ACIT, New Delhi V. M/s Gyan Enterprises Pvt. Ltd., New Delhi

ITA 1594/DEL/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7399 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 02-06-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 09-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K JAISWAL
• Assessee Lawyers: AJAY MARWAH
• Keywords: Reopening of assessment; Capital asset; Business income; Share purchase agreement

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A , NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA NO S . 1594 /DEL/20 1 0 AY: 200 4 - 05 & ITA NO S . 1595 /DEL/20 1 0 AY: 200 6 - 07 ACIT, CENTRAL CIRCLE 5 VS. GYAN ENTERPRISES PVT.LTD. NEW DELHI 4 TH FLOOR, PUNJABI BHAWAN 10, ROUSE AVENUE NEW DELHI 110 055 PAN: AAACG 0512 G ITA NO S . 1596 /DEL/20 1 0 AY: 200 4 - 05 & ITA NO S . 1597 /DEL/20 1 0 AY: 200 6 - 07 ACIT, CENTRAL CIRCLE 5 VS. SH. AMIT BURMAN NEW DELHI 4 TH FLOOR, PUNJABI BHAWAN 10, ROUSE AVENUE NEW DELHI 110 055 PAN: AAAPB 4012 D I TA NO. 1598 /DEL/20 1 0 AY: 200 4 - 05 & ITA NO. 1599 /DEL/20 1 0 AY: 200 6 - 07 ACIT, CENTRAL CIRCLE 5 VS. SMT. ASHA BURMAN NEW DELHI 4 TH FLOOR, PUNJABI BHAWAN 10, ROUSE AVENUE NEW DELHI 110 055 PAN: AAAPB 0966 C ( A PPELLANT ) (RESPONDENT) 2 A PPELLANT BY : SHRI K.K.JAISWAL, D.R. RESPONDENT BY : SH. M.P.RASTOGI, ADV. AND SH. AJAY MARWAH, C.A. ORDER PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER ALL THESE APPEALS ARE FILED BY THE REVENUE. AS THE ISSUE ARISING IN ALL THESE APPEALS ARE COMMON, FOR THE SAKE OF CONVENIENCE THEY ARE HEARD TOGETHER AND DISPOSED OF BY WAY OF THIS COMMON ORDER. 2 . FACTS IN BRIEF : - THE FACTS ARE BROUGHT OUT FROM PARA 3.1 TO PARA 3.6 OF THE LD.CIT(APPEALS) S ORDER PERTAINING TO THE ASSESSMENT YEAR (HEREINAFTER REFERRED TO AS THE A.Y.) 2006 - 07, WHICH IS EXTRACTED FOR READY REFERENCE. 3.1. THE FACTS OF THE CASE ARE THAT THE ASSESSEE AND TWO OTHER PERSONS, NAMELY MR. AMIT BURMAN AND MRS. ASHA BURMAN WERE THE SHAREHOLDERS OF ANOTHER COMPANY M/S TROJAN DEVELOPERS PVT. LTD. 3.2. OUT OF SUCH HOLDINGS, THE ASSESSEE AND THE OTHER TWO PERSONS, VIZ. MR. AMIT BURMAN AND MRS. ASHA BURMAN, HAD ENTERED INTO AN AGREEMENT FOR THE SALE OF 61,999, 5,989 AND 15,999 SHARES RESPECTIVELY WITH MR. ARVIND KHANNA AND HIS WIFE MRS. SHAGUN KHANNA ON 30 TH OCTOBER 2003 FOR THE SALE OF SU CH SHARES. AS PER THE AGREEMENT, THE TOTAL SALE CONSIDERATION WAS FIXED AT RS.5,03,00,000/ - , OUT OF WHICH THE BUYERS HAD PAID AN ADVANCE AMOUNT OF RS.40 LAKHS ON THE DATE OF THE AGREEMENT ITSELF AND FURTHER AGREED TO PAY RS. ONE CRORE WITHIN 24 MONTHS FROM THE DATE OF THE AGREEMENT AND THE BALANCE AMOUNT OF RS.3.63 CRORE WAS TO BE PAID ON OR BEFORE 31 ST MARCH 2006, WHICH IS THE CLOSING DATE OF THE AGREEMENT. 3 . 1 THE RELEVANT EXTRACTS OF ARTICLES TO THE AGREEMENT ARE AS UNDER: 2.1. PURCHASE OF SALE SHARES. UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THIS AGREEMENT, AT THE CLOSING, THE SELLING SHAREHOLDERS SHALL SELL TO THE PURCHASER, AND THE PURCHASER SHALL PURCHASE FROM THE SELLING SHAREHOLDERS THE SALE SHARES, FREE AND CLEAR OF ANY ENCUMBRANCES. THE PURCHASER AND SELLING SHAREHOLDERS AGREE THAT THE PURCHASE AND SALE OF SALE SHARES SHALL BE CARRIED OUT BY SALE AND PURCHASE OF 989 SHARES BY AB2 TO SK AND THE SALE OF 61,999 SHARES, 15,999 SHARES AND 5,000 SHARES BY GEPL, AB1 AND AB2 RESPECTIVELY TO A K. 3 3 . 1 CLOSING. SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT, THE SALE OF THE SALE SHARES BY THE SELLING SHAREHOLDERS TO THE PURCHASER (THE CLOSING ) SHALL TAKE PLACE ON OR BEFORE THE CLOSING DATE AT WHICH TIME THE SELLING SHAREHOLDERS' SHALL DELIVE R TO THE PURCHASERS THE FOLLOWING: ( A ) SHARE CERTIFICATES AND TRANSFER DEEDS IN RESPECT OF SALE SHARES DULY EXECUTED BY THE RESPECTIVE SELLING SHAREHOLDERS; ( B ) RECEIPTS EVIDENCING RECEIPT BY EACH OF THE SELLING SHAREHOLDERS OF THE PURCHASE PRICE; ( C ) THE RESIGNATION LETTERS OF EACH OF THE DIRECTORS OF THE COMPANY, AND OF THE AUDITORS; ( D ) A CERTIFIED COPY OF THE RESOLUTION ADOPTED BY THE BOARD OF DIRECTORS OF GEPL AUTHORIZING THE SALE OF SHARES; ( E ) THE BOOKS AND RECORDS INCLUDING BUT NOT LIMITED, TO ORIGINAL MINUTE BOOKS OF THE COMPANY AND ALL OTHER REGISTERS OR RECORDS STATUTORILY REQUIRED TO BE MAINTAINED BY THE COMPANY UNDER THE COMPANIES ACT. ( F ) ALL TITLE DEEDS, AGREEMENTS, DOCUMENTS, CORRESPONDENCE, APPROVALS, PERMISSIONS, SANCTIONS, APPLICATION AND ANY OTHER DOCUMENT RELAT ING TO OR IN CONNECTION WITH ALL ASPECTS OF THE COMPANY INCLUDING THE REAL PROPERTIES AND REAL PROPERTY LEASES OWNED BY THE COMPANY. 3 . 2 DELIVERIES BY THE PURCHASER. AT THE CLOSING, THE PURCHASER SHALL DELIVER OR CAUSE TO BE DELIVERED TO THE SELLING SHAREHOLDE RS,THE PURCHASE PRICE. THE PURCHASERS SHALL WITHIN 60 DAYS OF PAYMENT OF PURCHASE PRICE DELIVER TO THE SELLING SHAREHOLDERS THE ROC ACKNOWLEDGED FORM - 32, FORM - 18 ETC. OF DUE COMPLIANCE HAVING BEEN MADE BY THE PURCHASERS WITH RESPECT TO' CHANGE OF DIRECTORS AND REGISTERED OFFICE OF THE COMPANY. 3 . 3 ACTIONS BY THE COMPANY. AT THE CLOSING, THE BOARD OF DIRECTORS OF THE COMPANY SHALL: ( A ) ELECT (NOMINEES OF THE PURCHASER) AS DIRECTORS OF THE COMPANY; ACCEPT THE RESIGNATIONS OF THE EXISTING DIRECTORS AND AUDITORS OF THE COMPANY; (B) RECORD THE TRANSFER OF THE SALE SHARES FROM THE SELLING SHAREHOLDERS TO THE PURCHASER. 6 . 1 CONDUCT OF BUSINESS. DURING THE PERIOD FROM THE DATE OF THIS AGREEMENT UNTIL THE EARLIER OF THE TERMINATION OF THIS AGREEMENT AND TH E CLOSING DATE, THE SELLING SHAREHOLDERS AND THE COMPANY SHALL NOT IN ANY 4 MANNER EFFECT ANY CHANGES IN THE EXISTING SHAREHOLDERS AND FINANCIAL STRUCTURE OF THE COMPANY AND SHALL NOT ENTER INTO ANY CONTRACTS, INCUR ANY LIABILITY, SELL OR AGREE TO SELL ANY C OMPANY ASSET, RETURN ANY SHARE CAPITAL TO THE SHAREHOLDERS, MAKE ANY CHANGES IN THE BOARD OF DIRECTORS, ISSUE ANY SHARES, ACQUIRE ANY SECURITIES, MAKE ANY ADVANCES OR ENTER INTO ANY COMPROMISE OR ARRANGEMENT RELATING TO ANY RECEIVABLES OF THE COMPANY EXCEP T PAYMENT OF CURRENT TAXES. 6 . 2 NO SOLICITATION. THE SELLING SHAREHOLDERS SHALL NOT, WITH EFFECT FROM THE DATE OF THIS AGREEMENT, ENTER INTO ANY NEGOTIATIONS AT ALL FOR SALE OF THE SALE SHARES UNDER ANY CIRCUMSTANCES WHATSOEVER. 3 . 4 THE PAYMENTS OF THE SALE CONSIDERATION WERE TO BE PAID BY THE BUYERS TO THE SELLERS AS PER SCHEDULE - I OF THE AGREEMENT, WHICH IS REPRODUCED HEREUNDER: PAYMENTS TO THE SELLING SHAREHOLDERS PAYMENT TO THE COMPANY AS UNSECURED LOAN AT THE TIME OF EXECUTION OF THE AGREEMENT GEPL: RS.29,52,794/ - PAID VIDE CHEQUES DT. 30.10.03 BEARING NO.560092 DRAWN ON STANDARD CHARTERED BANK ABI: RS.7,61,974/ - PAID VIDE CHEQUES DT. 30.10.03 BEARING NO.560092 DRAWN ON STANDARD CHARTERED BANK AB2: RS.2,85,232/ - PAID VIDE CHEQUES DT. 30.10.03 BEARIN G NO.560092 DRAWN ON STANDARD CHARTERED BANK SUB TOTAL : RS.40,00,000/ - 5 ON OR BEFORE TWELVE 24 MONTHS OF EXECUTION OF THE AGREEMENT GEPL: RS.73,81,976/ - AB 1: RS.19,04,937/ - AB 2: RS.7,13,087/ - SUB TOTAL : RS. 1,00,00,000/ - ON OR BEFORE MARCH 31, 2006 RS. 3,22,00,000/ - ON OR BEFORE MARCH 31, 2006 GEPL: RS.2,67,93,062/ - AB 1: RS.69,14,320/ - AB 2: RS.25,92,618/ - SUB TOTAL : RS.3,63,00,000/ - UNDER THE AGREEMENT, IT WAS FURTHER AGREED THAT THE PURCHASER SHALL PROVIDE A LOAN OF RS.3,22,00,000/ - TO THE COMPANY M/S TROJAN DEVELOPERS PVT. LTD. TO CLEAR THE OUTSTANDING UNSECURED LOANS PRIOR TO THE COMPLETION OF THE TRANSACTION. BECAUSE THE DURATION OF THE AGREEMENT WAS ABOUT 2 0 YEARS, HENCE CERTAIN RESTRICTIVE CLAUSES WERE ALSO INSERTED UNDER THE AGREEMENT IN ORDER TO SAFEGUARD THE INTEREST OF THE BUYER. SUCH RESTRICTIVE COVENANTS WERE MENTIONED IN ARTICLES 6.1 AND 6.2 OF THE AGREEMENT QUOTED ABOVE. 3 . 5 AS PER THE ASSESSEE , THE TRANSACTION OF SALE OF SHARES WAS COMPLETED DURING THE YEAR UNDER APPEAL WHEN THE ASSESSEE AND OTHER TWO SHAREHOLDERS HAD RECEIVED THE FULL SALE CONSIDERATION AND IN TURN HAD HANDED OVER THE SHARE CERTIFICATES ALONG WITH TRANSFER DEEDS TO THE BUYERS. ACCORDINGLY, THE ASSESSEE AND THE REMAINING TWO SHAREHOLDERS HAD DISCLOSED THE CAPITAL GAIN ON SALE OF SHARES OF THE COMPANY M/S TROJAN DEVELOPERS PVT. LTD. DURING THE YEAR UNDER CONSIDERATION. HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE TRANS FER IN RESPECT OF SUCH SHARES HAS BEEN COMPLETED ON THE DATE OF THE AGREEMENT ITSELF, I.E. ON 30 TH OCTOBER 2003 WHICH FALLS IN ASSESSMENT YEAR 2004 - 05. ACCORDINGLY, THE CAPITAL GAIN ON TRANSFER OF SUCH SHARES ACCRUED IN ASSESSMENT YEAR 2004 - 05 AND SHOULD B E ASSESSED IN THAT YEAR. FOR THIS PURPOSE, THE ASSESSING OFFICER HAD ARRIVED AT THIS FINDING DUE TO THE FOLLOWING REASONS: ( A ) ON THE PURCHASE OF SALE OF SHARES, THE PROVISIONS OF SALE OF GOODS ACT ARE APPLICABLE. THE PROVISION OF SECTION 19 OF THIS ACT STATE S THAT WHERE THERE IS A CONTRACT FOR THE SALE OF SPECIFIC AND CERTAIN GOODS, THE PROPERTY IN THE GOODS PASSES OR TRAVELS TO THE 6 BUYER ON THE DATE WHEN CONTRACT IS MADE AND IT IS IMMATERIAL WHETHER THE TIME OF PAYMENT OF THE PRICE OR THE TIME FOR DELIVERY O F GOODS OR BOTH IS POSTPONED. THE PHYSICAL DELIVERY OF GOODS IS NOT AN ESSENTIAL INGREDIENT OF SALE. ( B ) IT IS NOT THE CASE WHERE THE ASSESSEE SIMPLY INTENDED TO TRANSFER THE SHARES OF A PARTICULAR COMPANY, BUT THROUGH THIS AGREEMENT THE ASSESSEE WAS INTENDED TO TRANSFER THE IMMOVABLE PROPERTY HELD BY THE COMPANY M/S TROJAN DEVELOPERS PVT. LTD. IN FAVOUR OF THE BUYERS. ACCORDINGLY, THE PROVISION OF SECTION 2(47) OF THE INCOME - TAX ACT, 1961 WOULD BE APPLICABLE. ACCORDING TO SECTION 2(47), THE TRANSFER IN RELATI ON TO A CAPITAL ASSET INCLUDES ANY TRANSACTION INVOLVING THE ALLOWING OF THE POSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN PART PERFORMANCE OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT AND SHALL B E DEEMED TO BE A TRANSFER OF THE IMMOVABLE PROPERTY. BECAUSE IN THIS CASE THE COMPANY M/S TROJAN DEVELOPERS PVT. LTD. ENTERED INTO A LEASE AGREEMENT WITH ANOTHER COMPANY M/S DYNAMIC SALES SERVICE INTERNATIONAL PVT. LTD. FOR LEASING THE PROPERTY, I.E. 41A, PRITHVIRAJ ROAD, NEW DELHI AND THUS BY VIRTUE OF THIS AGREEMENT THE PROPERTY PASSED FROM THE HANDS OF THE ASSESSEE AND OTHER TWO SHAREHOLDERS TO THE POSSESSION OF MR. ARVIND KHANNA AND HIS WIFE MRS. SHAGUN KHANNA AND ACCORDINGLY THE SALE HAD IN FACT TAKEN PLACE ON THE DATE OF AGREEMENT, I.E. 30 TH OCTOBER 2003. THEREFORE, THE CAPITAL GAIN WOULD ACCRUE TO THE ASSESSEE ON THAT DATE ITSELF. THE AO FURTHER ALLEGED THAT THE PARTIES TO THIS AGREEMENT HAVE ALSO TREATED THIS AGREEMENT TO SELL THE IMMOVABLE PROPERTY AND FOR THIS PURPOSE THE AO RELIED UPON THE DECISION OF ITAT, DELHI BENCH IN THE CASE OF JCIT VS. RAJAT LAI IN 93 ITD 482. ON SUCH REASONING, THE AO OBSERVED THAT THE CAPITAL GAIN SHOULD HAVE BEEN ASSESSED IN ASSESSMENT YEAR 2004 - 05 AND ON SUCH REASONING T HE AO MADE A SUBSTANTIVE ASSESSMENT IN ASSESSMENT YEAR 2004 - 05 BY INVOKING THE PROVISION OF SECTION 147/148 OF THE IT ACT AND HAD MADE THE ASSESSMENT FOR THE YEAR UNDER APPEAL, I.E. ASSESSMENT YEAR 2006 - 07 ON PROTECTIVE BASIS. 3 . 6 FOR THE PURPOSE OF DETERMINATION OF QUANTUM OF THE CAPITAL GAIN, THE AO HAD REFERRED THE ISSUE FOR DETERMINATION OF THE MARKET VALUE OF THE PROPERTY OWNED BY THE COMPANY M/S TROJAN DEVELOPERS PVT. LTD. TO THE VALUATION CELL U/S 55A OF THE ACT ON 24 TH SEPT EMBER 2003 WHO IN TURN HAD DETERMINED THE MARKET VALUE OF THE SAID PROPERTY AS ON 30 TH OCTOBER 2003 AT 7 RS.9,87,08,000/ - . ON THE BASIS OF THIS MARKET VALUE AS DETERMINED BY THE VALUATION OFFICER, THE AO HELD THAT THE SHARES OF THE COMPANY M/S TROJAN DEVELOP ERS PVT. LTD. HAVING NET ASSET VALUE AT RS.9,87,08,000/ - WOULD NOT BE TRANSFERRED FOR ANY SUM BELOW ANY THIS AMOUNT AND ON THIS BASIS THE AO HELD THAT BESIDES THE AMOUNT SHOWN AS RECEIVED BY THE SHAREHOLDERS, A FURTHER SUM OF RS. 1,62,08,000/ - WAS ALSO REC EIVED BY THE SHAREHOLDERS AS BEING MONEY OVER AND ABOVE THE DECLARED VALUE OF THE SHARES. BESIDES IT, THE AO ALSO WORKED OUT THE CAPITAL GAIN AFTER ADOPTING THE SALE CONSIDERATION UNDER THE AGREEMENT AT RS.8.25 CRORE WHICH ALSO INCLUDES THE AMOUNT OF RS.3. 22 CRORE PROVIDED BY THE BUYERS TO THE COMPANY M/S TROJAN DEVELOPERS PVT. LTD. AS LOAN FOR A SPECIFIC PURPOSE TO DISCHARGE ITS OWN LIABILITY. IN THIS WAY, THE AO HAS FIRST OF ALL WORKED OUT THE PROPORTIONATE CAPITAL GAIN ON SALE OF SHARES IN THE HANDS OF E ACH SHAREHOLDER BY ADOPTING THE SALE CONSIDERATION AT RS.8.25 CRORE PLUS THE PROPORTIONATE ON MONEY OUT OF THE AMOUNT OF RS. 1.62 CRORE. 3. ON APPEAL, THE FIRST APPELLATE AUTHORITY DELETED THE ADDITIONS BY OBSERVING AS FOLLOWS. (A) AS HELD BY THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. MOTOR GENERAL SOURCE PVT.LTD. REPORTED IN 66 ITR 692, IN RESPECT OF COMMERCIAL TRANSACTIONS, WHERE THE TERMS AND CONDITIONS THAT HAVE BEEN EMBODIED IN A WRITTEN AGREEMENT, THE RIGHTS AND LIAB ILITIES OF THE PARTIES HAVE TO BE DECIDED IN ACCORDANCE WITH THE LEGAL RIGHTS THAT ACCRUED TO THE PARTIES UNDER THE AGREEMENT. (B) THE ASSUMPTION OF THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) THAT IN THE INSTANT CASE THE AGREEMENT OF SA LE OF SHARES AS ENTERED INTO BETWEEN THE PERSONS WHO ARE SELLING THE SHARES AND THE PERSONS WHO ARE PURCHASING THE SHARES, IS NOT AN AGREEMENT FOR SALE OF SHARES SIMPLICITOR BUT IN FACT IT IS A SALE OF PROPERTY I.E. 41A, PRITHVIRAJ ROAD, NEW DELHI OWNED BY M/S TROJAN DEVELOPERS PVT.LTD. (TDPL FOR SHORT) IS NOT CORRECT. (C) THE COMPANY IS A JURISTIC PERSON AND CAN HOLD PROPERTY IN THE EYES OF LAW. BY ACQUISITION OF SHARES, A SHAREHOLDER DOES NOT ACQUIRE ANY INTEREST IN THE PROPERTY OWNED BY THE COMPANY. ( D) THE RECONSTRUCTIVE COVENANTS, AS ALLEGED TO HAVE BEEN CONTAINED IN THE AGREEMENT, DO NOT CONFER ANY RIGHT ON THE SHAREHOLDER TO TRANSFER THE PROPERTY OWNED BY THE COMPANY. 8 (E) THE A.O. IS WRONG IN COMING TO A CONCLUSION THAT THE SHARES ARE DEEMED TO HA VE BEEN TRANSFERRED ON THE DATE OF AGREEMENT I.E. 30 TH OCTOBER,2003 IN ACCORDANCE WITH THE PROVISIONS OF S.19 OF THE SALE OF GOODS ACT, 1930,ON THE BASIS OF RESTRICTIVE COVENANTS IN ARTICLE 6(1) OF THE AGREEMENT. U/S 19 OF THE SALE OF GOODS ACT, 1930, GOO DS ARE TRANSFERRED AT SUCH TIME AS THE PARTIES INTEND TO DO SO , AS CAN BE ASCERTAINED FROM THE TERMS AND CONDITIONS OF THE AGREEMENT AND THE CONDUCT OF THE PARTIES. (F) A PERUSAL OF THE TERMS AND CONDITIONS OF THE AGREEMENT LEAD TO A CONCLUSION THAT THE SALE IN RESPECT OF THE SHARES WILL BE COMPLETED ON OR BEFORE THE CLOSING DATE WHEN THE PURCHASERS DELIVER THE SALE CONSIDERATION AND THE SELLERS IN TURN DELIVER S THE SHARE CERTIFICATES ALONG WITH DULY EXECUTED TRANSFER DEEDS. AS PER THE COMPANY RECOR DS, THE SHARES IN QUESTION HAVE BEEN TRANSFERRED IN FEB., 2006 WHICH FALLS IN THE A.Y. 2006 - 07 AND NOT IN THE A.Y. 2004 - 05. RELIANCE WAS PLACED ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF HAMIASBISARA VS. ACIT IN ITA 6402/MUM/2008. ( G ) THE PRESUMPTION OF THE A.O. THAT THE PROVISIONS OF S.2(47) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) R.W.S. 53A OF THE TRANSFER OF PROPERTY ACT IS ATTRACTED, FOR THE REASON THAT, M/S TROJAN DEVELOPERS PVT. LTD. THE OWNER OF THE PROPERTY, HAD LEASED OUT THE PROPERTY TO ANOTHER COMPANY M/S DYNAMIC SALES SERVICES INTERNATIONAL PVT.LTD., A COMPANY IN WHICH THE BUYERS HAVE SUBSTANTIAL INTEREST IS WRONG. HE DISTINGUISHED THE JUDGEMENT OF THE DELHI BENCHES OF THE ITA T IN THE CASE OF JCIT VS. RAJATLAL 93 ITD 482, WHICH WAS RELIED UPON BY THE A.O. ( H ) THE ACTION OF THE A.O. IN ADOPTING THE MARKET VALUE OF THE SAID PROPERTY OWNED BY M/S TROJAN DEVELOPERS PVT. LTD. , AS DETERMINED BY THE DEPARTMENTAL VALUATION OFFICER (D VO), FOR THE PURPOSE OF DETERMINATION OF CAPITAL GAINS ON SALE OF SHARES, IS NOT SUSTAINABLE IN LAW. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS. (I) B.C.SRINIVAS SHETTY 128 ITR 294 (S.C.) (II) CIT VS. GEORGE HANDERSON & CO. LTD. 66 ITR 6 22 (S.C.) ( III) CIT VS. SMT.NILOPHER I SINGH, 309 ITR 233 (DEL H.C.) 9 (I) A N AMOUNT OF RS.3.22 CRORES ADVANCED BY THE PURCHASERS OF SHARES TO M/S TROJAN DEVELOPERS PVT. LTD. CANNOT BE CONSIDERED AS PART OF SALE CONSIDERATION , AS M/S TROJAN DEVELOPERS PVT. LTD. IS AN INDEPENDENT JURIDICAL PERSON AND THE AMOUNT IN QUESTION IS AVAILABLE WITH THE COMPANY. 3.1. FOR ALL THE ABOVE REASONS, THE L D.CIT(A) DELETED THE ADDITION AND ALLOWED THE APPEAL OF THE ASSESSEE. 4. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS. 1. THE ORDER THE LD. CIT (APPEALS) IS NOT CORRECT IN LAW AND FACTS. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN I GNORING THE DETAILED FINDING GIVEN BY AO . 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS FAILED TO APPRECIATE THE ENTIRE SALE AGREEMENT PARTICULARLY PARA 2.2, 6.1 AND 6.2 OF THE AGREEMENT BY VIRTUE OF WHICH CAPITAL GAIN A CCRUES IN F.Y. 2004 - 05, AND HAS TO BE TAXED ACCORDINGLY. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF UNDISCLOSED CAPITAL GA INS ON THE BASIS OF DIFFERENCE BETWEEN VALUE DECLARED AND VALUE ESTIMATED BY DVO. 5. WHETHER ON THE FACTS IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT CAP ITAL GAIN DECLARED BY ASSESEE U/S 111A BUSINESS INCOME AND THEREBY IGNORING THE DETAILED FINDING GIVEN BY A.O. IN HIS ASSESSMENT ORDER. 6. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY/ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF TH E HEARING OF THE APPEAL. 5. WE HAVE HEARD SHRI K.K.JAISWAL, LD.D.R. ON BEHALF OF THE REVENUE AND SHRI M.P.RASTOGI, ADV. A ND SHRI AJAY MAWAH, C.A. THE LD.COUNSEL FOR THE ASSESSEE. 6. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, ORDERS OF LOWER AUTHORITIES AND CASE LAWS CITED, WE HOLD AS FOLLOWS. 10 7. THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF RAJATLAL VS. CIT REPORTED IN 45 TAXMAN.COM 355(ALL.)(2014) HAS REVERSED THE ORDER OF THE TRIBUNAL IN THE CASE OF RAJATLA L, WHICH WAS RELIED UPON BY THE A.O. FOR REOPENING THE CASE. THE HON BLE HIGH COURT HELD AS FOLLOWS. HELD THE STIPULATION THAT ON EXECUTION OF TRANSFER DEED ON THE PAYMENT OF FIRST INSTALMENT, NE CESSARY STEPS WOULD BE TAKEN TO GET ALL THE 8000 SHARES TRANSFERRED IN THE NAME OF BUYER IN RECORDS OF COMPANY REPRESENTING 100 PER CENT OF VOTING INTEREST AND CONTROLLING POWERS IN THE COMPANY, WAS HEDGED WITH THE CONDITIONS THAT SCRIPS WOULD BE KEPT WITH SOLICITORS MUTUALLY AGREED UPON BETWEEN THE PARTIES TO BE RELEASED ON THE FINAL PAYMENT AND, FURTHER, THE BUYER COMPANY WAS NOT TO BECOME THE OWNER OF THE SHARES AND DID NOT HAVE ANY RIGHT TO DEAL WITH OR TRANSFER SHARES OR ANY ASSETS OR PROPERTIES OF COMPANY TILL FINAL PAYMENT. THUS, THE BUYER COMPANY WAS NE ITHER BECAME OWNER OF THE SHARES, NOR COULD DEAL WITH THE SHARES OR ANY ASSETS OR PROPERTIES OF THE COMPANY, AS ITS OWNER. HENCE, THE INTENTION OF PARTIES WERE TO TRANSFER THE VOTING INTEREST AND CONTROLLING POWER IN THE COMPANY TO THE BUYER ON THE EXECUTI ON OF THE AGREEMENTS, RIGHTS OF OWNERSHIP OF SHARES WAS WITHHELD IN SUCH A MANNER THAT TRANSFEREE WAS NOT ENTITLED TO TRANSFER SHARES, OR ANY ASSETS OR PROPERTIES OF THE COMPANY TILL FINAL INSTALMENT WAS FULLY PAID AND SCRIPTS WERE RELEASED FROM SOLICITORS . [PARA 25] IN SRF LTD., I.E. THE BUYER WAS ALREADY IN POSSESSION OF THE PROPERTIES, NAMELY THE TWO FLATS, WHICH WERE THE ONLY ASSETS OF COMPANY 'R', THE SELLER, IN PURSUANCE TO A RENT AGREEMENT. NO FURTHER DOCUMENT WAS EXECUTED WITH REGARD TO RENT AGRE EMENT OR FOR TRANSFERRING THE OWNERSHIP OF THE PROPERTY. THE OWNERSHIP IN THE PROPERTY WAS SOUGHT TO BE TRANSFERRED WITH THE OWNERSHIP OF THE SHARES, WHICH WOULD GIVE THE CONTROLLING POWER TO THE BUYER COMPANY. SINCE THESE SHARES WERE TO BE PHYSICALLY TRAN SFERRED TO THE BUYER COMPANY ONLY AFTER PAYMENT OF THE FULL PRICE, IT CANNOT BE SAID THAT THERE WAS ANY TRANSFER IN THE PROPERTY AS CONTEMPLATED UNDER SECTION 2(47)(V/). THE ENJOYMENT OF THE IMMOVABLE PROPERTY EVEN AFTER THE DATE OF PAYMENT OF FIRST INSTAL MENT WAS NOT IN PURSUANCE TO THE TRANSFER OF THE SHARES AND CONTROLLING 11 INTEREST IN THE COMPANY BUT AS A TENANT, UNDER THE AGREEMENT OF TENANCY. IT IS NOT DENIED THAT THE TENANT CONTINUED TO PAY THE RENT TILL THE ENTIRE AMOUNT OF SALE CONSIDERATION WAS PAI D, AND DID NOT CLAIM ANY OWNERSHIP RIGHTS IN THE PROPERTIES. THE PERMISSION OBTAINED UNDER SECTION 269UC ALSO DID NOT AMOUNT TO ANY TRANSFER AS NO TRANSFER DEED WAS EXECUTED TRANSFERRING THE PROPERTY TO THE BUYER COMPANY. NO OBJECTION CERTIFICATE UNDER SEC TION 269UC, MAY BE ONE OF THE CIRCUMSTANCES TO PROVE THE TRANSFERS, IT COULD NOT BE RELIED ON TO BE A DOCUMENT IN EVIDENCE OF THE TRANSFER. [PARA 26] THE SHARES OR THE PROPERTIES HELD BY THE COMPANY COULD NOT BE TREATED TO BE TRANSFERRED OR DEEMED TO BE TRANSFERRED IN THE FINANCIAL YEAR ENDING ON 31 - 3 - 1997. [PARA 27] IN THE CIRCUMSTANCES AS ABOVE, THE TRIBUNAL COMMITTED ERROR IN LAW IN HOLDING THAT SECTION 2(47) (VZ) WILL BE ATTRACTED, AND THAT IM MOVABLE PROPERTIES WERE TRANSFERRED WITH THE AGREEMENT OF SALE OF SHARES, WHICH WERE ACTUALLY AN AGREEMENT OF SALE OF IMMOVABLE PROPERTIES. [PARA 29] THE INCOME TAX APPEAL IS ALLOWED. THE QUESTIONS OF LAW FRAMED AS ABOVE ARE DECIDED IN FAVOUR OF THE ASS ESSEE AND AGAINST THE REVENUE. THE DEPARTMENT WILL PROC EED ACCORDINGLY. [PARA 30] . 7.1 . THE REOPENING OF ASSESSMENT, IN OUR VIEW, IS BAD IN LAW FOR THE REASON THAT THE A.O. PLACED RELIANCE ON THE DECISION OF THE ITAT DELHI F BENCH IN THE CASE OF RAJATLAL VS. CIT(SUPRA) WHICH WAS REVERSED BY THE HON BLE HIGH COURT. I N THE CASE OF RAJATLAL (SUPRA) THE ITAT HAD FOUND THAT , UPON RECEIPT OF THE FIRST INSTALMENT OF LOAN , THE SELLERS WERE REQUIRED TO TAKE NECESSARY STEPS TO GET THE SHARES TRANSFERRED IN THE NAME OF THE BU YER, BY WAY OF DELIVERY OF SHARES ALONG WITH DULY SIGNED TRANSFER DEEDS, AND ON SUCH FACTS THE ITAT FOUND THAT THIS WAS NOTHING BUT TRANSFER THE SHARES ON THE RECEIPT OF THE FIRST INSTALMENT. THIS FINDING WAS REVERSED BY THE HON BLE HIGH COURT. THERE I S NO SUCH CLAUSE IN THE AGREEMENT ON HAND. ON THE CONTRARY THE INTENTION TO TRANSFER THE SHARES IN THIS CASE WAS TO BE ON THE CLOSING DAY I.E. 31 ST MARCH, 2006. HENCE THE AO IS FACTUALLY INCORRECT TO ADOPT THE DATE OF TRANSFER OF SHARES AS 3 RD OCTOBER ,2003. THE FINDING OF FACT AND THE 12 APPLICATION OF LAW TO THE FACTS BY THE LD.CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. HENCE WE UPHOLD ALL THE FINDINGS OF THE LD.CIT(A) LISTED ABOVE. 7.2. BE IT AS IT MAY, THE PROPERTY BELONGS TO M/S TROJAN DEVELOPERS PVT. LTD . THE SHAREHOLDERS HAVE ENTERED INTO AGREEMENT TO SELL THEIR SHARES IN M/S TROJAN DEVELOPERS PVT. LTD . THIS DOES NOT TANTAMOUNT TO SALE OF PROPERTY BY M/S TROJAN DEVELOPERS PVT. LTD . THE PROPERTY IN QUESTION CONTINUES TO BE THAT OF THE COMPA NY. THERE IS NO TRANSFER OF THIS IMMOVABLE PROPERTY. THESE PROPOSITIONS ARE WELL SETTLED. IN THE CASE OF M/S BACHA F GUZDAR, B OMBAY VS. CIT(BOMBAY) 27 ITR 1 THE HON BLE SUPREME COURT HAS HELD AS FOLLOWS. THE ASSESSEE WAS A SHAREHOLDER IN CERTAIN TEA COMPANIES 60% OF WHOSE INCOME WAS EXEMPT FROM TAX AS AGRICULTURAL INCOME UNDER SECTION 4(3)(VIII) OF THE INDIAN INCOME - TAX ACT, 1922. THE ASSESSEE CLAIMED THAT 60% OF THE DIVIDEND INCOME RECEIVED BY HER ON HER SHARES IN THOSE COMPANIES WAS ALSO EXEMPT FRO M TAX AS AGRICULTURAL INCOME : HELD, THAT THE DIVIDEND INCOME RECEIVED BY THE ASSESSEE WAS NOT AGRICULTURAL INCOME BUT WAS INCOME ASSESSABLE UNDER SECTION 12. AGRICULTURAL INCOME AS DEFINED IN THE ACT IS INTENDED TO REFER TO THE REVENUE RECEIVED BY DIRECT ASSOCIATION WITH THE LAND WHICH IS USED FOR AGRICULTURAL PURPOSES AND NOT BY INDIRECTLY EXTENDING IT TO CASES WHERE THAT REVENUE OR PART THEREOF CHANGES HANDS EITHER BY WAY OF DISTRIBUTION OF DIVIDENDS OR OTHERWISE. IN FACT AND TRUTH DIVIDEND IS DERIVED FR ONT THE INVESTMENT MADE IN THE SHARES OF THE COMPANY AND THE FOUNDATION OF IT RESTS ON THE CONTRACTUAL RELATIONS BETWEEN THE COMPANY AND THE SHAREHOLDERS. A SHAREHOLDER WHO BUYS SHARES DOES NOT BUY ANY INTEREST IN THE PROPERTY OF THE COMPANY WHICH IS A JUR ISTIC PERSON ENTIRELY DISTINCT FROM THE SHAREHOLDERS. THE TRUE POSITION OF A SHAREHOLDER IN A COMPANY IS THAT ON BUYING SHARES HE BECOMES ENTITLED TO PARTICIPATE IN THE PROFITS OF THE COMPANY IF AND WHEN THE COMPANY DECLARES, SUBJECT TO THE ARTICLES OF ASS OCIATION, THAT THE PROFITS OR ANY PORTION THEREOF SHOULD BE DISTRIBUTED BY WAY OF DIVIDENDS AMONG THE SHAREHOLDERS. HE HAS A FURTHER RIGHT TO PARTICIPATE IN THE ASSETS OF THE COMPANY WHICH WOULD BE LEFT OVER AFTER WINDING U P. 13 THE DECLARATION OF DIVIDEND BY THE COMPANY IS NOT THE SOURCE OF THE DIVIDEND INCOME. THE RIGHT OF A SHAREHOLDER TO PARTICIPATION IN THE PROFITS J EXISTS INDEPENDENTLY OF ANY DECLARATION OF DIVIDEND BY THE COMPANY WITH THE J ONLY DIFFERENCE THAT THE ENJOYMENT OF PROFITS IS POSTPONED UNT IL DIVIDENDS ARE DECLARED. ENGLISH DECISIONS RESTING UPON THE PECULIARITIES OF THE ENGLISH INCOME - TAX LAW CANNOT BE A SAFE GUIDE IN DETERMINING UPON THE LANGUAGE OF THE INDIAN INCOME - TAX ACT THE TRUE MEANING OF THE WORD AGRICULTURAL INCOME.' DECISION OF THE BOMBAY HIGH COURT IN MRS. BACHA F. GUZDAR V. COMMISSIONER OF INCOME - TAX, BOMBAY CITY [19521(22 I.T.R. 158) AFFIRMED. 7.3. A SHAREHOLDER WHO BUY SHARES DOES NOT PURCHASE ANY INTEREST IN THE PROPERTY IN THE COMPANY , WHICH IS A JURISTIC PERSON AN D IS ENTIRELY DISTINCT FROM ITS SHAREHOLDERS. THE TRUE POSITION OF A SHAREHOLDER IN A COMPANY IS THAT , ON BUYING THE SHARES HE BECOMES ENTITLED TO PARTICIPATE IN THE PROFITS OF THE COMPANY IF AND WHEN THE COMPANY DECLARES, SUBJECT TO ITS ARTICLES OF A SSOCIATION, THAT THE PROFITS OR ANY PORTION THEREOF SHOULD BE DISTRIBUTED BY WAY OF DIVIDEND AMONGST THE SHAREHOLDERS. HE HAS A FURTHER RIGHT TO PARTICIPATE IN THE ASSETS OF THE COMPANY WHICH WOULD BE LEFT OVER AFTER WINDING UP. 7.4 . THUS SALE OF SHARES BY THE SHAREHOLDERS DOES NOT TANTAMOUNT TO SALE OF IMMOVABLE PROPERTY BY THE COMPANY. HENCE THE QUESTION OF APPLICATION OF SEC.53A OF THE TRANSFER OF PROPERTY ACT DOES NOT ARISE. W HEN THERE IS NO REGISTERED AGREEMENT TO SELL, S.53A O F THE TRANSFER OF THE PROPERTY OF THE ACT IS NOT ATTRACTED. MOREOVER WHEN SHARES ARE SOLD, INVOCATION OF S.2 ( 47 ) OF THE ACT R.W. SEC. 53A OF THE TRANSFER OF PROPERTY ACT IS ABSOLUTELY UNWARRANTED. WE ALSO UPHOLD THE FINDINGS OF THE LD.CIT(A) THAT ON A R EADING OF THE AGREEMENT FOR SALE OF THE SHARES, THE DATE OF TRANSFER IS DURING THE F.Y. 2005 - 06 AND NOT DURING THE F.Y. 2003 - 04. THUS, WE UPHOLD THE ORDER OF THE LD.CIT(A) AND DISMISS THIS GROUND OF REVENUE. 14 8. THE SECOND ISSUE IS DELETION OF AN ADDITIO N MADE, BASED ON THE REPORT OF THE D.V.O. ON THE MARKET VALUE OF THE IMMOVABLE PROPERTY OF THE COMPANY. SUCH ADDITIONS ARE ILLEGAL AND HAVE RIGHTLY BEEN DELETED BY THE LD.CIT(A). WHEN SHARES OF A COMPANY ARE TRANSFERRED, THE A.O. REFERS THE VALUATION OF THE BUILDING OWNED BY THE COMPANY WHOSE SHARES ARE TRANSFERRED , TO THE D.V.O. AND BASED ON SUCH VALUATION OF IMMOVABLE PROPERTY COMES TO A CONCLUSION THAT THE SHARES WERE SOLD FOR AN AMOUNT WHICH IS MORE THAN THAT MENTIONED IN THE REPORT. THIS ADDITION IS MADE ON SURMISES AND CONJECTURES. IN ANY EVENT THE HON BLE DE LHI HIGH COURT IN THE CASE OF SADANA GUPTA ITA NO.434/2012 DATED 06.03.2015 AND IN THE CASE OF PUNEET SABARWAL REPORTED IN 338 ITR 485 (DEL) HELD THAT NO ADDITION CAN BE MADE ON THE GROUND OF SUPPRESSION OF SALE PRICE BASED SOLELY ON THE D.V.O. REPORT. HENCE WE UPHOLD THE ORDER OF THE LD.CIT(A) AND THIS GROUND OF REVENUE IS DISMISSED. 8.1. THUS BOTH THE APPEALS OF THE REVENUE IN ITA 1594/DEL/2010 AND ITA 1595/DEL/2010 ARE DISMISSED. 9. THE OTHER FOUR APPEALS OF SHRI AMIT BURMAN AND SMT.ASHA BURMAN ARE ALSO DISMISSED AS THESE ARE PROTECTIVE ADDITIONS AND THE LD.CIT(A) HAD ALLOWED THE APPEALS FOR THE SAME REASONS AND ON SAME FACTS AS IN THE CASE OF THE COMPANY GYAN ENTERPRISES PVT.LTD. AS WE HAVE UPHELD THE ORDER OF THE LD.CIT(A), WE DISMISS THESE APPEA LS OF THE REVENUE. 10. IN THE RESULT, ALL THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JUNE, 2016. SD/ - SD/ - ( SUCHITRA KAMBLE ) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUN TANT MEMBER DATED: THE 22 ND JUNE, 2016 *MANGA 15 COPY OF THE ORDER FORWARDED TO: 1. ASSESSEE ; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR