Smt. Poornima Shailendra Babu, Bangalore V. Asst.C.I.T., Bangalore

ITA 292/BANG/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9488 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 26-07-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 29-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Share purchase agreement; Question of law
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER 1. ITA NO. 291/ BANG/20 1 6 (ASSESSMENT YEAR: 20 08 - 09 ) AND 2. ITA NO.292/BANG/2016 (ASSESSMENT YEAR: 2008 - 09) 1. SHRI SHAILENDRA BABU, NO. 9 & 11, 3 RD MAIN ROAD, KRISHNA TOWERS, GANDHINAGAR, BANGALORE - 560009. PA NO. AAVPB6549C 2. SMT. POORNIMA SHAILENDRA BABU, NO. 9 & 11, 3 RD MAIN ROAD , KRISHNA TOWERS, GANDHINAGAR, BANGALORE - 560009. PA NO. ABJPB 3721D VS. APPELLANT 1. ASST. COMMISSIONER OF INCOME - TAX, CIRCLE 7(2), BANGALORE. 2. DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 3(1), BANG ALORE. RESPONDENT ASSESSEES BY : SHRI S.PARTHASARATHI, ADVOCATE. RE VENUE BY : SHRI SANJAY KUMAR, CIT(DR). DATE OF HEARING : 26/07/2016 DATE OF PRONOUNCEMENT : 19 /08/2016 O R D E R PER I NTURI RAMA RAO, AM : THESE TWO APPEALS FIL ED BY TWO ASSESSEE - INDIVIDUALS ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE CIT(A) - 5, BANGALORE, DATED 28/01/2016 FOR THE ASSESSMENT YEAR 2008 - 09. ITA NO S . 291 & 292 /BANG/201 6 PAGE 2 OF 9 2 THE ASSESSEES RAISED THE FOLLOWING COMMON GROUNDS OF APPEAL: ITA NO S . 291 & 292 /BANG/201 6 PAGE 3 OF 9 3. BRIEFLY FACTS OF THE CASE ARE AS UNDE R: FOR THE SAKE OF CONVENIENCE AND CLARITY, FACTS IN ITA NO.291/BANG/2016 ARE STATED HEREIN. THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME FROM HOUSE PROPERTY. RETURN OF INCOME FOR THE ASSESSMENT YEAR 2008 - 09 WAS FILED DECLARING INCOME OF RS.55,10,870/ - . AGAINST SAID RETURN OF INCOME, ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] VIDE ORDER DATED 30/12/2010 AT A TOTAL INCOME OF RS.14,67,61,470/ - . WHILE DOING SO, THE ASSESSING OFFICER [A O] MADE ADDITION OF RS.63,89,374/ - ON ACCOUNT OF INTEREST - FREE LOAN GIVEN TO CERTAIN PERSONS AND ADDITION ON ACCOUNT OF SALE OF SHARES IN M/S.SHAILENDRA TECHNO PARK PVT. LTD., [ STPPL. ] A CLOSELY HELD COMPANY IN WHICH THE ASSESSEE WAS HOLDING 50% AND ANOT HER 50% WAS HELD BY HIS WIFE SMT. POORNIMA SHAILENDRA. DURING THE ITA NO S . 291 & 292 /BANG/201 6 PAGE 4 OF 9 COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT AN AMOUNT OF RS.13.5 CRORES WAS RECEIVED AS ADVANCE TOWARDS SALE OF SHARES IN STPPL FROM ONE MR.G.SOMASHEKARA REDDY. ON ENQUIRY BY THE AO, IT IS FOUND THAT THE SAID COMPANY I.E. STPP L HAD PASSED A BOARD RESOLUTION ON 1/6/2007 AT BANGALORE TO TRANSFER MANAGEMENT OF THE COMPANY TO THE NEW ENTREPRENEURS I.E. SHRI G.SOMASHEKARA REDDY AND SMT. G.VIJAYA. THE AO FURTHER CONCLUDED THAT CONSIDER ATION OF RS.35 CRORES WAS RECEIVED DURING THE PERIOD FROM 8/6/2007 TO 16/10/2007 I.E. RELEVANT ASSESSMENT YEAR 2008 - 09. TAKING INTO CONSIDERATION THESE FACTS, THE AO CONCLUDED THAT TRANSFER OF SALE OF SHARES IS COMPLETE AND THEREFORE, HE COMPUTED CAPITAL GAINS ON SALE OF SUCH SHARES. THE AO FURTHER MADE ADDITION OF RS.63,89,374/ - ON ACCOUNT OF INTEREST - FREE LOANS GIVEN TO VARIOUS PERSONS. 4. BEING AGGRIEVED, AN APPEAL WAS FILED BEFORE THE CIT(A), BANGALORE, WHO VIDE IMPUGNED ORDER, DISMISSED THE APPEAL . WHILE DOING SO, THE CIT(A) WAS DRIVEN BY THE FACT THAT ENTIRE CONSIDERATION WAS RECEIVED AND THE MANAGEMENT AND CONTROL OF THE COMPANY WAS TAKEN OVER BY THE BUYERS OF SHARES. AS REGARDS ADDITION M ADE ON ACCOUNT OF INTEREST - FREE LOANS GIVEN, THE CIT(A) C ONFIRMED THE ADDITION ON THE GROUND THAT THE ASSESSEE HAD FAILED TO PRODUCE ANY EVIDENCE TO SHOW THAT HE HAS FILED ANY STEPS FOR RECOVERY OF INTEREST - FREE LOANS. ITA NO S . 291 & 292 /BANG/201 6 PAGE 5 OF 9 5. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US IN THE PRESENT APPEAL. 5.1 LEAR NED COUNSEL FOR THE ASSESSEE ARGUED THAT ORIGINAL MEMORANDUM OF UNDERSTANDING ENTERED ON 16/6/2007 WHEREBY ASSESSEE AGREED TO SELL SHARES TO SHRI G.SOMASHEKARA REDDY AND OTHERS HAD LOST IS VALIDITY IN VIEW OF SUBSEQUENT AGREEMENT OF SHARE TRANSFER. IN TER MS OF SUBSEQUENT AGREEMENT ON 1/4/2013 AMOUNT OF CONSIDERATION ORIGINALLY AGREED UPON UNDERWENT CHANGE FROM RS.40 CRORES TO RS.37.5 CRORES. THIS FRESH AGREEMENT WAS NECESSITATED AS THE FIRST AGREEMENT WAS NEVER ACTED UPON AND THE DISPUTES HAVE ARISEN BETW EEN PARTIES AS A RESULT OF WHICH THE SHARES WERE NOT TRANSFERRED AS PER TIME - FRAME STIPULATED IN THE ORIGINAL AGREEMENT ENTERED ON 16/6/2007. HE HAS DRAWN OUR ATTENTION TO COPY OF THE SHARE TRANSFER FORM WHEREBY SHARES HELD BY THE ASSESSEE WERE TRANSFERRE D IN FAVOUR OF SHRI G.SOMASHEKARA REDDY. THE SHARES TRANSFER FORM WAS DATED 2/4/2013 AND EVEN REGISTRAR OF COMPANIES STAMPED ON THE SHARE TRANSFER FORM ON 4/3/2013. THEREFORE, ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THOUGH SUBSTANTIAL AMOUNT O F CONSIDERATION WAS RECEIVED DURING THE FINANCIAL YEAR 2007 - 08, SHARE TRANSFER FORMS WERE NOT HANDED OVER TO THE BUYERS OF SHARES I.E. SHRI G.SOMASHEKARA REDDY AND OTHERS. THE UNDERLYING PURPOSE OF THE AGREEMENT IS ONLY TO TRANSFER THE SHARES. THE FACT T HAT THERE WAS A CHANGE IN THE BOARD OF DIRECTORS OF THE COMPANY OR MANAGEMENT OR CONTROL OF THE ITA NO S . 291 & 292 /BANG/201 6 PAGE 6 OF 9 COMPANY IS NOT CRUCIAL TO DETERMINE WHETHER TRANSFER OF SHARES IS COMPLETE. 5.2 ON THE OTHER HAND, LD.CIT(DR) PLACED RELIANCE ON THE DECISION OF THE CIT(A) AND THE ASSESSMENT ORDER. HE ALSO PLACED RELIANCE ON THE DECISION OF THE CHANDIGARH BENCH IN THE CASE OF MR.SHAMSHER SINGH DULLO VS. ITO IN ITA NO.1219/CHD/2012 DATED 31/7/2013 FOR THE PROPOSITION THAT WHEN THE CONSIDERATION WAS RECEIVED AND POSSESSION WA S HANDED OVER, THE TRANSFER IS COMPLETE. 6. WE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ONLY ISSUE IN THIS APPEAL IS ABOUT THE YEAR OF CHARGEABILITY OF CAPITAL GAINS ARISING ON SALE OF SHARES HELD BY THE ASSESSEE IN THE COMPANY CA LLED STPPL. THERE IS NO DISPUTE ABOUT THE AMOUNT OF CONSIDERATION RECEIVED. THE ONLY DISPUTE IS WITH REGARD TO YEAR OF CHARGEABILITY OF CAPITAL GAINS. THE AO AS WELL AS THE CIT(A) WERE DRIVEN BY THE FACT THAT THERE WAS A CHANGE IN THE MANAGEMENT AND CONT ROL OF THE COMPANY PURSUANT TO SHARE TRANSFER OF AGREEMENT BETWEEN ASSESSEE AND SHRI G.SOMASHEKARA REDDY & OTHERS AND ALSO FULL CONSIDERATION WAS RECEIVED DURING THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. IN OUR CONSIDERED OPINION , THESE ARE NOT CONCLUSIVE TO DETERMINE WHETHER TRANSFER OF SHARES HAS TAKEN PLACE OR NOT. THE UNDERLYING PURPOSE OF SHARE TRANSFER AGREEMENT WAS ONLY TO TRANSFER SHARES IN THE COMPANY STPPL. IT IS NOT THE CASE OF THE AO THAT RELEVANT SHARE TRANSFER FORM S DULY SIGNED BY ITA NO S . 291 & 292 /BANG/201 6 PAGE 7 OF 9 THE ASSESSEE WERE HANDED OVER TO THE BUYER DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. NEEDLESS TO SAY SHARES ARE MOVABLE ASSETS AND THEREFORE TRANSFER THEREOF IS GUIDED BY THE SALE OF GOODS ACT. THE TRANSFE R TOOK PLACE AS AND WHEN POSSESSION WAS HANDED OVER TO THE TRANSFEREE AND CONSIDERATION WAS RECEIVED. IN THIS CASE, SUBSTANTIAL AMOUNT OF CONSIDERATION WAS RECEIVED DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. BUT IT IS NOBOD Y S CASE THAT POSSESSION OF SHARE CERTIFICATES WAS HANDED OVER TO THE TRANSFEREE. THE HON BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. RAMASWAMY (151 ITR 122) , AFTER REVIEWING PRECEDENTS ON THE SUBJECT , HELD THAT TRANSFER OF SHARES IS COMPLETE ONLY WHEN S HARE CERTIFICATES ALONG WITH DULY SIGNED SHARE TRANSFER FORMS WERE HANDED OVER TO THE TRANSFEREE. THIS PRINCIPLE WAS AGAIN REITERATED BY THE HON BLE KERALA HIGH COURT IN THE CASE OF RAJAGIRI RUBBER & PRODUCE CO. VS. CIT (1993) 203 ITR 663 WHEREIN IT WAS H ELD AS FOLLOWS: WE HEARD COUNSEL. WE PERUSED THE APPELLATE ORDER PASSED BY THE APPELLATE TRIBUNAL. THE RELEVANT DATES ARE NOT IN DISPUTE. IT IS CONCEDED THAT THE COMPANY PASSED A RESOLUTION AND THE SHARE CERTIFICATES WERE DELIVERED AND CONSIDERATION WAS A LSO RECEIVED DURING THE ACCOUNTING PERIOD RELEVANT TO THE ASSESSMENT YEAR 1978 - 79. AS BETWEEN THE TRANSFEROR AND THE TRANSFEREE, THE TRANSACTION WAS COMPLETE. THE SHARE CERTIFICATES WERE HANDED OVER TO THE BROKER ON JUNE 28, 1977. IN SUCH CIRCUMSTANCES, AS HELD BY THE SUPREME COURT IN HOWRAH TRADING CO. LTD.'S CASE [1959] 36 ITR 215 AND SHELAT'S CASE [1975] 45 COMP CAS 43, AND BY THE MADRAS HIGH COURT IN CIT V. M. RAMASWAMY [1985] 151 ITR 122, THE TRANSFER OF SHARES FOR THE PURPOSE OF SECTION 45 OF THE INCOME - TAX ACT, 1961, WAS COMPLETE IN THE ASSESSMENT YEAR 1978 - 79. THE DECISION SO ITA NO S . 291 & 292 /BANG/201 6 PAGE 8 OF 9 ARRIVED AT BY THE APPELLATE TRIBUNAL IS BASED ON THE DECISIONS OF THE SUPREME COURT. THE QUESTION OF LAW RAISED IS MERELY ACADEMIC. IT IS NOT A REFERABLE QUESTION OF LAW . FOLLOWING THE ABOVE RATIO, WE HOLD THAT IN THE PRESENT CASE ALSO SINCE IT IS UNDISPUTED FACT THAT SHARE CERTIFICATES WERE NOT DELIVERED TO THE TRANSFEREE DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2007 - 08, IT CANNOT BE SAID THAT TRANSFER OF SHARES IS COMPLETE DURING THE PREVIOUS YEAR. ACCORDINGLY, WE HOLD THAT NO CAPITAL GAINS ARE CHARGEABLE TO TAX ON ACCOUNT OF SALE OF SHARES IN THE COMPANY STPPL DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. THEREFORE, WE DIRECT AO TO DELETE THE ADDITION ON ACCOUNT OF SALE OF SHARES IN STPPL . 7. AS REGARDS OTHER ADDITION OF RS.63,89,374/ - ON ACCOUNT OF INTEREST - FREE LOANS GIVEN, THE AO, THOUGH MADE A BALD STATEMENT THAT THE ASSESSEE INCURRED INTEREST ON BORROWINGS, HE HAS NOT RE NDERED ANY CATEGORICAL FINDING THAT THE ASSESSEE HAS DIVERTED INTEREST - BEARING FUNDS TO NON - BUSINESS PURPOSE. AS A MATTER OF RECORD, IT IS DURING THE RELEVANT ASSESSMENT YEAR THE ASSESSEE HAS RECEIVED A SUM OF RS.13.50 CRORES AS ADVANCE FOR SALE OF SHARES . THEREFORE, PRESUMPTION HAS TO BE DRAWN THAT THE ASSESSEE HAS ADVANCED LOANS TO OTHERS OUT OF HIS OWN FUND AND THEREFORE, THE QUESTION OF ANY ADDITION DOES NOT ARISE. HENCE, WE DIRECT THE AO TO DELETE THE ADDITION OF RS.63,89,374/ - MADE ON ACCOUNT OF INT EREST FREE LOAN. ITA NO S . 291 & 292 /BANG/201 6 PAGE 9 OF 9 8. THE OTHER GROUNDS OF APPEAL ARE CONSEQUENTIAL IN NATURE AND ARE DISMISSED AS SUCH. 9. IN THE RESULT, APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH AUGUST , 2016 S D/ - S D/ - (VIJAY PAL RAO) (INTURI RAMA RAO) JUDICIAL MEMBER A CCOUNTANT MEMBER PLACE : BANGALORE D A T E D : 19 /0 8 /2016 SRINIVASULU, SPS COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) - II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FI LE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BA NGALORE