ITAT Upholds Addition of LTCG on NDTV's Prannoy Roy & Radhika Roy
The Delhi bench of Income Tax Appellate Tribunal (ITAT) has upheld addition of long term capital gains (LTCG) tax against Dr Prannoy Roy and his wife Radhika, both promoters of New Delhi Television Ltd (NDTV) for realising share sale consideration in the guise of loan. The case was related with purchase and sale of shares of NDTV in August 2009 by RRPR Holding Pvt Ltd and the Roys and concealment of income of over Rs117 crore each during two assessment years. 
 
In an order passed on 14 June 2019, the ITAT bench of Beena Pillai and Prashant Maharishi says, "The authorised representative (of the Roys) has stated that as it is a transaction between the closely related parties and there is no motive of the tax evasion is the provisions of section 56 (2) does not apply. Here the argument deserves to be rejected at the threshold itself as the assessee has failed to explain by credible evidence any reason of buying the shares of the above company (NDTV) at Rs4 per share when the quoted price of the share on the recognised stock exchange is Rs140 per share. As the motive itself of the assessee was not demonstrated at all with credible evidences the assessee now cannot say that there was no motive of tax evasion."
 
During August 2009, the Roys sold their shares in NDTV to RRPR Holding at Rs4 per share against its market price of Rs140 at that time. Then on 9 March 2010, the Roys bought 34.79 lakh shares of NDTC from RRPR Holding at Rs4 per share against the market price of Rs140 per share. The AO O noted that these transactions have been carried out to manipulate the gain or loss of long-term capital gain by the assessee. 
 
"Accordingly he (the AO) noted that the transaction shown by the assessee has long-term capital gain are nothing but sham transactions which have been manipulated to evade tax arising on the transfer of shares of NDTV. He further noted that assessee is a director of NDTV and holding a substantial stake and is in a position that can influence the decision of that company. Therefore, the actual nature of the transaction has to be examined by lifting the corporate veil, which would reveal that the assessee and NDTV are not distinct entities as far as this camouflages concerned and that both acted in connivance to evade the tax on capital gains. Accordingly, he made an addition of Rs47.31 crore at the rate of Rs136 per share being difference between the quoted prices of Rs140 per share and the cost shown of Rs4 per share on 34.79 lakh shares of the above company," the order from ITAT says. 
 
The commissioner of I-T (appeal) upheld addition of Rs47.31 crore in the assessment. 
 
In its order, the ITAT observed that RPR Holding did not have any assets except the assets in the form of shares of NDTV. "Further only purpose of transfer of the shares to that company was to obtain loan by pledging those shares considering the fair market value of the shares of NDTV, which is obviously the listed price of that company. Therefore, it is apparent that if the shares are transferred at Rs4 per share, the assessee will pay capital gain tax only considering the sale value of those shares at Rs4 per share, (if the whole transaction is not looked in to by complex agreement of loans) whereas RRPR Holding will obtain loan on those shares at the listed price of the shares of NDTV limited, free of interest. In a way, it was a methodology devised to pledge the shares of promoters to obtain interest-free loan for an indefinite tenure coupled with call option agreements to transfer the shares of NDTV. This shows a clear-cut benefit resulting into the hands of the Roys," the Bench said.
 
As observed by the Securities Appellate Tribunal (SAT) in its recent order, RRPR Holding took a loan of Rs350 crore from ICICI Bank Ltd, at an interest rate of 19% per annum. This loan was required to be repaid within a stipulated period. Finding it difficult to repay the interest and principal amount RRPR Holding then took two loans from Vishva Pradhan Commercial Pvt Ltd (VCPL) totalling about Rs400 crore in July 2009 and January 2010.
 
At present VCPL is controlled by Mahendra Nahta, who is a board member of Reliance Jip Infocomm.
 
From their individual demat accounts, Dr Roy and Ms Roy transferred a total of 6,25,000 shares of NDTV to their joint demat account. On 19 June 2008, there shares were sold from the Roys' joint demat account. The Roys claimed that the shares sold were long-term capital gains (LTCG) asset and its cost of acquisition was only Rs4,092. The income thus earned was shown as LTCG that was challenged by the Income Tax department.
 
The assessing officer (AO) held that shares transferred by the Roys from the joint demat account are short-term capital asset as they were acquired only on 28 December 2007 and sold on 19 June 2008 on first in-first out (FIFO) basis applicable to the dematarialsed securities. The AO also considered the cost incurred by the Roys for crediting the shares into the joint demat account on 28 December 2007, accordingly the computation resulted in short-term capital gain (STCG) of Rs1.30 crore each for the Roys as against the claim of LTCG.
 
In an email to Economic Times, Dr Roy denied concealment of income, saying "...the ITAT ruling was to do with classification of the capital gains involved — whether short-term or long-term." Stating that the case involves “legal issues and technical tax law issues”, he told the newspaper that an appeal against the tribunal’s findings will be filed once courts reopen in July. 
 
The ITAT also rejected the Roys contention that there was no benefit to them from the sale and purchase transactions as it was within the promoter group. "...the assessee (the Roys) entered into complex agreements with the lenders to realise the sale consideration in guise of loans from lenders,” the Bench stated in its order.
 
RRPR Holding held shares of NDTV which is a listed company. "Based on the loan taken from VCPL it was alleged that the loan of ICICI Bank was liquidated.
 
While taking a loan from VCPL certain agreements were entered, namely, that VCPL will give interest free loan for a period of 10 years on the condition that the principal amount would be paid within 10 years and that the VCPL will have a right of first refusal on 50% of the shares in the event the said shares are sold in the market. Further, a call option agreement was made whereby an option was given to two associates of VCPL for transfer of 30% of the shareholding of RRPR Holdings to it at the price of Rs214.65 per share. It was stated that, at the time the loan agreement was executed, the price of the NDTV share was Rs130 per share.
 
It was also stated that the price of Rs214.65 per share was fixed in order to cover the loan amount of Rs403.85 crore. The agreement further stipulated that RRPR Holding would have the sole control and will not sell the shares without the right of the first refusal by the lender, namely, VCPL," the SAT had mentioned in its order.
 
After considering the loan agreement between RRPR Holding and VCPL in detail, Securities and Exchange Board of India (SEBI) in its findings stated that the said loan agreement was nothing else but a sham agreement and that no prudent person or entity would enter into such an agreement giving a loan without any interest. In fact, SEBI found that the transfer of money, was to control the listed company NDTV. SEBI further found that the transfer of 9% individual shares of Dr Roy and Ms Roy to its holding company, RRPR Holding amounted to a non-disclosure of transfer of shares inviting violations of disclosure obligations, the SAT order noted.
  • Like this story? Get our top stories by email.

    User 

    Centre compulsorily retires 15 senior revenue officials for misconduct
    Within days of showing the door to a dozen senior Income Tax officials for alleged charges of misconduct, the axe has now fallen on 15 senior revenue officials dealing with indirect taxes on charges ranging from demanding bribe, criminal conspiracy to financial impropriety.
     
    Finance Ministry sources said that the axe fell on officials in the rank of Principal Commissioner and Commissioner, besides others of the Central Board of Indirect Taxes & Customs (CBIC) under Rule 56 (j) of central civil services (pension) rules.
     
    This is yet another major clean-up drive by the Modi government after coming to power for the second consecutive term last month.
     
    The officers include Anup Srivastava, Principal Commissioner, Pr ADG (Audit) Delhi, Atul Dikshit, a commissioner who was under suspension and G. Shree Harsha, Commissioner, ADG DGPM Chennai.
     
    Assistant Commissioner of Mumbai GST Zone, Vinod Kr. Sangha, Assistant Commisioner of Bhubaneswar GST Zone, S.S. Bisht and Amresh Jain, Deputy Commissioner of Delhi GST Zone were also among the 15 compulsorily retires officials.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    Ramesh Poapt

    1 year ago

    there are other 15000 such officers.

    LALIT SHAH

    1 year ago

    its good . but what about mps mla missmatch of property ?

    Sona Sett

    1 year ago

    Great job done by the Govt. There are many more who are either corrupt or non-performers, lazy and indisciplined and also harrass public in public dealings. These Govt. Servants should also be thrown out in similar manner.

    Capital Gain on Shares? Wait Few More Days Before Filing Income Tax Returns
    With the Income Tax (I-T) department changing the method for calculation of capital gains tax, taxpayer are being advised not to file returns in a hurry and wait for few more days. 
     
    In a notification displayed on I-T e-filing site, the department says, "In case of long term capital gains (LTCG) arising on sale of equity shares or unit of equity oriented fund or unit of business trust on which securities transaction tax (STT) is paid, separate computation of capital gains should be made for each scrip or units of mutual fund sold during the year and aggregated amount should be provided in item No. B4 (ITR 2) or B5( ITR 3) (in case of residents) or item No. B7 (ITR 2)/B8(ITR3)(in case of non-residents)."
     
     
    Ameet Patel, noted chartered accountant and former president of Bombay Chartered Accountants’ Society (BCAS), in a tweet has asked fellow CAs to wait for another update in next 10 days while requesting them to not to file tax returns with long-term capital gain (LTCG) just now.
     
     
    Chirag Chauhan, another prominent and vocal CA raised question on the testing of these forms. In a tweet, he says, "(I-T) forms (were) made live in April. However they are not tested based on changes in the I-T Act. What is the use of making live if assesee cannot file (returns)?"
     
     
    At present, capital gain is calculated based on consolidated value of share. However, the I-T department is planning to tax through individual scrip comparison method. 
     
    The notification from the department says it has updated the utility (for uploading returns) and relaxed relevant validation rules. 
     
     
    However, as suggested by both the abovementioned CAs, it would be better to wait for few more days, in case, you have capital gains from equities or equity oriented mutual funds.
  • Like this story? Get our top stories by email.

    User 

    COMMENTS

    ramanamurty malla

    1 year ago

    Why this last minute confusion. I took lot of efforts and prepared my LTCG individual scripwise after collating data from market value on 31st Jan2018, actual cost and sales value.

    Gopalakrishnan T V

    1 year ago

    The best way to collect capital gains tax is to make the STT more dynamic and collect the tax at source without expecting the people to file returns and pay capital gains tax. This is easier and more tax compliance effective. Ease of doing business is also well ensured and will help to keep the capital market for people FRIENDLY. Capital formation through capital market involving more retail investors is a must and the need to augment tax collection from capital market without any complications and corruption is also a necessity. To ensure both it is advisable to make the STT more dynamic and better tax compliance.

    Aditya G

    1 year ago

    It's a sign that the I-T Department and North Block are fatigued and out of quality manpower & bureaucrats.

    Stuff like this shouldn't happen at all. It's not the first time and it won't be the last, unless I-T Dept overhauls their systems & processes.

    We are listening!

    Solve the equation and enter in the Captcha field.
      Loading...
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email
    Close

    To continue


    Please
    Sign Up or Sign In
    with

    Email

    BUY NOW

    online financial advisory
    Pathbreakers
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 3 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)
    FREE: Your Complete Family Record Book
    Keep all the Personal and Financial Details of You & Your Family. In One Place So That`s Its Easy for Anyone to Find Anytime
    We promise not to share your email id with anyone