MUMBAI: The Mumbai bench of the Earnings Tax Appellate Tribunal (ITAT) has held that the voluntary reward of the ‘Essar model’ (comprising the model title, emblems and copyrights) by Essar Investments Restricted to Balaji Belief, arrange for the only real and unique advantage of the Ruia relations, isn’t taxable within the palms of the belief. The revenue tax (I-T) officer, in the middle of evaluation for the monetary 12 months 2012-13, had held this reward to be a taxable transaction and had raised a requirement of Rs 719 crore.
Balaji Belief, a non-public discretionary belief, was settled (arrange) on March 29, 2012 by Shashikant Ruia, with an preliminary sum of Rs 10,000. On the identical date, Essar Investments, that was holding the Essar model, contributed the model, emblems and copyrights to the corpus of the belief as a voluntary reward. The belief turned the registered proprietor of the Essar model.
Subsequently, the belief entered into brand-licensing agreements with Essar Group entities and earned a licence payment to be used of the mental property. This revenue was accounted for within the years of receipt beneath the money system of accounting.
Nonetheless, the I-T officer held that the worth of the Essar model could be taxable within the palms of the belief within the monetary 12 months 2012-13 (the 12 months through which it was gifted to the belief). He was of the view that the definition of revenue beneath the I-T Act could be very huge. Thus, the receipt of the model, emblems and copyrights by the belief was an revenue, taxable beneath part 56 (1) as ‘Earnings from different sources’.
The I-T officer proceeded to use the discounted money move methodology and valued the Essar model at Rs 1,668 crore. He raised a tax demand of Rs 719 crore on Balaji Belief. The belief succeeded in its first stage of enchantment earlier than the commissioner (appeals) who held that the receipt of the Essar model was on capital account and couldn’t be characterised as a taxable revenue.
Taking the litigation ahead, the tax division submitted further grounds of enchantment to the ITAT. In enchantment, the I-T official sought to query whether or not Essar Investments was the real proprietor of the model and whether or not settlement in favour of the belief was a bona fide transaction. The ITAT bench, composed of judicial member Ravish Sood and accountant member S Rifaur Rahman, dismissed this because it was a “full volte face”.
Balaji Belief, a non-public discretionary belief, was settled (arrange) on March 29, 2012 by Shashikant Ruia, with an preliminary sum of Rs 10,000. On the identical date, Essar Investments, that was holding the Essar model, contributed the model, emblems and copyrights to the corpus of the belief as a voluntary reward. The belief turned the registered proprietor of the Essar model.
Subsequently, the belief entered into brand-licensing agreements with Essar Group entities and earned a licence payment to be used of the mental property. This revenue was accounted for within the years of receipt beneath the money system of accounting.
Nonetheless, the I-T officer held that the worth of the Essar model could be taxable within the palms of the belief within the monetary 12 months 2012-13 (the 12 months through which it was gifted to the belief). He was of the view that the definition of revenue beneath the I-T Act could be very huge. Thus, the receipt of the model, emblems and copyrights by the belief was an revenue, taxable beneath part 56 (1) as ‘Earnings from different sources’.
The I-T officer proceeded to use the discounted money move methodology and valued the Essar model at Rs 1,668 crore. He raised a tax demand of Rs 719 crore on Balaji Belief. The belief succeeded in its first stage of enchantment earlier than the commissioner (appeals) who held that the receipt of the Essar model was on capital account and couldn’t be characterised as a taxable revenue.
Taking the litigation ahead, the tax division submitted further grounds of enchantment to the ITAT. In enchantment, the I-T official sought to query whether or not Essar Investments was the real proprietor of the model and whether or not settlement in favour of the belief was a bona fide transaction. The ITAT bench, composed of judicial member Ravish Sood and accountant member S Rifaur Rahman, dismissed this because it was a “full volte face”.
Supply: Times of India