ITO Ward-2 (3), V. Sanjay Singh,

ITA 2021/DEL/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53198 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 14-11-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 23-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Assessee Lawyers: P S KASHYAP
• Keywords: Capital asset

Judgement Text

ITA NO.2021/DEL/2008 1 IN THE INCOME TAX APPELLAT E TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI C.L. SETHI, JUDICIAL MEMBER ITA NO.2021/DEL/2008 ASSTT. YEAR: 2001-02 INCOME TAX OFFICER, VS SHRI SANJAY S INGH, WARD 2(3), 137- D, SAKET, MEERUT. MEERUT. (PAN NO. AILPS8080N) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SALIL MISHRA, SR.DR RESPONDENT BY: SH. P.S. KASHYAP O R D E R PER G.D. AGRAWAL, V.P. IN THIS APPEAL BY THE REVENUE, AS MANY AS FOUR GR OUNDS ARE RAISED. HOWEVER, THEY ARE ALL AGAINST THE DELETION OF THE A DDITION OF RS.55,42,877 MADE BY THE ASSESSING OFFICER UNDER THE HEAD LONG TERM CAPITAL GAIN. AT THE TIME OF HEARING BEFORE US, IT IS STATED BY T HE LD. DR THAT DURING THE ACCOUNTING YEAR RELEVANT TO ASSESSMENT YEAR UNDER C ONSIDERATION, THE ASSESSEE CONVERTED HIS PROPRIETORSHIP BUSINESS INTO COMPANY AND CLAIMED EXEMPTION U/S 47(XIV) IN RESPECT OF TRANSFER OF CAP ITAL ASSETS. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS NOT SATISFIED T HE CONDITIONS FOR CLAIMING EXEMPTION U/S 47(XIV). HE POINTED OUT THAT AS PER CLAUSE (B) OF SECTION ITA NO.2021/DEL/2008 2 47(XIV), THE SHAREHOLDING OF THE SOLE PROPRIETOR IN THE COMPANY SHOULD NOT BE LESS THAN 50% OF THE TOTAL VOTING POWER IN THE COMP ANY AND HIS SHAREHOLDING CONTINUES TO REMAIN AS SUCH FOR A PERIOD OF FIVE YE ARS FROM THE DATE OF SUCCESSION. HE SUBMITTED THAT THE ASSESSING OFFICE R HAS POINTED OUT THAT ON THE DATE OF SUCCESSION I.E. 6.9.2000 AND TILL THE E ND OF THE RELEVANT ACCOUNTING YEAR I.E. 31 ST MARCH 2001, THE SHAREHOLDING OF THE SOLE PROPRIETO R WAS NOT MORE THAN 50% IN THE COMPANY. IN FACT, THE SHARES WERE ALLOTTED TO THE SOLE PROPRIETOR ON 7.3.2002, THEREAFTER HIS SHAREHOLDING EXCEEDED 50%. THUS, THERE WAS CLEAR VIOLATION OF CLAUSE (B) OF SECTION 47(XIV). THEREFORE, THE AO RIGHTLY DENIED EXEMPTION TO THE ASSESSEE AND THE CI T(A), WITHOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND LEGAL POSITI ON, ACCEPTED THE ASSESSEES CLAIM. HE SUBMITTED THAT THE ORDER OF THE CIT(A) S HOULD BE REVERSED AND THAT OF THE AO MAY BE RESTORED. 2. ON THE OTHER HAND, IT IS STATED BY THE LD. COUNS EL THAT THE ASSESSEE WAS RUNNING A PROPRIETORSHIP BUSINESS OF RUNNING COMPUT ER TRAINING CENTRE TILL 6.9.2000 AND FROM 7.9.2000, THE RUNNING BUSINESS WA S CONVERTED INTO THE COMPANY. THAT ALL THE CONDITIONS OF SECTION 47(XIV ) WERE DULY FULFILLED I.E. ALL THE ASSETS AND LIABILITIES OF THE SOLE PROPRIET ARY CONCERN IMMEDIATELY BEFORE THE SUCCESSION BECAME THE ASSETS AND LIABILI TIES OF THE COMPANY. THE ENTIRE SALE CONSIDERATION WAS PAID BY WAY OF ALLOTM ENT OF THE SHARES IN THE ITA NO.2021/DEL/2008 3 COMPANY AND THE ASSESSEE I.E. THE SOLE PROPRIETOR D ID NOT RECEIVE ANY CONSIDERATION IN ANY OTHER FORM. THAT AFTER THE AL LOTMENT OF THE SHARES AGAINST THE SALE CONSIDERATION, THE SHARES HELD BY THE ASSESSEE, I.E. THE SOLE PROPRIETOR, WERE WORTH MORE THAN RS. 55 LAKH, WHILE THE SHARES OWNED BY THE OTHERS WERE WORTH ONLY RS.6000. THUS, THE SOLE PRO PRIETOR HELD THE SHARES MUCH MORE THAN 50% LIMIT AS PRESCRIBED IN THE SECTI ON. THAT THE ENTIRE SALE CONSIDERATION OF THE PROPRIETORSHIP BUSINESS WAS SH OWN AS SHARE APPLICATION MONEY IN THE COMPANYS BOOKS OF ACCOUNTS AND THE AS SESSEE WAS ALLOTTED THE SHARES FOR RS.55,69,700 VIDE RESOLUTION OF ALLOTMEN T OF SHARES ON 7.3.2002. THAT THE COMPANY WAS REGISTERED WITH THE ISSUED SHA RE CAPITAL OF RS.7000 I.E. OF 700 EQUITY SHARES OF RS. 10 EACH. THE ASSESSEE, ALONG WITH SIX OTHER PERSONS, WAS INITIALLY ALLOTTED 100 EQUITY SHARES O F RS. 10 EACH. IT WAS DONE BECAUSE FOR THE REGISTRATION OF COMPANY, SEVEN SHAR EHOLDERS WERE REQUIRED. HE FURTHER STATED THAT THE PROVISIONS OF SECTION 47 (XIV) WERE FULLY COMPLIED WITH IN SUBSTANCE. IF AT ALL THERE IS ANY LAPSE, I T IS ONLY BY WAY OF DELAY IN ALLOTMENT OF THE SHARES AGAINST THE SHARE APPLICATI ON MONEY, BUT FOR SUCH DELAY, THE BENEFIT OF SECTION 47(XIV) CANNOT BE DEN IED TO THE ASSESSEE. THAT THE PURPOSE OF PROVIDING CONDITIONS U/S 47(XIV) IS TO ENSURE THAT IN THE GARB OF CONVERSION OF PROPRIETORSHIP BUSINESS INTO A COM PANY, THERE SHOULD NOT BE TRANSFER OF THE ASSETS TO ANY OTHER PERSON THAN THE SOLE PROPRIETOR. THAT IN THE ITA NO.2021/DEL/2008 4 CASE OF THE ASSESSEE, IT IS EVIDENT THAT ASSETS ARE NOT TRANSFERRED TO ANYBODY AND IN FACT, THE ASSESSEE I.E. SOLE PROPRIETOR OF T HE ERSTWHILE BUSINESS CONTINUES TO HOLD MORE THAN 90% OF SHARES IN THE SA ID COMPANY TILL TODAY. HE, THEREFORE, SUBMITTED THAT THE ORDER OF THE CIT( A) SHOULD BE SUSTAINED AND THE REVENUES APPEAL MAY BE DISMISSED. 3. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE ASSESSE E WAS CARRYING ON THE BUSINESS OF RUNNING COMPUTER CENTRE AS PROPRIETOR T HEREOF TILL 6.9.2000 AND W.E.F. 7.9.2000, ALL THE ASSETS AND LIABILITIES WER E TRANSFERRED TO A COMPANY KNOWN AS M/S TUPLES INFOTECH LIMITED. THE POSITION OF ASSETS AND LIABILITIES OF THE COMPANY WAS AS UNDER:- ASSETS FIXED ASSETS 8,887,788.31 CURRENT ASSETS 348,010.59 LOANS & ADVANCES 319,640.32 ----------------- TOTAL 9,555,439.22 LIABILITIES CURRENT LIABILITIES 3,343, 232.01 SECURED & UNSECURED LOANS 669,335.00 ----------------- TOTAL - 4,012,567.01 ----------------- EXCESS OF ASSETS OVER LIABILITIES 5,542,872.21 ----------------- ITA NO.2021/DEL/2008 5 3.2 THE ENTIRE SURPLUS OF RS.5,542,872 WAS CREDITED IN THE COMPANYS BOOKS OF ACCOUNT AS SHARE APPLICATION MONEY AND EVE NTUALLY, THE SHARES WERE ALLOTTED TO THE ASSESSEE FOR THE ABOVE AMOUNT. IT IS NOT IN DISPUTE THAT THE ASSESSEE DID NOT TRANSFER THE SHARES TILL THE DATE OF HEARING OF THIS APPEAL I.E. 14.11.2011. THE OTHER SHAREHOLDERS TAKEN TOGETHER ARE 600 EQUITY SHARES OF RS.10 EACH I.E. RS.6000. THUS, THE SHAREHOLDING OF THE SOLE PROPRIETOR IS ALMOST 99%. SECTION 47(XIV) READS AS UNDER:- (X IV) WHERE A SOLE PROPRIETARY CONCERN IS SUCCEEDED BY A COMPANY IN THE BUSINESS CARRIED ON BY IT AS A RESUL T OF WHICH THE SOLE PROPRIETARY CONCERN SELLS OR OTHERWISE TRA NSFERS ANY CAPITAL ASSET OR INTANGIBLE ASSET TO THE COMPANY: PROVIDED THAT (A) ALL THE ASSETS AND LIABILITIES OF THE SOLE PROPRIET ARY CONCERN RELATING TO THE BUSINESS IMMEDIATELY BEFORE THE SUC CESSION BECOME THE ASSETS AND LIABILITIES OF THE COMPANY; (B) THE SHAREHOLDING OF THE SOLE PROPRIETOR IN T HE COMPANY IS NOT LESS THAN FIFTY PER CENT OF THE TOTAL VOTING P OWER IN THE COMPANY AND HIS SHAREHOLDING CONTINUES TO REMAIN AS SUCH FOR A PERIOD OF FIVE YEARS FROM THE DATE OF THE SUCCESS ION; AND (C) THE SOLE PROPRIETOR DOES NOT RECEIVE ANY CONSID ERATION OR BENEFIT, DIRECTLY OR INDIRECTLY, IN ANY FORM OR MAN NER, OTHER THAN BY WAY OF ALLOTMENT OF SHARES IN THE COMPANY; 4. IT IS NOT IN DISPUTE THAT ALL THE ASSETS AND LIA BILITIES OF THE SOLE PROPRIETARY CONCERN RELATING TO THE COMPUTER TRAINI NG CENTRE BECAME ASSETS ITA NO.2021/DEL/2008 6 AND LIABILITIES OF THE COMPANY. THUS, THE CONDITIO NS OF CLAUSE (A) WERE DULY SATISFIED. THE SOLE PROPRIETOR, I.E. THE ASSESSEE, DID NOT RECEIVE ANY CONSIDERATION OR THE BENEFIT DIRECTLY OR INDIRECTLY IN ANY FORM OR MANNER OTHER THAN BY WAY OF ALLOTMENT OF SHARES IN THE COM PANY. THUS, THE CONDITION OF CLAUSE (C) IS ALSO DULY SATISFIED. AS PER CLAUSE (B) THE SHAREHOLDING OF SOLE PROPRIETOR IN THE COMPANY SHOU LD NOT BE LESS THAN 50% OF THE TOTAL VOTING POWER IN THE COMPANY AND HIS SH AREHOLDING SHOULD CONTINUE AS SUCH FOR A PERIOD OF FIVE YEARS FROM TH E DATE OF SUCCESSION. THE CONSIDERATION AGAINST THE TRANSFER OF ASSETS WAS CR EDITED IN THE COMPANYS BOOKS OF ACCOUNTS AS SHARE APPLICATION MONEY AND, U LTIMATELY, THE SHARE WAS ALLOTTED AGAINST SUCH SHARE APPLICATION MONEY. AFT ER THE ALLOTMENT OF SHARES, THE SHAREHOLDING BY THE PROPRIETOR OF THE ERSTWHILE BUSINESS IS APPROXIMATELY 99% OF TOTAL SHAREHOLDING OF THE COMPANY. THE SOLE PROPRIETOR CONTINUED TO HOLD THE SHARES FOR A MUCH LONGER PERIOD THAN THE M INIMUM PERIOD OF FIVE YEARS AS PRESCRIBED IN CLAUSE (B). THUS, THE CONDI TION OF CLAUSE B IS ALSO SATISFIED. THE ONLY MISTAKE, IF ANY, ON THE PART O F THE COMPANY, IS DELAY IN THE ALLOTMENT OF SHARES AGAINST SHARE APPLICATION M ONEY. HOWEVER, IN OUR OPINION, MERELY BECAUSE THERE IS SOME DELAY IN THE ALLOTMENT OF SHARES AGAINST THE SHARE APPLICATION MONEY, IT CANNOT BE S AID THAT THERE IS A VIOLATION OF CLAUSE (B) OF SECTION 47(XIV). FROM THE TOTALIT Y OF THE FACTS, IT IS EVIDENT ITA NO.2021/DEL/2008 7 THAT THERE WAS TOTAL COMPLIANCE OF ALL THE THREE CO NDITIONS OF SECTION 47(XIV) AND MERELY BECAUSE THERE WAS SOME DELAY IN COMPLIAN CE OF CLAUSE (B), IT CANNOT BE FATAL FOR CLAIMING THE EXEMPTION U/S 47(X IV). THE INTENTION OF THE LEGISLATURE IN PROVIDING THESE CONDITIONS IS TO ENS URE THAT IN THE GARB OF CONVERSION OF PROPRIETARY BUSINESS INTO COMPANY, TH ERE SHOULD NOT BE TRANSFER OF ASSETS TO THE PERSONS OTHER THAN SOLE P ROPRIETOR; OTHERWISE IT WILL BECOME A TOOL FOR AVOIDANCE OF CAPITAL GAIN. FROM THE FACTS OF THE ASSESSEES CASE, IT IS ABUNDANTLY CLEAR THAT THE OWNERSHIP OF THE ASSETS HAS NOT BEEN TRANSFERRED TO ANY OTHER PERSON BUT IT REMAINED WIT H THE COMPANY IN WHICH APPROXIMATELY 99% SHARES ARE HELD BY THE ERSTWHILE SOLE PROPRIETOR. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE O RDER OF THE LD. CIT(A). THE SAME IS SUSTAINED AND REVENUES APPEAL IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH NOVEMBER, 2011. SD/- SD/- ( C.L. SETHI ) ( G.D. AGRAWAL ) JUDICIAL MEMBER VICE PRESIDENT DT. 18TH NOVEMBER, 2011 GS ITA NO.2021/DEL/2008 8 COPY FORWARDED TO: 1. ITO, WARD 2(3), MEERUT. 2. SHRI SANJAY SINGH, MEERUT. 3. CIT(A), MEERUT. 4. CIT 4. DR BY ORDER DY. REGISTRAR