Dy.CIT, Circle-1(1), Hyderabad V. Sri Vagish Dixit, Hyderabad

ITA 314/HYD/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5595 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 12-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARITA
• Assessee Lawyers: S RAMA RAO
• Keywords: Capital asset; Fair market value
• Section: 54F

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.314/HYD/2013 ASSESSMENT YEAR 2008-2009 DCIT, CIRCLE 1(1) HYDERABAD VS. SRI VAGISH DIXIT HYDERABAD PAN ADOPD 6511G (APPELLANT) (RESPONDENT) FOR REVENUE : MS. HARITA FOR ASSESSEE : MR. S. RAMARAO DATE OF HEARING : 08.01.2014 DATE OF PRONOUNCEMENT : 19.02.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS IS A REVENUE APPEAL AGAINST THE ORDER OF LEARNED CIT(A)-V, HYDERABAD DATED 13.12.2012 FOR THE ASSESSMENT YEAR 2008-2009. REVENUE IN ITS TWO GROUNDS IS CONTESTING THE RELIEF GRANTED BY CIT(A) HOLDING THAT THE ENTIRE SALE CONSIDERATION RECEIVED BY ASSESSEE ON SALE OF SHARE S BE TREATED AS CAPITAL GAINS, AS AGAINST PART OF THE AMOUN T TREATED AS BENEFIT UNDER SECTION 28(IV) BY A.O. 2. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS THE FOUNDER DIRECTOR OF YODEVA PLASTICS PVT. LTD. AND HELD SUBSTANTIAL SHARES OF THE SAID COMPANY ALONG WITH HIS F AMILY MEMBERS. DURING THE PREVIOUS YEAR UNDER CONSIDERATION, T HE ASSESSEE SOLD 44,297 SHARES OF YODEVA PLASTICS PVT. LT D. TO ALPLA INDIA PVT. LTD., AT A RATE OF RS.960/- PER SHARE. THE TOTAL ITA.NO.314/HYD/2013 SRI VAGISH DIXIT, HYDERABAD SALE CONSIDERATION RECEIVED BY THE ASSESSEE WAS RS.4,25,25,120/-. AFTER DEDUCTING THE COST OF ACQUISI TION OF THE SHARES, ASSESSEE ADMITTED A CAPITAL GAIN OF RS.3,91 ,06,970/- AND CLAIMED EXEMPTION UNDER SECTION 54F OF THE I.T. AC T. THE ASSESSEE ALSO ADMITTED THE INCOME FROM REMUNERATION AND INCOME FROM OTHER SOURCES BESIDES ADMITTING SHORT TERM CAPITAL GAIN. THERE IS NO DISPUTE WITH REGARD TO THE DETERMINATION OF INCOME UNDER THE HEAD SALARY, SHORT T ERM CAPITAL GAIN OR INCOME FROM OTHER SOURCES. THE A.O. HOWEVER, DID NOT ACCEPT THE COMPUTATION OF LONG TERM CAPI TAL GAIN ON SALE OF SHARES OF YODEVA PLASTICS PVT. LTD. HE LD BY THE ASSESSEE. THE A.O. WAS OF THE VIEW THAT THE FAIR MARKET VALUE OF THE SHARE CAN AT BEST BE DETERMINED AT RS.614/- PER S HARE. THE A.O. WAS, THEREFORE, OF THE VIEW THAT THE BALANCE CONSID ERATION OF RS.346/- PER SHARE WAS NOT ATTRIBUTABLE TO THE SALE OF SHARES BUT REPRESENTS THE AMOUNT ADDITIONALLY PAID BY THE PURCH ASER FOR PARTING THE MANAGEMENT RIGHTS IN THE COMPANY. THE A .O. ARRIVED AT THIS CONCLUSION FOR THE FOLLOWING REASONS : A) ON 1.6.2006, THE ASSESSEE ENTERED INTO AN AGREEMENT WITH OTHER FAMILY MEMBERS I.E., YOGESH DIXIT, MR. DEVESH DIXIT, MR. VACHASPATI DIXIT AND OTHERS SOLD THEIR SHAREHOLDING I.E., 1,46,097 AT THE RATE OF RS.149/- PER SHARE. B) ON 29.11.2006, THE ASSESSEE SOLD THE SAID SHARES OF RS.1,46,097 FOR A CONSIDERATION OF RS.160/- PER SHARE. C) ON 4.6.2007, THE ASSESSEE AND OTHER FAMILY MEMBERS I.E., SPOUSE AND PARENTS SOLD THEIR ORIGINAL SHARE HOLDINGS AT THE RATE OF RS.960/- PER SHARE. ITA.NO.314/HYD/2013 SRI VAGISH DIXIT, HYDERABAD D) THE CHARTERED ACCOUNTANTS M/S. S. MAHENDRA & CO., VALUED THE SHARE AT RS.613.80PS. PER SHARE AS ON 11.8.2007. E) THE ASSESSEE POSSESSED SUBSTANTIAL INTEREST AS T HE EXECUTIVE DIRECTOR OF THE COMPANY FOR MORE THAN 20 YEARS. 2.1. A.O. WAS OF THE VIEW THAT THE CONSIDERATION REC EIVED WAS NOT ONLY ON ACCOUNT OF SURRENDERING OF SHAREHOLDING BU T ALSO ON ACCOUNT OF SURRENDER OF THE MANAGEMENT RIGHTS OVER THE COMPANY. THEREFORE, A.O. WAS OF THE VIEW THAT THE SALE CONSIDERATION OF SALE OF SHARES HAS TO BE DETERMINED CONSIDERING THE MARKET VALUE OF THE SHARES AS ON THE D ATE OF SALE I.E., RS.614/- PER SHARE AS VALUED BY CAS AND T HAT THE BALANCE OF SALE CONSIDERATION WAS ASSESSABLE AS INCOME FROM BUSINESS OR PROFESSION AS THE SAME WAS ATTRIBUTABLE TO PARTI NG OF THE MANAGEMENT RIGHTS. THE A.O. ACCORDINGLY, DETERMI NED THE CAPITAL AT RS.2,37,80,208/- AND ALLOWED EXEMPTION U/S. 54F ONLY TO THE SAID EXTENT. HE DETERMINED THE PROFIT ASSESSABLE UNDER SECTION 28(IV) AT RS.1,53,26,762/-. 3. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT TH E SHARE HOLDINGS IN YODEVA PLASTICS PVT. LTD. WAS HELD BY THE ASSESSEE AND HIS FAMILY MEMBERS. SOME OF THE SHARES WE RE SOLD BY THE OTHER FAMILY MEMBERS IN THE PRECEDING A.Y . ITSELF. WITH THE ACQUISITION OF THE SAID SHARES THE INTERNATIO NAL COMPANY ALPLA INDIA PVT. LTD., HELD 66.90% SHARES. TH E SAID COMPANY WANTED TO ACQUIRE THE BALANCE OF SHARES AND TH E ASSESSEE DID NOT LIKE TO DISPOSE OF THE SHARES AS THE A SSESSEE HAD SEEN FINANCIAL GROWTH OF THE COMPANY BECAUSE OF I TS ASSOCIATION WITH ALPLA INDIA PVT. LTD. THEREFORE, THE ASSESSEE QUOTED A PRICE OF RS.1500/- PER SHARE TO THE FOREIGN INV ESTOR ITA.NO.314/HYD/2013 SRI VAGISH DIXIT, HYDERABAD AND AFTER NEGOTIATIONS THE SHARES WERE SOLD FOR RS.960/- PER SHARE. THE ASSESSEE ATTRIBUTED THE INCREASE IN THE CONSIDERATION RECEIVED BY HIM TO THE INTENTION OF THE F OREIGN INVESTOR IN ACQUIRING 100% OF THE SHARE CAPITAL OF Y ODEVA PLASTICS PVT. LTD. 4. LEARNED CIT(A) SUMMARIZED THE DETAILED SUBMISSIONS OF ASSESSEE AS UNDER : A) AT THE TIME OF SALE OF SHARES BY THE OTHER FAMILY MEMBERS IN THE YEAR 2006, THE PROCTER & GAMBLE WAS CANCELLING THE AGREEMENT WHICH WAS IN OPERATION AND THE COMPANY WAS NOT HAVING ANY ORDERS ON HAND. THE OTHER FAMILY MEMBERS WERE EAGER TO DISPOSE OF THEIR SHARES AND THE OFFER BY THE FOREIGN COMPANY WAS CONSIDERED BY THEM AS FAIR. B) BY THE TIME THE ASSESSEE WAS TRANSFERRING THE SHARES, THE COMPANY ENTERED INTO AN AGREEMENT WITH HINDUSTAN LEVER FOR SUPPLY OF SHAMPOO AND THEREFORE, THERE WERE SUBSTANTIAL ORDERS ON HAND. THE ASSESSEE WAS NOT INTERESTED IN DISPOSING THE SHARES AND THE FOREIGN COMPANY SHOWED INTEREST IN ACQUIRING THE TOTAL RIGHTS IN THE COMPANY. THEREFORE, THE ASSESSEE CONTENDED THAT HE COULD DEMAND A HIGHER PRICE THAN THE MARKET RATE. C) THE ASSESSEE RELIED ON THE FACT THAT DURING THE FINANCIAL YEAR 2006-07 THE SHARES COULD BE SOLD AT RS.160/- PER SHARE AND THE MARKET VALUE DURING THE FINANCIAL YEAR 2007-08, WAS FIXED AT RS.614/- PER SHARE AN INCREASE OF MORE THAN 350%. THE ITA.NO.314/HYD/2013 SRI VAGISH DIXIT, HYDERABAD LEARNED A.R. SUBMITS THAT THE TREND SHOWS AN UPWARD MOVEMENT IN THE VALUE OF THE SHARES OF YODEVA PLASTICS PVT. LTD. AND THEREFORE, HE WAS IN A POSITION TO DEMAND A HIGHER PRICE. D) THE ASSESSEE ALSO RELIED ON THE PROCEEDINGS BEFORE THE FIPB WHEREIN THE FOREIGN INVESTOR WAS PERMITTED TO ACQUIRE THE EQUITY SHARES OF YODEVA PLASTICS PVT. LTD. AT RS.6.97 CRORES. IT WAS SUBMITTED BY THE ASSESSEE THAT SUCH PERMISSION WAS OBTAINED EVEN FOR THE EARLIER SALE. THEREFORE, THE ASSESSEE SUBMITTED THAT THE MARKET VALUE FOR SALE OF SHARES HAS THE APPROVAL BY ONE WING OF GOVERNMENT OF INDIA. E) THE ASSESSEE ALSO SUBMITTED THAT THE RIGHT TO THE CONTROLLING INTEREST IN THE MANAGEMENT OF THE COMPANY IS ALSO A CAPITAL ASSET AND NOT A STOCK IN TRADE FOR THE ASSESSEE AND, THEREFORE, THE ASSESSEE CLAIMED THAT THE BALANCE OF CONSIDERATION ALSO IS ATTRIBUTABLE TO TRANSFER OF A CAPITAL ASSET BEING THE RIGHT IN THE MANAGEMENT OF THE COMPANY. 5. RELYING ON VARIOUS CASE LAW GOVERNING THE ISSUE, LEARNED CIT(A) ACCEPTED THE CONTENTIONS BY STATING AS U NDER : 8. IN VIEW OF THE SUBMISSIONS OF THE APPELLANT, I PERUSED THE MATERIAL AVAILABLE ON RECORD. I FIND THA T THERE IS NO DISPUTE WITH REGARD TO THE FACTS OF THE CASE. THE APPELLANT SOLD 44297 SHARES HELD BY HIM WITH YODEVA PLASTICS PVT. LTD., AND THE SAID SHARES WERE SOLD TO A FOREIGN INVESTOR FOR A CONSIDERATION OF RS.960/- PER SHARE. THERE IS AN EVIDENCE TO SHOW THAT THE MARKET VALUE PER SHARE ON THE DATE OF TRANSFER WAS DETERMINED BY THE CHARTERED ACCOUNTANT AT RS.614/- PER SHARE. THERE IS ALSO EVIDENCE TO SHOW THAT THE ITA.NO.314/HYD/2013 SRI VAGISH DIXIT, HYDERABAD APPELLANT QUOTED A PRICE OF RS.1500/- PER SHARE TO THE SAID FOREIGN INVESTOR. THE ASSESSING OFFICER BROUGHT O N RECORD INFORMATION TO SHOW THAT THE OTHER FAMILY GR OUPS SOLD THEIR SHARES TO THE SAID INVESTORS IN THE IMMEDIATELY PRECEDING YEAR AT RS.160/- PER SHARE, WHICH CLEARLY SHOWS THAT THE VALUE OF THE SHARE IS SUBSTANTIALLY ON THE INCREASE. THE SHARE WHICH WAS SOLD AT RS.160/- PER SHARE DURING THE FINANCIAL YEAR 2006-07, IS VALUED AT RS.614/- PER SHARE DURING THE FINANCIAL YEAR 2007-08 WHICH SHOWS A TENDENCY OF INCREASE IN THE VALUE OF SHARES. THEREFORE, THE APPE LLANT QUOTED A RATE OF RS.1500/- PER SHARE KEEPING IN VIEW THE POSSIBILITY OF FURTHER INCREASE IN THE VALUE OF THE SHARES. THE FOREIGN COMPANY AFTER NEGOTIATIONS WITH T HE APPELLANT DECIDED TO PURCHASE THE SHARES AT THE RAT E OF RS.960/- PER SHARE. THE APPELLANT BROUGHT ON RECORD EVIDENCE TO SHOW THAT THE FOREIGN COMPANY INTENDED T O ACQUIRE THE TOTAL SHARE HOLDINGS AND THE APPELLANT WA S IN A POSITION TO QUOTE THE RATE PER SHARE. THEREFORE , THE APPELLANT COULD GET A SUBSTANTIAL RATE. THE APPELLANT ALSO BROUGHT ON RECORD EVIDENCE TO SHOW THAT ONE GOVERNMENT WING ACCEPTED THE RATE AND PERMITTED THE FOREIGN INVESTOR TO BRING IN THE FOREIGN CURRENCY FOR PURCHASE OF THE SHARES. THEREFORE, I AM SATISFIED WITH THE CONTENTION OF THE APPELLANT THAT THE ENTIR E SALE CONSIDERATION RECEIVED BY HIM IS RELATABLE TO THE TRANSFER OF SHARES AND IS ASSESSABLE ONLY AS A LONG TERM CAPITAL GAIN. I AM ALSO IMPRESSED WITH THE ALTERNATE CLAIM MADE BY THE APPELLANT. THE ASSESSING OFFICER ATTRIBUTED THE BALANCE OF SALE CONSIDERATION TO THE TRANSFER OF MANAGEMENT RIGHTS. THE APPELLANT IS NOT IN THE MANAGEMENT OF COMPANIES. HE IS ONLY AN EMPLOYEE DERIVING REMUNERATION ASSESSABLE AS SALARY. THE SURRENDER OF MANAGEMENT RIGHTS IS ALSO A CAPITAL ASSET AS CLAIME D BY THE APPELLANT AND THE CONSIDERATION DERIVED ON TRANSFER OF SUCH RIGHTS IS ALSO ASSESSABLE ONLY UND ER THE HEAD CAPITAL GAIN AND NOT UNDER THE HEAD BUSINESS OR PROFESSION. THEREFORE, I DIRECT THE ASSESSING OFFICER TO ASSESS THE ENTIRE SALE CONSIDERATION REALIZED BY THE APPELLANT AFTER DEDUCTING THE INDEXED VALUE OF COST PRICE UNDER THE HEAD 'CAPITAL GAIN'. I ALSO DIRECT THE ASSESSING OFFICER TO ALLOW THE EXEMPTION AVAILABLE UNDER SEC. 54F FROM THE CAPITAL GAIN SO ARRIVED AT. ITA.NO.314/HYD/2013 SRI VAGISH DIXIT, HYDERABAD 6. AFTER CONSIDERING THE RIVAL CONTENTIONS AND PERUSING THE PAPER BOOK PLACED ON RECORD, WE DO NOT FIND ANY REASON TO DIFFER FROM THE FINDINGS OF THE LEARNED CIT(A). ASSESSEE JUSTIFIED THE SALE OF SHARES AT HIGHER PRICE AND ALSO EXPLAINED THE CIRCUMSTANCES IN WHICH THE FOREIGN COMPANY NEGOTIATED AND PAID THAT AMOUNT. MOREOVER, ASSESSEE IS EMPLOYED ON SALARY BASIS AND HE HAS NO BUSINESS ACTIVI TY SO AS TO INVOKE PROVISIONS OF SECTION 28(IV). UNLESS THERE IS A BUSINESS ACTIVITY, BENEFIT IN THE BUSINESS DOES NOT ARISE. AS RIGHTLY NOTICED BY THE LEARNED CIT(A), EVEN THE TRANS FER OF MANAGEMENT RIGHTS IS ALSO TRANSFER OF CAPITAL ASSET WHIC H AGAIN RESULTS IN CAPITAL GAIN. LOOKING AT IT IN ANY WAY, THE GAIN CAN ONLY TAXED UNDER THE HEAD CAPITAL GAIN. LEARNED COUNSEL ALSO PLACED ON RECORD THE ORDER OF THE OTHER SHARE HOLDER (SMT . SUSHILA DIXIT) WHEREIN A.O. DID NOT DISTURB THE CAPITAL GAINS OFFERED ON SALE OF SHARES IN SIMILAR MANNER. THE ORDER OF LEARNED CIT(A) STANDS CONFIRMED. 7. IN THE RESULT, REVENUE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH FEBRUARY, 2014. SD/- SD/- (SAKTIJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACOUNTANT MEMBER HYDERABAD, DATED 19 TH FEBRUARY, 2014 VBP/- COPY TO : 1. DCIT, CIRCLE 1(1), 4 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. SRI VAGISH DIXIT, 8-2-326/4/2, HARISHARANAM 198, ROAD NO.3, BANJARA HILLS, HYDERABAD. 3. CIT(A) - V, HYDERABAD 4. C IT - I V , HYDERABAD 5. D.R. ITAT, A BENCH, HYDERABAD.