HEMALATHA RAJAN,CHENNAI vs. DCIT CORPORATE CIRCLE 4(1), CHENNAI

आदेश / O R D E R

PER INTURI RAMA RAO, ACCOUNTANT MEMBER:

Since, the identical facts and issues are involved in these 2. appeals, we proceed to dispose the same vide this common order.

The Assessee raised the following grounds of appeal: 4.

1. The order of the Commissioner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case.

2.1. The Commissioner of Income Tax (Appeals) ought to have appreciated that addition made in the reassessment has arisen only due to change of opinion and not on account of concealment of any particulars by the Appellant; hence the order is to be quashed as being without jurisdiction. CIT Vs. Kelvinator of India Ltd- 320 ITR 561 (SC).

3. The Commissioner of Income Tax (Appeals) erred in holding/Confirming that the amount received by MI s. Sornammal Education Trust was nothing but the amount received by appellant

ITA Nos.667 &668/19 :- 3 -: and his wife for settling the dispute with respect to the sale of shares and compensation received.

3.1 The Commissioner of Income Tax (Appeals) ought to have appreciated that the payment was not part of the consideration paid by Randstad to the promoters but a voluntary payment made to M/s. Sornammal Education Trust as the word used in the ‘goodwill’ paragraph is a onetime donation to the DISHA.

3.2 The Commissioner of Income Tax (Appeals) ought to have appreciated that in the Letter from Randstad consideration payable for purchase of shares, settlement of dispute and goodwill payment have been separately mentioned and the voluntary donation by Randstad to M/s. Sornammat Education Trust has been separately indicated.

3.3 The Commissioner of Income tax (Appeals) ought to have appreciated that there is no basis for holding that donation given by Randstad to M/s. Sornammal Education Trust was payable to the Appellant. Appellant has no right to receive this amount and have can not be added as Appellant’s income. The addition made purely on suspicious and surmises required to be deleted. 3.4 The Commissioner of Income Tax (Appeals) ought to have appreciated that M/s. Sornammal Education Trust has. disclosed this as a foreign contribution in form FC-3 submitted to the Central Government and included its return of Income. And the said sum does not confer any monetary or other benefit to the appellant or his spouse.

The appellant is an individual and director of Mafoi Management Consultants Ltd drawing income under the head ‘’Salaries’’. The original return of income for the Asst. Year 2009-10 was filed on 31.03.2010 disclosing total income of �2,70,85,708/-. Against the said return of income, the assessment was completed by the Assistant

ITA Nos.667 &668/19 :- 4 -:

Commissioner of Income Tax, Company Circle IV(1), Chennai vide order dated 27.12.2011 passed u/s. 143(3) of the Income Tax Act, 1961 (for short ‘the Act’) at total income of �6,53,25,710/-. While doing so, the Assessing Officer brought to tax sum of �3,82,40,000/- being compensation received in terms of clause 7 of the share purchase agreement entered with Netherlands company namely M/s. Vedior NV (Vedior), Tripoli’s Building Zoo, Burgerweeshulspad 201, 1076, GR, Amsterdam. This compensation stated to have been received for forgoing right of sue for breach of contract and claimed the compensation to be capital receipt placing reliance on the decisions of Hon'ble Supreme Court in the case of Oberoi Hotel P. Ltd vs. CIT, 236 ITR 903 and Hon’ble Delhi High Court in the case of Shyam Telelink Ltd vs. ITO, 99 ITD 576. The addition was contested before the ld. CIT(A) who vide order dated 31.07.2012 confirmed the action of the Assessing Officer. Even on further appeal before the Tribunal came to be dismissed vide order dated 20.12.2012 in for assessment year 2009-2010.

While matter stood thus, the Assessing Officer had come to 6. know that M/s. Ranstand Holdings, NV, Netherlands had paid a sum of �6,40,09,975/- on 1st September, 2008 to Sornammal Educational Trust, Chennai in which assessee is a trustee. According to the ITA Nos.667 &668/19 :- 5 -:

Assessing Officer, this payment is actually due to the assessee and his wife Ms. Hemalatha Rajan and formed an opinion that income escaped assessment and issued notice u/s.148 of the Act on 04.04.2013 and it appears that assessee had not responded to the said notice and accordingly, the Assessing Officer had proceeded to frame assessment after furnishing reasons recorded for issuance of reassessment notice.

On receipt of the reasons recorded, assessee had filed objections that reassessment proceedings are prompted by mere change of opinion and therefore very initiation of reassessment proceedings is invalid in law. The Assessing Officer rejecting the said argument had proceeded with framing of assessment order u/s.143(3) r.w.s. 148 of the Act vide order dated 20.06.2014, brought to tax the contribution paid to trust as income of appellant and his wife.

Being aggrieved, the assessee filed an appeal contesting 7. inter alia that the very validity of initiation of re-assessment proceedings and payments made by M/s. Ranstand Holdings, NV, Netherlands to the assessee and his wife Ms. Hemalatha Rajan was not part of consideration but it is voluntarily payment made to the trust which is duly registered as charitable institution as a gesture of goodwill. It is further contended that donation made by M/s. Ranstand Holdings, NV, Netherlands to the said trust was duly approved by the ITA Nos.667 &668/19 :- 6 -:

Government of India. However, the ld. CIT(A) considering the submissions made held that trust had direct relationship with the transaction of the sale of shares and the amount are liable to be taxed in the hands of the assessee and his wife and accordingly dismissed the appeal.

Being aggrieved by the order of the CIT(A), the appellant is 8. in appeal before us in the present appeal. The ld. Authorised Representative contended that there was no failure on the part of the assessee to disclose all material facts necessary for the purpose of making assessment and reassessment proceedings were initiated on mere change of opinion on the same set of facts. Therefore, the reassessment proceedings are not valid in law. In support of this, he relied on the following plethora of case laws.

and he further relied on the followings judgments.

1. CIT vs. Kelvinator of India Ltd, 320 ITR 561 (SC) 02. Tanmac India vs. DCIT, (2019) 97 CCH 189 (Mad) 03. Principal CIT vs. Century Textiles & Industries Ltd, (2018) 99’ taxmann. com 206 (SC).

ITA Nos.667 &668/19 :- 7 -:

On the merits, it is submitted that the donation made by 9.

M/s. Ranstand Holdings, NV, Netherlands is a voluntary payment to the trust as a goodwill gesture and the contribution was approved by the Government of India and there is no income accrued in the hands of the assessee.

On the other hand, the ld. Sr. Departmental Representative 10. placed reliance on the orders of lower authorities.

We heard the rival submissions and perused the material on 11. record.

Grounds No.1 & 4 are general in nature therefore, does not 12. require any adjudication.

Ground of appeal No.2 challenges the very validality of 13. reassessment proceedings. One of the contention advanced on the validality initiation of the reassessment proceedings is that assessment was reopened by mere change of opinion and no new tangible material were brought on record by the Assessing Officer suggesting escapement of income to tax. This issue is to be adjudicated with reference to the reasons recorded by the Assessing Officer by issuance of reassessment notice u/s.148 of the Act. The Assessing Officer had extracted reasons recorded for issue of notice u/s.148 of the Act at ITA Nos.667 &668/19 :- 8 -: para 1 of the assessment order. From the reasons so recorded it is clear that subsequent to the completion of the assessment u/s.143(3) of the Act vide order dated 27.12.2011, the Assessing Officer had come to know during the course of assessment proceedings of Ms. Hemalatha Rajan for the assessment year 2010- 2011 that M/s. Ranstand Holdings, NV, Netherlands had paid a sum of �6,40,09,975/- on 1st September, 2008 to Sornammal Educational Trust, Chennai. Donation was contributed by the said company in terms of clause goodwill of the MOU agreement entered by the assessee company with M/s. Vedior NV (Vedior) in terms of goodwill clause of MOU dated 20.08.2008 and also based on the letter addressed to the Ma Foi dated 20.8.2008. The Assessing Officer based on this information had concluded contribution of donation made by M/s. Ranstand Holdings, NV, Netherlands is part and parcel of the total contribution agreed and accordingly issued notice u/s.148 of the Act.

Admittedly, the original assessment was completed u/s.143(3) of the Act vide order 27.12.2011. During the course of original assessment proceedings, the Assessing Officer had occasion to examine the MOU entered between assessee and the M/s. Ranstand Holdings, NV, Netherlands, wherein it was agreed to compensate the assessee for breach of agreement entered into between assessee and M/s. Vedior NV (Vedior), Amsterdam and also the background of receipt of ITA Nos.667 &668/19 :- 9 -: compensation of �3,82,40,000/- which is received for forgoing the right to sue for breach of the agreement. The MOU dated 30.04.2004 entered between assessee and the M/s. Vedior NV (Vedior), was very much part of the record. The MOU in terms of which gesture of goodwill, payment of donation was made by M/s. Ranstand Holdings, NV, Netherland to Sornammal Educational Trust, Chennai. It is evident from the observation made by the Assessing Officer in the assessment order, in response to the legal notice issued by the Indian Promoters, M/s. Ranstand came up with a settlement agreement by which M/s. Ranstand offered to compensate the Indian promoters and agreed to pay interalia 1 Million Euro to the Indian promoters upon signing of a settlement agreement and withdrawal of legal notice issued to Vediar. The Indian promoters accepted the settlement proposal and choose to restrain from initiating any further legal proceedings by signing a settlement agreement dated 20.08.2008. When the assessee was questioned as to why the amount received by Mr. Pandiarajan should not be considered as income for the purpose of income tax and tax accordingly, assessee replied vide letter dated 19.12.2011. Furthermore, the Assessing Officer had chosen to make addition on account of payment received by the assessee towards compensation for forging the right to sue. These two facts would suggest that MOU was very much part of record of the ITA Nos.667 &668/19 :- 10 -: original assessment proceedings. However, there was no discussion in the assessment order as regards to the contribution of donation by the M/s. Ranstand Holdings, NV, Netherlands to Sornammal Educational Trust, Chennai, in terms of goodwill clause of the MOU.

Even though MOU was referred to by the Assessing Officer in the assessment order, there is nothing on record to show that the issue of taxability of contribution of donation was raised and decided in favour of the assessee company. It is settled proposition of law as held by Hon'ble Supreme Court in the cases of Kalyanji Mavji & Co vs. CIT, 102 ITR 287 and CIT vs. A. Raman and Co, 67 ITR 11 that ‘’to inform means’’ to ‘’ to impart knowledge’’ and the detail available to the ITO in the papers filed before him does not by its mere availability become an item of information. It is transmuted into an item of information in his possession only if, and only when, its existence is realized and its implications are recognized. Where the ITO had not in the original assessment proceedings applied his mind, the reassessment proceedings are valid. It gets transmuted into an item of information only when its existence is realized and its implications are recognized.

Reliance can be placed on the decisions of Hon’ble Kerala and Madras High Courts in the cases of United Mercantile Co. Ltd vs. CIT, (1967)

64 ITR 218 (Ker), Muthukrishna Reddiar vs. CIT, (1973) 90 ITR 503 (Ker) and A.L.A. Firm vs. CIT (1976) 102 ITR 622 (Mad). Admittedly

ITA Nos.667 &668/19 :- 11 -: in the present case, MOU dated 20.08.2008 was on record but there is nothing on record to show that the Assessing Officer had examined clauses of the MOU governing the contribution of donation by M/s.

Ranstand Holdings, NV, Netherlands to Sornammal Educational Trust, Chennai as a gesture of goodwill. It is only during the course of assessment proceedings in the hands of Ms. Hemalatha Rajan for the assessment year 2010-2011, the Assessing Officer had come to know that M/s. Ranstand Holdings, NV, Netherlands had paid contribution of addition to Sornammal Educational Trust has a gesture of goodwill.

This would undisputedly constitute a fresh tangible material enabling the Assessing Officer to form an opinion that income escaped assessment. Furthermore, there is nothing on record to show that in the original assessment proceedings, the Assessing Officer has raised this issue of taxability of this item and formed an opinion in fovour of the assessee. Therefore, it cannot be said that it is case of mere change of opinion as no such opinion was formed in original assessment proceedings. The proposition of law laid down by Hon'ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd, 320 ITR 561 has no application to the facts of the present case. Thus, the ground of appeal No. 2 raised by the assessee stands dismissed.

Ground No.3 challenges the decision of lower authorities in 14. bringing into tax contribution of donation made by Ranstand

ITA Nos.667 &668/19 :- 12 -:

Holdings, NV, Netherlands to Sornammal Educational Trust, Chennai as part of compensation paid to the assessee for breach of share purchase agreement. Apparently, the donation was contributed by Ranstand Holdings, NV, Netherlands as gesture of goodwill.

Undisputedly, assessee and his wife are interested in the said trust as a trustees. The donation was paid to the trust in order to create goodwill and change relationship in a positive lights, ‘’Randstand is prepared to make a one-time donation of €one million to Disha in the event that it can reach quick agreement about the above. The publicity and the link to Randstad’s CSR policy will be limited and must be agreed with Frans Cornelis, Managing Director group marketing & communications’’.

From the reading of the above clause, it is clear that 15. goodwill is not part and parcel of compensation paid to the assessee and his wife by Ranstand Holdings, NV, Netherlands and it is separate and distinct transaction and voluntary payment. The fact that contribution was approved by the Government of India under Foreign Contribution Act confirming the position. It prima facie proves that it is a voluntary contribution. Further, the mere fact that assessee and his wife are trustees in the trust does not ipso facto prove that they are beneficiaries of this fund nor there is no material on record brought by the Assessing Officer to say that the ITA Nos.667 &668/19 :- 13 -: money was diverted to the trust by the assessee and his wife. There was no tangible material brought on record by the Assessing Officer to establish collusion in the transaction. Therefore what is apparent should be believed unless and until the contrary is proved in the light of the judgment of Hon'ble Supreme Court in the case of Sumathi

Dayal vs. CIT (1995) 214 ITR 801. Therefore, the Assessing Officer was not justified in treating the contribution paid to the trust as a part of compensation and bringing to tax in the hands of the assessee and his wife. Thus, ground of appeal No.3 filed by the assessee stands allowed.

In the result, the for assessment year 16.

2009-2010 of Shri. Karuppusamy Pandiarajan is partly allowed.

A.Y 2009-10 of Smt. Hemalatha Rajan, Since, the facts in the present appeal is identical to the facts 17. in for the reasons mentioned therein, we partly allow the appeal on the above lines indicated in appeal ITA No.667/Chny/2019 supra. Hence, the above captioned appeal filed by the assessee is partly allowed.

To summarize the result, the appeals filed by the assessees 18. are partly allowed.

ITA Nos.667 &668/19 :- 14 -:

Order pronounced on 17th day of October, 2019, at Chennai.