M/s. Religare Enterprise Ltd., New Delhi v. ITO, New Delhi

ITA 6595/DEL/2013 | 2009-2010
Pronouncement Date: 20-11-2014 | Result: Allowed

Appeal Details

RSA Number 659520114 RSA 2013
Assessee PAN AABTR2450E
Bench Delhi
Appeal Number ITA 6595/DEL/2013
Duration Of Justice 11 month(s) 8 day(s)
Appellant M/s. Religare Enterprise Ltd., New Delhi
Respondent ITO, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 20-11-2014
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted F
Tribunal Order Date 20-11-2014
Assessment Year 2009-2010
Appeal Filed On 12-12-2013
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : F NEW DELHI BEFORE SHRI H.S. SIDHU JM AND SHRI J.SUDHAKAR REDDY A.M. ITA NO. 6595 /DEL/201 3 ASSESSMENT YEAR : 200 9 - 10 & ITA NO. 4856 /DEL/201 4 ASSESSMENT YEAR : 20 11 - 12 RELIGARE ENTERPRISE LTD. VS. ITO WARD 15(3) EMPLOYEES SAR TRUST D3 P3B NEW DELHI DISTRICT CENTRE SAKET NEW DELHI 110 017 PAN: AABTR 2450 E (APPELLANT) (RESPONDENT) A PPELLANT BY: - SHRI AJAY VOHRA SR.ADV. ALONG WITH SHRI ROHIT GARG ADV. RESPONDENT BY: - SH. DEVI SHARAN SINGH SR.D.R. O R D E R PER J.SUDHAKAR REDDY ACCOUNTANT MEMBER BOTH THESE APPEALS ARE FILED BY THE ASSESSEE AND ARE DIRECTED AGAINST SEPARATE BUT IDENTICAL ORDERS OF THE LD.CIT(APPEALS ) - XVIII NEW DELHI DATED 3.9.2013 FOR THE AY 2009 - 10 AND 30.6.2014 FOR THE AY 20 11 - 12 . AS THE ISSUES ARISING IN BOTH THESE APPEALS ARE COMMON FOR THE SAKE OF CONVENIENCE THEY ARE CLUBBED TOGETHER AND ARE DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER. 2. FACTS IN BRIEF : - THE FACTS OF THE CASE ARE BROUGHT OUT IN PAGE 2 OF THE LD.CIT(A) S O RDER WHEREIN HE HAS EXTRACTED THE SUBMISSIONS OF THE ASSESSEE WHICH IS REPRODUCED FOR READY REFERENCE. ITA NO. 6595/DEL/2013 AND ITA 4856/DEL/2014 AY 2009 - 10 AND 2011 - 12 M/S RELIGARE ENTERPRISES LTD. NEW DELHI 2 1. BACKGROUND : M/S RELIGARE ENTERPRISES LTD. SAR TRUST FILED ITS RETURN OF INCOME FOR THE RELEVANT AY ON SEPTEMBER 30 2009 DECLARING TOTAL INCOME OF RS.353 WHICH WAS ON ACCOUNT OF INTEREST INCOME ARISING DURING THE YEAR. THE COPY OF COMPUTATION OF INCOME FOR THE RELEV ANT AY IS ENCLOSED AS ANNEXURE 1. THE SAID RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT. THE AO HAS PASSED AN ORDER U/S 143(3) OF THE ACT DT. 22.12.2011 RECEIVED BY THE ASSESSEE ON 23.12.2011. AS PER THE ASSESSMENT ORDER THE AO HAS ASSESSED THE TOTAL INC OME OF THE ASSESSEE AT RS.7 691 633 AS UNDER: PARTICULARS AMOUNT RS AMOUNT RS. NET PROFIT AS PER P&L A/C 397 868 ADD: LOSS ON SALE OF INVESTMENTS FOR SEPARATE CONSIDERATION 20 492 300 LESS: DIVIDEND INCOME EXEMPT U/S 10(35) 397 654 INCOME UNDER BUSINESS AND PROFESSION 20 492 514 SHORT TERM CAPITAL LOSS ( - ) 12 800 881 NET INCOME 7 691 633 2. OUR SUBMISSIONS: GROUND OF APPEAL NO.3: THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AO FAILED TO APPRECIATE THAT UNDER THE STOCK APPRECIATION RIGHT SCHEME (SAR SCHEME) THE ASSESSEE WAS NOT ENVISAGED TO MAKE ANY PROFIT/LOSSES IN RESPECT OF THE PURCHASE AND SALE OF SHARES PURSUANT TO EXERCISE OF SAR BY THE EMPLOYEES OF THE COMPANIES WHICH HAD IMPLEMENTED THE SAR SCHEME AND THEREFORE NO INCOME/LOSS ON ACCOUNT OF SUCH TRANSACTIONS COULD BE ASSESSED IN ITS HANDS. IN THIS REGARD WE WISH TO SUBMIT AS UNDER: 2.1. FACTS OF THE CASE: THE ASSESSEE CAME INTO EXISTENCE ;VIDE EXECUTION OF TRUST DEED DT. 16.11.2007 (COPY OF TRUST DEED IS ENCLOS ED AS ANNEXURE 2) WHEREBY THE OBJECTIVE OF CONSTITUTING THE FORMER WAS ADMINISTRATION OF THE SAR SCHEME FOR THE EXCLUSIVE BENEFIT OF THE EMPLOYEES OF THE COMPANIES IMPLEMENTING SUCH SCHEME. THE SAR SCHEME IN A NUTSHELL IS MENTIONED HEREUNDER RELIGARE ENTERPRISES LTD. (REL) THE HOLDING COMPANY OF THE RELIGARE GROUP OF COMPANIES INTRODUCED THE RELIGARE EMPLOYEE STOCK APPRECIATION RIGHT SCHEME 2007 ( THE SCHEME ) TO MOTIVATE REWARD AND RETAIN ITS KEY EMPLOYEES AND EMPLOYEES OF THE SUBSIDIARIES OF REL. A COPY OF THE SCHEME IS ATTACHED AS A - 3. FOR THE RELEVANT AY THE SCHEME WAS IMPLEMENTED BY FOLLOWING COMPANIES OF RELIGARE GROUP NAMELY - ITA NO. 6595/DEL/2013 AND ITA 4856/DEL/2014 AY 2009 - 10 AND 2011 - 12 M/S RELIGARE ENTERPRISES LTD. NEW DELHI 3 RELIGARE ENTERPRISES LTD. RELIGARE MACQUARIE WEALTH MANAGEMENT LTD. RELIGARE COMMODITIES LTD. RELIGARE FINVEST LTD. RE LIGARE SECURITIES LTD. THE SALIENT FEATURES OF THE SCHEME ARE SUMMARISED BELOW. A . THE PURPOSE OF THE SCHEME WAS TO REWARD AND RETAIN EMPLOYEES TO ATTRACT BEST TALENT AND TO PROVIDE MOTIVATION FOR BEST PERFORMANCE OF THE EMPLOYEES. B . UNDER THE SCHEME EACH SPEC IFIED EMPLOYEE OF THE ASSESSEE WAS GRANTED A SPECIFIC NUMBER OF SAR THE GRANT PRICE OF SAR WAS NIL . C . EACH SAR WAS REPRESENTATIVE OF ONE EQUITY SHARE OF REL. D . THE EXERCISE PRICE OF EACH SAR WAS PREDETERMINED AT RS.140. E . THE PURPOSE OF THE SCHEME THAT IS RETE NTION AND MOTIVATION OF EMPLOYEES WAS ACHIEVED THROUGH PAYMENT OF SAR COMPENSATION WHICH WAS THE DIFFERENCE BETWEEN THE MARKET PRICE OF EQUITY SHARE OF REL AS ON THE DATE OF EXERCISE OF SAR AND THE EXERCISE PRICE I.E. RS.140. SUCH DIFFERENCE IS REFERRED TO IN THE SCHEME AS THE SAR VALUE. IN ACCORDANCE WITH THE AFORESAID SCHEME THE ASSESSEE INITIALLY PURCHASED 532 630 SHARES OF REL FROM THE STOCK EXCHANGE AT AN AVERAGE PRICE OF RS.503.79 PER SHARE BASED ON THE TOTAL NUMBER OF SARS TO BE GRANTED TO THE EMPLOYEES COVERED IN THE SAR SCHEME. THE SAID PURCHASE OF SHARES FUNDED WAS THROUGH LOANS GIVEN TO THE ASSESSEE BY THE RESPECTIVE COMPANIES OF THE RELIGARE GROUP IMPLEMENTING THE SAR SCHEME. THE TOTAL VALUE OF SHARES PURCHASED BY THE APPELLANT AMOUNTED TO RS.268 336 679/ - AND THE LOAN AMOUNT GIVEN BY EACH COMPANY FOR THE SAME IS AS UNDER. RELIGARE COMMODITIES LTD RS.17 522 013 RELIGARE SECURITIES LTD. RS. 218 072 986 RELIGARE ENTERPRISES LTD RS.5 163 070 RELIGARE FINVEST LTD. RS.27 688 609 TOTAL: RS. 268 446 678 ON VESTING AND EXERCISE OF THE SAR BY THE ACCOUNTING OF THE TRANSACTIONS IN THE BOOKS OF TRUST SINCE THE ASSESSEE WAS TO ADMINISTER THE SCHEME FOR WHICH IT WAS REQUIRED TO PURCHASE THE SHARES OF REL IT WAS NECESSARY THAT ADEQUATE AMOUNTS WERE ADVANCED BY THE RESPECTIVE COMPANIES TO THE ASSESSEE ENABLE SUCH - PURCHASE. ITA NO. 6595/DEL/2013 AND ITA 4856/DEL/2014 AY 2009 - 10 AND 2011 - 12 M/S RELIGARE ENTERPRISES LTD. NEW DELHI 4 FURTHER IT WAS OBLIGATORY ON THE PART OF THE ASSESSEE TO REPAY / REFUND THE MONEY ADVA NCED BY THE COMPANIES TO IT PURSUANT TO SALE OF REL SHARES ON EXERCISE OF SARS BY THE EMPLOYEES OF THE RESPECTIVE COMPANIES. THUS FOR THE ASSESSEE IT WAS A LIABILITY TO BE REPAID TO THE COMPANIES. THEREFORE THE ADVANCE RECEIVED BY THE ASSESSEE FROM THE RESPECTIVE COMPANIES WHICH HAD IMPLEMENTED THE SCHEME FOR THE PURCHASE OF SHARES OF REL FROM THE STOCK EXCHANGE FOR THE ADMINISTRATION OF THE SAR SCHEME WAS A LOAN / ADVANCE REPAYABLE TO THESE COMPANIES ACCORDINGLY THE SAME HAS BEEN SHOWN AS CURRENT LI ABILITY IN THE BOOKS OF TRUST. SIMILARLY THE SHARES OF REL PURCHASED BY THE ASSESSEE FROM THE LOAN SO RECEIVED WERE SHOWN IN THE ACCOUNTS OF THE ASSESSEE AS AN INVESTMENT. PURSUANT TO THE IMPLEMENTATION OF THE SCHEME THE EMPLOYEES OF THE COMPANIES THAT IMPLEMENTED THE SAR SCHEME EXERCISED 171 122 SAR(S) DURING THE SUBJECT A Y. THE ASSESSEE SOLD THE EQUAL NUMBER OF SHARES OF REL ON THE STOCK EXCHANGES AND REALIZED RS 65 740 677. IN ACCORDANCE' WITTI THE TRUST DEED THE ASSESSEE REPAID THE SAID AMOUNT TO T HE RESPECTIVE COMPANIES END TO THAT EXTENT THE LOAN RECEIVED FROM SUCH COMPA NIES AND TO THAT EXTENT THE LOAN RECEIVED FROM SUCH COMPANIES WAS ADJUSTED. SINCE THE TOTAL AMOUNT OF LOAN RECEIVED BY THE ASSESSEE FROM THE RESPECTIVE COMPANIES IN JRELATION TO 1 71 122 EQUITY SHARES OF REL WAS RS.86 209 552 AND THE SALE PROCEEDS ON SALE OF 1 71 122 REL SHARES WAS RS.65 717 391 THE ASSESSEE HAS WRITTEN BACK THE UNADJUSTED BALANCE AMOUNT OF LOAN I.E. RS.20 492 161. LOANS RECEIVED FOR ABOVE SHARES RS.86 209 552 LESS: SALE PROCEEDS OF SHARES RS.65 717 391 AMOUNT OF LOAN WRITTEN BACK BY THE ASSESSEE RS. 20 492 161 THIS LOAN WRITTEN BACK WAS CREDITED TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE FOR PY RELEVANT TO THE AY UNDER CONSIDERATION AND WAS SHOWN UNDER THE HEAD LIABILITIES WRITTEN BACK . 2.1. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY 2009 - 10 ON 30 TH SEPTEMBER 2009 DECLARING TOTAL INCOME OF RS.353/ - WHICH WAS ON ACCOUNT OF INTEREST INCOME ARISING DURING THE YEAR. THE SAID RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT. THE AO HAS PASSED AN ORDER U/S 143(3) OF THE ACT DT. DECEMBER 22 2011 RECEIVED BY THE ASSESSEE ON DECEMBER 23 2011. AS PER THE ASSESSMENT ORDER THE AO HAS ASSESSED THE TOTAL INCOME OF THE ASSESSEE AT RS.7 691 633/ - AS UNDER: ITA NO. 6595/DEL/2013 AND ITA 4856/DEL/2014 AY 2009 - 10 AND 2011 - 12 M/S RELIGARE ENTERPRISES LTD. NEW DELHI 5 PARTICULARS AMOUNT RS. AMOUNT RS. NET PROFIT AS PER P&L A/C 397 868 ADD: LOSS ON SALE OF INVESTMENTS FOR SEPARATE CONSIDERATION 20 492 300 LESS: DIVIDEND INCOME EXEMPT U/S 10(35) INCOME UNDER BUSINESS AND PROFESSION SHORT TERM CAPITAL LOSS 397 654 20 492 514 ( - ) 12 800 881 NET INCOME 7 691 633 2.2. AGGRIEVED BY THIS THE ASSESSEE PREFERRED APPEAL BEFORE THE LD.CIT(A). 2.3. THE LD.CIT(A) HELD AS FOLLOWS. 5.1. DETAILS SUBMITTED BY THE LD.AR OF THE ASSESSEE HAS BEEN PERUSED AND I FOUND THAT SIMILAR ISSUE HAS BEEN DECIDED 'BY MY PREDECESSOR IN THE CASE OF RELIGARE COMMODITIES LTD. FOR ASSESSMENT YEAR 2008 - 09 VIDE ORDER DATED 28/02/2013 WHEREIN IN RELEVANT PARAGRA PH IT HAS BEEN DISCUSSED AS UNDER: - '5.7 WHY SAR DISCOUNT IS CAPITAL IN NATURE (NOT ALLOWABLE)? CLAIM OF SAR DISCOUNT AS A DEDUCTION IS TO BE EXAMINED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. THIS HEAD OF INCOME IS HOUSED IN SECTION S 28 TO 44 DB. UNDER SECTION 28(I) THE PROFITS AND GAINS OF ANY BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE AT ANY TIME DURING THE PREVIOUS YEAR IS CHARGEABLE TO TAX. AS PER SECTION 29 THE INCOME REFERRED TO IN SECTION 28 SHOULD BE COMPUTED IN ACCOR DANCE WITH THE PROVISIONS CONTAINED IN SECTIONS 30 TO 43D. SECTIONS 30 TO 36 CONFER SPECIFIC DEDUCTIONS. SECTION 37 DEALS WITH EXPENDITURE WHICH IS GENERAL IN NATURE AND NOT COVERED WITHIN SECTIONS 30 TO 36. THE REMAINING SECTIONS ENLIST VARIOUS CATEGORIES OF NONDEDUCTIBLE EXPENDITURE. SECTIONS 30 TO 36 DEALING WITH SPECIFIC DEDUCTIONS DO NOT DEAL WITH ESOP DISCOUNT. THE ALLOWABILITY OF SAR DISCOUNT WOULD HAVE TO BE EXAMINED UNDER SECTION 37 - THE RESIDUARY SECTION. TO EXAMINE ELIGIBILITY OF SAR DISCOUNT U/ S. 37 THE CHARACTER OF DISCOUNT NEEDS TO BE EXAMINED. IF THE DISCOUNT IS REGARDED AS CAPITAL IN NATURE SECTION 37 WOULD PROHIBIT ITS DEDUCTION. IT IS EXPENDITURE ON REVENUE ACCOUNT THAT QUALIFIES FOR DEDUCTION. FROM AN ACCOUNTING PERSPECTIVE SAR DISCOUNT MAY BE A REVENUE ITEM BUT FROM AN INCOME - TAX VIEW POINT WHETHER SUCH DISCOUNT IS CAPITAL OR REVENUE IN NATURE IS THE ISSUE FOR CONSIDERATION AND OF IMPORTANCE. IN THE ABSENCE OF AN EXPRESS DEFINITION OF CAPITAL OR REVENUE EXPENDITURE IN THE ITA NO. 6595/DEL/2013 AND ITA 4856/DEL/2014 AY 2009 - 10 AND 2011 - 12 M/S RELIGARE ENTERPRISES LTD. NEW DELHI 6 ACT ONE MA Y HAVE TO RELY ON THE VARIOUS JUDICIAL PRECEDENTS ON THIS MATTER; THE RATIONALE ADOPTED AND THE INTERPRETATION ADJUDGED THEREIN. IN THE TREATISE THE LAW AND PRACTICE OF INCOME TAX' BY KANGA AND PALKIWALA (9TH EDITION - PAGE 225) THE LEARNED AUTHORS OBSE RVE - 'THE PROBLEM OF DISCRIMINATING BETWEEN CAPITAL RECEIPTS AND INCOME RECEIPTS AND BETWEEN CAPITAL DISBURSEMENTS AND INCOME DISBURSEMENTS HAS VERY FREQUENTLY ENGAGED THE ATTENTION OF THE COURTS. IN GENERAL THE DISTINCTION IS WELL RECOGNIZED AND EASILY APPLIED BUT FROM TIME TO TIME CASES ARISE WHERE THE ITEM LIES ON THE BORDER LINE AND THE TASK OF ASSIGNING IT TO INCOME OR CAPITAL BECOMES MUCH OF REFINEMENT. AS THE ACT DOES NOT DEFINE INCOME EXCEPT BY WAY OF ADDING ARTIFICIAL CATEGORIES IT IS TO BE DECIDED CASES THAT ONE MUST GO IN SEARCH OF LIGHT. '(EMPHASIS SUPPLIED) IN THE CONTEXT OF SAR DISCOUNT THE JURISDICTIONAL TRIBUNAL - IN THE CASE OF RANBAXY LABORATORIES LIMITED (2009) 124 TT J 771 (DEL) HELD ESOP DISCOUNT TO BE CAPITAL AND NOT A ALLOW ABLE/ DEDUCTIBLE BUSINESS EXPENDITURE. THE DELHI TRIBUNAL PLACED IT RELIANCE ON THE DECISION OF THE HOUSE OF LORDS IN THE CASE OF LOWRY V CONSOLIDATED AFRICAN SELECTION TRUST LTD (1940) 8 ITR 88 (SUPP) AND HELD IT TO BE CAPITAL. THIS DECISION WAS UPHELD BY THE MUMBAI TRIBUNAL. THUS THE ARGUMENTS AS FORTIFIED BY THE ABOVE DECISIONS WHEREIN IT HAS BEEN HELD THAT SAR DISCOUNT IS NOT AN ALLOWABLE EXPENDITURE (LARGELY FOR THE REASON THAT IT IS A CAPITAL EXPENDITURE) IN FAVOUR OF SAR DISCOUNT BEING CAPITAL A RE: SAR DISCOUNT ARE INCURRED IN RELATION TO ISSUE OF SHARES TO EMPLOYEES. THEY ARE NOT RELATABLE TO PROFITS AND GAINS ARISING OR ACCRUING FROM A BUSINESS/TRADE. THE APEX COURT DECISION IN THE CASE OF PUNJAB STATE INDUSTRIAL DEV CORPORATION LTD. (1997) 225 ITR 792 (SC) AND BROOKE BOND INDIA LTD. (1997) 225 ITR 798 (SC) HAVE HELD THAT EXPENDITURE RESULTING IN INCREASE IN CAPITAL IS NOT AN ALLOWABLE DEDUCTION EVEN IF SUCH EXPENDITURE MAY INCIDENTALLY HELP IN BUSINESS OF THE COMPANY. SAR DISCOUNT DOES NOT D IMINISH TRADING/ BUSINESS RECEIPTS OF THE ISSUING COMPANY. THE COMPANY DOES NOT SUFFER ANY PECUNIARY DETRIMENT. TO CLAIM A CHARGE AGAINST INCOME IT SHOULD INFLICT A DETRIMENT TO THE FINANCIAL POSITION. ESOP IS A VOLUNTARY SCHEME LAUNCHED BY THE EMPLOYERS TO ISSUE SHARES TO EMPLOYEES. THE INTENTION IS TO ONLY GIVE A STAKE T O THE EMPLOYEES IN THE ORGANIZATION. THIS DISCOUNT IS NOT INCURRED TOWARDS SATISFACTION OF ANY TRADE LIABILITY AS THE EMPLOYEES HAVE NOT GIVEN UP ANYTHING TO PROCURE SUCH ESOP. THE DISCOUNT WAS NOT A PAYMENT OF SUM CONTRACTUALLY DUE TO THE EMPLOYEES AND CANNOT BE SAID TO HAVE BEEN LAID OUT FOR THE PURPOSE OF BUSINESS. SHARE PREMIUMS OBTAINED ON ISSUE OF SHARES ARE ITEMS OF CAPITAL RECEIPT. WHEN SUCH PREMIUM IS FORGONE IT CANNOT B E CLAIMED AS AN ITA NO. 6595/DEL/2013 AND ITA 4856/DEL/2014 AY 2009 - 10 AND 2011 - 12 M/S RELIGARE ENTERPRISES LTD. NEW DELHI 7 'EXPENDITURE WHOLLY AND EXCLUSIVELY LAID OUT OR EXPENDED FOR THE PURPOSES OF THE TRADE'.' 5.2 IN THE ABOVE MENTIONED JUDGEMENT MY LD. PREDECESSOR HAS RELIED ON THE JUDGEMENT IN THE CASE OF RANBAXY LABORATORIES LTD. 124 TT J 771 (DEL) WHEREIN HON'BLE INCOME TAX APPELLATE TRIBUNAL DELHI HAS HELD THAT ESOP. DISCOUNT IS CAPITAL AND IT IS NOT ALLOWABLE/DEDUCTIBLE BUSINESS EXPENDITURE. AS THE ISSUE IS DIRECTLY COVERED BY THE DECISION OF HON'BLE DELHI HIGH COURT AND HON'BLE DELHI TRIBUNAL A S MENTIONED ABOVE AND I AM IN FULL AGREEMENT WITH MY LD. PREDECESSOR IN THIS REGARD. AS SCHEME REMAINS THE SAME AND VARIOUS OTHER ELEMENTS OF THE SCHEME ARE ALSO SAME AND IT BELONGS TO THE SAME GROUP. AFTER PUTTING MY RELIANCE ON THE JUDGEMENT OF HON'BLE DELHI INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF RANBAXY LABORATORIES LTD. 124 TT J 771 (DEL) GROUNDS OF APPEAL NOS. 1 TO 4 DESERVES TO BE DISMISSED. 2.4 . AGGR IEVED THE ASSESSEE IS BEFORE US ON THE FOLLOWING GROUNDS. GROUNDS OF APPEAL FOR AY 2009 - 10: - 1 . THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN NOT EXCLUDING RS.2 04 92 161 ON ACCOUNT OF LOAN WRITTEN BACK BY THE APPELLANT TO THE CREDIT OF THE P&L A/C FROM THE INCOME OF THE APPELLANT. 1.1. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE ABOVE AMOUNT ACTUALLY REPRESENTS LOAN GRANTED TO THE APPELLANT BY THE COMPANIES OF THE RELIGARE GROUP FOR THE PURPOSE OF ADMINISTERING EMPLOYEE STOCK APPRECIATION RIGHT SCHEME ( SAR SCHEME) WHICH WA S WAIVED OFF BY THE LATTER IN ACCORDANCE WITH THE SAR SCHEME. 1.2. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE RIGORS OF PROVISIONS OF SECTION 41(1) OF THE ACT ARE NOT APPLICABLE INASMUCH AS: (A) THE LOAN WAIVED OFF BY THE GROUP COMPANIES WERE ADVANCED IN RESPECT OF PURCHASE OF SHARES OF RELIGARE ENTERPRISES LTD. WHICH IS A CAPITAL ACCOUNT TRANSACTION AND (B) THE APPELLANT HAD NOT EARLIER CLAIMED DEDUCTION OF ANY EXPENSE OR TRADING LIABILITY FOR WHICH SUCH LOAN FUNDS WERE UTILISE D. 1.3. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN RELYING UPON THE ORDER OF HIS PREDECESSOR IN THE CASE OF ONE OF THE GROUP COMPANIES WITHOUT APPRECIATING THAT THE ISSUE INVOLVED IN THAT CASE WAS ALLOWABILITY OF THE DIFFERENCE BETWEEN PURCHASE PRICE OF SAR AND THE SALE PRICE OF SUCH SAR ITA NO. 6595/DEL/2013 AND ITA 4856/DEL/2014 AY 2009 - 10 AND 2011 - 12 M/S RELIGARE ENTERPRISES LTD. NEW DELHI 8 AT THE TIME OF EXERCISE BY THE EMPLOYEES AS EMPLOYEE BENEFIT EXPENSES U/S 37(1) OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD ALTER AMEND OR VARY THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. GROUNDS OF APPEAL FOR AY 20 11 - 12 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AO ERRED IN DISALLOWING LOSS ON SALE OF INVESTMENT AMOUNTING TO RS.16 689 902/ - HOLDING THE SAME AS LONG TERM CAPITAL LOSS WITHOUT APPRECIATING THAT UNDER THE TRUST DEED AND IN ACCORDANCE WITH THE EMPLOYEE STOCK APPRECIATION RIGHT SCHEME (SAR SCHEME) THE AP PELLANT WAS NOT ENVISAGED TO MAKE ANY PROFIT/LOSS ON PURCHASE AND SALE OF EQUITY SHARES OF REL. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE AO ERRED IN ADDING THE ABOVE LOSS ON SALE OF INVESTMENT TO BE RETURNED INCOME OF THE APPELLAN T THEREBY RESULTING IN DOUBLE ADDITION INASMUCH AS SUCH LOSS WAS SUO MOTO ADDED BACK BY THE APPELLANT IN THE COMPUTATION OF INCOME. WITHOUT PREJUDICE: 2. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN ERRONEOUSLY ADJUDICATING G ROUNDS OF APPEAL NOS. 4 TO 7 RAISED BY THE APPELLANT WITHOUT PREJUDICE BY FOLLOWING HIS ORDER PASSED IN THE APPELLANT S OWN CASE FOR THE AY 2009 - 10 WHEREIN RELIANCE WAS PLACED ON ORDER PASSED BY HIS PREDECESSOR IN CASE OF ONE OF THE GROUP COMPANIES WITHO UT APPRECIATING THAT THE ISSUE INVOLVED IN THAT CASE WAS ALLOWABILITY OF THE DIFFERENCE BETWEEN PURCHASE PRICE OF SAR AND THE SALE PRICE OF SUCH SAR AT THE TIME OF EXERCISE BY THE EMPLOYEE BENEFIT EXPENSE U/S 37(1) OF THE ACT. 3. THAT THE CIT(A) ERRED ON F ACTS AND IN LAW IN NOT APPRECIATING THAT LOAN WRITTEN BACK BY THE APPELLANT TO THE CREDIT OF PROFIT AND LOSS ACCOUNT AMOUNTING TO RS.16 689 459 WAS ACCEPTED BY THE AO AS BEING IN THE NATURE OF CAPITAL RECEIPT AND NO ADDITION IN RESPECT THEREOF WAS MADE IN THE ASSESSMENT ORDER. THE APPELLANT CRAVES LEAVE TO ADD ALTER AMEND OR VARY THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 3. MR.AJAY VOHRA THE LD.COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSEE IS A PASS THROUGH ENTITY (HEREINAFTER REFERRED TO AS PTE) AND HAS NEITHER INCOME NOR LOSS AND HAS BEEN FORMED FOR THE SPECIFIC PURPOSE BY REL FOR IMPLEMENTATION OF SAR SCHEME FOR THE BENEFIT OF THE EMPLOYEES OF THE RESPECTIVE COMPANIES WHO WERE THE SOLE BENEFICIARIES. HE REFERRED TO CLAUSE ( VI) OF THE TRUST DEED AND SUBMITTED THAT IT IS CLEAR THAT THE ASSESSEE ITA NO. 6595/DEL/2013 AND ITA 4856/DEL/2014 AY 2009 - 10 AND 2011 - 12 M/S RELIGARE ENTERPRISES LTD. NEW DELHI 9 IS ONLY A VEHICLE FOR PROVIDING BENEFITS FOR THE EMPLOYEES OF THE RESPECTIVE COMPANIES BY ADMINISTERING THE S A R SCHEME AND IT IS NOT FORMED TO MAKE ANY COMMERCIAL PROFITS. 3.1. THE LD.C OUNSEL FOR THE ASSESSEE CONTENDED THAT THE ASSESSEE HAS NOTHING OF ITS OWN I.E. NEITHER ANY FUNDS NOR ANY ASSETS BELONG TO THE ASSESSEE. THE FUNDS WERE RECEIVED FROM REL AND ITS SUBSIDIARY COMPANIES FOR IMPLEMENTATION OF THE SCHEME AND WAS A LOAN AND T HE ASSETS/INVESTMENTS WHICH WERE IN THE FORM OF SHARES OF REL ARE FOR IDENTIFIED SET OF BENEFICIARIES. HE REFERRED TO VARIOUS CLAUSES OF THE SCHEME COPIES OF WHICH ARE FILED IN THE PAPER BOOK IN SUPPORT OF HIS CONTENTIONS. HE FURTHER SUBMITTED THAT T HE ASSESSEE IN ITS COMPUTATION OF INCOME HAS COMMITTED AN ERROR. HE SUBMITTED THAT THE ASSESSEE HAS WRONGLY CLAIMED LOSS ON SALE OF INVESTMENTS IN ITS COMPUTATION OF INCOME AND ON REALISING THE MISTAKE HAS WITHDRAWN THE SAME BEFORE THE LD.CIT(A). ON S.4 1 (1) HE SUBMITTED THAT THE LIABILITIES WRITTEN BACK CANNOT BE BROUGHT TO TAX U/S 4 1(1). THE LD.COUNSEL FOR THE ASSESSEE SUBMITS THAT IF THE DEPARTMENTAL STAND HAS TO BE ACCEPTED THEN THE REVENUE WOULD STAND TO LOSE BECAUSE THE LOSS ON SALE OF SHARES WOULD HAVE TO BE ALLOWED IN THE HANDS OF THE ASSESSEE AND AT THE SAME TIME THE WRITE BACK OF LOAN CANNOT BE TAXED U/S 4 1(1). 4. THE LD.D.R. MR . DEVI SHARAN S INGH ON THE OTHER HAND DREW THE ATTENTION OF THE BENCH TO THE A UDITED STATEMENTS OF THE TRUSTS AND THE AUDIT REPORTS AND ARGUED THAT THE LOSS ON SALE OF INVESTMENTS WAS SHOWN AS AN EXPENSE AND THE LIABILITY WRITTEN BACK WERE SHOWN AS INCOME. HE FURTHER SUBMITTED THAT THE DIVIDEND INCOME WAS RECOGNISED AS INCOME AND UNDER THOSE CIRCUMSTANCES THE ARGUMENTS OF THE ASSESSEE WHICH ARE CONTRARY TO THE FINANCIAL STATEMENTS SHOULD NOT BE ACCEPTED. HE RELIED ON THE ORDER OF THE LD.CIT(A). 5 . SHRI AJAY VOHRA THE LD.COUNSEL FOR THE ASSESSEE IN REPLY SUBMITTED THAT THE ENTRI ES IN THE BOOKS OF ACCOUNTS DO NOT DETERMINE THE TAXABILITY OR OTHERWISE OF A TRANSACTION. ITA NO. 6595/DEL/2013 AND ITA 4856/DEL/2014 AY 2009 - 10 AND 2011 - 12 M/S RELIGARE ENTERPRISES LTD. NEW DELHI 10 6. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE ON PERUSAL OF ORDERS OF LOWER AUTHORITIES MATERIAL ON RECORD AND CASE LAWS CITED WE HOLD AS FOLLOWS. 7. IN THE AUDITED FINANCIAL STATEMENTS THE TRUSTEES OF THE ASSESSEE HAVE RECOGNISED LIABILITIES WRITTEN BACK DIVIDEND AND BANK INTEREST AS INCOME. LOSS ON SALE OF INVESTMENTS WAS CLAIMED AS EXPENDITURE. NO DOUBT ENTRIES IN THE BOOKS OF ACCOUNTS DO NOT DETE RMINE THE TAXABILITY OR OTHERWISE OF A TRANSACTION BUT AT THE SAME TIME THE ENTRIES GIVE A GOOD INDICATION AS TO THE UNDERSTANDING OF THE MANAGEMENT OF THE NATURE OF THE TRANSACTIONS. 7.1. THE ASSESSEE CLAIMS THAT IT IS A PASS THROUGH ENTITY. THIS ME ANS THAT THE PARENT COMPANY HAS TAKEN INTO ACCOUNT THE INCOME EXPENDITURE AND LOSSES OF THE ASSESSEE TRUST WHILE COMPUTING ITS INCOME. THE ASSESSEE FOR THE AY 2009 - 10 HAS DISCLOSED DIVIDEND INCOME OF RS.397 654/ - AS WELL AS INTEREST INCOME OF RS.253/ - . IF THE ARGUMENTS OF THE ASSESSEE HAS TO BE ACCEPTED THEN IT HAS TO BE SEEN AS TO IN WHICH ENTITITY S HANDS THIS INCOME HAS BEEN OFFERED TO TAX. FROM THE FACTS ON RECORD THIS IS NOT CLEAR. IF THE LOSS ON SALE OF INVESTMENTS HAS BEEN BOOKED IN THE HANDS OF THE HOLDING COMPANY OR ANY OF THE SUBSIDIARY COMPANIES ON THE GROUND THAT THEY ARE THE REAL OWNERS THEN THE DIVIDEND INCOME HAS TO BE TAKEN IN THEIR ACCOUNT. THIS NEEDS VERIFICATION. 7.2. BE IT AS IT MAY W HEN THE LOAN TAKEN BY THE ASSESSEE IS WR ITTEN OFF THE SAME CANNOT BE TREATED AS INCOME OF THE ASSESSEE U/S 41(1) AS THE LOAN WAS TAKEN ON CAPITAL ACCOUNT. THE HON BLE DELHI HIGH COURT IN THE CASE OF LOGITRONI CS PVT.LTD. VS. CIT REPORTED IN 333 ITR 3 86 HAS LAID DOWN THE PRINCIPLE THAT IF A LOAN WAS TAKEN FOR ACQUIRING A CAPITAL ASSET WAIVER THEREOF WOULD NOT AMOUNT TO ANY INCOME EXIGIBLE TO TAX. 7.3. SIMILARLY THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. TOSHA INTERNATIONAL LTD. REPORTED IN 331 ITR 440 (DELHI) HELD AS FOLLOWS. 4. WE SEE NO REASON TO INTERFERE WITH THE CONCLUSIONS OF THE TRIBUNAL AS THE SAME HAVE BEEN RENDERED ON A CORRECT APPRECIATION OF LAW. THE PRINCIPLES ITA NO. 6595/DEL/2013 AND ITA 4856/DEL/2014 AY 2009 - 10 AND 2011 - 12 M/S RELIGARE ENTERPRISES LTD. NEW DELHI 11 ENUNCIATED IN MAHINDRA AND MAHIDNRA LTD. VS. CIT (2003) 26 1 ITR 501 (BOM.) ARE FULLY APPLICABLE AND WE SEE NO REASON TO TAKE A DIFFERENT VIEW. 5. CONSEQUENTLY NO SUBSTANTIAL QUESTION OF LAW ARISES FOR OUR CONSIDERATION. THE APPEAL IS DISMISSED. 7.4. IF THE PROPOSITIONS LAID DOWN IN THESE CASE LAWS ARE APPL IED TO THE FACTS OF THE CASE THEN THE LIABILITIES WRITTEN OFF CANNOT BE BROUGHT TO TAX. THE ASSESSEE IS NOT CLAIMING ANY DEDUCTION ON THE LOSS ON SALE OF INVESTMENTS. THE ISSUE NOW BOILS DOWN TO DIVIDEND INCOME AND BANK INTEREST. AS THE FACTS ARE NOT CL EAR WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE OF TAXABILITY OF DIVIDEND AND INTEREST SHOULD BE SET ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICATION AFTER VERIFICATION. 8. IN THE RESULT BOTH THE APPEAL S FILED BY THE ASSESSEE ARE TREATED AS ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH NOVEMBER 2014. SD/ - SD/ - ( H.S.SIDHU ) ( J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 20 TH NOVEMBER 2014 *MANGA ITA NO. 6595/DEL/2013 AND ITA 4856/DEL/2014 AY 2009 - 10 AND 2011 - 12 M/S RELIGARE ENTERPRISES LTD. NEW DELHI 12 COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR