PRANAWA LEAFIN PVT. LTD., MUMBAI V. DCIT ,RANGE 5(2), MUMBAI

ITA 421/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100879 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2005-2006
• Appeal Filed On: 17-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Share purchase agreement; Cost of acquisition

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND AMIT SHUKLA, (JM) . . , , ./ I.T. A.NO. 421 / MUM/20 14 ( / ASSESSMENT YEAR : 20 05 - 06 ) PRANAWA LEAFIN PVT LIMITED, OFFICE NO.1, 1 ST FLOOR, RANGBHAVAN, M G CROSS ROAD, NEAR BANK OF BARODA, VILE PARLE (E), MUMBAI - 40005 7 / VS. DY. COMMISSIONER OF INCOME TAX - RANGE 5(2), ROOM NO.525, 5 TH FLOOR, AAYAKAR BHAVAN, M K ROAD. MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN. : AAACP3203F / APPELLANT BY SHRI H P MAHAJANI / RSPONDENT BY S HRI DURGA DUTT / DATE OF HEARING : 24.6. 201 5 / DATE OF PRONOUNCEMENT : 26 . 8. 201 5 / O R D E R PER B.R. BASKARAN (AM) THE ASSESSEE HAS FILED THIS APPEAL CHALLENGIN G THE ORDER DATED 4.11.2013 PASSED BY LD CIT(A) - 9, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2005 - 06. THE LD COUNSEL APPEARING FOR THE ASSESSEE DID NOT PRESS THE GROUNDS NUMBERED AS 2 AND 3 AND HENCE THEY ARE DISMISSED AS NOT PRESSED. THE GROUNDS NUMB ERED AS 4 AND 5 ARE GENERAL IN NATURE. THE REMAINING GROUND RELATES TO THE ISSUE OF NATURE OF CAPITAL ASSET, I.E, WHETHER THE SHARES SOLD BY THE ASSESSEE ARE LONG TERM CAPITAL ASSET OR SHORT TERM CAPITAL ASSET. 2. THE FACTS RELATING TO THE ISSUE AR E SET OUT IN BRIEF. THE ASSESSEE APPLIED FOR 10 LAKHS WARRANTS ISSUED BY A COMPANY M/S DEEPAK FERTILIZERS ITA NO. 421/M/2014 2 AND PETROCHEMICALS CORPORATION LTD (DFPCL) BY PAYING A SUM OF RS.28,65,000/ - ON 09.12.1994. THE SAID WARRANTS WOULD BE CONVERTED INTO 10 LACS EQUITY SHARES OF RS.10/ - EACH AT A PREMIUM OF RS.18.65 PER SHARE. ON 03 - 09 - 1996, DFPCL ALLOTTED 10 LAC SHARES TO THE ASSESSEE IN LIEU OF THE WARRANT ISSUED EARLIER. HENCE THE AMOUNT PAYABLE BY THE ASSESSEE WAS RS.2,86,50,000/ - . THE AMOUNT ALREADY PAID BY THE ASSESSEE CONSTITUTED 10% OF THE AMOUNT PAYABLE. THE REMAINING AMOUNT OF RS.2,57,85,000/ - WAS PAID BY THE ASSESSEE ONLY ON 30.01.2004. ON THE PAYMENT OF THE ABOVE SAID AMOUNT, THE SHARES BECAME FULLY PAID UP SHARES. SUBSEQUENTLY, THE ASSESSEE SOLD THE E NTIRE 10 LACS SHARES ON 12.05.2004 FOR A CONSIDERATION OF RS.3.80 CRORES. 3. THE ASSESSEE COMPUTED LONG TERM CAPITAL GAIN BY TAKING THE DATE OF ALLOTMENT OF SHARES, I.E., 03 - 09 - 1996 AS THE DATE OF ACQUISITION OF SHARES. ACCORDINGLY, THE ASSESSEE TREA TED THE SHARES A LONG TERM CAPITAL ASSET. HOWEVER, THE AO HELD THAT THE DATE OF PAYMENT OF CALL MONEY, I.E., 30 - 01 - 2004 SHOULD BE TAKEN AS THE DATE OF ACQUISITION OF SHARES AND ACCORDINGLY HE ASSESSED THE CAPITAL GAIN AS SHORT TERM CAPITAL GAIN TREATING T HE SHARES AS SHORT TERM CAPITAL ASSET. THE LD CIT(A) ALSO CONFIRMED THE VIEW TAKEN BY THE AO. 4. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE HAS FURNISHED A COPY OF SHARE CERTIFICATE AT PAGE 31 OF THE PAPER BOOK. A PERUSAL OF T HE SAME WOULD SHOW THAT THE ASSESSEE HAS BEEN ALLOTTED 10 LAKHS SHARES HAVING DISTINCTIVE NUMBERS 86629994 TO 87629993 ON 03 - 09 - 1996. THE FACE VALUE OF SHARES IS SHOWN AS RS.10/ - PER SHARE. THE AMOUNT PAID UP PER SHARE IS SHOWN AS RE. 1.00 PER SHARE. IT IS FURTHER STATED THAT THE AMOUNT PAYABLE PER SHARE ON FIRST AND FINAL CALL IS RS.9.00 PER SHARE AND THE SAME IS PAYABLE ON 30 TH JAN, 2004. THUS, IT IS SEEN THAT THE ASSESSEE HAS BEEN ALLOTTED TEN LACS PARTLY PAID UP SHARES ON 03 - 09 - ITA NO. 421/M/2014 3 1996 (WITH A PAID UP VALUE OF RE.1.00 PER SHARE). IT IS FURTHER NOTICED THAT THE ASSESSEE HAS RECEIVED DIVIDEND FROM THE ABOVE SAID COMPANY. THE COPY OF DIVIDEND WARRANTS ARE PLACED AT PAGES 83 AND 84 OF THE PAPER BOOK. SINCE THE ASSESSEE HAS PAID 10% OF THE FACE VALUE, TH E DIVIDEND HAS ALSO BEEN PAID @ 10% OF THE DIVIDEND AMOUNT, I.E., IF THE DIVIDEND IS DECLARED AT 25% (25% OF RS.10/ - = RS.2.50), THE ASSESSEE HAS BEEN PAID RE. 0.25 PER SHARE, I.E., RS.2,50,000/ - . THUS IT IS NOTICED THAT THE ASSESSEE HAS ALSO BEEN RECEIVI NG DIVIDEND ON THE SHARES HELD BY IT PROPORTIONATE TO THE AMOUNT PAID UP ON THE SHARES. THE DIVIDEND SHALL BE DISTRIBUTED ONLY TO THE SHARE HOLDERS. ALL THESE FACTORS GO TO SHOW THAT THE ASSESSEE HAS BEEN HOLDING THE PARTLY PAID UP SHARES SINCE 3 RD SEPTE MBER, 1996. THE PAYMENT OF BALANCE AMOUNT OF RS.9/ - PER SHARE IS THE FIRST AND FINAL CALL MONEY, WHICH WAS PAYABLE ON 30 TH JAN, 2004 AS PER THE TERMS OF ISSUE. IN OUR VIEW, THE SUBSEQUENT PAYMENT OF CALL MONEY WILL NOT CHANGE THE POSITION OF RIGHT OF TH E ASSESSEE AS A SHAREHOLDER IN RESPECT OF PARTLY PAID UP SHARES. HENCE WE FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE THAT THE PARTLY PAID UP SHARES OF DFPCL SOLD BY IT IS A LONG TERM CAPITAL ASSET. 5. IN CASE OF LONG TERM CAPITAL ASSET, THE LONG TERM CAPITAL GAIN IS COMPUTED BY SUBSTITUTING COST OF ACQUISITION WITH INDEXED COST OF ACQUISITION. ACCORDINGLY, A SPECIFIC QUERY WAS POSED TO THE LD A.R AS TO THE MANNER OF COMPUTATION OF INDEXED COST OF ACQUISITION, SINCE THE COST OF SHARES HAS BEEN PAID IN TWO INSTALMENTS. THE LD A.R SUBMITTED THAT THE ASSESSEE WOULD CLAIM INDEXATION BENEFIT FROM THE YEAR OF RESPECTIVE PAYMENTS, I.E, THE ASSESSEE WOULD BE ENTITLED TO INDEXATION BENEFIT ON THE AMOUNT OF RS.28,65,000/ - FROM THE FINANCIAL YEAR 1996 - 97 AND ON THE BALANCE AMOUNT OF RS.2,57,85,000/ - , THE INDEXATION BENEFIT SHALL BE CLAIMED FROM FY 2004 - 05. SINCE THE QUESTION OF COMPUTATION OF INDEXATION BENEFITS WAS NOT CONSIDERED BY THE ASSESSING OFFICER, WE FEEL IT PROPER TO LEAVE THE SAME OPEN FOR HIS CONSIDERATION. ITA NO. 421/M/2014 4 6. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO TREAT THE SHARES OF DFPCL AS LONG TERM CAPITAL ASSET AND ACCORDINGLY COMPUTE THE LONG TERM CAPITAL GA IN IN ACCORDANCE WITH THE LAW. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 26TH AUG , 2015. 26TH AUG , 2015 SD SD ( / AMIT SHUKLA ) ( . . / B.R. BASKARAN) / JUDICIAL ME MBER / ACCOUNTANT MEMBER MUMBAI: 26TH AUG ,2015 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CI T(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI