DCIT 8(3), MUMBAI V. HEMAL RAJU SHETE, MUMBAI

ITA 2198/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4265 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 26-06-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 19-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K SHUKLA
• Assessee Lawyers: J D MISTRY; M A GOHEL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 2198/MUM/2010 ASSESSMENT YEAR: 2006-07 DCIT 8(3) ROOM NO. 217, AAYAKAR BHAVAN, M.K. MARG, MUMBAI 400 020. VS. MRS. HEMAL RAJU SHETE 7A, LOHTSE RUIA PARK, JUHU TARA ROAD, MUMBAI 400 049 PAN: AALPS 9599 M (APPELLANT) (RESPONDENT) REVENUE BY : SHRI P.K. SHUKLA ASSESSEE BY : J.D. MISTRY & M.A. GOHEL. DATE OF HEARING : 26.06.2013 DATE OF PRONOUNCEMENT : 10.07.2013 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE LD.CIT(A) - 18, MUMBAI DATED 24.12.2009 FOR THE ASSESSMENT YEA R 2006-07. 2. THE SOLITARY ISSUE ARISING OUT OF THE GROUNDS OF APPEAL RELATES TO THE ADDITION OF RS.4,48,54,923/- MADE BY THE AO ON ACCOUNT OF LONG TERM CAPITAL GAINS AND THE SAME DELETED BY THE LD.CIT(A). 3. BRIEFLY STATED, THE ASSESSEE, AN INDIVIDUAL WHIL E DECLARING A TOTAL INCOME OF RS.11,68,470/- HAD SHOWN A LONG TERM CAPITAL GAIN O F RS.42,38,674/- ON ACCOUNT OF SALE OF 75000 SHARES OF UNISOL INFRASTRUCTURES LTD AND T HEREBY CLAIMED THE EXEMPTION U/S 54EC BY INVESTING THE SALE PROCEEDS IN CAPITAL BOND S OF SIDBI. IN THE ASSESSMENT FRAMED U/S 143(3), THE AO AFTER PERUSING THE RELEVA NT AGREEMENT DATED 25.01.2006 PERTAINING TO THE TRANSFER OF SHARES FOUND THAT THE SAID AGREEMENT GRANTS THE ABSOLUTE RIGHT TO THE ASSESSEE AS WELL AS THE OTHER TRANSFER ORS TO RECEIVE THE SPECIFIED AMOUNT IN A DEFERRED MANNER WITH THE NOMENCLATURE OF INITIAL AND DEFERRED CONSIDERATION BEING EMPLOYED AS A MATTER OF CONVENIENCE TO THE PARTIES TO THE TRANSACTIONS OF TRANSFER IN ITA NO. 2198/MUM/2010 MRS. HEMAL RAJU SHETE ASSESSMENT YEAR: 2006-07 2 QUESTION. ACCORDINGLY, THE AO REWORKED THE SHARE OF THE ASSESSEE IN THE ALLEGED TOTAL CONSIDERATION ACCRUED TO THE TRANSFERORS BY CLUBB ING THE INITIAL CONSIDERATION AND DEFERRED CONSIDERATION AND THEREBY ASSESSED THE CAP ITAL GAIN AT RS.4,91,94,923/- AS TAXABLE IN THE HANDS OF THE ASSESSEE. 4. ON APPEAL, THE LD.CIT(A) DELETED THE IMPUGNED AD DITION MADE BY THE AO AS THE DEFERRED GAIN COULD NOT BE TAXED AS THE GAIN WHICH WAS NOT RECEIVED OR ACCRUED TO THE ASSESSEE SINCE THE IMPUGNED INCOME IS ONLY NOTIONAL IN NATURE. AGGRIEVED BY THE IMPUGNED DECISION, THE REVENUE IS IN APPEAL BEFORE US. 5. BEFORE US, THE LD. DR HAS STATED THAT THE PLAIN READING OF THE TERMS OF THE AGREEMENT CLEARLY SHOWS THAT THE SHETE GROUP HAS TO RECEIVE NOT MORE THAN A SUM OF RS.20 CRORES AS AGGREGATE OF ALL CONSIDERATIONS WHE THER INITIAL, DEFERRED OR BOTH. SINCE THE TRANSFER OF ASSETS IS COMPLETE WITHIN THE ACCOU NTING PERIOD UNDER ASSESSMENT, THE RESULTANT CAPITAL GAINS LIABILITY SHALL ENSURE ON T HE ENTIRE AMOUNT OF RS.20 CRORES AND NOT JUST THE INITIAL CONSIDERATION AS CLAIMED BY TH E ASSESSEE. HENCE THE LD.CIT(A) OUGHT NOT TO HAVE DELETED THE IMPUGNED ADDITION MADE BY T HE AO. ALSO, THE LD. DR HAS RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT V/S GEORGE HENDERSON & CO. LTD [(1967) 66 ITR 622 (SC)] AND THE DECISION OF THE ITAT IN THE CASE OF MRS. ALPANA PIRAMAL VS. ITO [(2001) 76 ITD 375 (MUM)] IN SUPPORT OF THE PROPOSITION THAT FOR THE PURPOSE OF CALCULATING THE CAPITAL GAINS, FULL VALUE CONSIDERATION IS TO BE TAKEN INTO ACCOUNT AS PER THE PROVISIONS OF THE INCOME TA X ACT. 5.1 ON THE OTHER HAND, THE LD. SENIOR COUNSEL FOR T HE ASSESSEE HAS DRAWN OUR ATTENTION TO CLAUSE 3 OF THE AGREEMENT WHICH DEALS WITH CONSIDERATION AND STATED THAT AS PER THE TERMS OF CLAUSE 3.2, RS. 20 CROES IS THE MAXIMUM LIMIT WHICH SERVES AS A CAP TO THAT EFFECT THAT THE AGGREGATE OF THE INITIAL AN D DEFERRED CONSIDERATION SHALL NOT EXCEED THE CAP OF RS.20 CRORES. TO SUBSTANTIATE THE POSITION THAT THE ASSESSEE MAY OR MAY NOT GET THE DEFERRED CONSIDERATION, THE LD. SEN IOR COUNSEL HAS DEMONSTRATED HOW THE DEFERRED CONSIDERATION HAS TO BE WORKED ACCORDI NG TO THE PROVISIONS OF THE AGREEMENT. HENCE, AS PER THE PROVISIONS OF CAPITAL GAIN, THE AMOUNT CAN BE BROUGHT TO TAX EITHER ON RECEIPT BASIS OR ACCRUAL BASIS. SINCE THERE IS NO CERTAINTY OF RECEIVING THE AMOUNT AND ALSO QUANTUM OF THE AMOUNT IS NOT KNOWN, MERELY BRINGING THE MAXIMUM ITA NO. 2198/MUM/2010 MRS. HEMAL RAJU SHETE ASSESSMENT YEAR: 2006-07 3 CAP PROVIDED IN THE AGREEMENT TO TAX IS NOT TENABLE AND THE LD.CIT(A) IS RIGHTLY DELETED THE IMPUGNED ADDITION. 6. WE HAVE HEARD BOTH THE PARITIES AND PERUSED THE MATERIAL ON RECORD. THE PERUSAL OF THE PROVISIONS OF THE AGREEMENT INDICATE S THAT THE AMOUNT OF RS.20 CRORE IS THE MAXIMUM AMOUNT THAT COULD BE RECEIVED BY THE AS SESSEES GROUP WHICH COMPRISES OF INITIAL CONSIDERATION AND THE DEFERRED CONSIDERA TION. IT ALSO INDICATES THAT THERE IS NO GUARANTEE FOR THE RECEIPT OF THIS MAXIMUM AMOUNT BY THE ASSESSEES GROUP. IN VIEW OF THAT MATTER, WE FIND MERIT IN THE CONTENTION OF THE SENIOR COUNSEL FOR THE ASSESSEE THAT WHAT IS TO BE TAXED IS THE GAIN RECEIVED OR ACCRUED AND NOT THE NOTIONAL/ HYPOTHETICAL INCOME AS DECIDED BY THE HONBLE SUPREME COURT IN T HE CASE OF K.P. VARGHESE VS. ITO (1981) 131 ITR 597. IT IS AN ESTABLISHED LEGAL PROP OSITION THAT AS PER THE PROVISIONS OF CAPITAL GAIN, THE AMOUNT CAN BE BROUGHT TO TAX EITH ER ON RECEIPT BASIS OR ACCRUAL BASIS. AS REGARDS THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS. GEORGE HENDERSON & CO. LTD AND THE DECISION OF THE ITAT IN MRS. ALPA NA PIRAMAL CASE RELIED ON BY THE LD.DR, IT IS OUR CONSIDERED VIEW THAT THESE DECISIO NS HAVE NO APPLICATION AS THE RATIOS IN THE SAID CASES ARE APPLICABLE WHEN THE DISPUTE RELA TES TO ADOPTING THE FULL VALUE CONSIDERATION VIS-A-VIS THE SALE VALUE CONSIDERATION WHICH IS NOT THE CASE OF THE AO IN THIS INSTANT CASE AS THE MAXIMUM CAP PROVIDED IN TH E AGREEMENT CANNOT BE EQUATED NEITHER WITH SALE VALUE CONSIDERATION NOR WITH THE FULL VALUE CONSIDERATION SINCE THE SAID MAXIMUM CAP IS NEITHER RECEIVED NOR ACCRUED FOR THE PURPOSES OF CALCULATING THE CAPITAL GAINS. IN VIEW OF THAT MATTER, WE DO NOT FIND ANY I NFIRMITY IN THE ORDER OF THE LD.CIT(A) AND THE SAME IS UPHELD. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF JULY, 2013. SD/- SD/- (P.M. JAGTAP) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 10.07.2013. *SRIVASTAVA ITA NO. 2198/MUM/2010 MRS. HEMAL RAJU SHETE ASSESSMENT YEAR: 2006-07 4 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR H BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.