S.56(2):Income from other sources - Gift of residential flats through transfer of shares by foreign company to
Indian company
The Assessee had received by way of gift, three residential flats in Hill Park from its sister concern viz., BISNCL, a UK
based company. BISNCL was holding shares of Hill Park Ltd which entitled it for use and occupation of the said three flats and the gift was effected by transfer of the said shares. Both, the assessee and BISNCL, were 100% subsidiary of a U.K.based entity which in its turn was 100% subsidy of a Dubai based entity.
According to the tribunal, such a transfer may trigger capital gains ramifications in India, since the shares of an Indian company were situated in India and when the transferor is a non resident, the deeming provisions of sec. 9(1) (i) of the I.T. Act. 1961 came into play However, referring to sec. 47(ii), the tribunal noted that the transfer of a capital asset, amongst others, under a gift is not treated as transfers for the purposes of sec. 45 of the Act. Referring to the provisions of sec. 5 andsection 122 of the Transfer of Property Act (TPA), the tribunal noted that there was no requirement in the TPA that a `gift’ can be made only between two natural love and affection which means that as long as a donor company is permitted by its Articles of Association to make a `gift’, it can do so. In case where donor is a foreign company, the tribunal noted that the relevant corporate/commercial law of the jurisdiction where the donor is based needs to be considered. Referring to the Certificate and Attestation by the Notary Public of the City of London, England, wherein the authority has inter alia certified and attested that the Deed of Gift was binding on BISNCL in accordance with the relevant provisions of English law, the tribunal concluded that BISNCL was regally authorised to give gift of shares. Therefore, it held that the gift of shares of an Indian company by a foreign company without consideration has to be treated as gift within the meaning of sec 47(iii) of the Act. 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 to attract the provisions of section 28(iv).
The Tribunal noted that a plain reading of the provisions of sec. 56(2) show that no every receipt is taxable under the head `income from other sources’ but only those which can be shown as `Income’ can be brought to tax under this head, if it does not fall directly under other heads of income specified in section 14 of the Act. According to it, the issue involved under the present appeal got covered under the clause (viia) of sec. 56(2). However, the said clause was introduced with effect from 1st day of June, 2010, hence, not applicable to the case of the assessee. (A.Y.2008-09) ‘D’, ITA No. 3627/M/12, dated 12-10-12.)
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