Monday, 23 March 2015

S.220: Collection and recovery-Stay of Demand-Writ- Prima facie case, balance of convenience


 

The assessee was a wholly owned subsidiary of DHPL and all the shares of DHPL were held by

Shroff group. For purpose of restructuring the group organization, certain equity shares in companies

UPL and UEL transferred to assessee by Shroff group without any monetary consideration. The

assessee treated said transaction as gift and same being capital receipt claimed to be not taxable. The

Assessing Officer taxed under the head 'Income from other sources', a sum representing the market

value of shares of UPL and UEL in hands of assessee holding that said transaction was transfer and

not by way of gift and thereafter, he sought to tax same under section 25(iv). The assessee filed an

appeal before Commissioner (Appeals) against the said assessment order. In the meantime, the

Assessing Officer served a notice of demand. The assessee filed appeal against the said assessment

order. The Commissioner (Appeals) after hearing the assessee disposed of the stay application and

directed the assessee to pay 25 per cent of the demand in four equal monthly instalments and directed

for the stay on the recovery of the balance amount. On writ, the assessee prayed to set aside the order

of Commissioner (Appeals). It was held that he assessee has more than just a strong prima facie case

in this regard. The assessee case is supported by an order of the Tribunal in the case of D.P. World

(P.) Ltd. v. Dy. CIT [2013] 140 ITD 694/[2012] 26 taxmann.com 163 (Mum.)(Trib.). The transaction

involved a transfer of the shares which entitled the holder of the shares to the said flats. The Tribunal

had held that simply because both the donor and the donee happened to belong to the same group

cannot ipso facto establish that they have any business dealings and 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 section 28(iv) cannot be applied on the facts

of the case. In view of the judgment of the Tribunal, the assessee has more than just a strong prima

facie case for a stay. Prior to the transfer of the said shares the assessee held 1.59 per cent and 1.44

per cent of the equity shares of UPL & UEL respectively. After the transfer the assessee holds 21.35

per cent and 47.88 percent of the equity shares in UPL & UEL. 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 assessee only for

administrative convenience. If the assessee 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 assessee will suffer

irreparable harm and injury. On the other hand, the conditions upon which we the stay will be granted

will protect the revenue. The balance of convenience is also therefore, in favour of the assessee.

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. This would be by restraining

the assessee 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 Commissioner (Appeals) and with deposit Rs. 10.00 crores.( AY.2010-11)

Nerka Chemicals (P) Ltd. .v. UOI (2014) 103 DTR 249 (Bom.)(HC)

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