ACIT 26 (3), MUMBAI V. SANGEETA DILIP PATIL, MUMBAI

ITA 6557/MUM/2019

AI Insights

The case revolves around the classification of income from the sale of shares by Sangeeta Dilip Patil in Trivector Origio Scientific Pvt. Ltd. The Revenue contended that the income should be classified as business income due to the termination of managerial control, while the assessee argued it was capital gains. The Tribunal referenced previous decisions and similar cases involving the assessee's husband, Dilip Patil, where the income was classified as capital gains. The Tribunal found that the shares were capital assets and their sale did not amount to a transfer of business, thus supporting the assessee's classification of the income.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123411 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 24-01-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 16-10-2019
• Other Referred Cases: CIT vs. Shiv Raj Gupta, CIT vs. Sangeeta Wig, Hami Aspi Balsara Vs ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Capital Gains
• Section: 28; 2(14); 54EC; 153

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “E” MUMBAI BEFORE SHRI ABY T VARKEY (JUDICIAL MEMBER) AND SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) ITA No. 6557/MUM/2019 Assessment Year: 2015-16 ACIT-26(3), R. No. 332, 3 rd floor, Kautilya Bhavan, Bandra Kurla Complex, Bandra East, Mumbai-400051. Vs. Sangeeta Dilip Patil, 1204, Park Royale, Madan Mohan Malviye Road, Mulund (W), Mumbai-400080. PAN No. AATPP 1470 C Appellant Respondent Assessee by : Mr. Madhur Agrawal, AR Revenue by : Smt. Nilu Jaggi, CIT-DR Date of Hearing : 25/01/2023 Date of pronouncement : 23/02/2023 ORDER PER OM PRAKASH KANT, AM This appeal by the Revenue has been preferred against order dated 22.07.2019 passed by the Ld. Commissioner of Income-tax- 40, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2015-16, raising following grounds: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the consideration received on sale of shares of M/s. Trivector Origio Scientific Pvt. Ltd. amounting to Rs. 16,42, 16,883/ business income as per provisions of Section 28(11)(a) of the Act holding that the income received only for sale of shares without appreciating the fact that when the assessee sold the entire shares held by herself, the managerial control itself terminated and the assessee no more part of the management of the said company. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the assessee has not received any income for termination of her management control in the ongoing company without appreciating the fact that received includes the income received on termination of her management control as she has sold all the shares held by her. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the CBDT Cir 02.05.2016. 2. Briefly stated, facts of the case are that the assessee filed return of income on 26.08.2015 declaring total income of Rs.7,62,53,270/-. The return of income filed by the assessee selected for scrutiny Act, 1961 (in short ‘the Act’) were issued and complied with. During the scrutiny proceedings, the Assessing Officer noted that assessee had sold 2200 shares of unlisted company India Pvt. Ltd. for a consideration of Rs.16,67,24,306/ long term capital gain of Rs.15,91,93,555/ exemption u/s 54EC of the Act at Rs.50,00,000/ bonds. This company was Trivector Origio Scientific Pvt. Ltd. amounting to Rs. 16,42, 16,883/- is capital gains only and not business income as per provisions of Section 28(11)(a) f the Act holding that the income received only for sale of shares without appreciating the fact that when the assessee sold the entire shares held by herself, the managerial control itself terminated and the assessee no more part of the management of the said company. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the assessee has not received any income for termination of her management control in the ongoing company without appreciating the fact that the consideration received includes the income received on termination of her management control as she has sold all the shares held by her. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the CBDT Circular No.225/12/2016/ ITA/Il dated 02.05.2016. Briefly stated, facts of the case are that the assessee filed return of income on 26.08.2015 declaring total income of . The return of income filed by the assessee selected for scrutiny and statutory notices under the Income Act, 1961 (in short ‘the Act’) were issued and complied with. During the scrutiny proceedings, the Assessing Officer noted that assessee had sold 2200 shares of unlisted company M/s Trivector Origio . for a consideration of Rs.16,67,24,306/ long term capital gain of Rs.15,91,93,555/- exemption u/s 54EC of the Act at Rs.50,00,000/- for investment in bonds. This company was promoted by the assessee along with her Sangeeta Dilip Patil ITA N. 6557/M/2019 2 AY 2015-16 Trivector Origio Scientific Pvt. Ltd. amounting to Rs. is capital gains only and not business income as per provisions of Section 28(11)(a) f the Act holding that the income received only for sale of shares without appreciating the fact that when the assessee sold the entire shares held by herself, the managerial control itself terminated and the assessee no more part of the management of the On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the assessee has not received any income for termination of her management control in the ongoing company the consideration received includes the income received on termination of her management control as she has sold all the On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the cular No.225/12/2016/ ITA/Il dated Briefly stated, facts of the case are that the assessee filed return of income on 26.08.2015 declaring total income of . The return of income filed by the assessee was and statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) were issued and complied with. During the scrutiny proceedings, the Assessing Officer noted that assessee M/s Trivector Origio . for a consideration of Rs.16,67,24,306/- and shown after claiming for investment in by the assessee along with her husband Shri Dilip Patil in the year 2005 of the company. In the year 2012 husband sold 51% shares of the company to M/s Origio A/S vide share purchase agreement dated 28.03.2013. The balance share have been sold to the same company in the financial year 2014 corresponding to the assessment year under consideration purchase agreement dated 13.02.2015. The husband of the assessee sold 2700 shares of this company to M/s Origio A/S year under considerati assessee. The Assessing Officer business income in terms of section 28 of the Act as according to him the consideration received compensation received f Indian Co., which she was substantially 3. On further appeal, the Ld. CIT(A) deleted the addition observing as under: “9.8 The AR of the appellant has also placed reliance on a number of court decisions which management itself is a capital asset u/s. 2(14) of IT. Act. The term capital asset is defined u/s.2(14) of I.T. Act which, inter alia, means property of any kind held by an appellant and disposal of property would result into ca been held by Delhi High Court in the case of CIT vs. Shiv Raj Gupta (2014) 52 taxmann.com 425 (Dell and CIT vs. Sangeeta Wig (2014) 42 taxmann.com 146 (Del.). ilip Patil in the year 2005, both having 50% shares of the company. In the year 2012-13, the assessee along with her husband sold 51% shares of the company to M/s Origio A/S vide share purchase agreement dated 28.03.2013. The balance share o the same company in the financial year 2014 corresponding to the assessment year under consideration purchase agreement dated 13.02.2015. The husband of the assessee sold 2700 shares of this company to M/s Origio A/S year under consideration along with sale of 2200 shares by the . The Assessing Officer, however held the sale of shares as business income in terms of section 28 of the Act as according to him the consideration received on sale of shares is actually compensation received from termination of her management she was substantially managing. On further appeal, the Ld. CIT(A) deleted the addition 9.8 The AR of the appellant has also placed reliance on a number of court decisions which have held that control and management itself is a capital asset u/s. 2(14) of IT. Act. The term capital asset is defined u/s.2(14) of I.T. Act which, inter alia, means property of any kind held by an appellant and disposal of property would result into capital gain. This has been held by Delhi High Court in the case of CIT vs. Shiv Raj Gupta (2014) 52 taxmann.com 425 (Dell and CIT vs. Sangeeta Wig (2014) 42 taxmann.com 146 (Del.).” Sangeeta Dilip Patil ITA N. 6557/M/2019 3 AY 2015-16 both having 50% shares 13, the assessee along with her husband sold 51% shares of the company to M/s Origio A/S vide share purchase agreement dated 28.03.2013. The balance share o the same company in the financial year 2014-15 corresponding to the assessment year under consideration vide purchase agreement dated 13.02.2015. The husband of the assessee sold 2700 shares of this company to M/s Origio A/S in the with sale of 2200 shares by the however held the sale of shares as business income in terms of section 28 of the Act as according to on sale of shares is actually rom termination of her management of On further appeal, the Ld. CIT(A) deleted the addition 9.8 The AR of the appellant has also placed reliance on a have held that control and management itself is a capital asset u/s. 2(14) of IT. Act. The term capital asset is defined u/s.2(14) of I.T. Act which, inter alia, means property of any kind held by an appellant and pital gain. This has been held by Delhi High Court in the case of CIT vs. Shiv Raj Gupta (2014) 52 taxmann.com 425 (Dell and CIT vs. Sangeeta 4. At the outset, before us, the Ld. Counsel of the assessee submitted that identical issue of sale of shares in the hand o husband Shri Dilip Patil has been held as capital gain by the Tribunal in ITA No. 875/Mum/2020 and ITA No. 6587/M/2019 for assessment year 2013 5. The Ld. Departmental Repr controvert position of decision in favour of the dispute. 6. We have heard rival submission of the parties and perused the relevant material on record. The issue before us, is whether the gain arising from sale of shares of taxable under the head gains of the business in the case of the husband of the assessee on identical issue h held as under: 9. We have analysed the nature of transaction to determine the character of the receipts to be assessed under the head business under section 28(ii)(a) of the Act. 10. This is established position of law that any such receipt which is described in section 28(i)(a) is duly covered as capital asset as defined in sec 2(14). On such type of receipt being asset first charge on assessee will be under the head capital gain only. If assessee is not offering such receipt under the head capital gai 28()(a). Chargeability of such type of receipt under sec. 28(i)(a) was introduced with a motive to cover the loopholes where income is neither chargeable to tax under the head capital At the outset, before us, the Ld. Counsel of the assessee identical issue of sale of shares in the hand o husband Shri Dilip Patil has been held as capital gain by the Tribunal in ITA No. 875/Mum/2020 and ITA No. 6587/M/2019 for assessment year 2013-14 and 2015-16 respectively. The Ld. Departmental Representative (DR) could not controvert position of decision in favour of the assessee on We have heard rival submission of the parties and perused the relevant material on record. The issue before us, is whether the gain le of shares of M/s Trivector Origio India Pvt. Ltd. taxable under the head ‘capital gain’ or under the head gains of the business’ u/s 28(2)(a) of the Act. The Tribunal (supra) in the case of the husband of the assessee on identical issue h We have analysed the nature of transaction to determine the character of the receipts to be assessed under the head business under section 28(ii)(a) of the Act. 10. This is established position of law that any such receipt scribed in section 28(i)(a) is duly covered as capital asset as defined in sec 2(14). On such type of receipt being asset first charge on assessee will be under the head capital gain only. If assessee is not offering such receipt under the head capital gains, then only it is chargeable to tax under sec 28()(a). Chargeability of such type of receipt under sec. 28(i)(a) was introduced with a motive to cover the loopholes where income is neither chargeable to tax under the head capital Sangeeta Dilip Patil ITA N. 6557/M/2019 4 AY 2015-16 At the outset, before us, the Ld. Counsel of the assessee identical issue of sale of shares in the hand of her husband Shri Dilip Patil has been held as capital gain by the Tribunal in ITA No. 875/Mum/2020 and ITA No. 6587/M/2019 for 16 respectively. esentative (DR) could not assessee on issue-in- We have heard rival submission of the parties and perused the relevant material on record. The issue before us, is whether the gain M/s Trivector Origio India Pvt. Ltd. is under the head ‘profit and u/s 28(2)(a) of the Act. The Tribunal (supra) in the case of the husband of the assessee on identical issue has We have analysed the nature of transaction to determine the character of the receipts to be assessed under the head business under section 28(ii)(a) of the Act. 10. This is established position of law that any such receipt scribed in section 28(i)(a) is duly covered as capital asset as defined in sec 2(14). On such type of receipt being asset first charge on assessee will be under the head capital gain only. If assessee is not offering such receipt under the ns, then only it is chargeable to tax under sec 28()(a). Chargeability of such type of receipt under sec. 28(i)(a) was introduced with a motive to cover the loopholes where income is neither chargeable to tax under the head capital gains nor in any other h transactions categorically covered by the finance act 1997 i.e., with effect from A Y 1998 11. From the transactions and covenants of agreement observed, it clearly emanates that the business was being carried out by M/s. TOPL and assessee was simply a shareholder and not directly into the business so it can be affirmed that the transactions of assessee with M/s. Ori M/s Origio A/S Denmark was transfer of shares and not of business itself. In this regard w Granialowing Hon'ble High Court/Apex Court. i. CIT Vs New India Assurance Company Ltd 122 IT 633 (Mum.) ii. SIN) CIT Vs F.X. Periera and Sons (Travancore) Pvt Ltd. 184 ITR 461 (Ker.) iii. CIT Vs West Coast Chemicals and Industries Ltd 46 135 (S.C) iv. CIT Vs Mugni Ram Bangur and Co 57 ITR 299 (S.C) v. West Coast Electric Supply Corporation Ltd Vs CIT 107 ITR 483 (Mad.) vi. Syndicate Bank Ltd Vs CIT 155 [TR 681 (Kar.) vii. Indian Bank Ltd Vs CIT 153 ITR 282 (Mad.) viii. ACIT vs. Savita N. Mandhana & Ors., 3900/Mum/2010 ix. Rohitasava Chand Vs. CIT 306 ITR 242 (Del.) x. CIT Vs. Saroj Kumar Poddar 279 ITR 573 (Cal.) xi. CIT Vs. Shiv Raj Gupta 372 ITR 337 (Del.) 12. The jurisdictional ITAT in the case of similar facts, held in the case of Hami Aspi Balsara Vs ACI under "Admittedly, in the share purchase agreement no consideration was assigned towards non the parties had entered into the share purchase agreement after mutually settling the price of shares. This clause clearly shows that in the purchase price of shares, consideration towards Restraint Clause was embedded. Admittedly, assessee on her own was not carrying on business and it was the company in which she was shareholder was carrying on the business, ... Thus, sectio the assessee was carrying on business and not where gains nor in any other head. Whereas such type of transactions categorically covered by the finance act 1997 i.e., with effect from A Y 1998-99 through sec, 55(2)(a). 11. From the transactions and covenants of agreement observed, it clearly emanates that the business was being rried out by M/s. TOPL and assessee was simply a shareholder and not directly into the business so it can be affirmed that the transactions of assessee with M/s. Ori M/s Origio A/S Denmark was transfer of shares and not of business itself. In this regard we relied upon the decisions of Granialowing Hon'ble High Court/Apex Court. CIT Vs New India Assurance Company Ltd 122 IT 633 (Mum.) SIN) CIT Vs F.X. Periera and Sons (Travancore) Pvt Ltd. 184 ITR 461 (Ker.) CIT Vs West Coast Chemicals and Industries Ltd 46 135 (S.C) CIT Vs Mugni Ram Bangur and Co 57 ITR 299 (S.C) West Coast Electric Supply Corporation Ltd Vs CIT 107 ITR 483 (Mad.) Syndicate Bank Ltd Vs CIT 155 [TR 681 (Kar.) Indian Bank Ltd Vs CIT 153 ITR 282 (Mad.) ACIT vs. Savita N. Mandhana & Ors., 3900/Mum/2010 Rohitasava Chand Vs. CIT 306 ITR 242 (Del.) CIT Vs. Saroj Kumar Poddar 279 ITR 573 (Cal.) CIT Vs. Shiv Raj Gupta 372 ITR 337 (Del.) 12. The jurisdictional ITAT in the case of similar facts, held in the case of Hami Aspi Balsara Vs ACIT 126 ITD 100, held as "Admittedly, in the share purchase agreement no consideration was assigned towards non-compete fees and the parties had entered into the share purchase agreement after mutually settling the price of shares. This clause clearly shows that in the purchase price of shares, consideration towards Restraint Clause was embedded. Admittedly, assessee on her own was not carrying on business and it was the company in which she was shareholder was carrying on the business, ... Thus, section 28 would be attracted where the assessee was carrying on business and not where Sangeeta Dilip Patil ITA N. 6557/M/2019 5 AY 2015-16 ead. Whereas such type of transactions categorically covered by the finance act 1997 i.e., 99 through sec, 55(2)(a). 11. From the transactions and covenants of agreement observed, it clearly emanates that the business was being rried out by M/s. TOPL and assessee was simply a shareholder and not directly into the business so it can be affirmed that the transactions of assessee with M/s. Ori M/s Origio A/S Denmark was transfer of shares and not of e relied upon the decisions of CIT Vs New India Assurance Company Ltd 122 IT 633 SIN) CIT Vs F.X. Periera and Sons (Travancore) Pvt Ltd. CIT Vs West Coast Chemicals and Industries Ltd 46 ITR CIT Vs Mugni Ram Bangur and Co 57 ITR 299 (S.C) West Coast Electric Supply Corporation Ltd Vs CIT 107 Syndicate Bank Ltd Vs CIT 155 [TR 681 (Kar.) ACIT vs. Savita N. Mandhana & Ors., ITA No. Rohitasava Chand Vs. CIT 306 ITR 242 (Del.) CIT Vs. Saroj Kumar Poddar 279 ITR 573 (Cal.) 12. The jurisdictional ITAT in the case of similar facts, held in T 126 ITD 100, held as "Admittedly, in the share purchase agreement no compete fees and the parties had entered into the share purchase agreement after mutually settling the price of shares. This clause clearly shows that in the purchase price of shares, consideration towards Restraint Clause was embedded. Admittedly, assessee on her own was not carrying on business and it was the company in which she was shareholder was carrying on n 28 would be attracted where the assessee was carrying on business and not where assessee only had right to carry on business in the form of capital asset." 13. In view of the above facts, pronouncement of Hon'ble High Court and jurisdictional ITAT, we ar that the assessee had rightly declared Capital gains. No portion of considerations can for the purposes of sec. 28 hence we confirm the findings of ld. CIT(A) and dismissed the grounds of appea Revenue.” 6.1 As identical issue of the sale of the shares of the same company is involved in the case of the assessee, therefore, respectfully following the finding of the Tribunal (supra) the grounds of appeal of the Revenue are dismissed 7. In the result, the appeal of the Revenue is dismissed. Order pronounced under Rule 34(4) of the ITAT Rules, 1963 on 23/02/2023. Sd/- (ABY T VARKEY JUDICIAL MEMBER Mumbai; Dated: 23/02/2023 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai assessee only had right to carry on business in the form of capital asset." 13. In view of the above facts, pronouncement of Hon'ble High Court and jurisdictional ITAT, we are of the considered view t the assessee had rightly declared income under the head Capital gains. No portion of considerations can be attributated for the purposes of sec. 28 hence we confirm the findings of ld. and dismissed the grounds of appeal raised by the As identical issue of the sale of the shares of the same company is involved in the case of the assessee, therefore, respectfully following the finding of the Tribunal (supra) the grounds of appeal of the Revenue are dismissed. In the result, the appeal of the Revenue is dismissed. Order pronounced under Rule 34(4) of the ITAT Rules, 02/2023. Sd/- ABY T VARKEY) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : Sangeeta Dilip Patil ITA N. 6557/M/2019 6 AY 2015-16 assessee only had right to carry on business in the form of 13. In view of the above facts, pronouncement of Hon'ble High e of the considered view income under the head be attributated for the purposes of sec. 28 hence we confirm the findings of ld. l raised by the As identical issue of the sale of the shares of the same company is involved in the case of the assessee, therefore, respectfully following the finding of the Tribunal (supra) the In the result, the appeal of the Revenue is dismissed. Order pronounced under Rule 34(4) of the ITAT Rules, - OM PRAKASH KANT) ACCOUNTANT MEMBER 6. Guard file. //True Copy// BY ORDER, (Assistant Registrar) ITAT, Mumbai Sangeeta Dilip Patil ITA N. 6557/M/2019 7 AY 2015-16 BY ORDER, (Assistant Registrar) ITAT, Mumbai