The Income Tax Appellate Tribunal (ITAT), Delhi bench, in a significant ruling, held that the transfer of shares, being a family arrangement, cannot be treated as a gift or prerequisite for the purpose of taxation and the same would not constitute a sham transaction.
The income tax return filed by the assessee, an investment company was rejected by the Assessing Officer observing that the former claimed to receive shares of various companies from various companies as a gift without paying any consideration. The officer treated the same as a tool to evade tax and passed an order making addition by invoking the provisions of Section 2(24) (iv) of the Income Tax Act, 1961.
Before the Tribunal, the assessee contended that the shares of listed companies received by the assessee company as a gift without consideration, as part of internal family realignment amongst members of the family, could not be regarded as valid “gift”, and further grossly erred in alleging the same to be sham and colorable transactions, without any cogent reasons.
Accepting the above contentions, the Tribunal noted that the Assessing Officer has stated that there is a benefit to assessee-company but at the same time states that the transaction of the gift of shares held by Mrs. Arti Jindal in the assessee company to M/s PRJ Holding Private Trust was not valid and was a sham and void transaction which was undertaken to avoid tax.
“But from the MOU submitted by the assessee company, it can be clearly seen that it a family arrangement and internal family realignment amongst the members of the family of Late Shri O.P. Jindal and cannot be taken as a gift. The chart reproduced in para 3 hereinabove from the Assessment Order clearly shows that it is not a gift but a family arrangement and this kind of family arrangement cannot be termed as gift/benefit or perquisite. The Assessing Officer by lifting the corporate veil, without providing any cogent reasons, and without appreciating that the beneficiary never obtained any benefit from this transaction at any time cannot comment on the said transaction as a sham and bogus. Thus, the observations made by the Assessing Officer in the present assessment order are without any jurisdiction. In fact, the Assessing Officer overstepped the provisions of the Income Tax Act wherein the Assessment is nil in the case of the present Assessee company and commented on the third party assessee which is not permissible under the Act. Thus, Ground No. 1 of the assessee’s appeal is allowed,” the bench said.
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