M/s. Bhoruka Realty & Services Ltd, Bangalore V. DCIT, Bangalore

ITA 1139/BANG/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1551 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-02-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 08-10-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Benefit of exemption; Capital Gains

Judgement Text

ITA.1139/BANG/2010 PA GE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'A', BANGALORE BEFORE DR. O. K. NARAYANAN, VICE PRESIDENT AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER I.T.A NO.1139/BANG/2010 (ASSESSMENT YEAR : 2006-07) M/S. BHORUKA ENGINEERING INDS. LTD., NOW KNOWN AS M/S. BHORUKA REALTY & SERVICES LTD.,) WHITEFIELD ROAD, MAHADEVAPURA POST, BANGALORE 560 048 .. APPELLANT V. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 11(2), BANGALORE .. RESPONDENT APPELLANT BY : SHRI. S. PARTHASARATHI, ADVOCATE RESPONDENT BY : SHRI. G. V. GOPALA RAO, COMMISSION ER OF INCOME-TAX -I O R D E R PER DR. O. K. NARAYANAN, VICE PRESIDENT : THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVAN T ASSESSMENT YEAR IS 2006-07. THE APPEAL IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX(A)-I, AT BANGALORE, DATE D.17.08.2010. THE APPEAL ARISES OUT OF THE ASSESSMENT COMPLETED U /S.143(3) OF THE IT ACT, 1961. ITA.1139/BANG/2010 PA GE - 2 2. THE ASSESSEE COMPANY, M/S. BHORUKA ENGINEERING I NDIA LTD., (HEREINAFTER MENTIONED AS BEIL) IS ENGAGED IN THE B USINESS OF FINANCE AND INVESTMENTS. THE ASSESSEE COMPANY HAD INVESTED IN M/S. BHORUKA FINANCIAL SERVICES LTD., (HEREINAFTER MENTIONED AS BFSL) BY HOLDING 45,350 SHARES OF ` .20/- EACH. IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, IN AUGUST, 2005, THE ASSESSEE COMPANY SOLD THE ABOVE HOLDING OF 45,350 SHARES TO M/S. DLF COMMERCIAL DEVELOPERS LTD., (HEREINAFTER MENTIONED AS DLF-CDL) , WHICH IS A SUBSIDIARY OF M/S. DLF UNIVERSAL LTD., THE SALE WA S MADE FOR A CONSIDERATION OF `. 20,29,08,626/- AT THE RATE OF ` 4,490/- PER SHARE. THE ASSESSEE COMPANY THEREBY EARNED CAPITAL GAINS O F ` 20,25,49,549/-. THE CAPITAL GAINS WERE LONG TERM C APITAL GAINS AS THE ASSESSEE COMPANY WAS HOLDING THE SHARES FOR A PERIO D OF MORE THAN ONE YEAR. THE ASSESSEE COMPANY CLAIMED EXEMPTION F ROM TAXATION FOR THE ABOVE SUM OF LONG TERM CAPITAL GAINS ON THE GRO UND THAT THE SALES WERE MADE THROUGH A STOCK EXCHANGE AND SECURITY TRA NSACTION TAX (STT) WAS PAID AS PROVIDED U/S.10(38) OF THE INCOME -TAX ACT, 1961. 3. HOWEVER, THE ASSESSING OFFICER WAS NOT INCLINED TO GRANT EXEMPTION TO THE LONG TERM CAPITAL GAINS AS CLAIMED BY THE ASSESSEE COMPANY FOR VARIOUS REASONS DETAILED IN THE ASSESSM ENT ORDER. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE AND BFSL BELONGED TO SHRI. ITA.1139/BANG/2010 PA GE - 3 S. N. AGARWAL AND HIS FAMILY MEMBERS KNOWN AS BHORU KA GROUP. BFSL, WHOSE SHARES WERE SOLD BY THE ASSESSEE COMPAN Y EVEN THOUGH EXISTED FOR A LONG PERIOD, DID NOT CARRY ON ANY BUS INESS OTHER THAN THE BUSINESS OF FINANCIAL INVESTMENTS OF THE GROUP. BU T IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, BFSL ACQUIRED LAND FOR ` 3.75 CRORES FROM M/S. BHORUKA STEELS LTD., WHICH I S ANOTHER COMPANY OF BHORUKA GROUP. THE LAND VALUE APPEARS I N THE BALANCE SHEET OF BFSL AT ` 4.21 CRORES AS ON 31.3.2005 WHICH INCLUDED DEVELOPMENT EXPENSES AS WELL. THE PROMOTERS OF BFS L HELD 1,98,850 EQUITY SHARES AND 2,550 SHARES ALONE WERE HELD BY P UBLIC SHAREHOLDERS. 4. THE ASSESSING OFFICER FURTHER FOUND THAT EVEN TH OUGH BFSL IS A LISTED COMPANY WITH BANGALORE STOCK EXCHANGE, BUT T HE SALE WAS MADE ON THE FLOOR OF MAGADH STOCK EXCHANGE. BANGAL ORE STOCK EXCHANGE DECLINED TO DEAL WITH THE SHARE TRANSACTIO N OF BFSL FOR REASONS ACCORDING TO THE ASSESSEE COMMUNICATED ORAL LY AND NOT THROUGH ANY WRITTEN COMMUNICATION. ON THE ABOVE BA SIS, THE ASSESSEE APPROACHED MAGADH STOCK EXCHANGE AND GOT THE SHARES SOLD AND TRANSFERRED TO DLF-CDL. THE ASSESSING OFFICER FURT HER HELD THAT MAGADH STOCK EXCHANGE WAS NOT PERMITTED BY SECURITI ES EXCHANGE BOARD OF INDIA (SEBI) TO TRADE IN SHARES AS THE SAI D STOCK EXCHANGE HAD NOT COMPLIED WITH THE CONDITIONS LAID DOWN BY S EBI FOR GRANTING ITA.1139/BANG/2010 PA GE - 4 RECOGNITION TO THE SAID EXCHANGE. THE PERMISSION W AS LATER GRANTED TO MAGADH STOCK EXCHANGE AFTER IT PAID PENALTY TO SEBI , WHEN THE CASE WAS DETERMINED BY THE HON'BLE SUPREME COURT. IT IS THE CASE OF THE ASSESSING AUTHORITY THAT THE TRANSACTION CARRIED OU T WITH THE HELP OF MAGADH STOCK EXCHANGE WHICH AT THAT POINT OF TIME W AS NOT PERMITTED TO DEAL IN SHARES WAS A CLEAR INDICATION TO SHOW TH AT THE SHARE TRANSACTION MADE BY THE ASSESSEE WAS ONLY A COLOURA BLE DEVICE AND IN FACT, WHAT THE ASSESSEE HAD SOLD AND TRANSFERRED TO DLF-CDL WAS A LANDED PROPERTY OF 15 ACRES PURCHASED BY BFSL IN TH E PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THE ASSESSING OFFICER HELD THAT THE PROPERTY WAS PURCHASED BY BFSL IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL AND HA S HELD THAT PROPERTY FOR A PERIOD OF LESS THAN ONE YEAR WHEN TH E SHARES WERE SOLD AND IN THAT WAY THE SAID PROPERTY WAS A SHORT TERM CAPITAL ASSET IN THE HANDS OF BFSL. IF BFSL HAD SOLD THE LAND AS SUCH, TO DLF-CDL, BFSL WOULD HAVE BEEN LIABLE TO PAY SHORT TERM CAPIT AL GAINS TAX WHICH AFFECTS NOT ONLY THE SAID COMPANY, BUT THE WHOLE OF BHORUKA GROUP TO WHICH THE ASSESSEE COMPANY ALSO BELONGED. IT WOULD HAVE ALSO BEEN NECESSARY ON THE PART OF DLF-CDL TO INCUR REGISTRAT ION CHARGES ON THE PURCHASE OF LAND FROM BFSL IF THE LAND WAS PURCHASE D AS SUCH. IN ORDER TO OVER COME THE ABOVE STATED TAX AND FINANCI AL LIABILITIES, THE ASSESSEE GROUP MADE SUCH A COLOURABLE DEVICE THAT I NSTEAD OF BFSL ITA.1139/BANG/2010 PA GE - 5 DIRECTLY SELLING THE LANDED PROPERTY TO DLF-CDL, TH E BHORUKA GROUP INCLUDING THE ASSESSEE COMPANY SOLD ITS SHARES TO D LF-CDL THROUGH WHICH THE LANDED PROPERTY HAS ITSELF BEEN TRANSFERR ED TO DLF-CDL. HAVING COME TO A CONCLUSION THAT THE ENTIRE TRANSAC TION WAS IN THE NATURE OF A COLOURABLE DEVICE, THE ASSESSING AUTHOR ITY APPLIED THE RATIO LAID DOWN BY THE SUPREME COURT IN MCDOWELL'S CASE ( 1985) 154 ITR 148 AND HELD THAT AS THE SURPLUS CAPITAL GAINS ARIS ING TO THE ASSESSEE COMPANY SHOULD BE TREATED AS A SURPLUS ARISING ON A CCOUNT OF THE SALE OF SHORT-TERM CAPITAL ASSET IN THE NATURE OF LANDED PROPERTIES AND AS SUCH THE ASSESSEE IS LIABLE FOR SHORT-TERM CAPITAL GAINS TAXATION. 5. ACCORDINGLY, THE ASSESSING AUTHORITY TREATED THE SURPLUS CAPITAL GAINS OF ` 20,25,49,549/- AS SHORT-TERM CAPITAL GAINS TAXABLE IN THE HANDS OF THE ASSESSEE AS AGAINST THE EXEMPTION CLAI MED BY IT. IN FIRST APPEAL THIS WAS CONFIRMED BY THE COMMISSIONER OF IN COME-TAX(A). THE ASSESSEE IS AGGRIEVED AND THEREFORE THE SECOND APPEAL BEFORE US. 6. THE GROUNDS RAISED BY THE ASSESSEE COMPANY IN TH E PRESENT APPEAL READ AS BELOW : I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE COMMISSIONER OF INCOME-TAX(A) ERRED IN UPHOLDING TH E DECISION OF THE ASSESSING AUTHORITY IN DETERMINATIO N OF ITA.1139/BANG/2010 PA GE - 6 SHORT TERM CAPITAL GAINS OF ` 20,25,49,549/- AND INCLUDING FOR TAXATION IN THE CASE OF THE APPELLANT. II) THE LEARNED COMMISSIONER (A) OUGHT TO HAVE APPRECIA TED THAT THE TRANSACTION IN SHARES OF BFSL HELD BY THE APPELLANT WITH DLF COMMERCIAL DEVELOPERS LTD., (DLFCDL) WAS GENUINE AND THE APPELLANT HAVING PAID SECURITIES TRANSACTION TAX, THE CAPITAL GAINS EXEMP TED FROM TAXATION U/S.10(38) OF THE ACT. III) THE LEARNED COMMISSIONER (A) OUGHT TO HAVE APPRECIA TED THAT THE TRANSACTION OF THE APPELLANT WAS LEGAL AND CONSEQUENTLY IT HAS NO TAX LIABILITY UNDER THE ACT IN RESPECT OF THE SAID TRANSACTION AND ACCORDINGLY HE OUGHT TO HAVE REFRAINED FROM UPHOLDING THE IMPUGNED ADDITION OF T HE ASSESSING AUTHORITY WHICH WAS MADE ONLY ON SURMISES . IV) THE LEARNED COMMISSIONER (A) IN HIS PERVERSE ORDER HELD THAT THE RATIO OF THE HON'BLE SUPREME COURT JUDGEME NT IN MCDOWELL'S CASE WOULD APPLY, WHEREAS THE SUPREME CO URT HAD ALREADY EXPLAINED IN THE CASE OF UNION OF INDIA AND ANOTHER V. AZADI BACHAO ANDOLAN AND ANOTHER REPORTE D IN (2003) 263 ITR 706 (SC) AND ALSO RECENT JUDGEMEN T OF THE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. WALFORT SHARE & STOCK BROKERS LTD REP ORTED IN 326 ITR 1 (SC) HAD EXPLAINED THE IMPORT OF THE D ECISION OF THE SUPREME COURT IN MCDOWELL'S AND CONSEQUENTLY THE TRANSACTION OF THE APPELLANT BEING GENUINE, THE SHO RT TERM CAPITAL GAINS AS COMPUTED BY THE LEARNED ASSESSING AUTHORITY WAS LIABLE TO BE DELETED. V) THE SURMISE OF THE LEARNED COMMISSIONER (A) IS VERY EVIDENT FROM HIS OBSERVATIONS THAT THE APPELLANT HA D ITA.1139/BANG/2010 PA GE - 7 DELIBERATELY AND CONSCIOUSLY ADOPTED A COLORABLE DE VICE TO GET RID OF THE CAPITAL GAINS TAX AND ALSO IN THE MIS- STATEMENT OF FACT LIKE THAT THE APPELLANT WAS NOT A LLOWED T0 TRANSACT IN THE BANGALORE STOCK EXCHANGE AND BUT FO R MAGADH STOCK EXCHANGE THE APPELLANT WOULD NOT HAVE BEEN SUCCESSFULLY IN CARRYING OUT ITS TRANSACTION A ND THE CONCLUSION DRAWN BY HIM WAS PURELY ON SURMISES AND CONSEQUENTLY THE IMPUGNED ADDITION AS SUSTAINED BY HIM IS LIABLE TO BE DELETED. VI) WITHOUT PREJUDICE THE LEARNED COMMISSIONER (A) OUGH T TO HAVE APPRECIATED THAT BFSL BEING A LIMITED COMPANY WHICH WAS THE OWNER OF THE LAND, EVEN THE TRANSACTI ON WAS HELD TO BE TRANSFER OF LAND FOR CONSIDERATION THE C APITAL GAINS WAS REQUIRED TO BE ASSESSED ONLY IN THE HANDS OF THE COMPANY NAMELY BFSL AND EVEN ON THIS GROUND THE IMPUGNED ADDITION IN THE HANDS OF THE APPELLANT WAS OPPOSED TO LAW AND LIABLE TO BE DELETED. VII) WITHOUT PREJUDICE, THE ADDITION IS ARBITRARY, UNREA SONABLE, AND EXCESSIVE AND OUGHT TO BE DELETED. VIII) THE LEARNED COMMISSIONER (A) ERRED IN CONFIRMING TH E INTEREST U/S.234B AND234D OF THE ACT. 7. WE HEARD SHRI. S. PARTHASARATHI, THE LEARNED ADV OCATE APPEARING FOR THE ASSESSEE COMPANY. THE LEARNED COUNSEL CONT ENDED THAT THE ASSESSEE COMPANY, I.E., BEIL WAS HOLDING THE SHARES IN BFSL SINCE LONG. BFSL PURCHASED THE LANDED PROPERTY FROM ANOT HER GROUP COMPANY M/S. BHORUKA STEELS LTD., ONLY IN THE PREVI OUS YEAR RELEVANT ITA.1139/BANG/2010 PA GE - 8 TO THE ASSESSMENT YEAR UNDER APPEAL. THE PURCHASE OF LANDED PROPERTY MADE BY BFSL IS AN ENTIRELY DIFFERENT TRANSACTION W ITH WHICH THE ASSESSEE HAD NOTHING TO DO WITH. THE ASSESSEE IS O NLY A SHAREHOLDER. THE PROPERTY WAS PURCHASED BY BFSL IN ITS OWN NAME AND UNDER ITS OWN AUTHORITY AND BY USING ITS OWN FUNDS. THE ASSE SSEE, BEIL, BFSL, DLD-CDL ARE ALL LAWFULLY ESTABLISHED CORPORATE ENTI TIES DIFFERENT AND DISTINCT FROM EACH OTHER AND THEREFORE THE TRANSACT ION CARRIED OUT BY BFSL CANNOT BE CONSTRUED AS A TRANSACTION IN THE HA NDS OF BEIL. WHAT THE ASSESSEE- BEIL SOLD TO DLF-CDL WAS ITS SHA RES IN THE CAPITAL OF BFSL AND NOT ANY LANDED PROPERTY. FOR T HAT MATTER THE ASSESSEE BEIL DOES NOT HAVE SUCH LANDED PROPERTY TO BE SOLD. IN THESE CIRCUMSTANCES, ALL THE FINDINGS MADE BY THE ASSESSI NG AUTHORITY ARE BASED ONLY ON SURMISES AND FAR FETCHED IMAGINATION. 8. THE LEARNED COUNSEL ARGUED THAT THERE IS NO COLO URING OF ANY TRANSACTION IN THE PRESENT CASE AS EVERY TRANSACTIO N IS TRANSPARENT. BFSL HAD PURCHASED LANDED PROPERTY IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THAT IS NOT A TR ANSACTION WITH WHICH THE ASSESSEE BEIL HAD ANY CONNECTION. THE DECISION OF BEIL TO SELL ITS SHARES IN BFSL TO DLF-CDL IS ANOTHER INDEPENDEN T TRANSACTION NOTHING TO DO WITH PURCHASE AND SALE OF IMMOVABLE P ROPERTIES. THE CASE OF THE ASSESSING AUTHORITY IS THAT THE SURPLUS ARISING IN THE HANDS ITA.1139/BANG/2010 PA GE - 9 OF THE ASSESSEE IS SHORT-TERM CAPITAL GAINS ON THE GROUND THAT WHAT WAS SOLD BY THE ASSESSEE IS LAND AND NOT SHARES. THERE IS NO BASIS FOR SUCH A FINDING AT ALL. THE ASSESSEE COMPANY NEVER OWNED SUCH A PIECE OF LAND. THEREFORE, THERE IS NO QUESTION OF THE ASSES SEE SELLING THE LAND TO DLF-CDL AND EARNING SHORT-TERM CAPITAL GAINS LIABLE FOR TAXATION. 9. THE LEARNED COUNSEL DISTINGUISHED THE FACTS OF T HE PRESENT CASE FROM THAT OF THE DECISION OF THE HON'BLE SUPREME CO URT IN THE CASE OF MC DOWELL & CO. V. CTO (154 ITR 148) AND PLACED HEA VY RELIANCE ON THE JUDGEMENTS OF THE HON'BLE SUPREME COURT RENDERE D IN THE CASES OF UNION OF INDIA AND ANOTHER V. AZADI BACHAO ANDOLAN AND ANOTHER (263 ITR 706) AND COMMISSIONER OF INCOME-TAX V. WAL FORT SHARE & STOCK BROKERS LTD., (326 ITR 1). 10. SHRI. G. V. GOPALA RAO, THE LEARNED COMMISSIONE R OF INCOME- TAX APPEARING FOR THE REVENUE ON THE OTHER HAND CON TENDED THAT THE ONLY ASSET OWNED BY BFSL WAS THE LANDED PROPERTY PU RCHASED IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL AND BY TRANSFERRING THE ENTIRE SHARES OF BFSL IN FAVOUR OF DFL-CDL BY WAY OF SALE, VIRTUALLY THE LANDED PROPERTY ITSELF HAS B EEN SOLD AND THE SALE AND TRANSFER OF SHARES WERE ONLY A COLOURABLE MEDIU M TO ESCAPE FROM THE LIABILITY OF SHORT-TERM CAPITAL GAINS TAXATION. ITA.1139/BANG/2010 PA GE - 10 11. THE LEARNED COMMISSIONER OF INCOME-TAX ARGUED THAT EVEN THOUGH BFSL IS A COMPANY LISTED IN THE BANGALORE ST OCK EXCHANGE, THE TRANSACTION OF THE SALE OF ITS SHARES BY THE AS SESSEE COMPANY AND ITS GROUP ASSOCIATES WERE CARRIED OUT IN MAGADH STOCK E XCHANGE AND THE ASSESSEE HAS NOT STATED ANY CONVINCING REASONS FOR SUCH A SWITCH OVER FROM BANGALORE TO BIHAR. MAGADH STOCK EXCHANGE WAS NOT PERMITTED AT THAT POINT OF TIME TO DEAL IN SHARE TRANSACTIONS . THE ASSESSEE WANTED AN AVENUE TO MAKE WAY FOR PAYING SECURITY TRANSACTI ON TAX (STT) SO THAT THE ASSESSEE COULD MAKE ITS CLAIM OF EXEMPTION U/S.10(38) OF THE IT ACT, 1961. THE ASSESSEE COMPANY HAS USED DUBIOU S METHODS TO TAKE THE TRANSACTIONS TO MAGADH STOCK EXCHANGE INST EAD OF BANGALORE STOCK EXCHANGE AND THAT TOO ONLY FOR THE PURPOSE OF AVAILING THE BENEFIT OF EXEMPTION PROVIDED U/S.10(38) FOR PAYMEN T OF STT. IT IS FOR THIS REASON THE LEARNED COMMISSIONER ARGUED THAT TH E REVENUE IS HIGHLY RELYING ON THE JUDGEMENT OF THE HON'BLE SUPR EME COURT RENDERED IN THE CASE OF MCDOWELL & CO., (154 ITR 14 8) FOR THE FINDING OF THE ASSESSING AUTHORITY THAT THE ENTIRE TRANSACTION WAS A COLOURABLE DEVICE. HE, THEREFORE, SUBMITTED THAT T HE APPEAL FILED BY THE ASSESSEE MAY BE DISMISSED. ITA.1139/BANG/2010 PA GE - 11 12. WE HEARD BOTH SIDES IN DETAIL AND CONSIDERED TH E MATTER CAREFULLY. THE ASSESSEE COMPANY BEIL, OTHER COMPAN Y BFSL, BHORUKA STEELS LTD., ARE ALL CLOSELY HELD GROUP COM PANIES OWNED BY AGARWAL GROUP. EVEN THOUGH BEIL, BFSL AND BHORUKA STEELS LTD ARE DIFFERENT CORPORATE ENTITIES FOR THE PURPOSE OF COM PANIES ACT, THEY ARE ALL CONTROLLED BY THE SAME INTEREST GROUP OF AGARWA L FAMILY AS COMMON SHAREHOLDERS WHICH IS VERY PROMINENT IN THE ENTIRE COURSE OF TRANSACTION INVOLVED IN THE PRESENT APPEAL. THE AS SESSEE COMPANY ALONG WITH THE INDIVIDUALS BELONGING TO THE AGARWAL GROUP HAD ENTERED INTO AN AGREEMENT ON 20.07.2005 WITH DLF-CDL TO SEL L THE SHARES IN BFSL TO THAT COMPANY, DLF-CDL. AS PER THE AGREEMEN T ITSELF, THE ASSESSEE, ITS GROUP OF INDIVIDUALS TOGETHER HELD 1, 88,850 EQUITY SHARES REPRESENTING 98.73% OF FULLY PAID-UP EQUITY CAPITAL OF BFSL. FACTS SPEAK FOR THEMSELVES. WHEN THE ASSESSEE AND ITS GR OUP ASSOCIATES ALONG WITH THE CONCERNED INDIVIDUALS OF THE SAME GR OUP HELD 98.73% OF THE SHARES IN BFSL, IT MEANS WITHOUT ANY CONTRAD ICTION THAT THE ASSESSEE ALONG WITH ITS GROUP OWNED ALL THE ASSETS AND PROPERTIES OF BFSL EVEN THOUGH THOSE ASSETS AND PROPERTIES ARE TE CHNICALLY HELD IN THE NAME OF BFSL AS AN INDEPENDENT CORPORATE ENTITY . ONCE THIS CORPORATE VEIL IS PIERCED, WHICH IS WITHIN THE POWE RS OF THE REVENUE AUTHORITIES, WE FIND THAT THE PROPERTIES AND ASSETS OF BFSL WERE HELD AND DE FACTO OWNED BY THE ASSESSEE COMPANY AND ITS GROUP. BFSL, A ITA.1139/BANG/2010 PA GE - 12 COMPANY SINCE LONG IN EXISTENCE WAS ENGAGED ONLY IN FINANCIAL SERVICES RELATING TO THE INVESTMENTS OF ASSESSEE GR OUP. THE PROPERTY WAS PURCHASED FROM ANOTHER ASSOCIATE CONCERN BHORUK A STEELS LTD., FOR A CONSIDERATION OF ` 3.75 CRORES. THIS PROPERTY PURCHASED FOR ` 3.75 CRORES HAS BECOME SUBSTANTIALLY THE PROPERTY O F DLF-CDL WHEN 98.73% IN BFSL WERE TRANSFERRED TO DLF-CDL ON SALE. DLF-CDL, WHICH IS A REAL ESTATE COMPANY, BY PURCHASING 98.73 % OF SHARES IN BFSL HAS IN FACT ACQUIRED THE OWNERSHIP AND POSSESS ION OF THE LANDED PROPERTY WHICH WAS PURCHASED BY BFSL FOR AN AMOUNT OF ` 3.75 CRORES JUST A FEW MONTHS BACK. DLF-CDL HAS ACQUIRE D THE SHARES OF BFSL FOR A CONSIDERATION OF ` 89,28,36,500/-. THE SUBSTANCE OF THE TRANSACTION IS APPARENT NOW. BHORUKA STEELS LTD., SELLS ITS LANDED PROPERTY TO ITS ASSOCIATE CONCERN BFSL FOR A CONSID ERATION OF ` 3.75 CRORES AND IMMEDIATELY THEREAFTER THE SHARES IN BFS L ARE SOLD AND TRANSFERRED TO DLF-CDL FOR A CONSIDERATION OF MORE THAN ` 89 CRORES. IF THE FORMALITIES OF THE TRANSACTIONS AND THE LEGA L NATURE OF THE CORPORATE BODIES ARE IGNORED FOR A MOMENT, THE STAR K FACT COMING TO SURFACE IS THAT THE ASSESSEE'S GROUP HAS SOLD THE PROPERTY BELONGING TO ONE OF ITS CONCERN TO DLF-CDL FOR A CONSIDERATION O F MORE THAN ` 89 CRORES THROUGH THE MEDIUM OF SALE AND TRANSFER OF S HARES WHICH PROPERTY WAS PURCHASED FOR ` 3.75 CRORES AND THEREBY MADE ATTEMPT TO AVOID PAYMENT OF SHORT-TERM CAPITAL GAINS TAX. IF THIS IS NOT A ITA.1139/BANG/2010 PA GE - 13 COLOURABLE DEVICE, THEN WHAT WOULD BE A COLOURABLE DEVICE ? THE ONLY PROPERTY HELD BY BFSL WAS THE LANDED PROPERTY WHICH WAS ACQUIRED BY IT FOR A LESSER AMOUNT OF ` 3.75 CRORES FROM ITS OWN ASSOCIATE CONCERN WHICH HAS BEEN TRANSFERRED TO DLF-CDL THROU GH THE MEDIUM OF SALE OF SHARES FOR A HUGE SUM OF ` 89,28,36,500/-. 13. THEREFORE, WE HAVE TO SEE THAT THE SERIES OF TR ANSACTIONS WERE WELL PLANNED SCHEME SO AS TO TRANSFER VALUABLE LAND ED PROPERTIES TO DLF-CDL WITHOUT ATTRACTING CORRESPONDING LIABILITY OF TAX. THE WHOLE TRANSACTION HAS BEEN ARRANGED IN A SEQUENTIAL MANNER WITH M/S. BHORUKA STEEL LTD SELLING ITS LANDED PROPERTY TO BF SL FOR A NOMINAL VALUE OF ` 3.75 CRORES ; BFSL NEVER BEFORE DOING ANY BUSINESS OTHER THAN FINANCIAL SERVICES PURCHASES THE LAND FOR ` 3.75 CRORES ; IMMEDIATELY THEREAFTER THE ASSESSEE COMPANY AND ITS ENTIRE GROUP HOLDING 98.73% OF SHARES IN BFSL SELLING THE SHARE HOLDING TO DLF- CDL FOR A CONSIDERATION OF ` 89,28,36,500/- WITHOUT ATTRACTING ANY LEVY OF TAXATION. THIS EPISODE HAS BEEN MADE POSSI BLE BY GETTING AWAY FROM BANGALORE STOCK EXCHANGE AND GOING TO MAG ADH STOCK EXCHANGE TO CARRY OUT THE SALE TRANSACTION OF SHARE S AND BY PAYING STT FOR CLAIMING EXEMPTION FROM LONG-TERM CAPITAL G AINS ARISING ON SALE OF SHARES U/S.10(38) OF THE IT ACT, 1961. ITA.1139/BANG/2010 PA GE - 14 14. THE ASSESSEE COMPANY AND ITS GROUP HAVE ON THE FACE OF IT SOLD THEIR SHARE HOLDING IN BFSL, BUT IN FACT, SOLD LAND ITSELF TO DLF-CDL AND AT THE SAME TIME GIVING A COLOUR OF EXEMPTED LO NG-TERM CAPITAL GAINS AGAINST THE SHORT-TERM CAPITAL GAINS ARISING ON THE TRANSFER OF THE LANDED PROPERTY. 15. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THIS IS A CLEAR CASE OF COLOURABLE DEVICE TO EVADE PAYMENT OF TAXATION ON SHORT- TERM CAPITAL GAINS. BY SELLING THE SHARES TO DLF-C DL, THE ASSESSEE COMPANY AND ITS ASSOCIATES HAVE IN FACT SOLD THE AS SETS AND PROPERTIES OF BFSL WHICH INCLUDED THE LAND AS WELL, WHICH IF S OLD IN THE NORMAL COURSE, WOULD BE ANSWERABLE TO LEVY OF SHORT-TERM C APITAL GAINS TAXATION. 16. THE FACTS AND DETAILS OF THE CASE AND THE CIRCU MSTANCES ARE VERY WELL EXPLAINED IN THE ASSESSMENT ORDER AND IN THE O RDER OF THE COMMISSIONER OF INCOME-TAX(A). WE ARE NOT RECITING THOSE FACTS AND DETAILS EXCEPT WHERE IT IS VERY ESSENTIAL, FOR FEAR OF REPETITION. BUT ON THE BASIS OF OUR FINDINGS ARRIVED AT IN THE ABOVE P ARAGRAPHS, WE HOLD THAT THE COMMISSIONER OF INCOME-TAX(A) HAS RIGHTLY TREATED THE SURPLUS ARISING ON THE SALE OF SHARES AS SHORT TERM CAPITAL GAINS LIABLE ITA.1139/BANG/2010 PA GE - 15 FOR TAXATION. THE COMMISSIONER OF INCOME-TAX(A) IS JUSTIFIED IN UPHOLDING THE SAID ASSESSMENT ORDER. 17. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THURSDAY, THE 10TH DAY OF FEBRU ARY, 2011, AT BANGALORE. SD/- SD/- (P. MADHAVI DEVI) (DR. O. K. NARAYANAN) JUDICIAL MEMBER VICE PRESIDENT