DCIT, New Delhi v. M/s. Godavari Shilpkala Hospitality Pvt. Ltd., New Delhi

ITA 2087/DEL/2014 | 2010-2011
Pronouncement Date: 27-11-2017 | Result: Dismissed

Appeal Details

RSA Number 208720114 RSA 2014
Assessee PAN AADCG0213B
Bench Delhi
Appeal Number ITA 2087/DEL/2014
Duration Of Justice 3 year(s) 7 month(s) 20 day(s)
Appellant DCIT, New Delhi
Respondent M/s. Godavari Shilpkala Hospitality Pvt. Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 27-11-2017
Appeal Filed By Department
Tags No record found
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 27-11-2017
Date Of Final Hearing 24-04-2017
Next Hearing Date 24-04-2017
First Hearing Date 24-04-2017
Assessment Year 2010-2011
Appeal Filed On 07-04-2014
Judgment Text
IN THE INCOME-TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE : SHRI H.S. SIDHU JUDICIAL MEMBER AND SHRI L.P. SAHU ACCOUNTANT MEMBER ITA NO. 2087/DEL./2014 ASSESSMENT YEAR: 2010-11 D.C.I.T. CIRCLE 12(1) NEW DELHI. (APPELLANT) VS. M/S. GODAVARI SHILPKALA HOSPITALITY PVT. LTD. VISHWA SADAN 607 DISTRICT CENTRE JANAKPURI NEW DELHI. (PAN AADCG 0213B) (RESPONDENT) APPELLANT BY SH. NAVIN CHANDRA CIT/DR RESPONDENT BY SH. AJAY WADHVA ADVOCATE ORDER PER L.P. SAHU A.M.: THIS IS AN APPEAL PREFERRED BY THE DEPARTMENT AGAI NST THE ORDER OF CIT(A) XV NEW DELHI DATED 30.12.2013 FOR THE ASSESSMENT YEAR 2010-11 ON THE FOLLOWING SOLITARY GROUND : 1. WHETHER LD. CIT (A) WAS CORRECT ON FACTS AND C IRCUMSTANCES OF THE CASE AND IN LAW IN DELETING THE ADDITION OF RS. 200 00 00 00 0/- MADE BY AO ON ACCOUNT OF DISALLOWANCE OF DEBENTURES TRANSFERRED IN CONTRAVEN TION OF THE DIRECTIONS OF THE HONBLE HIGH COURT OF DELHI? 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED ITS RETURN OF INCOME ON 18.09.2010 DECLARING AN INCOME OF RS.4 70 51 350/- . THE ASSESSEE COMPANY WAS DATE OF HEARING 05.10.2017 DATE OF PRONOUNCEMENT 27 .11.2017 ITA NO. 2087/DEL./2014 2 INCORPORATED ON 17.12.2007. SOME PREFACTORY FACTS ARE THAT M/S. UNIVERSAL BUSINESS SOLUTION MAURITIUS (UBS IN SHORT) WAS A 1 00% OWNER OF SHARES OF CLARIDGES HOTEL PVT. LTD (CHPL IN SHORT) WHICH IS AN INDIAN COMPANY. CHPL BESIDES OTHER INVESTMENTS HAD MADE INVESTMENT IN A SSESSEE COMPANY M/S. GODAVARI SHILPKALA LTD. (GSL IN SHORT) IN THE FORM OF EQUITY SHARES OF RS. 125.52 CRORES AND RS. 72 CRORES BY WAY OF DEBENTURES AS ON 1 ST APRIL 2009. CHPL ALSO HAD A BUSINESS CONVENTION DIVISION IN WHICH AN INVESTME NT HAD BEEN MADE. 2.1 A SCHEME OF DEMERGER BETWEEN ASIAN HOSPITALITY MANAGEMENT PVT. LTD. (AMHPL) CHPL AND THE ASSESSEE WAS FILED BEFORE THE HON'BLE DELHI HIGH COURT ON 19 MAY 2010 AND VIDE ORDER DATED 25.05.2010 THE HO N'BLE DELHI HIGH COURT HAS APPROVED THE SCHEME AND THE RELEVANT DOCUMENTS WERE FILED WITH THE REGISTRAR OF COMPANIES ON 26.03.2010. AS PER THE SCHEME THE BU SINESS CONVENTION DIVISION OF CHPL STOOD TRANSFERRED TO THE ASSESSEE COMPANY W .E.F. 01.04.2009 (APPOINTED DATE) ALONG WITH STOCKS SHARES DEBENTURES AND OTH ER CHARGES FORMING PART OF THE SCHEDULE OF THE PROPERTY TO THE ORDER OF THE HON'BL E DELHI HIGH COURT (SUPRA). AS PER THE SAID SCHEDULE PLACED AT PAGE 61 OF THE PAPE R BOOK (PB) THE ASSETS DIRECTED TO BE TRANSFERRED ARE LISTED AS UNDER:- PART III (DESCRIPTION OF ALL STOCKS SHARES DEBENTURES AND OTHER CHARGES IN ACTION) ITA NO. 2087/DEL./2014 3 S.NO. PARTICULARS TRANSFEREE 1 TRANSFEREE 2 (ASSESSEE CO.) (AMT. IN THOUSAND) (AMT. IN THOUSAND) ------- ----------------- -------------------- - --------------------- 1. FIXED ASSETS A. BUILDINGS (PAINTINGS & DECORATION ITEMS) -- 680.00 B. GENERAL MACHINERY (WDV) 846.00 543.00 C. AUDIO VIDEO EQUIPMENT (WDV) 814.00 -- D. COMPUTER & SOFTWARE (WDV) -- 41.00 E. OFFICE EQUIPMENT (WDV) -- 41.00 F. MOTOR VEHICLES (WDV) 952.00 965.00 G. FURNITURE & FIXTURES (WDV) 78 .00 905.00 TOTAL 2690.00 3175.00 2. INVESTMENTS 12 55 269.00 1 4 624.00 3. CURRENT ASSETS 722 363.00 150 000.00 IN LIEU OF THE TRANSFER OF ASSETS AS AFORESAID TH E ASSESSEE COMPANY WAS TO ISSUE SHARES IN THE RATIO OF 1:6 TO THE SHAREHOLDERS OF C HPL I.E. UBS MAURITIUS. AS STATED ABOVE THE HON'BLE DELHI HIGH COURT APPROVED TRANSFER OF ASSETS INTER ALIA COMPRISING OF INVESTMENT OF RS. 125 52 68 509 AND C URRENT ASSETS OF RS. 72 23 63 000 AS AFORESAID IN LIEU OF SHARES IN THE RATIO OF 1:6 AS STATED ABOVE. 3. THE ASSESSING OFFICER WHILE EXAMINING THE BALAN CE SHEET OF THE ASSESSEE COMPANY FOR THE YEAR ENDING 31ST MARCH 2010 OBSER VED THAT THE ASSETS SO TRANSFERRED IN THE SCHEME OF DEMERGER TO THE ASSESS EE COMPANY BY CHPL INCLUDED THE INVESTMENT IN OPTIONALLY CONVERTIBLE D EBENTURES (OCD) OF A SUM OF RS. 200 CRORES. THIS WAS IN ADDITION TO THE INVEST MENT IN EQUITY SHARES OF RS. 125 52 68 509/- IN GSL. ACCORDING TO THE ASSESSING OFFICER THIS TRANSFERRED ITA NO. 2087/DEL./2014 4 AMOUNT OF OCD OF RS. 200 CRORES WAS NOT A PART OF T HE SCHEME OF DEMERGER AS PER THE ORDER OF THE HON'BLE DELHI HIGH COURT. 4. THE ASSESSEE CONTENDED BEFORE THE AO THAT THE SU M OF RS. 72 23 63 000 REPRESENTS CURRENT ASSETS AS PER THE SCHEDULE REPRO DUCED ABOVE CONTAINING OCD WORTH RS. 72 CRORES. THE ASSESSEE COMPANY FURTHER CONTENDED THAT THE REMAINING AMOUNT OF RS. 128 CRORES BEING OCDS WAS SUBSCRIBE D BY CHPL IN GSL AND TRANSFERRED TO THE ASSESSEE COMPANY BETWEEN 01.04. 2009 AND THE DATE OF ORDER OF THE DELHI HIGH COURT I.E. 25.05.2010. THE ASSESSEE CONTENDED THAT IN LIEU OF THE ADDITIONAL AMOUNT OF OCD TRANSFERRED OF RS. 128 CRO RES SHARES IN THE RATIO OF 1:6 WERE ISSUED BY THE ASSESSEE COMPANY TO THE SHAREHOL DERS OF CHPL I.E. UBS MAURITIUS. THE ASSESSEE FURTHER CONTENDED THAT THE DEBENTURES TRANSFERRED TO THE ASSESSEE COMPANY BY CHPL WERE SIMPLY A CASE OF SHARES ISSUED TO THE SHAREHOLDERS OF CHPL AGAINST THE CONSIDERATION OF R S. 128 CRORES BY WAY OF DEBENTURES. 5. THE LD. ASSESSING OFFICER DISAGREED WITH THE ASS ESSEE AND DID NOT GIVE CREDIT OF RS. 72 CRORES OF OCD SAID TO BE FORMING A PART OF RS. 72 23 63 000 AS PER THE SCHEDULE OF PROPERTY AND PROCEEDED TO ADD THE E NTIRE RS. 200 CRORES BEING OCD TRANSFERRED BY CHPL TO THE ASSESSEE COMPANY IN LIEU OF SHARES. HE HELD THAT ITA NO. 2087/DEL./2014 5 THE OCD OF RS. 200 CRORES ARE NOT COVERED BY THE OR DER OF HON'BLE DELHI HIGH COURT AND ARE IN CONTRAVENTION THEREOF AND EVEN OTH ERWISE CONSTITUTES AN INCOME IN THE HANDS OF THE ASSESSEE COMPANY U/S 2(24) SINC E THE SAID SECTION INCLUDES INCOME OF ALL KINDS. THE ASSESSING OFFICER RELIED ON A NUMBER OF DECISIONS AS TO THE DEFINITION OF INCOME AND PROCEEDED TO ADD A SUM OF RS. 200 CRORES TO THE RETURNED INCOME OF THE ASSESSEE. 6. AGGRIEVED BY THE ASSESSMENT ORDER THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO AFTER CONSIDERING THE DETAILED SUBMISSIONS OF ASSESSEE ASSESSMENT ORDER AND VARIOUS CASE LAWS DELETED THE ENTIRE ADDITION OF RS. 200 CRORES. THE FINDINGS AND REASONINGS OF THE LD. CIT( A) ARE SUMMARIZED AS UNDER : (I) IN THE SCHEDULE TO THE ORDER OF THE HIGH COURT AN AMOUNT OF RS. 72 23 63 000/- HAS BEEN SHOWN AS CURRENT ASSET. AC CORDING TO THE LD. CIT(A) THE ASSESSING OFFICER HAS NOT EXAMINED THE DETAILS OF THE SAME AND FAILED TO APPRECIATE THAT THE CURRENT ASSETS OF RS. 72 23 63 000 WERE OCDS. THIS IS EVIDENT FROM THE AUDITED BALANCE SHE ET OF CHPL AND THE ASSESSEE COMPANY WHEREIN THESE FACTS ARE CLEARLY BR OUGHT OUT. THUS OUT OF RS. 200 CRORES RS. 72 23 63 000/- REPRESENTS OC DS APPROVED BY THE HON'BLE DELHI HIGH COURT FOR TRANSFER AND IT IS ONL Y THE BALANCE AMOUNT OF RS. 127.72 CRORES THAT HAS BEEN ADDITIONALLY TRANSF ERRED BY THE ASSESSEE COMPANY AFTER 01.04.2009 WHICH IS THE APPOINTED DA TE. ITA NO. 2087/DEL./2014 6 (II) THE AMOUNT OF RS. 127.72 CRORES WAS FURTHER INVESTE D BY CHPL IN OCDS OF GSL AND TRANSFERRED TO THE ASSESSEE BEYOND THE A PPOINTED DATE BUT BEFORE THE EFFECTIVE DATE I.E. 25.05.2010. THE LD. CIT(A) RELIED UPON CLAUSES 4.2 6.11 AND 7.1 OF THE SCHEME OF DEMERGER TO HOLD THAT AS PER THE COMPREHENSIVE READING OF THE SCHEME OF DEMERGER IT IS EVIDENT THAT THE SCHEME COULD BE FURTHER MODIFIED BETWEEN THE AP POINTED DATE AND EFFECTIVE DATE SUBJECT TO THE CONCURRENCE OF THE TR ANSFEREE COMPANY I.E. THE ASSESSEE COMPANY. HE HELD THAT MERELY BECAUSE MORE INVESTMENTS HAVE BEEN MADE BETWEEN THE APPOINTED DATE AND EFFEC TIVE DATE NONE OF THE PARTIES TO THE SCHEME OF DEMERGER GET ADVERSELY EFFECTED IN ANY MANNER BY SUCH MODIFICATION AS BOTH GSL AND GSHPL A RE 100% SUBSIDIARIES OF CHPL AND THE UNDERLYING PURPOSE OF THE REQUIREMENT OF SECTION 394 OF THE COMPANIES ACT IS TO PROTECT THE INTEREST OF SHAREHOLDERS TRANSFEREE COMPANY AND TRANSFEROR COM PANY WHICH IN THE INSTANT CASE DOES NOT GET JEOPARDIZED IN ANY MANNE R. (III) IT WAS FURTHER HELD THAT BY TRANSFERRING THE OCDS O F RS. 127.72 CRORES THE ASSESSEE COMPANY AS CONSIDERATION ISSUED SHARES TO CHPL IN LIEU OF THE TRANSFER IN THE RATIO OF 1:6. THE LD. CIT(A) HAD E XAMINED THE COPIES OF THE BALANCE SHEET OF CHPL ALONG WITH THE DETAILED N OTES ON ACCOUNT AS 31.03.2010 TO ARRIVE AT THE ABOVE CONCLUSION. (IV) THE LD. CIT(A) FURTHER HELD THAT EVEN IF THE SCHEME OF DEMERGER BY THE HON'BLE DELHI HIGH COURT IS IGNORED IT IS A SIMPLE CASE WHERE DEBENTURES HAVE BEEN TRANSFERRED BY CHPL TO THE ASSESSEE COMPA NY AGAINST WHICH SHARES HAVE BEEN ISSUED TO IT IN THE RATIO OF 1:6. HENCE THIS IS A CASE OF ISSUANCE OF SHARES AGAINST DEBENTURES INSTEAD OF CA SH. SUCH A TRANSACTION IS ALWAYS ON THE CAPITAL ACCOUNT. ITA NO. 2087/DEL./2014 7 (V) THE LD. CIT(A) OPINED THAT THIS IS PERFECTLY ACCEPT ABLE METHOD OF RAISING SHARE CAPITAL OF A COMPANY AND EVEN SCHEDULE-VI OF THE COMPANIES ACT MANDATES AND APPROVES SUCH A TRANSACTION WHICH IS I N THE NATURE OF ISSUANCE OF SHARES FOR CONSIDERATION OTHER THAN CAS H. (VI) THE LD. CIT(A) WENT A STEP FURTHER TO EXAMINE THE S OURCE OF INVESTMENT BY CHPL IN DEBENTURES OF GODAWARI. THE FINDING OF FACT WAS THAT CHPL HAD SOLD ITS SHARES IN ELEL HOTELS TO INDIAN HOTELS COMPANY LIMITED AND OUT OF THE CONSIDERATION RECEIVED IT HAD SUBSCRIBE D TO DEBENTURES OF GSL. BANK STATEMENTS OF CHPL AND OTHER SUPPORTING RECORD S TO BUTTRESS THIS FACT WAS EXAMINED BY LD. CIT(A) BEFORE ARRIVING AT THE CONCLUSION THAT SOURCE OF INVESTMENT FOR DEBENTURES BY CHPL STOOD E STABLISHED. 7. THE LD. DR VEHEMENTLY OPPOSED THE ORDER OF THE L D. CIT(A). HE CONTENDED THAT THE CURRENT ASSETS ARE DEFINED AS CASH OR CASH EQUIVALENT AND THE OCDS CANNOT BE SAID TO BE A PART OF THE SUM OF RS. 72 23 63 000 AS ON 31.03.2009. ACCORDING TO HIM THERE WERE NO OCDS AS ON 31.03.2009 AND IN THE BALANCE SHEET OF CHPL AS ON 31.03.2010 THEY ARE SHOWN AS APPLICATION MONEY. I T WAS FURTHER SUBMITTED THAT THE ENTIRE INVESTMENT IN THE OCD WAS NOT OUT OF THE SALE OF INVESTMENT BY CHPL IN ELEL HOTELS I.E. HOTEL SEA-ROCK MUMBAI. HE STATED THAT THE SCHEME OF DEMERGER WAS TO HIVE OFF THE BUSINESS CONVENTION UNDERTAKING OF CHPL AND THE BALANCE INVESTMENT OF RS. 128 CRORES FROM 1 APRIL 2009 TO 25 MAY 2010 IS NOT LINKED TO THE BUSINESS CONVENTION DIVISION. HE FURTHER STATED THAT THE DEBENTURES ITA NO. 2087/DEL./2014 8 TRANSFERRED PARTAKE THE CHARACTER OF INCOME IN THE HANDS OF THE ASSESSEE COMPANY AND IT IS NOT RELEVANT WHETHER THE SOURCE OF DEBENT URES SO TRANSFERRED IS EXPLAINED IN THE HANDS OF THE TRANSFEROR BECAUSE IT IS NOT A QUESTION OF SECTION 68 OF THE ACT BEING PRESSED INTO SERVICE. HE FURTHER STATED THAT THIS INCOME COULD BE IN THE NATURE OF ADVENTURE IN THE NATURE OF TRADE. 7.2 A WRITTEN SYNOPSIS WAS ALSO FILED BY THE LD. CI T (DR) WHICH READS AS UNDER : 1.1 AS PER PARA 11/PAGE 4 OF ORDER OF HON'BLE HC DA TED 25.05.2010(IT IS SEPARATE ORDER THE ORDER OF SAME DATE U/S 394 OF COMPANIES A CT 1956) THE CLARIDGES HOTEL PVT. LTD. HAD FOUR BUSINESS DIVISIONS NAMELY 1) LUXURY HOTEL DIVISION 2) BUSINESS CONVENTION DIVISION 3) CATERING DIVISION AND 4) SEZ DIVISION. OUT OF THEM LAST THREE ARE DEMERGED AS PER THE SCHEME OF A RRANGEMENTS UNDER CONSIDERATION. 1.2 THE SCHEME OF ARRANGEMENTS UNDER CONSIDERATION I NVOLVE THREE COMPANIES NAMELY 1) CLARIDGES HOTEL PVT. LTD. (DEMERGED COMP ANY) 2) ASSESSEE{ TRANSFEREE NO.L-TO WHOM 'DEMERGED UNDER TAKING 1' I .E. 'BUSINESS CONVENTION DIVISION' HAS BEEN TRANSFERRED} AND 3) ASIAN HOSPI TALITY MANAGEMENT PVT. LTD.{TRANSFEREE NO. 2- TO WHOM 'DEMERGED UNDER TAKI NG 2' I.E. 'CATERING DIVISION' AND 'DEMERGED UNDERTAKING 3'I.E. 'SEZ DIVISION' HAS BEEN TRANSFERRED}. 1.3 THE SCHEME OF ARRANGEMENTS WAS APPROVED IN MEETI NGS OF BOARDS OF DIRECTORS OF THREE COMPANIES INVOLVED ON 02.04.2009 19.08.2009 AND 20.08.2010 {REF. PARA 4/PAGE 6 OF ORDER OF HON'BLE HC DATED 25.05.2010(IT IS SEPARATE ORDER THE ORDER OF SAME DATE U/S 394 OF CO MPANIES ACT 1956}. 1.4 THE HON'BLE HIGH COURT OF DELHI VIDE ORDER DATED 25.05.2010 SANCTIONED SCHEME OF ARRANGEMENTS OF CLARIDGES HOTELS PVT. LTD . U/S 394 OF COMPANIES ACT 1956( REF. PAGE # 33-62 OF PB) W.E.F. 01.04.2009. 2.1 AS PER 'STAGE-A' ( REF. PAGE #3 OF THE ORDER DA TED 25.05.2010 OF THE HON'BLE HC/PAGE # 35-PB) PROPERTY RIGHTS AND POWERS OF 'B USINESS CONVENTION DIVISION' OF DEMERGED COMPANY( CLARIDGES HOTELS PVT. LTD.) SP ECIFIED IN FIRST SECOND AND ITA NO. 2087/DEL./2014 9 THIRD PART OF SCHEDULE-II AND ALL OTHER PROPERTY R IGHT AND POWER OF 'BUSINESS CONVENTION DIVISION' BE TRANSFERRED TO TRANSFEREE C OMPANY NO. L(ASSESSEE). 2.2 AS PER (PART) SCHEDULE FORMING PART OF THE FINA NCIAL STATEMENTS FOR THE YEAR ENDED 31.03.2010 OF CLARIDGES HOTELS PVT. LTD. THE AMOUNT OF RS. 200 CR. IS SHOWN AS 'DEBENTURE APPLICATION MONEY PENDING ALLOT MENT'(REF. PAGE # 81 OF PB). THEREFORE THE AMT. OF RS. 200 CR WHICH ASSESSE E IS TERMING AS 'OPTIONALLY CONVERTIBLE DEBENTURES(OCDS)' AND CONSISTS OF TWO P ARTS NAMELY I) AMT. OF RS. 72 CR. UPTO FROM 04.02.2009 TO 31.03.2009 AND II) R S. 128 CR. BETWEEN 01.04.2009 TO 18.06.2009(REF. PARA 5.7/PAGE # LLOF CIT(A)'S ORDER) WAS SIMPLE MONEY ADVANCED TO GODAVARY SHILPKALA LTD. BY CLARID GES HOTELS PVT. LTD. EVEN UPTO 31.03.2010. 2.3 AS PER PARA 4 OF (PART) SCHEDULE-20 FORMING PAR T OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31.03.2010 OF CLARIDGES HOTELS P VT. LTD. (REF. PAGE # 82 OF PB THE CONTROLLING STAKES IN HOTEL SEA ROCK MUMBAI WE RE SOLD TO INDIAN HOTEL COMPANIES LTD. THROUGH SALES OF INVESTMENT (OF CLAR IDGES HOTELS PVT. LTD.) IN ELEL HOTELS AND INVESTMENTS LTD. SKY DECK PROPERTI ES AND DEVELOPERS PVT. LTD. AND SHEENA INVESTMENTS PVT. LTD. THIS SALE TOOK PLAC E THROUGH AGREEMENT DATED 12.11.2008 WHICH WAS AMENDED VIDE 'FIRST' AMENDMENT DATED 25.06.2009. 2.4 BEFORE CIT(A) AS PER REPLY DATED 26.12.2013(REF . PG. # 103/PB) THE ASSESSEE (FOR THE FIRST TIME) STATED THAT THE SHARES HELD BY CLARIDGES HOTELS PVT. LTD. IN ELEL HOTELS AND INVESTMENT LTD. WERE SOLD TO TATA GR OUP FOR RS. 517 CR. IT MAY BE NOTED THAT THE REPLY GIVES THE IMPRESSION AS IF HOTEL SEA-ROCK MUMBAI WAS SOLE PROPERTY OF ELEL HOTELS AND INVESTMENT LTD. HO WEVER AS STATED ABOVE NOTE 4 OF SCHEDULE 20 FORMING PART OF FINANCIAL STATEMEN TS FOR FY 2009-10 OF CHPL(REF. PG. # 82/PB) CLEARLY SHOWS THAT IT INVOLV ED TWO MORE COMPANIES I.E. SKY DECK PROPERTIES AND DEVELOPERS PVT. LTD. AND SH EENA INVESTMENTS PVT LTD. 2.5 AS PER PARA 5(III) AT PAGE # 6 OF CIT(A)'S ORDE R IN FY 2008-09 RS. 250 CRORES WERE RECEIVED AS PART OF CONSIDERATION OF SALE OF I NVESTMENT EFFECTING SALE OF HOTEL SEA ROCK MUMBAI. OUT OF THE SAID RS.120 CROR ES RS. 72 CRORES WERE INVESTED IN GODAVARI SHILPKALA LTD. (PURPORTEDLY BY WAY OF OCDS). 2.6 AS PER PARA 5(VII) AT PAGE # 7 OF CIT(A)'S ORDER 'SOON AFTER 01.04.2009 CLARIDGES HOTELS PVT. LTD. RECEIVED SOME MORE FUNDS TOWARDS SALE OF SHARES OF SEA ROCK(AS PART OF CONSIDERATION OF SALE OF INVESTMENT EFFECTING SALE OF HOTEL SEA ROCK MUMBAI) AND OUT OF THOSE FUNDS A SUM OF RS. 128 CRORES FURTHER INVESTED DURING MONTHS OF APRIL TO JUNE 2009 IN GODAVARI SHI LPKALA LTD. (PURPORTEDLY BY WAY OF OCDS). ITA NO. 2087/DEL./2014 10 AS PER INFORMATION DOWN LOADED FROM INERNET SITE WW W.BRICKSWORKRATING.COM ON 23.06.2015 M/S GODAVARI SHILPKALA LTD. WAS INCO RPORATED IN 1985 AND ENGAGED IN THE BUSINESS OF HOSPITALITY AND REAL EST ATE DEVELOPMENT IN SURAJKUND FARIDABAD. IT OWNS TWO HOTEL PROPERTIES NAMELY THE CLARIGES- 5 STAR HOTEL(NAME HAS CHANGED TO 'VIVANTA BY TAJ) AND 'ATRI UM'-3 STAR HOTEL. THE COMPANY HAS ALSO DEVELOPED HIGH END COMMERCIAL PROP ERTY NAMED 'PINNACLE' WITH TOTAL SALABLE AREA OF 3 18 754 SQ. FT. OUT OF WHICH APPROX. 90% AREA IS ALREADY SOLD. 2.8 AS PER CLAUSE 5 OF THE SCHEME OF ARRANGEMENTS(R EF. PAGE #45 OF PB) IN CONSIDERATION OF TRANSFER OF THE UNDERTAKING THE SHARES OF ASSESSEE COMPANY SHALL BE ISSUED TO THE SHAREHOLDERS OF DEMERGED COM PANY IN THE RATIO OF 1:6. 2.9 AS PER CLAUSE 6.1 6.1.1 6.1.2 AND 6.1.3 OF TH E SCHEME OF ARRANGEMENTS (REF. PAGE #46 OF PB) THERE IS NO PROVISION OF CREDITING BALANCE TO 'SHARE PREMIUM ACCOUNT'. AS PER CLAUSE 6.1.3 OF THE SCHEME OF ARRA NGEMENTS EXCESS OR DEFICIT SHALL BE CREDITED TO GENERAL RESERVE OR DEBITED TO GOODWILL. 2.10 BUSINESS HAS BEEN TRANSFERRED AS ON-GOING CONC ERN. IT IS ALSO STATED AS PER 2(B) OF (PART) SCHEDULE FORMING PART OF THE FINANCI AL STATEMENTS FOR THE YEAR ENDED 31.03.2010 OF CLARIDGES HOTELS PVT. LTD.(REF. PAGE #80 OF PB). AS PER SCHEME SANCTIONED BY THE HON'BLE HC THE 'CU RRENT ASSETS' WORTH RS. 7 22 363 THOUSAND ARE ALLOWED TO BE TRANSFERRED ( R EF. SCHEDULE OF PROPERTY- PART-III). THE QUESTION IS WHETHER IT COVERS THE APP LICATION MONEY FOR OPTIONALLY CONVERTIBLE DEBENTURES(OCD)? THE ANSWER IS BIG 'NO' BECAUSE: A) APPLICATION MONEY FOR OPTIONALLY CONVERTIBLE DEBENT URES(OCD) AS ON 31.03.2009 CANNOT BE CURRENT ASSET BECAUSE THE 'CUR RENT ASSET' IS DEFINED AS 'CASH OR CASH EQUIVALENT OR ANY OTHER ASSET WHICH C AN BE REASONABLY EXPECTED TO BE CONVERTED INTO CASH WITHIN ONE YEAR'. IT IS N OT INVESTMENT IN A STOCK LISTED ON ANY STOCK EXCHANGE. B) THERE WAS NO SO CALLED OCD AS ON 31.03.2009. IN F ACT AS PER B/S OF CHPL AS ON 31.03.2010 THESE ARE SHOWN AS APPLICATION MONEY . C) THE MONEY WAS GIVEN BY CHPL THERE IS NO MATERIAL TO SHOW THAT IT BELONGED TO 'BUSINESS CONVENTION DIVISION'. IN FACT THERE I S MATERIAL TO SHOW OTHERWISE E.G. ITA NO. 2087/DEL./2014 11 (I) IT IS CLAIM OF THE ASSESSEE ITSELF THAT THE MON EY CAME FROM SALE OF INVESTMENT IN SEA-ROCK HOTEL MUMBAI (AND NOT FROM PROFIT OF ' BUSINESS CONVENTION CENTRE') AND (II) IT IS NOT THAT ALL THE MONEY RECEIVED FROM SALE OF INVESTMENT IN SEA-ROCK HOTEL MUMBAI WAS GIVEN AS APPLICATION MONEY(IT IS CLAIM OF THE ASSESSEE ITSELF THAT IT IS PART OF THE MONEY WHICH CAME FROM SALE O F INVESTMENT IN SEA-ROCK HOTEL MUMBAI). D) THE ASSESSEE IS TRYING TO COVER MONEY PAID AFTER 31.03.2009. AS PER ORDER OF HON'BLE HC THE TRANSFER OF ONGOING CONCERN ALONG W ITH ALL ASSETS AND LIABILITY TOOK PLACE ON 31.03.2009 AND THEREAFTER IT WAS RUN BY CHPL AS TRUSTEE. IT IS NOT THE CASE OF THE ASSESSEE THAT TRANSFER OF ANY RIGHT TO RECEIVE THE MONEY (RECEIVABLE AGAINST SALE OF INVESTMENT IN SEA-ROCK HOTEL MUMBAI) IS ALSO SANCTIONED BY THE HON'BLE HC AS PART OF SCHEDULE OF PROPERTY-PART-III. 4.1 ALSO THE RELEVANT QUESTIONS ARE : I) WHY CIT(A)'S ORDER IN PARA 4(A) ON PAGE 4 S AYS THAT HON'BLE HIGH COURT APPROVED AMALGAMATION OF GODAVARI SHILPKALA LTD. WI TH THE ASSESEE COMPANY WHEREAS THE ORDER OF HON'BLE HIGH COURT DATED 25.05 .2010 NOWHERE SAYS SO AND ABOVE MENTIONED INFORMATION ON INTERNET SHOWS THAT GODAVARI SHILPKALA LTD. IS VERY MUCH EXISTING ON 15.06.2015 ? II) WHY INFORMATION ABOUT SALE OF SEA ROCK HOTEL AN D ITS CONSIDERATION WAS SUBMITTED IN GUARDED MANNER AND IN PIECE MEAL ? III) WHY INFORMATION ABOUT INVOLVEMENT OF SKY DECK PROPERTIES AND DEVELOPERS PVT. LTD. AND SHEENA INVESTMENTS PVT. LTD. IN SALE OF SEA ROCK HOTEL MUMBAI AND AGREEMENT DATED 12.11.2008 WHICH WAS AMENDED VIDE ' FIRST' AMENDMENT DATED 25.06.2009 WERE NOT MENTIONED IN ANY OF THE REPLY S UBMITTED BEFORE THE AO OR CIT(A) ? IV) WHY 'DEBENTURE APPLICATION MONEY PENDING ALLOTM ENT' WAS REFERRED AS INVESTMENT BY WAY OF OCDS). MOOT QUESTIONS ARE : V) AS TO WHETHER 'DEBENTURE APPLICATION MONEY PENDI NG ALLOTMENT' IN GODAVARI SHILPKALA LTD. BY CLARIDGES HOTEL PVT. LTD. CAN BE HELD AS PART OF 'BUSINESS CONVENTION BUSINESS' DONE BY 'BUSINESS CONVENTION U NDERTAKING' ? CERTAINLY IT WAS INVESTMENT OF CLARIDGES HOTELS PVT. LTD. IN GOD AVARI SHILPKALA LTD. AS IT WAS MADE IN THE SAID COMPANY BECAUSE IT OWNED TWO HOTEL PROPERTIES NAMELY 'THE ITA NO. 2087/DEL./2014 12 CLARIGES- 5 STAR HOTEL (NAME HAS CHANGED TO 'VIVANT A BY TAJ') AND 'ATRIUM'-3 STAR HOTEL AND ALSO DEVELOPED HIGH END COMMERCIAL PROPER TY NAMED 'PINNACLE' WITH TOTAL SALABLE AREA OF 3 18 754 SQ. FT. THE DECISION TO INVEST SALE PROCEEDS OF SALE OF INVESTMENT (OF CLARIDGES HOTELS PVT. LTD.) IN ELEL HOTELS AND INVESTMENTS LTD. SKY DECK PROPERTIES AND DEVELOPERS PVT. LTD. AND SH EENA INVESTMENTS PVT. LTD. COULD HAVE BEEN PLANNED NEAR ABOUT THE DATE OF AGRE EMENT (I.E. 12.11.2008). VI) THE FIGURE OF SALES PROCEEDS OF INVESTMENT (OF C LARIDGES HOTELS PVT. LTD.) IN ELEL HOTELS AND INVESTMENTS LTD. SKY DECK PROPERTI ES AND DEVELOPERS PVT. LTD. AND SHEENA INVESTMENTS PVT. LTD. IS MUCH MORE THAN FIGURE OF RS. 200 CRORES. THEN HOW COME A PART OF IT BECOMES PART OF 'BUSINESS CONVENTION BUSINESS' DONE BY 'BUSINESS CONVENTION UNDERTAKING' ? VII) WHETHER INVESTMENT OF BALANCE 120 CR. DURING A PRIL TO JUNE 2009 IS PART OF 'BUSINESS CONVENTION BUSINESS' HELD BY THE CLARIDGE S HOTEL PVT. LTD. IN TRUST AS TRUSTEE OF ASSESSEE COMPANY ? OBVIOUS ANSWER IS 'CE RTAINLY NOT' BECAUSE FIRST OF ALL IT IS NOT 'BUSINESS' AND SECONDLY MONEY HAS NOT ORIGINATED FROM 'BUSINESS' HELD IN TRUST AFTER 01.04.2009. THE PROVISIONS CONTAINED IN CLAUSES 4 TO 4.2 AND 7 TO 7.3 OF SCHEME OF ARRANGEMENTS (REF. PAGE # 44-45 4 7-48 OF PB) SUPPORT THIS CONTENTION. VIII) AS TO WHETHER THE EXPRESSION 'INCLUDING SPECI FICALLY INVESTMENT IN GODAVARI SHILPKALA LTD.' CONTAINED IN CLAUSE 1.11 OF SCHEME OF ARRANGEMENTS(REF. PAGE # 39 OF PB) INCLUDES 'DEBENTURE APPLICATION MONEY PEN DING ALLOTMENT' IN GODAVARI SHILPKALA LTD.? THE OBVIOUS ANSWER IS 'CERTAINLY NO T' BECAUSE SUCH INVESTMENTS IN FORM OF SHARES HAS BEEN SPECIFICALLY MENTIONED I N PART-ILL OF SCHEDULE-II (PAGE # 61 OF PB). THE RESIDUAL CLAUSES DO NOT HELP THE CA USE OF THE ASSESSEE BECAUSE IT SHOULD FIRST COME UNDER DEFINITION OF 'BUSINESS ASS ET OF BUSINESS CONVENTION DIVISION'. IX) WHETHER THE SAID 'DEBENTURE APPLICATION MONEY P ENDING ALLOTMENT' CAN BE SAID TO BE CONSIDERATION OF SHARES ALLOTTED AS CONS IDERATION OF 'DEMERGER OF BUSINESS CONVENTION DIVISION' ? THE OBVIOUS ANSWER I S 'CERTAINLY NOT' BECAUSE IT IS NEITHER PART OF SCHEME OF ARRANGEMENTS SANCTIONE D BY HON'BLE HIGH COURT OF DELHI NOR IT HAS ANY RELATION TO 'BUSINESS CONVENTI ON DIVISION'. X) AS WHETHER 'CURRENT ASSETS' OF RS. 72 23 63 0007 - SHOWN IN PART-ILL OF SCHEDULE- II (PAGE #61 OF PB) CAN BE CONSTRUED AS 'OPTIONALLY CONVERTIBLE DEBENTURES(OCDS)' OR 'DEBENTURE APPLICATION MONEY P ENDING ALLOTMENT' ? FIRST OF ALL IT IS NOT BUSINESS ASSET SECONDLY IT IS NO T BUSINESS ASSET OF 'BUSINESS ITA NO. 2087/DEL./2014 13 CONVENTION DIVISION' THIRDLY DESCRIPTION DOES NOT TALLY AND FOURTHLY THE FIGURE ALSO DOES NOT TALLY. XI) THE PROPOSITION THAT IT IS INVESTMENT OF 'LUXURY HOTEL DIVISION' IS MORE PROBABLE AS PER NORMAL PRUDENCE? 5.1 THE ASSESSEE BEFORE THE CIT(A) HAS TRIED TO SHOW THE TRANSACTION AS COVERED U/S 47 AS 'NOT REGARDED AS TRANSFER'. IT IS MISPLAC ED ARGUMENT AND NOT RELEVANT AS WE ARE NOT DETERMINING INCIDENCE OF CAPITAL GAIN IN THE HANDS OF TRANSFEROR IN TERMS OF SECTION 47. WE ARE CONCERNED WITH WHETHER THE TRANSACTION HAS YIELDED INCOME IN THE HANDS OF TRANSFREE. THE ANSWER IS A RE SOUNDING 'YES' BECAUSE THE DEFINITION OF INCOME U/S 2(24) IS WIDE ENOUGH AND C OURTS HAVE RULED IN FAVOUR OF REVENUE AS PER THE RATIOS RELIED UPON BY THE AO. 5.2 IT IS NOT RELEVANT AS TO WHETHER SOURCE OF THIS CREDIT IS EXPLAINED IN HANDS OF TRANSFEROR BECAUSE IT IS NOT QUESTION OF SECTION 68 . 5.3 THE ALLOTMENT OF SHARE IS IN CONSIDERATION OF TH E SCHEME OF DEMERGER SANCTIONED BY THE ORDER OF HON'BLE HC. ANY PLEA THA T IT IS IN CONSIDERATION OF SOMETHING TRANSFERRED OUTSIDE THE SCHEME OF DEMERGE R IS ILLOGICAL AND LIABLE FOR REJECTION. 6. IT MAY BE SEEN FROM THE ABOVE THAT I) PARTIAL AND INCOMPREHENSIBLE INFORMATION W AS PRESENTED BEFORE CIT(A). II) CIT(A) DID NOT APPRECIATE FACTS AND CIRCUMS TANCES AND MISDIRECTED HIMSELF INTO IRRELEVANT QUESTIONS. III) THE CORRECT POSITION IS THAT IT IS RECEIPT TO A SSESSEE WHICH IS FORMED TO CARRY OUT BUSINESS ACTIVITY AND EARN INCOME. THE APPARENT IS THAT EVERY RECEIPT TO AN ARTIFICIAL JURIDICAL ENTITY FORMED FOR EARNING PROF IT THROUGH BUSINESS IS INCOME. THE ONUS IS UPON THE ASSESSEE TO SHOW THAT IT IS NOT 'INCOME' OF THE ASSESSEE. THE ASSESSEE FAILED TO DISCHARGE THIS ONUS. 7. ANOTHER ISSUE TO BE DELIBERATED UPON IS WHY THE HOLDING COMPANY UBS PAY RS 200 CRORE TO DEMERGED COMPANY GSHPL WHICH HAS A A SSET OF ONLY RS 30 LAKH AND A BUSINESS PROFIT OF RS 1 CRORE. AS A HOLDING C OMPANY THE UBS MUST HAVE INFORMATION ABOUT THE INTRINSIC VALUE OF THE ASSESS EE WHICH IS NOT BEING SHARED BY THE ASSESSEE. THE HOLDING COMPANY HAS RECEIVED 6 SHARES OF THE ASSESSE WHICH HAS MINISCULE ASSET AND SMALL PROFIT. THERE IS NO VA LUATION DONE OF THE ASSESSEE WHICH WOULD COMMAND A CONSIDERATION OF RS 200 CRORE . THE ASSESSEE COMPANY HAS RECEIVED THIS AMOUNT OF RS 200 CRORE AS INCOME WHICH IS IN THE NATURE OF ITA NO. 2087/DEL./2014 14 ADVENTURE/BUSINESS IN THE NATURE OF TRADE. IN THIS TRANSACTION THERE ARE ALL THE ELEMENTS OF LEGAL CHARACTER OF TRADE OR BUSINESS. G . VENKATASWAMI NAIDU AND CO 35 ITR 594(SC). THERE IS A DOMINANT INTENTION OF THE ASSESSEE TO EMBARK ON A VENTURE IN NATURE OF TRADE AS DISTINGUISHED FROM CA PITAL INVESTMENT. PRESENT IN THE CASE R. DALMIA 137 ITR 665(DEL). THE TRANSACTION MAY NOT BE IN LINE OF THE BUSINESS OF THE ASSESSEE DOES NOT ALTER THE CHARACT ER OF THE TRANSACTION AS ADVENTURE IN THE NATURE OF TRADE. DALMIA CEMENT LTD 105 ITR 633(SC). A SINGLE/ISOLATED VENTURE ARE NOT EXCLUDED FROM THE A DVENTURE IN NATURE OF TRADE. G. VENKATASWAMI NAIDU (SUPRA). IN RAJA BAHADUR KAMA KHYA NARAIN SINGH 77 ITR 253(SC) IT WAS HELD THAT SURPLUS ARISING ON SALE OF SHARES WOULD BE REVENUE IF IT IS CATEGORIZED AS ADVENTURE IN NATURE OF TRAD E. 8. ON THE OTHER HAND THE LD. COUNSEL OF THE ASSESS EE COMPANY VEHEMENTLY SUPPORTED THE ORDER OF LD. CIT(A). HE REITERATED TH E SUBMISSIONS MADE BEFORE THE LD. CIT(A) AND ALSO FILED A WRITTEN SYNOPSIS IN A T ABULATED FORM WHICH READS AS UNDER : GROUND NO. 1: WHETHER LD. CIT(A) WAS CORRECT ON FA CTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN DELETING THE ADDITION OF RS. 200 00 00 000/- MADE BY AO ON ACCOUNT OF DISALLOWANCE OF DEBENTURES TRANSFERRED I N CONTRAVENTION OF THE DIRECTIONS OF THE HONBLE HIGH COURT OF DELHI? FACTS: THE ASSESSMENT FOR A.Y. 2010-11 HAS BEEN MADE U/S 1 43(3) DATED VIDE ORDER DATED 28.03.2013 SERVED ON THE ASSESSEE ON 3 RD APRIL 2013 DETERMINING THE TOTAL INCOME AT RS. 2 04 70 51 350/- AS AGAINST THE INCOME OF RS. 4 70 51 350/- DECLARED IN THE RETURN FILED ON 18.09.2010. DEMAND OF RS. 92 38 46 520 HA S BEEN RAISED. AOS CONTENTIONS: THE LD. AO HAS MADE THE IMPUGNED ADDITION ON THE O NLY GROUND THAT OCDS WORTH RS. 200/- CRORES WERE TRANSFERRED IN CON TRAVENTION OF THE DIRECTION OF THE HONBLE DELHI HIGH COURT . ITA NO. 2087/DEL./2014 15 ASSESSEES CONTENTIONS: FOLLOWING IS THE FLOWCHART OF DEMERGER SCHEME: UNIVERSAL BUSINESS SOLUTION (MAURITIUS) 100% OWNER OF CLARIDGES HOTEL PVT. LTD. (INDIAN COM PANY) INVESTED IN GODAVARI SHILPKALA HOSPITALITY LTD. : 1. RS. 72 CRORES IN DEB AS ON 01.04.2009 2. RS. 128 CRORES IN DEB BETWEEN 01.04.2009 & MAY 2010 3. RS. 125.52 AS EQUITY SHARES IN GSL BUSINESS CONVE NTION DIVISION (RS. 0.30 CRORE) INVESTMENT OF RS. 325.52 IN GSL AND BANQUET DIVISIO N WORTH RS. 0.30 CRORES TRANSFERRED TO ASSESSEE AS PER DEMERGER SCHEME APPR OVED BY DELHI HIGH COURT. DEMERGER SCHEME APPROVED BY DELHI HIGH COURT 1. NEW COMPANY I.E. GSHPL FORMED AFTER DEMERGER GETS F OLLOWING ASSETS FROM CLARIDGES HOTEL PVT. LTD.: A. BUSINESS CONVENTION DIVISION WITH ASSETS & LIABI LITIES WORTH RS. 0.30 CRORE; B. DEBENTURES IN GSL WORTH RS. 200 CRORES C. 100% EQUITY SHARES OF GSL 125.52 CRORES TOTAL ASSETS TRANSFERRED 325.82 CRORES 2. (I) IN LIEN GSHPL ISSUES ITS SHARES IN THE RATIO OF 1:6 TO SHAREHOLDER OF CHPL WHICH IS UBSL MAURITIUS (II) AS A CONSEQUENCE GSPL BECOMES A WHOLLY OWNED S UBSIDIARY OF UBSL (MAURITIUS) AND ITS BALANCE SHEET AFTER ACQUISITION IS LIABILITIES (IN CRORES) ASSETS (IN CRORES) SHARE CAPITAL (UBSL MAURITIUS) 0.48 DEB IN GSL 200 GENERAL RESERVES 325.34 EQUITY SHARES IN GSL 125.52 ITA NO. 2087/DEL./2014 16 ASSETS OF BUSINESS DIVISION 0.30 TOTAL 325.82 TOTAL 325.82 ASSESSEES CONTENTIONS: I. TRANSFER OF OCDS WORTH RS. 200 CRORES WAS MADE AS PER THE ORDER AND DIRECTION OF THE HONBLE DELHI COURT DATED 25.0 5.2010: 1. THE BRIEF FACTS OF THE CASE ARE BEING STATED HEREIN UNDER WHICH WILL ESTABLISH THE CLAIM OF THE ASSESSEE THAT THE A DDITION MADE IS NOT TENABLE ON FACTS AND IN LAW: A) UBSL MAURITIUS IS MAURITIAN COMPANY WHICH OWNS 100% SHARES OF CLARIDGES HOTELS PVT. LTD. A COMPANY INCORPORATED AND REGISTERED IN INDIA. B) CLARIDGES HOTELS PVT. LTD. SOLD SHARES OF ELEL HOTE LS PVT. LTD. A COMPANY HAVING HOTEL SEA ROCK AS ITS ASSET TO INDIAN HOTELS COMPANY LIMITED (IHCL) OF THE TATA GR OUP IN THE YEAR 2009. C) DURING FINANCIAL YEAR 2008-09 CLARIDGES HOTEL INVE STED RS. 72 CORES IN OPTIONALLY COVERTIBLE DEBENTURES OF GOD AVARI SHILPKALA LTD. D) CLARIDGES HOTELS PVT. LTD. DECIDED TO DEMERGE ITS B USINESS CONVENTION AND APPROACHED THE HONBLE HIGH COURT OF DELHI FOR THE SAID PURPOSE. E) THE HON'BLE HIGH COURT SPECIFICALLY INCLUDED INVESTMENT IN GSL AS PART OF THE UNDERTAKING TO BE DEMERGED: THE HONBLE DELHI HIGH COURT PASSED AN ORDER DATED 25.05.2010 DEMERGING THE BUSINESS CONVENTION DIVISION ALONG WITH ALL ITS ASSETS TO GO DAVARI SHILPKALA HOSPITALITY PVT. LTD. (THE ASSESSEE COMPA NY) W.E.F. 01.04.2009 (BEING THE APPOINTED DATE). WE AR E REPRODUCING RELEVANT CLAUSE (REFER PAGE NO. 38 OF PB): I) ALL THE IDENTIFIED PROPERTY OF OR REQUIRED FOR THE BUSINESS CONVENTION DIVISION WHEREVER SITUATED WHETHER MOVABLE OR IMMOVABLE TANGIBLE OR INTANGIBLE INCLUDING IDENTIFIED INVESTMENTS ( INCLUDING SPECIFICALLY INVESTMENT IN GODAVARI SHILPKALA LTD ) ALL RIGHTS (RIGHTS INCLUDING UNDER ANY GOVERNMENT OR CUSTOMER CONTRACTS OR OTHER CONTRACTS OR AGREEMENTS) ITA NO. 2087/DEL./2014 17 ENTITLEMENTS LICENSES REGISTRATIONS CONTRACTS PRIVILEDGES AND ALL OTHER RIGHTS AND ADVANTAGES OF WHATSOEVER NATURE AND WHERESOEVER SITUATED BELONGIN G TO OR IN THE OWNERSHIP POWER OF POSSESSION AND IN THE CONTROL OF OR VESTED IN OR GRANTED IN FAVOUR OF OR HELD FOR THE BENEFIT OF OR ENJOYED BY THE BUSINESS CONVENTION DIVISION. FROM THE AFORESAID YOUR HONOUR WILL APPRECIATE THA T THE DEMERGED UNDERTAKING OR THE BUSINESS CONVENTION DIVISION SPECIFICALLY INCLUDED INVESTMENT IS GSL WH ICH ON THE DATE OF THE DEMERGER ON 1 ST APRIL 2009 WERE IN THE FORM OF RS. 72 CRORES INVESTMENT BY WAY OF DEBENTUR ES. FURTHER INVESTMENT OF RS. 128 CRORES BY WAY OF SUBSCRIPTION OF DEBENTURES WAS MADE BY CLARIDGES HO TELS PVT. LTD IN GSL BETWEEN THE DATE OF DEMERGER I.E. T HE EFFECTIVE DATED I.E. 23 JUNE 2010. F) SUBSEQUENT INVESTMENTS FROM APPOINTED DATE TILL EFFECTIVE DATE WERE HELD UNDER TRUST BY CHPL: THE HONBLE DELHI HIGH COURT ALSO PROVIDED THAT SINCE THEIR ORDER WAS PASSED ONLY IN MAY 2010 AND THE APPOINTE D DATE BEING 01.04.2009 ALL SUBSEQUENT BUSINESS/INVESTMENT ETC. TILL THE DATE OF THE HIGH COURT ORDER THAT HAD TAKEN PLACE IN THE BUSINESS CONVENTI ON DIVISION WOULD BE HELD AS INVESTMENT/TRUST BY CLARI DGES HOTELS AND WOULD BE TRANSFERRED BY WAY OF DEMERGER. (REFER CLAUSE 4.1 ON PAGE NO. 44 OF PB) G) ALSO REFER CLAUSE 7.1.1 ON PAGE NO. 47 OF THE PAPER BOOK WHICH SPECIFICALLY ALLOWS CHPL TO EXPAND THE INVEST MENT IN THE DEMERGED UNDERTAKING WITH CONCURRENCE OF GSH PL. (REFER CLAUSE 7.1.1 ON PAGE NO. 47 OF PAPER BOOK) H) RS. 128 CRORES WERE FURTHER INVESTED INTO OCDS OF G SL DURING THE FINANCIAL YEAR 2009-10. I) AS A CONSEQUENCE THE TOTAL INVESTMENT IN GSL ON TH E DATE OF THE ORDER OF THE HONBLE DELHI HIGH COURT DATED MAY 2010 WAS RS.200 CRORES BY WAY OF OCD. J) THE HONBLE COURT HAD ALSO ORDERED THAT BY VIRTUE OF THE TRANSFER OF ALL THE BUSINESS CONVENTION DIVISION IN TO ASSESSEE COMPANY ASSESSEE COMPANY WOULD ISSUE SHAR ES ITA NO. 2087/DEL./2014 18 IN FAV OUR OF UBSL MAURITIUS IN THE RATIO OF 1:6 I.E 6 SHA RES TO BE ISSUED BY GSHPL IN LIEU OF 1 SHARE HELD BY UB SL IN CHPL. THE TOTAL SHARE PREMIUM AMOUNT CONSTITUTES TO RS 3 25 34 86 385. K) THE ASSESSING OFFICER HAS WRONGLY HELD THAT THE HON BLE COURT HAD NOT DIRECTED THE OCD IN GSL OF RS.200 CRO RES TO BE TRANSFERRED TO GSHPL. KINDLY REFER CLAUSE 1.11 O N PAGE NO. 39 OF PB. L) RS. 72 CRORES WERE INCLUDED IN PART III OF SCHEDULE OF PROPERTY BY HONBLE DELHI HIGH COURT. (REFER PG. NO . 61 OF PB) 2. HENCE THE ENTIRE RS.200 CRORES OF OCDS WERE TRANS FERRED ON THE DIRECTION OF THE HONBLE COURT AND II. SOURCE OF INVESTMENT WAS FULLY EXPLAINED: 1. RS.200 CRORES INVESTMENT IN GSL WAS OUT OF FUNDS PR OVIDED BY IHCL ON SALE OF SHARES BY HOTEL CLARIDGES ON WHICH CAPITAL GAINS TAX WAS DULY PAID. BANK STATEMENT OF CLARIDGE S HOTEL WAS ALSO FILED TO ESTABLISH THE SOURCE OF FUNDS. KI NDLY REFER PAGE NO. 111-113 OF THE PB. 2. THE LD. AO WAS OF THE BELIEF THAT FUNDS HAD COME FR OM ABROAD AND A NOTICE U/S 142(1) TO THAT EFFECT WAS ISSUED B Y HIM ON 18 TH MARCH 2013. (REFER PAGE NO. 75 OF THE PB) 3. SOON AFTER RECEIVING THE REPLY FROM US AND REALIZIN G HIS MISTAKE THE LD. AO TOOK A REVERSE STAND AND PICKED UP A TECHNICAL ISSUE TO MAKE THE ADDITION OF RS.200 CROR ES. III. AUDITORS OF CHPL TOOK COMPLETE COGNIZANCE OF THE ORDER: IT IS FURTHER SUBMITTED THAT THE AUDITORS OF THE DE MERGED COMPANY I.E. CLARIDGES HOTELS PVT. LTD TOOK COMPLETE COGNIZ ANCE OF THE ORDER OF THE HIGH COURT AND PASSED REQUISITE ENTRIE S TRANSFERRING THE CONVENTION BUSINESS ALONG WITH DEBENTURES TO TH E TUNE OF RS. 200 CRORES ETC IN THEIR BOOKS OF ACCOUNT. PLEASE R EFER THE NOTE FORMING PART OF THE AUDITED BALANCE SHEET OF CLARID GES HOTELS PVT. LTD ON PAGE NO. 80 OF THE PB. IV. AUDITORS OF THE ASSESSEE COMPANY TOOK COMPLETE ITA NO. 2087/DEL./2014 19 COGNIZANCE OF THE ORDER: THE APPELLANT COMPANY ALSO HAS CONSEQUENT TO THE A SSETS BEING TRANSFERRED TO IT BY CLARIDGES HOTELS PVT. LTD AND SHARES HAVING BEEN ISSUED BY IT TO M/S UBSL MAURITIUS GIVEN A D ETAILED NOTE IN ITS AUDITED BOOKS OF ACCOUNT TO ITS SHARE HOLDERS. REFER PAGE NO. 23 OF PB V. JUDGEMENTS RELIED UPON ARE NOT APPLICABLE TO THE CA SE OF THE ASSESSEE: 1. THE LD. AO HAS MERELY CITED JUDGMENTS ON AN ACADEMI C BASIS THAT THE WORD INCOME IS NOT LIMITED BY THE WORD PROFIT AND GAINS; THE MOTIVE OF THE PAYER IS NOT RELYING WHIL E DECIDING WHETHER THE RECEIPT IS REVENUE OR CAPITAL PAYMENTS CONSTITUTE INCOME BECAUSE THEY ARE REFERABLE TO A DEFINITE SOU RCE INCOME IS A WORD OF ELASTIC IMPORT ASSESSEE MUST PROVE THE SOURCE OF RECEIPT TAXABILITY CANNOT BE DECIDED ON THE BASIS OF ENTRIES WHICH THE ASSESSEE MAY CHOOSE TO MAKE IN HIS ACCOUN TS ETC. 2. DETAILED SUBMISSIONS WERE GIVEN ON THE ISSUE OF JUD GEMENTS RELIED UPON THE LD. AO WHILE MAKING THE IMPUGNED AD DITION WHICH HAS BEEN REPRODUCED BY THE LD. CIT(A) IN ITS ORDER ON PAGE NO. 16 IN PARA 5.9. 3. THE LD. CIT(A) HAS HELD IN PARA 6.9 THAT RELIANCE P LACED BY THE LD. AO ON VARIOUS JUDGMENTS WAS OF NO HELP. (REFER PAGE NO. 29) VI. ALTERNATE SUBMISSION 1. ISSUE OF SHARES BY ASSESSEE COMPANY FOR CONSIDERATI ON OTHER THAN CASH: A) WITHOUT PREJUDICE TO THE AFORESAID ASSUMING FOR TH E SAKE OF ARGUMENTS THAT THERE WAS NO DEMERGER AND DEBENTU RES OF RS. 200 CRORES HAD BEEN TRANSFERRED BY CHPL TO ASSESSEE COMPANY IN LIEU OF SHARES OF GSHPL IN THE RATIO OF 1:6 THE TAX EFFECT ON THIS TRANSACTION IN THE H ANDS OF GSHPL WOULD ALSO HAVE BEEN NIL. THIS IS BECAUSE SU CH A TRANSACTION WOULD HAVE TANTAMOUNTED TO ISSUE OF SHA RES BY GSHPL FOR CONSIDERATION OTHER THAN CASH. B) IT IS TRITE LAW THAT SHARES CAN BE ISSUED BY A COMP ANY FOR ITA NO. 2087/DEL./2014 20 CASH/BANK OR FOR CONSIDERATION OTHER THAN CASH/BANK . C) IN THIS HYPOTHETICAL SITUATION ASSESSEE COMPANY WO ULD HAVE GOT DEBENTURES OF RS. 200 CRORES AS ASSETS AGA INST WHICH IT WOULD HAVE ISSUED SHARES IN THE RATIO OF 1 :6. THIS IS A PERFECTLY NORMAL AND LEGITIMATE TRANSACTION. D) THIS IS A TRANSACTION ON CAPITAL ACCOUNT BEING ISSU ANCE OF SHARES AND IS NOT TAXABLE UNDER THE INCOME-TAX ACT 1961. E) SHARE PREMIUM IS ALSO LINKED TO SHARE CAPITAL. IT B ELONGS TO THE SHARE HOLDERS OF THE COMPANY. IT CAN ONLY BE US ED FOR THE PURPOSE OF ISSUING BONUS SHARES AND CANNOT BE DILUTED/ERODED AGAINST THE NORMAL BUSINESS EXPENSES OF THE COMPANY. HENCE SHARE PREMIUM FORMS THE PART O F THE SHARE CAPITAL OF THE COMPANY AND THEREFORE ONE CAN SAFELY STATE THAT IN SUCH A HYPOTHETICAL SITUATION SHARES OF THE VALUE OF RS. 200 CRORES HAVE BEEN ISSUED AGAINST AS SETS OF RS. 200 CRORES TRANSFERRED TO THE COMPANY. 2. HOW CAN A TRANSFER IN CONTRAVENTION OF A DIRECTION BECOME INCOME? A. THE LD. AO HAS MADE SUCH A HUGE ADDITION TO INCOME BY STATING ONLY THREE LINES I.E. TRANSFER IN CONTRAVEN TION OF THE DIRECTIONS OF THE HIGH COURT. B. ONE FAILS TO UNDERSTAND THAT IN WHAT MANNER ANY TRANSACTION WHICH IS IN CONTRAVENTION TO THE DIRECT IONS OF A COURT BECOMES AN INCOME. C. FOR A RECEIPT TO BE CLASSIFIED AS INCOME ONE HAS T O GO INTO ITS NATURE AND CHECK WHETHER IT FITS IN THE OV ERALL DEFINITION OF INCOME UNDER THE ACT. D. THE FOLLOWING JUDGMENTS OF THE HONBLE SUPREME COUR T AND JURISDICTIONAL HIGH COURT ARE ON THE PROPOSITIO N THAT MONIES BROUGHT IN BY WAY OF SHARE CAPITAL CANNOT BE TAXED UNLESS THE SOURCE OF THE SAME IS IN DOUBT. IN THE CASE OF THE ASSESSEE NEEDLESS TO ADD THE SOURCE IS VERY WELL ESTABLISHED AND ACCEPTED BY THE LD. AO: - LOVELY EXPORTS (P) LTD (2008) 216 CTR (SC) 195 - CIT V. VALUE CAPITAL SERVICES (P) LTD (2008) 307 ITR ITA NO. 2087/DEL./2014 21 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GON E THROUGH THE ENTIRE MATERIAL ON RECORD AND WRITTEN SYNOPSIS FILED BY BO TH THE PARTIES. WE HAVE EXAMINED THE BALANCE SHEET OF CHPL AND THE ASSESSEE COMPANY AND FIND THAT THE CURRENT ASSET OF RS. 72 23 63 000 INCLUDES DEBENTUR E APPLICATION MONEY PENDING ALLOTMENT AND THEREFORE IS SHOWN AS CURRENT ASSET . AS PER THE ORDER OF THE HON'BLE DELHI HIGH COURT THE CURRENT ASSET OF THE S AID AMOUNT APPEARING IN THE SCHEDULE OF PROPERTY WOULD STAND TRANSFERRED TO THE ASSESSEE COMPANY. THIS FACTUAL FINDING OF THE LD. CIT(A) IS CORRECT AND WE ENDORSE THE SAME. EVEN OTHERWISE THE ASSESSING OFFICER HAS NOT BEEN ABLE TO SHOW WHAT THESE CURRENT ASSETS OF RS. 72 23 63 000 REPRESENT IF THEY ARE NO T OCDS. THEREFORE THE ISSUE INVOLVED ACCORDING TO US IS OF A SUM OF RS. 128 CRO RES OF OCDS TRANSFERRED SUBSEQUENT TO 31.03.2009 TILL THE DATE OF THE ORDER OF HON'BLE DELHI HIGH COURT WHICH IS DATED 25.05.2010. 334 (DEL) - CIT V. M/S PONDY METAL AND ROLLING MILL- ITA 788/2006 (DELHI HC) 3. TRANSFER OF ASSETS TO WHOLLY OWNED SUBSIDIARY IS NO T TRANSFER AS PER SECTION 47(VIB): WITHOUT PREJUDICE THE LD. AO HAS ALSO NOT APPRECIATED THE FACT THAT THE TRANS FER OF DEBENTURES BY A DEMERGED COMPANY TO THE RESULTING I S NOT TRANSFER AS PER CLAUSE (VIB) OF SECTION 47 IF THE R ESULTING COMPANY IS AN INDIAN COMPANY. ITA NO. 2087/DEL./2014 22 9.1 WE HAVE ALSO PERUSED THE RELEVANT CLAUSES OF TH E SCHEME OF DEMERGER AND MORE SPECIFICALLY CLAUSE 7.1.1 AT PAGE-47 OF THE P APER BOOK WHICH IS REPRODUCED BELOW:- CHPL SHALL HOLD THE ASSETS INVESTMENT AND LIABILIT IES COMPRISED IN THE SAID DEMERGED UNDERTAKING 1 WITH REASONABLE DILIGENCE AN D IN THE SAME MANNER AS IT HAD BEEN DOING HITHERTO FOR AND CHPL SHALL NOT NOR SHALL IT AGREE TO ALTER EXPAND OR MODIFY THE SAME IN ANY MANNER WITHOUT THE PRIOR WRITTEN CONCURRENCE OF GSHPL. ACCORDING TO THE ABOVE CLAUSE CHPL CAN ALTER EXPA ND OR MODIFY THE ASSETS FOR INVESTMENT HELD BY IT WITH THE CONCURRENCE OF GSHPL AND THEREFORE THE SUM OF RS. 128 CRORES AS OCDS TRANSFERRED BY CHPL FOR CONS IDERATION IN THE FORM OF EQUITY SHARES IN THE RATIO OF 1:6 IS PERMISSIBLE AS PER THE SCHEME OF DEMERGER APPROVED BY THE DELHI HIGH COURT. IT HAS ALSO BEEN ADMITTED BY BOTH THE PARTIES THAT THE SOURCE OF INVESTMENT OF RS. 200 CRORES AS OCDS IS NOT THE SUBJECT MATTER OF EXA MINATION U/S 68 OF THE INCOME- TAX ACT 1961 IN THE HANDS OF THE ASSESSEE COMPANY. THE SOURCE HAS BEEN EXPLAINED BEING MONEY RECEIVED BY CHPL FROM THE SAL E OF SHARES HELD BY IT TO INDIAN HOTELS COMPANY LIMITED. THE COMPANY HAS ALS O PAID THE CAPITAL GAINS TAX ON THE SAID TRANSACTION. THE DEPARTMENT HAD NOT EVE N CHALLENGED THIS ISSUE AND THEREFORE THE ONLY ISSUE BEFORE US IS WHETHER RS. 128 CRORES RECEIVED BY THE ITA NO. 2087/DEL./2014 23 ASSESSEE COMPANY AS OCDS BETWEEN 01.04.2009 TO 25.0 5.2010 IS THE INCOME OF THE ASSESSEE U/S 2(24) OF THE ACT. FROM THE ABOVE DISCUSSION WE FEEL THAT IT IS MERELY A CASE WHERE RS. 128 CRORES OF OCDS HAVING B EEN RECEIVED BY THE ASSESSEE COMPANY AGAINST ISSUANCE OF SHARES IN THE RATIO OF 1:6 TO THE OWNER OF THE SAID OCDS. IT IS THUS A CASE OF ISSUANCE OF SHARES FOR CONSIDERATION OTHER THAN CASH. WE FAIL TO UNDERSTAND HOW THE CONSIDERATION RECEIVED C AN BE SAID TO BE AN INCOME OF THE ASSESSEE COMPANY. THE COMPANY HAS RECEIVED DEB ENTURES AGAINST WHICH IT HAS ISSUED SHARES AT A PREMIUM. 9.2 WE FURTHER OBSERVE THAT IN AY 2009-10 THERE WA S NO REQUIREMENT IN LAW EVEN IN SECTION 56 OR ANY OTHER SECTION WHICH MAND ATES THAT THE COMPANY WOULD NOT ISSUE SHARES AT OTHER THAN THE FAIR MARKET VALU E. HENCE A COMPANY WAS FREE TO ISSUE SHARES AT A PREMIUM OR AT PAR BASED ON THE DE CISION TAKEN BY ITS BOARD. THREFORE IT IS A SIMPLE CASE WHERE SHARES HAVE BEE N ISSUED FOR CONSIDERATION OTHER THAN CASH BEING OCDS AND THIS IS A TRANSACTIO N CLEARLY ON CAPITAL ACCOUNT. THE LD. CIT(A) HAS EXTENSIVELY DEALT WITH THIS ISSU E AND HIS FINDINGS OF FACTS ARE ACCURATE AND CORRECT. WE FIND NO REASON TO INTERFE RE WITH THE ORDER OF LD. CIT(A) AND THE ADDITION OF RS. 200 CRORES MADE BY THE ASSE SSING OFFICER HAS RIGHTLY BEEN DELETED BY THE LD. CIT(A) VIDE IMPUGNED ORDER. THER EFORE THE IMPUGNED ORDER ITA NO. 2087/DEL./2014 24 STANDS CONFIRMED ON THE ISSUE UNDER CONSIDERATION A ND THE APPEAL OF THE REVENUE THUS DESERVES TO FAIL BEING BEREFT OF MERIT. 10. IN THE RESULT THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27.11.2017. SD/- SD/- (H.S. SIDHU) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27.11.2017 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES NEW DELHI