ITO 9(2)(1), MUMBAI V. M/s. HEMANGINI FINANCE & LEASING P. LTD., MUMBAI

ITA 838/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7657 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 28-12-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 06-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K PAHWA
• Assessee Lawyers: RACH NA AGARWAL
• Keywords: Cost of acquisition; Set aside; Capital Gains

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI A.L. GEHL OT ,(AM) ITA NO. 838/MUM/2008 ASSESSMENT YEAR : 2004-05 INCOME TAX OFFICER WARD 9(2)(1) AAYAKAR BHAVAN, ROOM NO.225 M.K. ROAD MUMBAI-400 020. ..( APPELLANT ) VS. M/S. HEMANGINI FINANCE & LEASING PVT. LTD. MET BUILDINGS, 5 TH FLOOR BANDRA RECLAMATION AREA, BANDRA(W) MUMBAI-400 050. ..( RESPONDENT ) P.A. NO. (AAACH 9888 A) APPELLANT BY : SHRI S.K. PAHWA RESPONDENT BY : MS. RACH NA AGARWAL O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 8.11.2007 PASSED BY THE LD. CIT(A) FOR TH E ASSESSMENT YEAR 2004-05. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COM PANY IS AN INVESTMENT COMPANY. THE RETURN WAS FILED DECLARING TOTAL INCOME OF RS.4,88,25,840/-. DURING THE COURSE OF ASSESSMENT IT W AS OBSERVED BY THE AO THAT THE ASSESSEE HAS SHOWN SALE OF 17934 SHARES OF ITA NO.838/M/08 A.Y:04-05 2 TAMILNAD MERCANTILE BANK LIMITED(TMB) TO NADAR MAHAJ AN BANK INVESTORS FORUM IN AUGUST 2003 FOR A CONSIDERATION OF RS.15,08,51,094/-. THE INDEX COST OF ACQUISITION INCLUDI NG EXPENSES ON LITIGATION FOR PROTECTING THE TITLE WAS CLAIMED TO RS.10,20,17,580/- AND AFTER DEDUCTING THE SAME FROM SALE CONSIDERATION THE ASSESSEE OFFERED LONG TERM CAPITAL GAINS OF RS.4,88,33,514/-. T HE ASSESSEE WAS ASKED TO GIVE FULL AND COMPLETE DETAILS OF SALE OF SHARE S AND DOCUMENTARY EVIDENCE AND CALCULATION OF LONG TERM CAPIT AL GAIN. IN REPLY THE ASSESSEE VIDE LETTER DATED 16.11.2006 SUBMITTE D AS UNDER:- ..AFTER PROLONGED LITIGATIONS BEFORE VARIOUS FORU MS ULTIMATELY THE COMPANY LAW BOARD DURING 2003-04 ORDERED THAT 96,000 EQUITY SHARES OUT OF 1,91,455 S HARES COULD NOW BE TRANSFERRED TO THE NADAR MAHAJAN BANK SHARES INVESTORS FORUM OR ITS NOMINEES WITHOUT COMPLYING WITH THE TRANSFER FORMALITIES/REQUIREMENT S STIPULATED IN THE COMPANIES ACT, 1956. ACCORDINGLY, 17934 OUT OF 27554 EQUITY SHARES BELONGING TO ASSES SEE COMPANY WERE TRANSFERRED DURING THE YEAR BY THE ASSESSEE COMPANY TO THE NADAR FORUM/ITS NOMINEES AS PER THE ORDER OF COMPANY LAW BOARD. THE COMPANY HA S PAID NECESSARY CAPITAL GAINS TAX ON THESE TRANSACTI ONS IN THE ASSESSMENT FOR THE YEAR 2004-05. SINCE ASSESSEE HAS ABSOLUTELY NO INVESTMENT IN SHARES OR SHAR E OF TMB IN BALANCE SHEET AS ON 31.3.2004 ASSESSEE WAS ASKED TO SHOW CAUSE AS PER ORDER SHEET NOTING DATED 16.11.2006, REPRODUCE D AS UNDER : 1. PLEASE SHOW CAUSE WITH DOCUMENTARY EVIDENCE AS TO WHY PROFIT ON SALE OF SHARES FOR WHI CH ADVANCE WAS GIVEN SHOULD NOT BE TREATED AS SHORT TE RM AND TAXED ACCORDINGLY. 2. NOTHING IS SHOWN AS INVESTMENT EVEN LAST YEAR. HOW THE SHARE CAN BE SAID TO HAVE BEEN HELD F OR MORE THAN 12 MONTHS. HOW INDEXATION IS ALLOWABLE. ITA NO.838/M/08 A.Y:04-05 3 DOCUMENTARY EVIDENCE TO PROVE WHEN SHARES ARE TRANSFERRED TO THE NAME OF THE ASSESSEE COMPANY. IN REPLY ASSESSEE SUBMITTED A DETAILED NOTE ON SALES OF T MB SHARES WHICH READS AS UNDER : ITEM NO:1. PROPOSAL TO TREAT THE SURPLUS ON THE SA LE OF SHARES AS INCOME FROM OTHER SOURCES. IT IS NOT CORRECT TO CONSIDER THE INCOME AS INCOME FROM OTHER SOURCES. IT IS TRUE THAT THE COMPANY WAS NOT ADMITTED AS A SHARE HOLDER OF THE BANK AND THE SHAR ES WERE NOT REGISTERED IN THE NAME OF THE COMPANY. IF IT IS NOT ASSESSABLE AS CAPITAL GAIN, IT IS SUBMITTED, TH E RECEIPT MAY NOT BE ASSESSABLE AS INCOME AT ALL, THE SAME BE ING CAPITAL IN NATURE. EVEN THOUGH THE SHARES WERE NOT REGISTERED IN THE N AME OF THE COMPANY, THE COMPANY HAD ACQUIRED A LEGAL EQUITABLE AND BENEFICIAL INTEREST IN THE SHARES. T HIS IS ALSO RECOGNIZED BY THE OTHER AND THAT IS WHY NADAR FORUM HAD APPROACHED THE ASSESSEE COMPANY FOR THE TRANSFER OF SHARES. FURTHER THE SCRIPS WERE ALREAD Y HANDED OVER TO THE COMPANY AND THE COMPANY IS IN POSSESSION OF THE SAID SCRIPS EVER SINCE 1994. THE COMPANY HAD ALSO PAID FOR THE SAID SHARES. PROPERT Y RIGHTS INCLUDE NOT ONLY THE PROPERTY BUT ALSO INTER EST IN THE PROPERTY. THUS A CAPITAL ASSET IN THE FORM OF A LEGAL, EQUITABLE AND BENEFICIAL INTEREST IN THE TMB SHARES HAD BEEN SOLD BY THE ASSESSEE COMPANY FOR A VALUABLE CONSIDERATION AND THE RESULTANT GAINS ARE ASSESSABL E AS CAPITAL GAINS. IT MAY PLEASE BE APPRECIATED THAT THE MEMBERS OF NA DAR FORUM WOULD NOT HAVE COME FORWARD TO PAY THE AGREED CONSIDERATION, IF THERE HAD BEEN NO TRANSFERABLE IN TEREST IN THE COMPANYS FAVOUR. THE ABOVE CAPITAL GAIN CAN NOT ALSO BE ASSESSED AS SHORT TERM CAPITAL GAIN SINCE THE SAID BENEFICIAL INTERES T THE SHARES WAS ACQUIRED AS EARLY AS 1994. HOWEVER, THE AO TREATED SUCH GAIN AS SHORT TERM CAPITAL G AINS FOR THE REASONS THAT THE SAID TMB HAD INITIALLY OBJECTED TO RE GISTER THE ITA NO.838/M/08 A.Y:04-05 4 TRANSFER IN THE NAME OF THE APPELLANT COMPANY AND IT WAS ONLY IN THE YEAR UNDER CONSIDERATION THAT THE SAID TMB REGISTERED T HE TRANSFER OF SUCH SHARES AND THEREFORE ACCORDING TO THE AO SINCE THE ASSE SSEE COMPANY WAS REGISTERED AS SHARE HOLDER ONLY DURING THE YEAR UNDER CONSIDERATION THE GAIN SO EARNED ON SALE OF SUCH SHARES WA S LIABLE TO BE TAXED AS SHORT TERM CAPITAL GAIN AND ACCORDINGLY COMPL ETED THE ASSESSMENT AT AN INCOME OF RS.9,32,77,230/- VIDE ORDER DA TED 27.12.2006 PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). ON APPEAL, THE LD. CIT(A) WHILE HOLDING THAT TITLE AND INTEREST IN SHARES WERE ACQUIRED IN 1994 AND THAT WHAT IS SOLD DURING THE YEAR UNDER CONSIDERATION IS NOTHING BUT THE RIGHTS ACQUIRED IN 1994 AND THEREFORE THE GAIN ARISING OUT OF SUCH SALE WOULD BE LIABLE TO TA X AS LONG TERM CAPITAL GAINS, DIRECTED THE AO TO RE-COMPUTE THE INCOME AS LONG TERM CAPITAL GAINS AFTER EXCLUDING THE LITIGATION EXPENSES A MOUNTING TO RS.27,13,126/- AND ACCORDINGLY PARTLY ALLOWED THE APPE AL. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE REVENUE IS IN APPEAL BEFORE US TAKING FOLLOWING GROUNDS OF APPEAL:- 1) ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, AND IN LAW THE LD. CIT(A) ERRED IN DIRECTING THE AO TO TAX THE GAIN ARISING OUT OF SALE OF 17934 SHARES OF TMB AS INCOME FROM LONG TERM CAPITAL GAINS AS AGAINST THE AOS TA XING THE SAME AS INCOME FROM SHORT TERM CAPITAL GAIN WIT HOUT APPRECIATING THE FACTS OF THE CASE THAT I) THOUGH THE SHARES OF TMB WERE PURCHASED IN 1994, THE SAME WERE NEVER TRANSFERRED IN THE ITA NO.838/M/08 A.Y:04-05 5 ASSESSEES NAME UPTO 18.9.2003 I.E. DURING THE YEAR UNDER CONSIDERATION. II) SINCE THE SHARE IN QUESTION WERE NOT TRANSFERRED IN THE NAME OF THE ASSESSEE IT HAS NOT ACQUIRED ANY RIGHT OF CAPABLE OF TRANSFER OF TRANSMISSION OR SUCCESSION OF SUCH SHARES AS THE SHARES ARE STILL IN THE NAME OF THE SELLER. III) THE ASSESSEE HAS BECOME OWNER OF THE SHARES ONLY ON 18.09.2003 AS PER THE ORDER DATED 14.08.2003 PASSED BY THE COMPANY LAW BOARD. IV) SINCE THE ASSESSEE HELD THE ASSETS (THE SAID SHARES) ONLY ON 18.9.2003 AND TRANSFERRED THE SAME ON THE VERY DAY AS PER THE ORDERS OF THE COMPANY LAW BOARD THE GAIN ARISING THEREFROM IS ONLY SHORT TERM CAPITAL GAIN. 2) THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE GROUNDS BE SET ASIDE AND THAT OF THE ITO/AC/DC BE RESTORED. 4. AT THE TIME OF HEARING THE LD. DR SUPPORTS THE ORD ER OF THE AO. 5. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE SUB MITS THAT THE ISSUE UNDER CONSIDERATION IS DIRECTLY COVERED IN FAVOU R OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE CASE OF GROU P COMPANY OF THE ASSESSEE IN ASST. CIT VS. M/S. KOKILA INVESTMENT & TRA DING PVT. LTD. ITA NO.4071/MUM/07 DATED17.11.2009 FOR THE AY 2004-05. SHE ALSO PLACED ON RECORD THE COPY OF THE SAID ORDER OF THE TRIBUNAL ALONG WITH COPY OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH C OURT IN KILLICK NIXON LTD. AND OTHERS VS. DHANRAJ MILLS PVT. LTD. AND OTHERS (1983) 54COMPCAS432(BOM). ITA NO.838/M/08 A.Y:04-05 6 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND MERIT IN THE PLEA OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE IMPUGNED ISS UE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TR IBUNAL IN M/S. KOKILA INVESTMENT & TRADING PVT. LTD. (SUPRA), WHEREI N THE TRIBUNAL ON THE SIMILAR FACTS AND CIRCUMSTANCES OF THE CASE HAS HELD VID E PARA-9 OF ITS ORDER DATED 17 TH NOVEMBER , 2009 AS UNDER : 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE B Y BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSIN G OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIO US DECISIONS CITED BEFORE US. THERE IS NO DISPUTE REG ARDING THE TRANSFER OF 27,333 SHARES OF TAMILNAD MERCANTIL E BANK. THE ONLY DISPUTE IS AS TO WHETHER THE SURPLU S ON SUCH TRANSFER IS TO BE TREATED AS LONG TERM CAPITAL GAIN OR INCOME FROM OTHER SOURCES. WE FIND THE ASSESSING O FFICER REJECTED THE CLAIM OF LONG TERM CAPITAL GAIN ON ACC OUNT OF SALE OF 27,333 SHARES ON THE GROUND THAT THE ASSES SEE HAS SHOWN THE AMOUNT ON ACCOUNT OF PURCHASE OF SUCH SHARES AS ADVANCE IN THE BALANCE SHEET. THEREFORE, THE ADVANCES WERE FOR THE PURPOSE OF ACQUIRING A BUSINE SS ASSET, A STOCK IN TRADE AND THEREFORE, COULD NOT BE TREATED AS A CAPITAL ASSET. HOWEVER, IN THE INSTANT CASE W E FIND ALTHOUGH THE SHARES WERE PURCHASED LONG BACK THEY C OULD NOT BE TRANSFERRED DUE TO REFUSAL BY THE BANK ON T HE GROUND THAT THE TRANSFEREE DID NOT BELONG TO THE S AME COMMUNITY. ACCORDINGLY THE ASSESSEE HAD SHOWN THE AMOUNT AS ADVANCE. WE FIND ULTIMATELY THE SHARES W ERE TRANSFERRED IN THE NAME OF THE ASSESSEE COMPANY AFT ER PROLONGED LITIGATION AND AFTER THE DIRECTION OF THE COMPANY LAW BOARD. THEREFORE, WE FIND MERIT IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE COMPANY HAD A VALUABLE RIGHT FOR GETTING ITS NA ME REGISTERED IN THE REGISTER OF MEMBERS. WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF KILLICK NI XON & ORS. (SUPRA) HAS HELD THAT WHEN THE COMPANY ACCEPTS THE TRANSFER, THE TRANSFER RELATES BACK TO THE DATE OF EXECUTION OF THE TRANSFER INSTRUMENTS BETWEEN THE TRANSFEROR AND THE TRANSFEREE. IN THE INSTANT CASE THE RIGHT TO A CQUIRE THE SHARES WAS ACQUIRED BY THE ASSESSEE COMPANY IN THE ITA NO.838/M/08 A.Y:04-05 7 FINANCIAL YEAR 1994-95 BUT THE SHARES WERE TRANSFER RED DURING THE YEAR 2004-05 UNDER THE DIRECTION OF THE COMPANY LAW BOARD ALTHOUGH THE TRANSFER DEEDS WERE PRESENTED LONG BACK. THEREFORE, IN VIEW OF THE DEC ISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF KILLICK NIXO N & ORS. (SUPRA), THE DATE OF ACQUISITION OF SHARES REL ATES BACK TO THE EXECUTION OF THE TRANSFER DEED BETWEEN THE TRANSFEROR AND THE TRANSFEREE. SINCE THESE SHARES WERE TRANSFERRED DURING HE IMPUGNED ASSESSMENT YEAR, THEREFORE, IN VIEW OF THE ABOVE AND IN VIEW OF THE DETAILED ORDER PASSED BY THE CIT(A) AND IN ABSENCE OF ANY DISTINGUISHABLE FEATURES BROUGHT ON RECORD BY THE L EARNED DR, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF TH E CIT(A) DIRECTING THE ASSESSING OFFICER TO TREAT THE SURPLU S AS LONG TERM CAPITAL GAIN AND ALLOW THE ASSESSEE BENEFIT OF INDEXATION AS WELL AS EXPENSES INCURRED IN COURT CA SES. THE GROUND RAISED BY THE REVENUE IS ACCORDINGLY DISMISSED. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BROUGHT O N RECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING THE ORDER OF THE TR IBUNAL SUPRA, HOLD THAT THE LD. CIT(A) WAS FULLY JUSTIFIED IN TREATING THE ACQUISITION OF SHARES IN 1994 AND DIRECTING THE AO TO RE-COMPUTE THE I NCOME AS LONG TERM CAPITAL GAINS AFTER EXCLUDING THE LITIGATION EXPE NSES RS.27,13,126/-. THE GROUNDS TAKEN BY THE REVENUE ARE THEREFORE REJECTED. 7. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.3.2010. SD/- SD/- (A.L. GEHLOT) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 11.3. 2010. JV. ITA NO.838/M/08 A.Y:04-05 8 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 8.3.10 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 8.3.10 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 11.3.10 SR.PS/PS 7. FILE SENT TO THE BENCH CLERK 12.3.10 SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER