New Delhi Television Ltd Vs ACIT (ITAT Delhi)
On examination of the facts it is apparent that assessee has sold shares which were purchased by it before 13 months of a company and subsequently sold at substantially higher price to the associate concern of the assessee and disclosed the same as capital gain. It is the shares of an unlisted company which were transferred by the assessee. It is not in dispute that those shares were shown as a capital asset by the company.
The CBDT circular dated 2/5/2006 speaks about the characterisation of income from transaction in listed securities as well as unlisted securities. As per para number two of that circular it is provided that for determining the tax treatment of income arising from transfer of unlisted shares for which no formal market exists for a trading, need has been felt to have a consistent view in assessments pertaining to such income.
Therefore it was decided that the income arising from transfer of unlisted shares would be considered under the head capital gain irrespective of period of holding with a view to avoid dispute/litigation and to maintain a uniform approach. The para number three clarified that the above would not be necessarily applied in the situation where the genuineness of the transaction in unlisted shares itself is questionable, the transfer of unlisted shares is related to an issue pertaining to lifting of corporate veil and the transfer of unlisted share is made along with the control and management of the underlying business.
In the present case before us the learned assessing officer could not prove that any of the three conditions mentioned in that circular applies. In fact the sale price of the shares is supported by the valuation report and also conform with provisions of FEMA.
The learned assessing officer as well as the learned CIT – A merely proceeded on the basis of an allegation that assessee wanted to show the higher profit in its books of account. It is not denied that the assessee was the owner of the shares, it held it for 13 months, there is no allegation that the price paid by the buyer was unfounded.
In fact it was supported by the valuation report which was not controverted , except the conjectures and surmises. In view of this circular, we hold that the excess of consideration realised by the assessee on sale of the above shares is chargeable to tax as capital gain and not as income from other sources.
FULL TEXT OF THE ITAT JUDGEMENT
1. These are the cross appeals filed by the assessee, M/s New Delhi Television Ltd (the appellant) in ITA number 3865/Del/2014 and The Asst Commissioner Of Income Tax, Circle 13 (1), New Delhi (The Learned AO) in ITA number 3996/Del/2014 for Assessment Year 2008 – 09 against the order of The Commissioner Of Income Tax (Appeals) – XX, New Delhi (The Learned CIT – A) wherein, the appeal filed by the appellant against the order passed under section 143 (3) of The Income Tax Act, 1961 (The Act) dated 3/8/2012 was partly allowed.
2. The assessee has raised the following grounds of appeal in ITA No. 3865/Del/2014
for the Assessment Year 2008-09:-
“1. That on facts and in law the Commissioner of Income Tax (Appeals) {hereinafter referred to as “CIT(A)” erred in not appreciating that the order of assessment dated 3rd August 2008 passed by the Assistant Commissioner of Income Tax, Circle-13(1), New Delhi {hereinafter referred to as he “AO”} under section 143(3) of the Income Tax Act, 1961 {hereinafter referred to as “the Act”} is barred by limitation and hence bad in law
1.1 That on facts and in law, the CIT (A) erred in law in holding that the impugned assessment completed under section 143(3) of the Act is valid in light of the extended time limit provided under section 153 of the Act.
2. That on facts and in law the CIT(A) erred in upholding that the expenditure of 22,16,476/- incurred by the appellant for obtaining licenses for use of accounting software were capital in nature without appreciating that acquisition of same is merely enhancement and up gradation of accounting software already in use.
3. That on facts and in law the CIT (A) erred in upholding the action of AO to himself de ermine Arms Length Price (ALP) of alleged “Transaction” / “International Transaction” of issue of Corporate Guarantee by the appellant dehors the fact that the Transfer Pricing Officer {hereinafter referred to as the “TPO”} had vide order dated 14th September 2011 accepted the ALP of all International Transactions undertaken by the appellant.
3.1 That on facts and in law the CIT(A) erred in upholding the addition on account of alleged “Transaction” / “International Transaction” of issue of Corporate Guarantee without appreciating that there was no corporate guarantee given by the appellant in year under consideration for funds raised by M/s NDTV Network Plc (i.e. a subsidiary of the appellant).
3.2 That on facts and in law the CIT(A) erred in observing/holding that the undertaking given by the appellant was an implicit guarantee which required benchmarking as per the provisions of Chapter X of the Act.
3.3 Without prejudice, that on facts and in law the methodology adopted by the CIT(A) for benchmarking the above alleged transaction of issue of Corporate Guarantee is bad in law.
4. That on facts and in law the AO/CIT(A) erred in not allowing the benefit of +/- 5 % range, as provided in the proviso to section 92C(2) of the Act.
5. That on facts and in law and in law the CIT(A) has erred in upholding the action of I AO in making a disallowance of Rs. 8,96,000/- by invoking provisions of section 14A of the Act.
5.1 That on facts and in law in absence of a valid satisfaction being recorded by the AO the CIT(A) erred in upholding his assumption of jurisdiction u/s 14A r/w Rule 8D of the Act.
5.2 That on facts and in law the CIT(A) erred in sustaining disallowance made by the AO without appreciating the fact that no exempt income was derived by the appellant in the year under consideration.
5.3 That on facts and in law the CIT (A) erred in not appreciating that no expenditure was incurred by the assessee in order to earn any income which is exempt from tax.
5.4 That on facts and in law the CIT(A) erred in not appreciating that investments in group companies and others were made by the appellant only from non-interest bearing funds.
6. That on facts and in law the CIT (A) erred in upholding the disallowance made by the AO of Rs. 7,38,43,516/- being the transmission and up linking charges paid to M/s Intelsat Corporation by invoking provisions of section 40(a)(i) of the Act.
6.1 That on facts and in law the CIT(A) erred in upholding that the transmission and up-linking charges paid to M/s Intelsat Corporation are chargeable to tax in India as income from “Royalty”so defined under section 9(1 )(vi) of the Act and under the relevant Agreement for Avoidance of Double Taxation (AADT).
6.2 That on facts and in law the CIT(A) erred in holding that by virtue of Article 3(2) of the India-US AADT the meaning of the word “process”as defined in the Act would apply to the provisions of AADT also.
7. Without Prejudice, that on facts and in law the CIT(A) erred in not appreciating that the provisions of section 9(1 )(vi) were amended by the Finance Act 2012 w.e.f 1st June 1976 and as such the said amendments cannot be invoked/relied upon for TDS related issues / defaults.
8. That on facts and in law the CIT(A) erred in not appreciating / considering the submission made by the appellant that since the entire amount of Rs. 7,38,43,516/- was paid by the appellant to M/s Intelsat Corporation and nothing was payable as on 31st March 2008 hence in view of the decision of the Special Bench of Tribunal in the case of Merilyn Shipping and Transport ACIT, reported in 136 ITD 23 (S8) the disallowance made u/s 40(a)(i) was uncalled for.
9. That on facts and in law the CIT(A) erred in upholding the action of AO in re- characterizing the income declared by appellant as “Capital Gain”pursuant to sale of 2,12,500 shares of M/s Astro Awani Networks Limited as income from “Other Source” and by making an addition of Rs.10,57,89,125/-.
(a) Above shares were transferred as part of a corporate business restructuring.
(b) Shares transferred had no value/worth
(c) Shares were transferred only to boost profitability and cash flow of
(d) Valuation Report of INMA C is not reliable
10. That on the facts and in law to the extent the orders passed by both AO and CIT(A) are prejudicial to the interest of the assesse the same are bad in law and void ab-initio.
3. The revenue has raised the following grounds of appeal in ITA No. 3996/Del/2014
for the Assessment Year 2008-09:-
1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of ESOP expenses of Rs. 17,86,56,690/-by relying on the ITAT decision in the assessee’s own case for the AY 2006-07, ignoring the fact that the revenue is in appeal. Thus, the issue has not attained its finality.
2. On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in reducing the disallowance of software expenses from Rs. 27,82,791/- to Rs. 5,05,378/- holding the same to be revenue in nature by relying on the DRP order in assessee’s own case for AY 2009-10, ignoring the fact that the revenue is already in appeal on the issue and the matter is sub-judice.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of commission of Rs.45,53,30,999/- u/s 40(a)(ia) of the Act by relying on the decision of the DRP in the assessee’s own case for the AY 2009-10 ignoring the fact ignoring the fact that he revenue is already in appeal on the issue and the matter is sub-judice.
3.1 On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the above disallowance by ignoring the fact that the space for the advertisements was sold through agents and that the assessee and its agencies had relationship of principal and agent and as such the payments were liable for deduction of tax at source.
4. On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition of Rs. 18,72,00,000/- on account of Corporate Guarantee Charges by relying on the decision of Hon’ble DRP in assessee’s own case in the AY 2009-10 ignoring the fact that the department is already in appeal against the order and the decision is still pending.”
4. Briefly, the fact shows that appellant is engaged in the business of television news broadcasting through its three different channels namely NDTV 24 x 7, NDTV profit and NDTV India. It also produces customized software programs for broadcasters. The assessee filed its return of income on 29/9/2008 declaring loss of ₹ 5 319275/–.
5. The case of the assessee was referred to for seeking further information under the provisions of Exchange of Information article of Double Taxation Avoidance Agreement with UK and Mauritius. The information under the exchange of information article of Indo- UK Double Taxation Avoidance Convention was received in the office of The Chief Commissioner of Income Tax – V, New Delhi on 7/6/2012. Therefore the limitation in the case was extended as per the provisions of section 153 (4) (vii) read with the first proviso. Information was sought with respect to the corporate guarantee fee, if any paid by NDTV Network Plc to the appellant with respect to the raising of hundred millions of advance during the year in question by the NDTV Network plc in United Kingdom. A separate reference on sale of shares of M/s Astro Vani Networks Limited by the appellant to NDTV Emerging Markets BV during the year from Mauritius tax authority was also sought.
6. Consequently assessment order under section 143 (3) of the act was passed on 3rd August, 2012, wherein the learned assessing officer determined the total income of the assessee at ₹ 939818728/– against the return filed at loss of ₹ (-) 70124147.
The learned assessing officer disturbed the income of the assessee by making several additions/disallowances. The assessee challenged that order before the learned CIT – A, who partly deleted the certain disallowances and partly retained and therefore both the parties are in appeal before us.
