NDTV India Vs Income Tax

LEGAL CORNER – September 2016 – CASE LAW-II :

Facts of the cases:

The Income-tax Department has made an addition of INR 642 crore on New Delhi Television Ltd (NDTV) in respect of AY 2009-10 under Section 69A of the Income Tax Act, 1961.

New Delhi television Limited (NDTV) has following subsidiaries as mentioned below:

1. NDTV BV (NNBV)(Subsidiary of NDTV)
2. NDTV Networks BV (NNBV) (Subsidiary of NDTV)
3. NDTV Networks International Holdings BV (NNIH) (Subsidiary of NDTV BV)
4. NDTV Networks PLC (NNPLC) (Subsidiary of NNIH)

NDTV along with its Subsidiaries entered into an agreement dated 23.05.2008 with NBC Universal Inc and Universal Studios International BV, as a result of the same, INR 642 CR (9,15,498 Shares @ INR 7015.05 per share) was received by NNIH, for allotting shares to NBC Universal Inc and Universal Studios International BV.

It was observed that during immediately succeeding FY 2009-10, same shares were bought Buy NDTV BV for INR 58.08 Cr (INR 634.17 per share) This Transaction resulted in a Claim of loss amounting of INR 584.45 Crores for USBV and simultaneously resulted in an undisclosed Income of INR 642.54 crores in the Books of Accounts of NDTV Group.

Undisclosed Income of INR 642.54 CR appeared in Books of NDTV through the following manner:

Trail 1

1. Out of 643 Crore, NDTV Networks BV invested INR 389 Crores in NDTV (Mauritius) Media Limited, a 100% subsidiary of NDTV.
2. NDTV (Mauritius) Media Limited invested 387.59 crores in NDTV studios Limited on 29.09.2008 [NDTV (Mauritius) Media Limited merged in NDTV One Holdings Limited, Mauritius on 30.09.2011]
3. NDTV Studios Limited merged in NDTV w.e.f 01.04.2010.

Trail 2

1. Out of 643 Crore, NDTV Networks BV advanced INR 254.75 crore as unsecured loan to NDTV Networks PLC, UK (NNPLC)
2. NNPLC Liquidated and merged in NDTV One Holdings Limited on 30.09.2011.
3. NDTV One Holdings Limited merged in NDTV on 02.11.2012

The AO has alleged that the transaction is a sham and is designed to route the assessee’s undisclosed money through its subsidiary. This finding has been upheld by the Dispute Resolution Panel(DRP) and a sum of INR 642 crore has been directed to be assessed as the assesses undisclosed income u/s 69A of the Act.

The AO has also issued a notice u/s 271(1)(c) of the Act dated 15th June 2016 for levying a penalty of INR 436 crore being 200% of the tax sought to be evaded on the addition of INR 642 crore.

Provision of the Act:

Section 69A of Income Tax Act, 1961:- Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable articles may be deemed to be the income of the assessee for such financial year.

Allegation by Dy. Commissioner of Income tax through show Cause Notice:

1. NNIH & NNPLC had no Business Activities. NNIH is Holding Company and NNPLC incorporated to promote the interest of NNIH and other group Companies. NNPLC did not have other business activities. NNPLC did not have any employee in the UK. Apart from incorporation in the UK, NNPLC has no Business in the UK. The subscription of Shares of Value around INR 50/- per share by USBV was @ INR 7015/- per share i.e. 140 times of face Value.
2. Before purchasing the subscription, universal Studios International BV (USBV)) did not even obtain Independent Valuation from Third Party.
3. The whole transaction had no commercial purpose or economic substance and purpose was merely to evade tax and to constitute sham or bogus Transaction.
4. After lifting of Corporate Veil, the DRP finds that in case a sum of INR 642,54,22,000/- has been found credited in the books of Assesse/its Subsidiary.
5. Assessee’s theory of having “sold a Dream” to the investor has not been sustained by any creditable evidence.
6. No justification of Buyback of Shares
7. NDTV BV (Subsidiary of NDTV) has been subsequently Liquidated, Which shows that it is created to introduce the amount.
8. Agreement dated 23.05.2008 had no evidentiary Value it was neither apostille nor signed by any of the parties.
9. NNIH is shell Company 100% owned by NDTV it had no assets, employee business or commercial activities. Direct ownership of shell Company NDTV Networks BV & Indirect Ownership of shell Company NNPLC.
10. After receiving money of INR 642.48 Cr from USBV, NNIH immediately declared dividend terming “freely Distributable Reserve” out of securities Premium Account, to NDTV Networks BV whereas no dividend was distributed to USBV which was 31.40% Shareholder.
11. Director of Assesse Company, admitted that rationale behind Creation of Plethora of Foreign subsidiaries, is to evade restriction on FDI in news channel is up to 26%, but subsequent events reveal that the Fund was Introduced in Companies Connected with entertainment Channel (Like NDTV Imagine Limited in which 100% FDI is permissible & which can introduce through normal Channels)

From above points it was clear that Money introduced to USBV was not at all Investment to be made in USBV, rather it was sham transaction to introduced amounting to INR 600 crore in NDTV by showing it as investment, immediately Converting it to Dividend, Distributing Dividend to NDTV subsidiary only to exclusion of the shareholder& then route it in a Circuitous manner through foreign Subsidiaries till it Finally reached NDTV.

Conclusion:

In view of the above facts & circumstances of the case which involve active, deliberate and planned concealment & Misrepresentation of Facts.

Present Status of the Case:

At present this case is pending with Income Tax Appellate Tribunal for Final Disposal.