Oral Judgment: (S.J. Vazifdar, J.)

1. Respondent Nos.2 to 6 are the Chief Commissioner of Income Tax, the Commissioner of Income Tax, the Additional Commissioner of Income Tax, the Assistant Commissioner of Income Tax and the Commissioner of Income Tax (Appeals). The petitioner has sought a writ of certiorari to quash and set aside an order dated 10.12.2013 passed by respondent No.6–CIT (A), a writ of prohibition restraining the respondents from taking any coercive steps to recover the disputed tax and a writ of mandamus directing CIT (A)/respondent No.6 to expeditiously dispose of the appeal filed by the petitioner against the assessment order passed by respondent No.2.

2(A). The case in a nutshell is this. The petitioner is a wholly owned subsidiary of Demuric Holdings Private Limited (DHPL). All the shares of DHPL are held by various members of the Shroff family and enterprises of the Shroff group (hereinafter collectively referred to as the “Shroff group”). The members of the Shroff group have a substantial shareholding in United Phosphorous Ltd. (UPL) and Uniforce Enterprises Ltd (UEL) which are listed on the recognized stock exchanges. The Shroff group transferred all their shares in UPL and UEL to the petitioner by way of a gift. The respondents concede that no consideration was paid for the transfers but contend that the value of the shares - about Rs.1400.crores - is liable to be brought to tax under section 56(1) or in the alternative under section 28(iv) of the Income Tax Act, 1961.

(B). We have granted the petitioners application for a stay of recovery on certain conditions which protect the revenue in view of the exceptional facts of this case. The following factors, not by themselves, but taken together persuade us to grant the stay on certain conditions. Firstly, the petitioner has made out a strong prima-facie case on principle. Secondly, the petitioners case is covered in its favour by an order of the Tribunal. Thirdly, and most important in the peculiar facts of this case, if the recovery is not stayed, the petitioner will suffer not merely grave, but irreparable harm and injury. As a result of the transfer, the petitioners holding in UPL increased from 1.59% to 21.25% and in UEL from 1.44% to 43.88%. If the stay is not granted, this substantial holding in the two companies would be sold to recover the tax demand. A holding of such a large percentage of shares in a company is itself a right of immense value. If the petitioner ultimately succeeds, it would be extremely difficult and probably impossible for the petitioner to regain the shareholding in the two companies to this extent. Fourthly, the balance of convenience is strongly in favour of the petitioner, as the interest of the revenue is totally safeguarded by the order, we intend passing.

3. The relevant facts giving rise to the present writ petition are as follows:-

(a) For the purposes of restructuring the group organization, in the AY 2010-2011, the Shroff group transferred their shareholding in UPL and UEL to the petitioner by way of a gift. As a result of the transfers, the petitioners shareholding in UPL rose from 5.1% to 21.35% and in UEL from 1.44% to 43.88%.

(b) The petitioner filed its return of income under section 139 for the assessment year (AY) 2010-2011 on 22.09.2010. The petitioner filed a revised return on 28.03.2012, declaring an income of Rs.1,54,41,530/-. The case was selected for scrutiny.

(c) Respondent No.5–Asstt.CIT passed an assessment order under section 143(3) on the basis of the original return filed on 22.09.2010 and without taking into consideration the revised return filed on 28.03.2012. Respondent No.5 inter-alia taxed, under the head “income from other sources”, a sum of Rs.1464,54,53,232/- (Rs.1,464.54 Crores approx) representing the market value of 8,73,01,770 shares of UPL and 1,08,11,620 shares of UEL transferred by the Shroff group to the petitioner by way of a gift.

On 09.04.2013, the petitioner filed an appeal before respondent No.6/CIT (A), against the assessment order dated 30.03.2013.

(d) In the meantime on 30.03.2013, Respondent No.5 (the Asstt. CIT) served a notice of demand under section 156 of the Income Tax Act for the sum of Rs.677,38,60,590/-. By their letters dated 25.04.2013 and 08.05.2013 the Petitioner informed Respondent No.5 that it had filed an appeal against the Assessment Order before respondent No.6 and requested him to keep the recovery of Rs.677,38,590/- in abeyance till such time the appeal was disposed off.

(e) There followed a series of applications, requests and representations by the petitioner to the various respondents requesting that the recovery be kept in abeyance and to expedite the hearing of the appeal before respondent No.6. Pending the decision in the appeal, each of these were dealt with by the respective respondents. It is not necessary to set them out in detail as ultimately the impugned order on the petitioners application for a stay of the recovery pending the appeal was decided by respondent No.6 pursuant to an order of a Division Bench of this Court. Suffice it to note that prior to the impugned order, pursuant to the earlier applications, respondent No.5 had directed that in the event of the petitioner depositing 25% of the demand in eight equal installments over a period of three months, the recovery proceedings for the balance amount would stand stayed till 30.09.2013 or till the disposal of the appeal, whichever was earlier. The facility was to stand withdrawn in the event of the petitioner committing a default in the payment of the installments. The petitioner having defaulted, the entire amount of about Rs.677.00 crores was demanded. Respondent No.4 granted further installments for payment. Respondent No.6 communicated his inability to fix the date for hearing unless so directed by respondent No.3/CCIT.

(f) The petitioner therefore, filed Writ Petition No.10103 of 2013, challenging the assessment order, the demand notice dated 30.03.2013 and the orders rejecting its applications for stay of recovery.

The writ petition was disposed of by an order of the Division Bench of this Court dated 29.10.2013. The Division Bench noted that the petitioner had availed of an alternate remedy of filing an appeal before respondent No.6/CIT (A) and also filed an application for stay in the appeal, which was pending. The Division Bench disposed of the writ petition with a direction that till respondent No.6/CIT (A) hears and decides the petitioners stay application and for a period of three weeks thereafter, the respondents shall not adopt any coercive proceedings.

(g) Respondent No.6 after hearing the petitioner, disposed of the stay application by the impugned order dated 10.12.2013. The petitioner was directed to pay 25% of the demand viz. about Rs.169.00 crores in four equal monthly installments commencing from December, 2013. Respondent No.6 directed the stay of the recovery of the balance amount till 31.03.2014 or till disposal of the appeal, whichever was earlier. He expedited the hearing of the appeal subject to the payment of the first installment. It was ordered that if the petitioner defaults in paying any of the installments, it would be deemed to be in default in respect of the entire demand and would entail coercive measures being adopted by the AO.

4. Sections 2(18)(b), 28(iv) 56(1) and 56(2)(vii-a) of the Act read as under :-

Definitions.

2. In this Act, unless the context otherwise requires,—

(18) "company in which the public are substantially interested"—a company is said to be a company in which the public are substantially interested—

(a) ................................................................

(b) if it is a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and the conditions specified either in item (A) or in item (B) are fulfilled, namely :—

(A) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) were, as on the last day of the relevant previous year, listed in a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made there-under ;

[(B) shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than fifty per cent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by—

(a) the Government, or

(b) a corporation established by a Central, State or Provincial Act, or

(c) any company to which this clause applies or any subsidiary company of such company [if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the previous year.]

Explanation.— In its application to an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power, item (B) shall have effect as if for the words "not less than fifty per cent", the words "not less than forty per cent" had been substituted ;]]

Profits and gains of business or profession.

28. The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession",—

[(iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession ;]

Income from other sources.

56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.

(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :—

......................................................................

“(viia) where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010, any property, being shares of a company not being a company in which the public are substantially interested,-

(i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;

(ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration:

Provided that this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vi-c) or clause (vi-cb) or clause (vi-d) or clause (vii) of section 47.

Explanation.-For the purposes of this clause, “fair market value” of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii);”

5. The AO in the assessment order held that the transfer agreement is purely in the nature of “transfer” as it does not mention the word “gift”. He rejected the contention that the transfer of the shares was by way of gift “as the agreement is titled as ‘Transfer Agreement’ ”. He observed that if it had been a gift “it would have been a gift deed”.

6. The petitioner has more than just a strong prima-facie case in this regard. The title given to a document is not determinative of its true character. The purport of the document must be ascertained on a consideration of the contents thereof. The respondents do not deny that no consideration in the terms of money or moneys worth was paid by the petitioner to the transferors.

7. The AO further observed that the consideration for transferring the shares was basically for creation of a better business environment by way of maximizing focus in various business areas and to align the group companies organizational activities undertaken with growth aspirations. This per se was a “consideration” and the transaction could not be termed as a “gift”. The transaction was a kind of “window dressing” for avoidance of capital gains tax at a future date for the reason that as and when the petitioner sells these shares, the transaction will not be taxable as the shares are of listed companies.

8. Here again, there is no cogent explanation as to what exactly the consideration was and assuming that there was any consideration, whether it is the transferor or the transferee who is liable to be taxed in respect thereof.

9. It is conceded that no monetary consideration flowed to the assessee. The AO therefore, came to the conclusion that the transaction is liable to be taxed under section 56(1) of the Act. Without prejudice to the above, the AO held that in any event, the transaction is liable to be taxed under section 28(iv) of the Act. In fact Mr. Vimal Gupta, the learned senior counsel appearing on behalf of the respondents, essentially contended that the transaction is liable to be taxed under section 28(iv). Mr. Gupta placed considerable emphasis on the finding in the assessment order to the effect that the transaction depicts that the shareholders (Shroff Group) shifted their base to the ultimate holding company (DHPL) by relinquishing their shares to the petitioner. The petitioner acquiring the shares from them gave each other “benefit of exercising good control and influence over the group companies”. Thus the so called benefit of exercising good control and influence over the group companies is alleged to be the consideration.

10. There are serious issues to be considered in this regard. The shares that were transferred belonged to the Shroff group. These shares have been transferred to the petitioner, which also belongs to the Shroff group. Prima-facie at least therefore, the control and influence of UPL and UEL qua such shares remains with the Shroff group. Prima-facie again, assuming it is a benefit for the petitioner, it is not a benefit from the petitioners business. Consolidation of shares in a single entity by a group is not unknown.

11. The above only indicates that there are serious issues to be tried which is one of the relevant factors while considering an application for stay. There are other two factors of crucial importance, one legal and the other practical, which persuade us to grant the stay albeit on certain conditions.

12. Firstly, the petitioners case is supported by an order of the Income Tax Appellate Tribunal (ITAT). We obviously do not refer to the order as a precedent. It was however, important so far as the authorities under the Act are concerned, including the AO and the CIT. It is difficult to see how in view of the order of the Tribunal, the AO or the CIT could have refused to grant a stay. The reliance placed upon the order of the ITAT in the case of D.P. World (P) Ltd. vs. Deputy CIT by Mr. Pardiwalla, the learned senior counsel appearing on behalf of the petitioner, is well founded. The facts in that case are similar to the facts of the case before us.

The appellant therein i.e. the assessee and M/s. British India Steam Navigation Co. (BISNCL) were 100% subsidiaries of Peninsular & Oriental Steam Navigation Co. (POSNC) incorporated in the United Kingdom. POSNC in turned was a 100% subsidiary of D.P. World, a company based in Dubai. BISNCL transferred three residential flats to the assessee/appellant. The transaction involved a transfer of the shares which entitled the holder of the shares to the said flats. The assessee contended that the transaction was a gift of shares and therefore, capital receipt in its hands. The AO inter-alia observed that the transfer was made for the business convenience and though the income cannot be taxed under the head “income from other sources”, the same was liable to be taxed under section 28(iv). The AO held that the assessee was liable under section 56(1) and/or under section 28(iv).

The Tribunal in paragraph 8 observed that it is not uncommon that transfer of shares between corporate groups takes place for internal reorganization. In view of section 45(3), the same shall not be treated as transfer for the purposes of section 45. After a detailed analysis, the Tribunal came to the conclusion that the definition of a “gift” under section 122 of the Transfer of Property Act would apply to such cases. It is sufficient for the purpose of this writ petition to refer to paragraphs 19, 20 and 22, which read as under:-

“19. The AO has applied the provisions of Sec. 56 and treated the value of the flats as income under the head Income from other sources and the Ld. CIT(A) has made the addition u/s. 28(iv) of the Act by treating the Stamp Duty value as income from profit and gains from business and profession.

20. We have carefully considered both the provisions. Let us first examine the provisions of sec.28[iv] of the Act relied upon by the CIT [A].

"28. Profits and gains of business or profession.-- The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession",-- …………………..

(iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession ;"

In our humble opinion, the transaction is of a gift which is a capital receipt in the hands of the assessee and therefore it cannot be said to be a case of any benefit or perquisite arising from business. The contention of the Ld. Departmental Representative that by the said transaction the assessee has derived benefit and such benefit has arisen from the business connection of the donor and the done, cannot be accepted as no direct nexus has been established by any tangible material brought on record by the Ld.CIT [A]. Simply because both the donor and the done happened to belong to the same group cannot ipso facto establish that they have any business dealings. As we have held that it is a case of a valid gift which is to be treated as capital receipt in the hands of the assessee, in the absence of any specific provision taxing a Gift as a deemed business income, provisions of sec. 28[iv] cannot be applied on the facts of the case. The CIT [A] erred in taxing the value of the stamp duty as income under sec. 28[iv] of the Act.

22. Thus, we have considered the application of the provisions of sec. 28[iv] and sec 56[1] & [2] from all the possible angles on the facts of the case, in our humble opinion the transaction involved in the present appeal is nothing but a Gift and thus it is a capital receipt not taxable under the alleged provisions of the Act. Therefore, The Assessee Succeeds and Revenue fails. Issues involved in this ground are decided in favor of the assessee and against the Revenue.”

13. In view of the judgment of the Tribunal, the petitioner has more than just a strong prima-facie case for a stay. That however, is not by itself the reason for our granting the petitioner relief. It is, as we said earlier, one of several factors for our order.

14. There is in addition, a practical aspect of this matter which together with the other factors including the decision of the Tribunal in D.P. World (P) Ltd, persuades us to grant a stay of recovery of the entire demand but subject to certain safeguards. As we mentioned while narrating the facts, prior to the transfer of the said shares the petitioner held 1.59% and 1.44% of the equity shares of UPL & UEL respectively. After the transfer the petitioner holds 21.35% and 47.88% of the equity shares in UPL & UEL respectively. A refusal to grant a stay would in all probability entail a sale of the said shares to meet the demand. Upon a sale of the shares, the Shroff group would loose a substantial benefit of such a large shareholding in both the companies. The Shroff group always held the shares. They transferred the shares to the petitioner only for administrative convenience. If the petitioner succeeds ultimately the damage caused by the sale of the shares would be irreversible. They would loose the benefit of a large shareholding in both the listed companies permanently and irreversibly. Thus if the stay is not granted, the petitioner will suffer irreparable harm and injury. On the other hand, the conditions upon which we intend granting the stay will protect the revenue. The balance of convenience is also therefore, in favour of the petitioner.

15. Balance of convenience and the question of irreparable injury are relevant factors while considering an application for stay even in proceedings under the Income Tax Act.

16. Despite the above finding, we are inclined to protect the respondents to a limited extent. This would be by restraining the petitioner from parting with possession of, selling, disposing of or in any manner whatsoever encumbering its shareholdings in UPL & UEL to an extent of Rs.1000.00 crores pending the appeal before the CIT (A). Further as the petitioner had offered to deposit Rs.10.00 crores, we intend directing it to do so.

17. The CIT (A) by the impugned order dated 10.12.2013 held that the onus was on the assessee to establish a prima-facie case for grant of interim relief. He further held that the issue that arises in the present case is a new one having arisen for the first time in this case in the assessment year under consideration. Although the issue may have arisen in this case for the first time, it is not a new one for the department. It had arisen for consideration and was decided by the Tribunal in D.P. World (P) Limited. It is pertinent to note that the CIT (A) excluded the demand from the transferors case on the ground that the transfer was without consideration. We do not see why reasoning ought not to apply even to the petitioner.

18. The impugned order does not consider the question of balance of convenience and irreparable injury that would be caused by in effect compelling the petitioner to sell the shares of UPL & UEL by refusing the stay.

19. In the circumstances, Rule is made absolute in terms of prayer (a) subject to the petitioner depositing a sum of Rs.10.00 crores on or before 30.04.2014 with the Assessing Officer/respondent No.5 Further pending the appeal before respondent No.6 and for a period of eight weeks thereafter, the petitioner shall not dispose of, alienate, encumber, part with possession of or create any third party rights in any manner whatsoever in, to, upon or in respect of the shares of UPL and UEL held by it of the value of Rs.1000.00 crores. It is clarified that the value of the UPL and UEL shares shall at no point of time during this period be less than Rs.1000.00 crores. In the event of the value of such shares being less than Rs.1000.00 crores at any stage, the petitioner shall forthwith inform the respondents of the same. Further in that event the stay shall stand vacated unless the petitioner makes good the difference to the satisfaction of respondent No.6.

There shall be no order as to costs.