to be considered as dividend under section 2(22)(a). [Para 4.2]
■		One may next examine if the provision, being ostensibly applicable, leads to any addition in the hands of the assessee whose shareholding gets - as a result of the transaction, in fact reduced from 4.98% to (as stated) 3.17%. The argument as well as the premise on which we found the issue of bonus shares as not applicable would, to the extent pari materia, apply in equal measure to the issue of additional shares,i.e., where and to the extent it is proportional to the existing shareholding. One may though, at the outset, clarify that the instant issue cannot be called a rights issue.
■		Section 81 of the Companies Act, 1956 is not applicable to a private company (section 81(3)), so that it is firstly not obliged to issue shares to the existing shareholders only, and again, even so, on a proportionate basis. That apart, the scheme does not have a provision for the renunciation of rights by the existing shareholders. The same could thus at the option of the issuing company be offered for allotment to any other, i.e., whether existing shareholder or not. Thus, though the issue has elements of a right issue in as much as the offer is made in the first instance to the existing shareholders on the basis of their shareholding on proportional basis, the same cannot be strictly termed as one; the company appropriating that right, which could be offered to another.
■		As long as, therefore, there is no disproportionate allotment, i.e., shares are allotted pro rata to the shareholders, based on their existing holdings, there is no scope for any property being received by them on the said allotment of shares; there being only an apportionment of the value of their existing holding over a larger number of shares. There is, accordingly, no question of section 56(2)(vii)(c), though per se applicable to the transaction, i.e., of this genre, getting attracted in such a case. A higher than proportionate or a non-uniform allotment though would, and on the same premise, attract the rigour of the provision. This is only understandable in as much as the same would only be to the extent of the disproportionate allotment and, further, by suitably factoring in the decline in the value of the existing holding.
■		It would be noted that the section, as construed, would apply uniformly for all capital assets, i.e.,drawing no exception for any particular class or category of the specified assets, as the 'right' shares. No addition under section 56(2)(vii)(c) would thus arise in the undisputed facts of the instant case, and the assessee succeeds. [Para 4.3]
■		The foregoing arguments and premises would also meet and state the basis for not accepting the revenue's argument toward no cognizance being taken of the existing shareholding - on the strength of which only the additional shares are allotted to the assessee or the decline in their value consequent to the issue of additional shares in as much as the same are not the subject matter of receipt, i.e., to which the provision pertains and is restricted to.
■		It stood further contended that the ratio of the decision in the case of Miss. Dhun Dadabhoy Kapadiav. CIT [1967] 63 ITR 651 (SC) would be no longer applicable, i.e., even in principle, so that the said decline would be of no consequence in view of the specific provisions being since incorporated under section 55, providing for the cost of shares under such situations, as for example a nil cost for bonus shares. The capital asset received by the assessee (shares in the present case), it may be appreciated, are to be valued as on the date of its receipt. That is, it is only the asset received that is to be valued. In as much as therefore the value of the additional shares is derived - if only in part - from that of the existing shares, the decline in the value thereof cannot be excluded or ignored - though only by following the valuation method prescribed under the rules - in arriving at the property by way of additional shares received by the assessee.
■		The provision of section 55(2)(aa) provides for the cost of a capital asset, being a share or security, which the assessee becomes entitled to subscribe to by virtue of his holding such a capital asset. The same, on the contrary, provides statutory support, i.e., in principle, to Tribunal decision in as much as it clarifies that the values of the two, i.e., the original and the additional financial assets (which is how the same are referred to in the said provision) are interlinked and, accordingly, a gain cannot be computed independent of each other. It is in fact in acknowledgement thereof that the Legislature has considered it proper and necessary to provide for determination of cost in such cases, i.e., for uniform application. The same though would operate for the purpose of computing capital gains, which would arise on the subsequent transfer of such assets.
■		There is an internal consistency between the two sets of provisions in as much as section 49(4) stands simultaneously incorporated to deem the value adopted or taken for the purpose of section 56(2)(vii) (or (viia)) as the cost of acquisition of the relevant asset. In fact, the argument becomes irrelevant in view of holding that section 56(2)(vii) shall not have effect, irrespective of the value at which the additional shares are allotted, where and to the extent they are so on the strength of and against the existing shareholdings, made uniformly or subject to adequate pricing. [Para 4.4]
■		A transaction could be either with or without consideration. Consideration signifies a price, so that it is a case of transfer, which the impugned transaction is not, while if considered as without consideration, the transaction is void in law, being not a gift in-as-much as the company is not the owner of its shares. The argument seeks to support the contention that the transaction in order to qualify as valid in law has to be a case of transfer in as much as the consideration implies price, so that the word 'receipt' occurring in section 56(2)(vii) has to be read as a synonym for or equated with 'purchase' or 'transfer'. The shares under question being not acquired through transfer, the transactions falls outside the ambit of section 56(2)(vii).
■		The argument, attractive on its face, fails miserably the moment the nature of the transaction, i.e., the allotment of the shares (through which the relevant shares stand acquired or received), upon which only the shares come into existence and are received by the allottee thereof, is clarified. The same has been subject to dilation and elucidation by the Apex Court inter alia in Shree Gopal & Co. (supra) andKhoday Distilleries Ltd. (supra) relied upon by the parties themselves before us.
■		As stated explicitly in the former case, a share is a chose in action. A chose in action implies the existence of some person entitled to the rights, which are rights in action as distinct from rights in possession, and, until the share is issued, no such person exists. A share does not exist prior to its allotment, and in that sense comes into existence only on its allotment. Allotment of a share is only the appropriation of the authorized share capital, being un-appropriated, to a particular person.
■		In nutshell, the difference between the issue of a share to a subscriber and a purchase of a share from an existing shareholder is the difference between the creation and transfer of a chose in action. How could, therefore, purchase be equated with allotment? In fact, the purchase or transfer implies existence of a property, while the shares, where out of un-appropriated capital, come into existence only on their allotment. It becomes, thus, in the context of the provision, completely irrelevant and of no consequence that the shares in the issuing company are not its property, and that it does not become, therefore, any poorer as a result of the allotment of shares therein. 'Receipt' is a word or term of wide import, and would include acquisition of the subject matter of receipt - defined capital assets in the present context, by modes other than by way of transfer as well.
■		There is no reason to limit or restrict the scope of the word 'receipt' in the provision to cases of 'transfer' only. Doing so would not only amount to reading down the provision, which the tribunal is even otherwise not competent to, being not a court of law, but reading it in a manner totally inconsistent with the unambiguous language and the clear intent (of the Legislature) conveyed thereby, but also its context as well as the drift of section, in complete violence thereto.
■		In the case of issue of bonus shares (as also on demerger), no property is being conveyed to the shareholder in as much as the property therein is comprised in the existing shareholding of the allottee. There is as such no case of a gift; the shareholder only receiving his own property, albeit in a different form. A 'right' share, on the other hand, is placed differently. To the extent it is allotted to a person not against his existing shareholding or, even so, albeit disproportionately, there is, depending on the terms of the allotment, which is the mode of acquisition and, thus, its receipt, scope for value or property being passed on to him, which cannot be said to be in lieu of or as recompense of his existing property. The section would, as aforestated, therefore, apply, though the extent of income, if any, chargeable thereunder would depend on the actual allotment and its terms. Thus, considering the assessee's case from this angle also leads to the same conclusion. [Para 4.5]
■		In view of the foregoing, therefore, the provision of section 56(2)(vii)(c), in the facts and circumstances of the case, shall not apply and, hence, the amount in question cannot be assessed as income in the hands of the assessee on the ground of inadequate consideration. [Para 5.1]

		Definitions.
		2. In this Act, unless the context otherwise requires,—

		(xv) any sum of money or value of property referred to in clause (vii) of sub-section of section 56;'
(b)		Section 56(2)(vii) reads as under:

(a)		any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;
(b)		any immovable property, without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;
(c)		(any property, other than immovable property,—

(i)		without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;
(ii)		for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration :

(a)		from any relative; or
(b)		on the occasion of the marriage of the individual; or
(c)		under a will or by way of inheritance; or
(d)		in contemplation of death of the payer or donor, as the case may be; or
(e)		from any local authority as defined in the Explanation to clause (20) of section 10; or
(f)		from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or
(g)		from any trust or institution registered under section 12AA.

(i)		immovable property being land or building or both;
(ii)		shares and securities;
(iii)		jewellery;
(iv)		archaeological collections;
(v)		drawings;
(vi)		paintings;
(vii)		sculptures; or
(viii)		any work of art;'

"(1)		Whether on the facts and circumstances of the case the Hon'ble ITAT was justified in law in holding that there were no contracts between the assessee and the truck owners to whom the freight payments were made to be hit by the provision of section 194C of the Act?
(2)		Whether on the facts and circumstances of the case the ITAT was justified in law in holding that in view of the CBDT circular No. 715 dated 8.8.1995 the assessee could not be held as defaulter within the meaning of provision of Section 194C of the I.T. Act, 1961?
(3)		Whether on the facts and circumstances of the case the ITAT was justified in laws in confirming the order of the CIT(A) and thereby upholding deletion of disallowance of Rs. 1,53,79,209/- made u/s 40(a)(ia) of the I.T. Act?
(4)		Whether on the facts and circumstances of the case the ITAT has perversely appreciated the facts resulting in serious miscarriage of justice warranting interference at the hands of the Hon'ble Court?"

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