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Income Tax Appellate Tribunal, DELHI BENCH “A ”: NEW DELHI
Before: SHRI N. K. BILLAIYA & SHRI ANUBHAV SHARMA
O R D E R
PER ANUBHAV SHARMA, JM:
The Revenue has come in appeal against the order dated 23.09.2020 of Commissioner of income Tax (Appeals-18, New Delhi (hereinafter referred as “learned First Appellate Authority” or in short “FAA”) for the assessment year 2014-15, arising out of assessment order dated 31.12.2018 passed by ITO, Ward 52(5), new Delhi u/s 143(3)/147 of the Income Tax Act (hereinafter referred in short as “Ld. AO”).
The brief facts of the case are the present appeal emanates from the order dated 31.12.2018 wherein the assessing officer has completed the assessment at a total income of Rs. 1593,26,88,700/- against the returned income of Rs.7,54,620/-.
The assessee Ms Arti Mehra is the wife of Mr. Prithvi Raj Jindal, son of the late Shri O.P. Jindal who has four sons: S/Shri Naveen Jindal, Ratan Jindal, Sajjan Jindal and Prithvi Raj Jindal. As per the case of assessee as a part of a succession plan, even during the life-time of the late Shri O.P. Jindal certain companies belonging to the Jindal group were so structured that they were under the control of his sons / daughters-in -law in the following manner:
Name of the Company Controlling person Holding shares of JSW Investment Smt. Sangeeta Jindal, wife of Mr JSW Steel Ltd. & JSW Energy Ltd Sajjan Jindal Private Limited Mr. Naveen Jindal Jindal Steel & Power Ltd Gagan Infraenergy Limited Groovy Trading Pvt. Smt. Arti Jindal the assessee Nalwa Sons Investments Ltd. & Ltd. JSW Holdings Limited
The said three companies viz., JSW Investment Pvt. Ltd., Gagan Infraenergy 2.1 Pvt. Ltd. and Groovy Trading Pvt. Ltd. were closely-held unlisted companies. The five companies in which these three unlisted companies held shares were listed public limited companies. In Groovy Trading Pvt. Ltd., the assessee was a substantial shareholders but not a director. In the other two unlisted companies she was neither a director nor a substantial shareholder. 2.2 Glebe Trading Private Limited (‘Glebe’) is an unlisted company incorporated in the year 2010 as an investment company. The Assessee held 9,990 equity shares of this company out of 10,000 equity shares of Rs 10/- each fully paid up, constituting 99.90% of the shareholding out of which she settled 9960 shares upon a private family trust viz PRJ Holding Private Trust (‘the Trust’) on 12th March, 2014 and became a minority shareholder with just 10 equity shares of Rs. : 10/- each fully paid i.e. just a shareholder with 0.1% shareholding. The assessee and her
3 husband are the primary beneficiaries of the said Trust. The sole trustee of the said Trust is a company by the name PRJ Family Management Co. Pvt. Ltd., in which Mr. Prithvi Raj Jindal, husband of the assessee holds 76% equity shares and the rest of 24% equity shares are held by the assessee.
PRJ Family Private Trust, the trust was also settled on the same date by her 2.3 with more or less the same recitals / objects / purpose but primary beneficiaries were herself, husband and her three married daughters, secondary beneficiaries were present and future grandchildren and ultimate beneficiaries were great grand children.
Then after two weeks, on 28th March, 2014, the three unlisted companies 2.1 referred to above, viz., JSW Investment Pvt. Ltd., Gagan Infraenergy Pvt. Ltd and Groovy Trading Pvt. Ltd., (collectively referred to hereinafter as “donor companies”) transferred by way of gift, some of the equity shares held by them in the listed companies, viz., Jindal Steel &.Power Ltd., JSW Steel Ltd., JSW Holdings Ltd., JSW Energy Ltd. and Nalwa Sons Investments Ltd. referred to above, to Glebe. Since the shares were given voluntarily and without any monetary consideration, they were treated by Glebe as gift from the donor companies and recorded as such in its books of account (balance-sheet). In the return of income filed for the assessment year 2014-15 by the assessee, she declared her income at Rs. 7,54,620 and the return of income was processed under section 143(1) of the Act. Later, the assessment was reopened by issue of a notice u/s 148 of the Act on the basis of some observations made in the assessment order of Glebe passed u/s 143(3) of the Act on 31/ 12/2016 for the assessment year 2014-15.
2.5 The Assessing Officer passed the reassessment order by concluding that the 4 impugned benefit arose from the sham transactions of receiving gift amounting to Rs. 1593,19,34,079/- is to be taxed in the hands of the beneficiary (appellant) within the provisions of section 2(24)(iv) of the Income tax Act, 1961. The main inferences drawn by the Assessing Officer are:
The transaction of gift of specified shares by the Donor companies to a) Glebe cannot be called a valid gift in the hands of Glebe, because the said transaction was made for a consideration in the form of part of succession plan;
The Gift transaction was a sham and void transaction and was b) undertaken to benefit the assessee by using Glebe as a special purpose vehicle or a conduit;
Since the assessee was the settlor of the Trust with herself as the c) primary beneficiary till her lifetime, the transfer of shares to the Trust was nothing but an exercise to circumvent the provisions attracting taxation as per section 56(2)(vii)(c) of the Act in the hands of assessee.
The assessee, being director of Glebe and having substantial shareholding d) (till transfer of her shares to the Trust) in Glebe, has benefited within the terms of section 2(24)(iv) of the Act read with section 56(1) of the Act;
The Specified Shares received by Glebe, having, the market value of Rs. e) 1593 crores (approx..), enhanced the net worth of Glebe and therefore, was bound to create reserve and surplus and should not have been recorded at Nil value in garb of gift. This justifies lifting of corporate veil as this was a 5 case of using a colourable device in the form of using Glebe and the Trust as special purpose vehicles or conduits. 2.6 As a result, the total income of the appellant was assessed at Rs. 1593,26,88,700/- by the Assessing Officer instead of the returned income of Rs. 7,54,620/-, creating an income-tax demand of Rs. 850,17,51,100/-.
3. In appeal the ld. CIT(A) has dismissed the Jurisdictional Grounds of the assessee whereby assessee had challenged the validity of reopening of assessment u/s 147 of the Act while on merits deleted the addition. Accordingly, the Revenue is in appeal raising following grounds ; 3.1 “1. Whether on the facts and the circumstances of the case the Ld. CIT(A) erred in law and facts to treat the transaction of gift of the specified shares by donor companies to M/s. Glebe Trading Private Limited as valid gift.
2. Whether on the facts and the circumstances of the case the ld. CIT(A) erred in law and facts to held that the gift transaction between the donor companies and M/s. Glebe Trading Private Limited is not a sham and void transaction and not for the benefit of the assessee Ms. Arti Jindal.
3. Whether on the facts and the circumstances of the case the Ld. CIT(A) erred in law and facts in holding that the assessee has not been benefited from the transactions of the gift received by M/s. Glebe Trading Private Limited whereas the facts are quite contradictory as assessee is the beneficiary of the trust to whom the majority shares of M/s. Glebe Trading Private Limited were transferred without consideration.
4. Whether on the facts and the circumstances of the case the ld. CIT(A) erred in law and facts that provision of section 2(24)(iv) is not attracted on the assessee.
5. Whether on the facts and the circumstances of the case the Ld. CIT(A) erred in law and facts in following the ITAT decision in the case of M/s. Glebe Trading Private.
6. Limited ignoring the facts that the said decision was with regard to findings of AO of that case and the Assessing Officer of Ms. Arti Jindal has independently discussed the transaction and findings were recorded in the assessment order.
4. Assessee has also filed an application under Rule 27 of the Appellate Tribunal Rules supporting the impugned order dated 23.09.2020 raising following grounds ; “1. The assessing officer erred in law and on facts in initiating proceedings for re-assessment u/s 147 of the Act by issuing a notice u/s 148 of the Act on some borrowed satisfaction as per the directions of the Assessing Officer of another assessee company.
2. The assessing officer erred in law and on facts in issuing the impugned notice u/s 148 of the Act as there existed no valid reason to believe for the purpose.
3. The assessing officer failed to obey the dictating guidelines ordained by the Hon’ble jurisdictional Delhi High Court in Sabli Infrastructure Ld. v. ACIT (2017) 398ITR 198 (Delhi) in respect of issuance of a notice u/s 148 of the Act and made a contempt of the Hon’ble Court. Thus, the impugned reassessment proceedings is based on an illegal notice u/s 148 of the Act issued on a mechanical approval u/s 151 of the Act.
4. The assessing officer erred in law and on facts in considering the opinion of the AO who assessed Glebe Trading Private Limited (Glebe) that: (i) the gifts received by way of listed shares of few companies by Glebe without consideration is void and sham, in law without indicating any relevant legal provision in this regard, and (ii) when three years before issuance of the impugned notice u/s 148 of the Act, the Hon’ble ITAT, Mumbai in DCIT v. KDA Enterprises (P.) Ltd (2015) 57 taxmann.com 284 (Mumbai - Trib.) had held that “As per the provisions of law prevailing during the year under consideration, the gift received by one corporate body from another corporate body does not come under the ambit of income as contemplated under section 2(24) or any other provisions of the Act”.
5. The assessing officer erred in law and on facts in issuing the impugned notice u/s 148 of the Act to the assessee as there was no escapement of income at all qua applicability of the provision of the section 2(24)(iv) of the Act in the hands of the appellant.
Heard and perused the record. 5.
Ld. DR has primarily relied the order of ld. AO submitting that the ld. AO had made a very meticulous examination of transactions while lifting the corporate veil. He submitted that the case of assessee is based upon the arrangement which stands not proved. It was submitted that Ld. CIT(A) has fallen in error in relying the Tribunal findings in the case of Glebe as that was only with regard to the assessment of the Glebe, but assessee was ultimate beneficiary, so the ld. AO had examined the question of sham transaction made to transfer the benefit to the assessee without paying any consideration. He also relied a judgment of Co- ordinate Bench in case of another Group entity Gagan Infraenergy. 6.1 On the other hand Ld. AR has primarily relied the findings of Ld. CIT(A) and submitted that when the addition in the hands of Glebe stands deleted first of all there could not have been any addition by way of reopening assessment and secondly assessee has taken a constant stand before the AO that the restructuring of the group companies was the real intention of the transfer of shares to Glebe. Ld. AR has also filed a synopsis of this arguments and it is appropriate to reproduce the same here in below ; “1. The impugned notice u/s 148 of the Act was issued on the basis of a letter from the AO of Glebe, based upon its assessment order, sent to the AO of the assessee. The findings of the AO in the assessment order of Glebe have been set aside in its appeal by the Hon’ble ITAT (PB Vol. Ill page no. 844-852 relevant para 3 on page no. 4 and para 10 on page nos. 6 and 7 of the decision) stating to the extent that the impugned observations of the AO are without jurisdiction and he in fact overstepped the provisions of the Income-tax Act while commenting on a third party (the assessee here) which is not permissible under the Act. When the very basis of issuance of the impugned notice u/s 148 of the Act vanished in an appeal, the follow up notice issued u/s 148 of the 8 Act by itself loses its validity and becomes bad in law ab initio. Reliance is placed on the following judgments placed before the CIT(A) also vide letter dated 19/06/2020 (PB Vol. Ill page no. 835-843) whose para 3 and 6 onwards prove the facts considered by the CIT(A) properly: (i) RAJENAAGRO PRODUCTS PVT LTD 2021-TIOL-727-HC- AHM-IT On Writ application, the HC held that once additions made during the assessment stood deleted by the ITAT and has attained finality, then reopening on basis of such addition presuming it to be an escaped income, is without authority of law. It is an undisputed fact that, the issue of the amount of Rs. 79,78,941/- under the VAT received during the year under consideration was examined during the course of the scrutiny assessment. During the course of the scrutiny assessment, various details were called for by the revenue and accordingly, the assessee company had furnished the necessary primary materials pertaining to the TDS and VAT refund. It appears from the record that, the assessee company had responded to the show-cause notice by written explanation along with the necessary balance-sheet, bank statement and other relevant materials. It is also an undisputed fact that, the then AO had framed the assessment whereby, the total income was determined at Rs. 95,03,166/- and made certain additions including the addition of Rs. 10,41,320/- in respect of the VAT refund and-the same was deleted by the ITAT. In the background of the said facts, the action on the part of the Revenue to issue Notice u/s 148 is without authority of law and therefore, the same is required to be quashed. (ii) SILVER OAK LABORATORIES (P) LTD 2009-TIOL-13-HC- DEL-IT In this case, the notice u/s 148 of the Act was issued for the AY 1999- 2000 on the basis of assessment orders for the AYs 1998-99 and 2001- 02, which were upheld by the AO refused to drop the 148 proceedings on the ground that the subsequent order of the_ Hon'ble ITAT deleting the additions on merits does not vitiate the reassessment proceedings and has no bearing on the reasons to believe recorded on 21-02-2006 for initiating the re-assessment proceedings. The assessee filed a Writ before the Hon’ble Delhi High Court who quashed the reassessment proceedings holding that “We have heard the counsel for the parties. It is apparent that the reasons recorded do not contain any specific 9 allegation with regard to the year in question, i.e. the AY 1999-2000. The sole and entire basis of re-opening the assessment is the additions made in respect of the AYs 1998-99 and 2001-02. There is no other reason given by the Assessing Officer for re-opening the assessment. Since, the tribunal has already deleted the additions in respect of the AYs 1998-99 and 2001-02, the very basis for continuing any further with the re-assessment proceedings does not survive anymore.” (iii) ACIT vs CENTURY METAL RECYCLING (P) LTD 2018-TIOL- 1150- ITAT-DEL “Having considered the rival submissions, we find that in the instant case it is undisputed fact that the action u/s 148 of the Act was proceeded on the basis of show cause notice issued by the Excise Authorities which formed the basis of adjudication order by the Commissioner of Central Excise which had been set aside by an order dated 04.12.2015 of the Customs, Excise Service Tax Appellate Tribunal. Thus, once the very foundation on which the action u/s 147 had been initiated had cease to exist; both logically and legally what emerges is that notice u/s 148 of the Act was invalid and the assessment framed u/s 147/143(3) was also vitiated.” (iv) S.L. Basavaraj (HUF) [2015] 61 taxmann.com 367 (Karnataka) Where reopening of the assessment of the relevant assessment years was based on reason given in the assessment order of the subsequent year and since the said order was set aside by Tribunal, much prior to issuance of the notice u/s 148, reopening of the assessment was not justified.
2. The AO in his recorded reasons has stated that he had called for the case record of GLEBE and has perused the same. It is unbelievable that he did not note the factum of appeal filed by GLEBE before the CIT(A). The reasons are, thus, recorded by overlooking very important aspect regarding pending appeal. It is accepted law that when a matter is pending in an appeal, the same cannot be basis of reopening, especially when it is legal issue. There cannot be two separate considerations to the same subject matter relatable to the income, one by the appellate authority and another by the AO in a fresh assessment. The third proviso to s. 147 of the Act as it existed then, specifically excludes the matters which are subject matter of appeal as was also submitted to the CIT(A) vide letter dated 19/06/2020.
“Moreover; insofar as the second ground for reopening of assessment is concerned, it the Assessing Officer may assess or reassess such income, other than the income involving matters which are subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Thus, by virtue of the second proviso to section 147 of the Act, income involving matters which are subject matters of any appeal, reference or revision has expressly been taken out of the purview of the said section. In the circumstances, insofar as the income stated to have escaped assessment under the second ground is concerned, the same having been subject matter of appeal would not fall within the ambit of section 147 of the Act and as such the Assessing Officer lacks jurisdiction to reopen the assessment on the said ground.
(ii) Radhaswami Salt Works vs ACIT (2017) 83 taxmana.com 195 (Guj) SLP of the revenue dismissed vide [2018] 92 taxmann.com 349 (SC) that ‘Section 147 of the Act as is well known, empowers the Assessing Officer to reopen the assessment, subject to certain conditions. 3rd proviso to section 147 however provides that the Assessing Officer may assess or reassess such income other than the income involving the matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. When the subject matter viz. the receipt of transfer of rights in land and the income relatable to such matter was the subject matter of appeal and thereafter second appeal, the principle of merger woidd apply. There cannot be two separate considerations to the same subject matter relatable to the income. One by the appellate authority or forum and another by the Assessing Officer in fresh assessment………….. Appeal against an order of assessment at the hands by the assessee would lie before the Comm issioner (Appeals) in terms of section 246A of the Act. Section 250 of the Act lays down procedure in such appeal. Section 251 concerns the power of the Commissioner in such appellate proceedings. As per subsection (1) of section 251, while disposing of the appeal, the Commissioner would have powers to confirm, reduce, enhance or annul the assessment. Thus, while disposing of an appeal filed by an assessee against the order of assessment, the Commissioner after following the requirement of hearing provided in sub- section (2) of section 251 may even enhance the assessment. The question of correct taxability of the receipt by the assessee was thus at large before the Commissioner (Appeals) and now is open before the Tribunal. At that stage, it would not be open for the Assessing Officer to
Reference is also made to the letter dated 17/08/2020 submitted before the CIT(A) (PB Vol. Ill page no. 910-913) which contains the 3 judgments of the Hon’ble Apex Court in favour of the assessee holding that the .said family arrangement of realignment of the shares of the large family group amongst smaller groups does not attract any taxability.
Further, the Hon’ble ITAT in a recent decision in ACIT vs Direct Media Distribution Ventures Pvt Ltd in ITA 2715/Mum/2018 DoD 31/01/2023 (copy attached at PB page nos. 1006-1061) has also reiterated it earlier decisions on the similar issue holding the same to be not taxable in any manner.
A reference is also invited to another recent decision of the Hon’ble ITAT in ITO vs AAM Family Private Trust in ITA 2829/Mum/2022 DoD 23/02/2023 (copy^- attached at PB page nos. 1062-1069) holding such trusts are exempt from taxation of the amounts settled by an individual for the benefit of the family which is the allegation against the appellant.”
7. The findings; After taking into consideration the ground as raised, the bench is of considered view that as with regard to reopening, Ld. CIT(A) has not erred in law or fact as when the information was received from the AO of Glebe the AO was not under obligation to follow what happens to the assessment of Glebe in appeal. Ld. AO had information which was verifiable on facts to reopen the assessment accordingly he proceeded to make a re-assessment.
As with regard to grounds of Revenue we are of the considered view the same can be taken up together as same are based on the same factual matrix and the proposition of law as canvassed. Primarily the issue involved is if Ld. AO was correct in reaching a conclusion that there was a sham transaction of gift in the hands of Glebe to ultimately benefit the assessee with a value of shares transferred
12 by way of gift to Glebe. In this context, it comes up that primarily the findings of Assessing officer arise out of the belief that the onus was one assessee to establish the ‘occasion’ for making such gifts to Glebe Trading Private Limited. It comes up that before Ld. AO assessee there was lack of evidence on the part of assessee. The order which Ld. DR has relied in the case of Gagan Infraenergy vs. DCIT, ITA no. 1031/Del/2018 is a distinguishable case as in that case there was lack of evidence with regard to Family realignment, so the Co-ordinate bench has restored issue for re-examination on fact of existence of family settlement. In that case no question of lifting of veil was involved as addition was made as capital gains u/s 47 of the Act while here in case of present assessee, Ld. AO invoked section 2(24)(iv) of the Act, taxing benefits/perquisites in hands of present assessee as Director of Glebe. 8.1 Then it comes up that in the case in hand the existence of the family arrangement/memorandum of understanding dated 12.11.2012 was before Ld. CIT(A) as mentioned of the same on page no. 136 of its order. Ld. CIT(A) has specifically mentioned that; “the appellant had placed on record a copy of written MOU executed on 12.11.2012 by the four sons of Mr. O.P.Jindal specifically agreeing to allowing the share holdings of various companies by late Mr. O.P.Jindal amongst the four branches of brothers. The appellant placed on record the assessment orders and financial statements of some other group companies to support the fact that the said MOU has been acted upon by the group.” 8.2 This MOU has further been considered and relied by the Tribunal while passing an order in case of Glebe. Furthermore, even the Ld. AO during remand proceedings had raised queries with various parties to the transactions with regard to this settlement and concluded as follows (part of remand report at page no 242 of PB) ; 13 “It is clearly evident from the similar replies given by all these concerned parties as mentioned above, that there was no such transaction, which could be called as gift in the hands of Glebe Trading Pvt. Ltd., because the so called transactions of gift were made for a consideration in the form part of succession plan, as also stated by “Assessee” in her statement given on oath u/s 131 of the Income Tax Act, 1961 to HO ward 10(2), Delhi, wherein: she;‘ has deposed that it was their famiiy succession plan.: In. this case,:' the; donor companies inspite of being independent legal entities were put under an obligation to carry out the succession plan, as stated by the assessee. Why these companies would gift shares held by them for no direct gains to them. So the origin of these transactions of so called gifts was neither voluntary nor out of love and affection but it was for a consideration to execute the assessee’s plan through usage of special purpose vehicles by circumventing the provisions of Section 56(2)(vii)(c) of the Income Tax Act, 1961. Accordingly, the so-called gift loose its character of gift but became an arrangement. The basis of such assertion gets fully endorsed from the assessee’s deposition, in which she herself provided the reason of transfer. In a nutshell, even in the remand proceedings, the assessee failed to substantiate that the underlying purpose of this transaction was not to benefit the assessee. Rather the assessee own claims clearly proves that the so called gifts were intended to benefit the assessee.
Conclusion: There is a thin line of separation between tax planning & tax evasion. In this case, assessee has intentionally entered into a transaction in such a manner that legitimate tax liability has been escaped and as such these transactions could never be put into the bracket of tax planning. The intention of the 14 assessee is crystal dear in the light of statement of assessee recorded u/s 131 of the Income Tax Act, 1961 during the assessment proceedings of assessee company i.e. Glebe Trading Pvt. Ltd., wherein, vide' question-6 & 7, the assessee was asked to explain the intent behind the impugned transaction of share transfer from one company to another instead of more simple and straight method of transferring the shares from one individual to another. The assessee Sint. Arti Jindal has categorically replied as under; “The processes adopted by. two companies was used to transfer the share of listed companies.If, transfer has taken place between the family level it would have resulted in transfer to unlisted shares.” - The assessee was aware of the tax implication on the transfer of shares directly to the actual beneficiary of the transaction. Hence an attempt has been made to avoid the provisions of section 52(2)(vii)(c) of the Income Tax Act,1961. But by doing so the intent of the assessee; remain same and the benefit of shares transferred, reached to the indented beneficiary, which is assessee Smt. Arti Jindal herself, in such a way that tax implication on the transaction have been clearly dogged.”
8.3 Having considered above, we have no hesitation to conclude that Ld. CIT(A) has not erred in examining claim of assessee on the basis of a settlement and that answers the curiosity of AO as to what was the occasion of making the gifts. This also rebuts the foundation of the case of Ld.AO that there was no consideration for the transfer of shares to Glebe. Infact Ld. AO has somehow taken a self contradictory views as on one hand questioned the transaction on the basis of lack of consideration and at same time alleged that the transaction was made for a 15 consideration in the form of part of succession plan and also that it was in the nature of benefits taxable u/s Section 2(24)(iv) of the Act. 8.4 The Act does not bar such transactions of settlement which are bonafide and take place for settling existing disputes in the family. Rather in case of transfers made under a family arrangement, parties are entitled to settle existing and prospective disputes of succession. There is mutual consideration in such transactions arising out of abandonment or relinquishment of rights in properties, which exist or are likely to come into existence. It is for this reason that in deeming income provisions arising out of gifts without consideration, there is exception in case of such transactions being within family or upon a Trust. Further, the settled proposition of law is that judicial authorities should lean in favor of upholding a family arrangement instead of disturbing them on basis of attributing malice. Reliance in this regard can be placed on the judgement of Hon’ble Supreme Court in the case of Kale & others V. Deputy Director of Consolidation 1976 AIR SCR (2) 202, which was also relied by Ld. AR of the assessee, before the CIT(A).
Then if we go further on merits, the Ld. AO has examined the series of transactions and alleged them to be inter-linked and thus attributed the motive to the same that to avoid applicability of provisions of Section 56(2)(vii)(c) of the Act in the hands of assessee who had been covered by these provisions, if gift of shares had gone to her instead of company Glebe Trading Private Limited. This finding is certainly without any evidence and arises out of conjectures and surmises. The bench is of considered view that prudent approach was needed to examine certain facts. The Trust was first settled by the assessee and then shares under the settlement were transferred to the Glebe. The donee Glebe had also received shares from Groovy Trading Pvt. Limited, under the settlement and assessee was the majority stake holder of Groovy. That shows the assessee was herself transferor of 16 shares of five companies to Glebe. Certainly she was doing so to give effect to her husband’s family entering into family settlement of shares of various companies they held jointly. That would certainly have given rise to Multiple transactions to protect interest of all family members.
Coming to the allegation of Ld. AO that it is a case of tax evasion and not a case of tax planning. This conclusion is without any finding or even allegation, as to how assessee has earned anything more than her or her husband’s share in the family’s interest in the assets which were parts of arrangement. We are of considered view that State through Revenue cannot jump upon and pray upon a family arrangement by alleging tax evasion to call for the share in such alleged bounty, without establishing with concrete evidence that transactions have resulted into vesting of assets, without any antecedent right or which would not have otherwise occurred under any circumstance. The same cannot be on mere surmises and conjectures, due to quantum and worth of shares involved, as done by the Ld. AO.
Next, Ld. AO has concluded that the transfer of shares pertaining to five different companies family to Glebe in the garb of gift is nothing but sham transaction however this aspect has been considered in the case of Glebe also wherein the Assessing officer of Glebe while passing its assessment order for A.Y. 2014-15 gave a finding that the said gift received by Glebe was a sham and void transaction. Further he also made observation that the transfer was for the benefit of the present assessee Smt. Arti Jindal without any consideration and therefore, the said gift was taxable in the hands of Arti Jindal, for purposes u/s 2(24) of the Act. However, in ITA no. 191/Del/2019 vide order dated 14.05.2020 in appeal of Glebe, as relied by Ld. CIT(A), the Tribunal concluded that there was genuine family arrangement and that Glebe was competent to receive the shares under the 17 settlement. The Tribunal also observed that while lifting the corporate veil the Assessing Officer of Glebe did not give any cogent reasons in making opinion and to comment upon the interest of Arti Jindal. This aspect has been duly taken care and considered by the Ld. CIT(A) in the present case as apparent from page no. 138 of the order of CIT(A). The Ld. CIT(A) in the case of present assessee has primarily relied the findings in the case of Glebe that the transaction of transferring listed shares to Glebe by other Jindal group companies was neither Sham nor bogus. The validity of gift in the hands of Glebe was duly examined by the Tribunal. The findings stand final so far. Thus, the present AO, who had initiated the re-assessment on the basis information from assessment of Glebe may have reasons to consider the transfer of shares to Glebe as sham and void transaction, to benefit the assessee only but Ld. CIT(A) made no error in holding that transaction was not sham.
Ld. AO had also questioned the creation of Trust by the assessee alleging it to be colourable device, however, what Ld. AO failed to appreciate was that the sole trustee of the said trust is the company by name PRJ Family Management Company Private Ltd. in which Shri Prithi Raj Jindal, husband of the assessee holds 76% equity shares the rest 24% equity shares are held by the appellant. Thus, the transfer of 99.99% shares in the Glebe to PRJ holds Private Trust on 14.03.2014 by the assessee cannot be considered as the colourable device to avoid any tax incidence upon herself, as the major beneficiary of the Trustee company is the husband of assessee and further beneficiary of Trust are other family members too.
We are of the considered view that there was no basis for lifting of corporate veil by the Assessing officer as there is no allegation of introduction of any tainted money through any of the transaction which were scrutinized by the Assessing
18 officer of Glebe or the Assessing officer of present assessee Smt. Arti Jindal. Hon’ble Gujrat High Court in the case of Ajay Surendra Patel V/s Dy. CIT, (2017) 394 ITR 321 (Guj), while examining the issue if Director of Company can escape from Tax Liability by merely stating he was not in charge of affairs of the Company, has extensively examined the issue as to under what circumstances piercing the corporate veil in tax matter is permissible and it will be beneficial to reproduce certain parts from para 15 to 18 herein below; “The concept of lift or piercing of corporate veil, as sometimes referred to as cracking the corporate shell, is applied by the Courts sparingly. However, it is recognized that boundaries of such principle have not yet been defined and areas where such principle may have to be applied may expand. However, principally, the concept of corporate body being an independent entity enjoying existence independent of its directors, is a well known principle. However, with ever developing world and expanding economic complexities, the Courts have refused to limit the scope and parameters or areas where corporate veil may have to be lifted. Two situations where such principle is consistently applied are one, where the Statute itself so permits and second, where due to glaring facts established on record, it is found that a complex web has been created only with a view to defraud the revenue interest of the State and if it is found that incorporation of an entity is only to create a smoke screen to defraud the revenue and shield the individual who behind the corporate veil is the real operator of the company and beneficiary of the fraud, the Courts cannot hesitate in ignoring the corporate status and strike at a real beneficiary of such complex design. The background of present fact is such that we are not hesitant in any way to apply this principle and are also in conformity with the decision of revenue in applying such a principle and pass a justified order.
A further proposition of law is also not possible to be ignored by the Court is that even in case of Tata Engineering & Locomotive Co. Ltd. as also in Life Insurance Corporation V/s. Hari Das Mundhra, reported in 19 1962 LawSuit (All) 30 as well as in PNB Finance Ltd. V/s. Shital Prasad Jain, reported in 1983 54 Company Cases 66 (Delhi), it has been held by all the Courts consistently that in a given case the Court may lift the corporate veil of a company where it appears that the company was formed only for some fraudulent purpose and to defraud the creditors or to avoid legal obligations. Now in the context of this proposition, if we look at and correlate the clauses contained in Memorandum of Association as well as Articles of Association and correspondingly, to the stand taken by the department, it appears that the company is engaged in altogether other business than the main object for which the company was set up and therefore, in view of settled position of law, if the company has travelled beyond the scope of the object of Memorandum of Association then such transaction has no legal sanctity and can be said to be void and therefore, this improper conduction of business de-hors the main object tantamount to be improper conduct of the company and for that very purpose, it is always open for the Court as well as for the authority to lift the corporate veil.
Similarly, the corporate veil can be lifted if it is found that the company is acting as an agent of shareholders though it has got legal entity. In a well known case of Re F.G.Filims Ltd., a British company which was formed with 90% of shares held by American director. The said British company and an American company arranged to produce a films in the name of the British company. The Board of Trade of Great Britain refused to register the firm as British firm by upholding that English company acted as the nominee or agent of the American company and this has taken place upon lifting of corporate veil. Therefore, this is also relevant case law for the subject on hand as the petitioner upon induction has brought share capital to the extent of 98.33% and the certificate of commencement of business was obtained after induction of the petitioner. Therefore, practically the company was to be used as lever to transact a business which is de-hors the Memorandum of Association. Therefore, these are the relevant circumstances in which it can safely be stated that authority has rightly exercised statutory powers to lift the corporate veil to examine behind it and fix the liability for protection of revenue of the department.
There is another well known principle which indicates that corporate veil can be lifted if the act of the company found to be ultra vires and as stated above, the Memorandum of Association is the yardstick for which only the company is incorporated or formulated and therefore, any act de- hors the object stipulated in Memorandum of Association can be said to be 20 ultra vires and for that purpose, the directors of the company shall be personally liable for all such acts which are beyond the scope for which the company was set up. The corporate veil under the circumstance necessarily to be pierced and the members cannot be allowed to take shelter behind the corporate veil of the company. This proposition is fortified by a decision of the Supreme Court in case of Dr. A. Lakshmanaswami Mudaliar & Ors. V/s. Life Insurance Corporation of India & Anr., reported in AIR 1963 SC 1185.”
None of the situations as canvassed in the aforesaid judgment of Hon’ble Gujarat High Court are present or alleged in the present case. Except for the Trust no new entity came into existence under the arrangement. The intention of creating Trust was also to protect the interest of not just the assessee, but her other family members too, who were supposed to be other beneficiary under the arrangement. The transactions of transfer of shares were not ultra vires of memorandum of association of donor or done companies to benefit of share holders. The transfer of shares was duly valued and reflected in financials. It is not a case where company is acting as an agent of shareholders to do something which would directly benefit the shareholder and not the companies involved in the arrangement of shares. 14.1 Rather such arrangements are now common due to dilution of closely family held business empires. Mumbai Bench in the case of ACIT vs. Direct Media Distribution Ventures Pvt. Ltd. ITA no. 2715/Mum/2018 vide order dated 31.01.2023, relied by ld. AR, has dealt into the similar issue wherein the group entities of ZEE and Essel group of companies had entered into a internal restructuring of the group for consolidation of media assets and in furtherance of which certain equity shares were transferred to the assessee company without any consideration and the Bench held that the shares of Dish TV received by the assessee as gift represented the capital receipt in the hands of the assessee company and the same was held as an investment classified as capital assets in the books of 21 account. It was held that the nature of the said receipt of shares remains the same irrespective of whether the shares were transferred at nil consideration.
Lastly the Bench is also of considered view that provisions of Section 2(24)(iv) of the Act are special provisions which intend to tax passing of benefits by company to its Directors who occupy the position of fiduciary relationship. The words benefit or perquisite obtain from a company would take in our opinion, only such benefit or perquisite which company had agreed to provide and which the person concerned would claim as of right based on such agreement. In the case in hand assessee was holding merely 0.3% equity in Glebe when Glebe received the gifts and the major share vested in the Trust. Assessee had no enforceable right in the family settlement of her own and she was participant with her husband. No question of any benefit or perquisite seems to be arriving other than one they otherwise had in the family entities. Thus ld. CIT(A) has not erred in law and facts to hold that provision of section 2(24)(iv) is not attracted on the assessee.
16. Consequently we find no error in the findings arrived by the Ld. CIT(A) by treating the transaction of gift of the specified shares by donor companies to M/s. Glebe Trading Private Limited as valid gift and not a sham and void transaction for the benefit of the assessee Ms. Arti Jindal and the Ld. CIT(A) rightly followed Tribunal’s decision in the case of M/s. Glebe Trading Private for making the deletion. The grounds raised in appeal of Revenue have no substance. The appeal of Revenue is dismissed. Order pronounced in the open court on 2nd November, 2023.