Pramod Kumar Chaudhary, L/h of Late Renu Chaudhary, Kolkata V. ITO,Ward-36(1), Kolkata, Kolkata

ITA 925/KOL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87644 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 13-06-2012
• Court: TRIBUNAL
• Department Lawyers: RANU BISWAS
• Assessee Lawyers: S M SURANA
• Keywords: Capital asset; Share purchase agreement; Cost of acquisition
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOLKATA [BEFORE SHRI N. K. SAINI, AM & SHRI MAHAVIR SINGH, JM ] I.T.A NO. 925 /KOL/201 2 ASSESSMENT YEAR : 200 4 - 0 5 PRAMOD KUMAR CHAUDHARY, L/H OF VS. INCOME - TAX OFFICER, WD - 36 (1), KOLKATA LT. RENU CHAUDHARY (PAN:A CQPC1827R ) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 2 2 .01.2015 DATE OF PRONOUNCEMENT: 29 .01.2015 FOR THE APPELLANT: SHRI S. M. SURANA , ADVOCATE FOR THE RESPONDENT: S MT. RANU BISWAS , J CIT ORDER PER SHRI MAHAVIR SINGH, JM : THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT (A) - X X , KOLKATA IN APPEAL NO. 2 46 / CIT(A) - XX/ WD - 36(1)/2006 - 07/KOL DATED 09 . 0 4 .201 2 . ASSESSMENT W AS FRAMED BY ITO, WARD - 36 (1) , KOLKATA U/S. 143(3) OF THE INCOME - TAX ACT, 1961 (HEREINA FTER REFERRED TO AS THE ACT ) FOR AY 200 4 - 0 5 VIDE HIS ORDER DATED 2 6 . 1 2 .20 0 6 . 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINST THE ORDER OF CIT(A) CONFIRMING THE ACTION OF AO IN TREATING THE PROFIT ON SALE OF 12000 EQUITY SHARES OF GAUTAM RESOURCES LIMITED (GRL) AS SHORT TERM CAPITAL GAIN (STCG) FOR THE REASON THAT THE PERIOD OF HOLDING IS TO BE TAKEN AS ON THE DATE ON WHICH SHARES WERE CREDITED IN THE DEMAT ACCOUNT OF THE ASSESSEE AND THE DATE OF SALE AS THE DATE ON WHICH EQUITY SHARES WE RE DEBITED IN THE DEMAT ACCOUNT OF THE ASSESSEE. FOR THIS, ASSESSEE HAS RAISED FOLLOWING THREE GROUNDS: 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - XX HAS ERRED IN CONFIRMING ORDER OF THE INCOME TAX OFFICER IN TREATING THE PROFIT ON SALE OF 12000 EQUITY SHARES OF MLS GAUTAM RESOURCES LIMITED AS SHORT TERM CAPITAL GAIN. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - XX HAS ERRED IN CONFIRMING ORDER OF THE INCOME TAX OFFICER IN TREATING THE DATE OF PURCHASE FOR PURPOSE OF DETERMINING THE PERIOD OF HOLDING AS THE DATE ON WHICH THE SHARES WERE CREDITED THE DEMAND ACCOUNT OF THE APPELLANT AND DATE OF SALE AS THE DATE ON WHICH EQUITY SHARES HAVE BEEN DEBITED IN DEMAT ACCOUNT OF THE APPELLANT. 2 ITA NO. 92 5/K/201 2 PRAMOD KUMAR CHAUDHARY , AY 2004 - 0 5 3. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - XX HAS ERRED IN CONFIRMING ORDER OF THE INCOME TAX OFFICER IN NOT INCLUDING THE PERIOD WHERE SHARES ARE KEPT IN POOL ACCOUNT OF THE BROKER ON BEHALF OF THE APPELLANT AS THE PERIOD OF HOLDING OF SHARES FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAIN. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE SOLD SHARES OF GRL OF 12000 EQUITY SHARES AND THE PROFIT WAS DECLARED AS LONG TERM CAPITAL GAINS (LTCG). THE AO TREATED THE SAME AS STCG FOR THE REASON THAT DEMAT ACCOUNT OF THE ASSESSEE WAS CREDITED , FOR PURCHASE OF SHARES BY ASSESSEE , AS ON 22.08.2002 AND SALE OF SHARES IS DEBITED IN THE DEMAT ACCOUNT AS ON 20.06.2003. ACCORDING TO AO, THIS IS LESS THAN 1 2 MONTHS. HENCE, H E TREATED THE GAIN ARISING OUT OF THE SALE OF THESE SHARES AS STCG. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALSO CONFIRMED THE ACTION OF AO VIDE PARA 9.1 AS UNDER: I HAVE CONSIDERED THE SUBMISSION OF THE ASSESSEE AND ALSO PERUSED THE ASSE SSMENT ORDER. FROM THE DETAILS OF SALE AND PURCHASE OF SHARES I.E. CONTRACT NOTES FOR SALE AND PURCHASE IN FORM NO. A WHICH ARE SHOWING THE DATES 10.05.2002 AND 26.05.2003 RESPECTIVELY. THE BANK STATEMENT OF INDUSIND BANK IS SHOWING THE DATES ON WHICH PAYMENT FOR PURCHASES AND SALE OF SHARES WAS MADE/RECEIVED ON 22.07.2003 AND 20.06.2003 RESPECTIVELY. AFTER GOING THROUGH THE CBDT S CIRCULAR NO. 704 AND 708 AND FACTS AND CIRCUMSTANCES, IT IS CLEAR THAT THE DATE OF BROKER S CONTACT NOTE SHOULD BE TREATED AS DATE OF TRANSFER IN CASES OF SALE TRANSACTIONS OF SECURITIES. BUT IN THE INSTANT CASE THE OTHER FACTORS ARE ALSO TO BE LOOKED INTO. FOR PURCHASE, DATE OF CONTRACT NOTE IS 10.05.2002, DATE OF DEMAT IS 22.08.2002, AND DATE OF PAYMENT IS 22.07.2002. SIMILARLY FOR SALE, THE DATE OF CONTRACT NOTE IS 26.05.2003, DATE OF DEMAT IS 20.06.2003 AND DATE OF PAYMENT IS 23.06.2003. FURTHER, THE CSEA DENIED HAVING TRANSACTION OF SUCH SHARES BY THE BUBNA STOCK B ROKING SERVICES LTD. FROM THE ABOVE FACTS, IT CAN BE INFERRED THAT THE APPELLANT TRIED TO MADE THE STCG INTO LTCG JUST ON THE BASIS OF CONTRACT NOTE OF THE SHARE BROKER BUT WHILE VERIFYING ANY FACTS/TRANSACTION, THE OTHER FACTORS ARE ALSO TO BE SEEN I.E. THE DATE OF DEMAT/DATE OF PAYMENT/VERIFICATION FROM THE STOCK EXCHANGE ETC. THOUGH, SIMPLY GOING THROUGH THE CONTRACT NOTE, THE APPELLANT S SUBMISSION PRIMA FACIE FOUND TO BE CORRECT BUT WHEN THE OTHER DETAILS/EVIDENCE/DOCUMENTS ETC. WERE EXAMINED, THEN A PPELLANT S CONTENTION IS FOUND TO BE NOT TENABLE. UNDER SUCH CIRCUMSTANCES, THE APPEAL OF THE APPELLANT IS DISMISSED. 4. WE FIND FROM THE ARGUMENTS OF ASSESSEE AND PARTICULARLY CBDT CIRCULAR NO. 704 DATED 28.04.1995 THAT THE CONTRACT FOR PURCHASE AND SALE OF SECURITIES IS TO BE TAKEN AS FINAL DOCUMENT. THE RELEVANT PARA 2 OF THE CIRCULAR READS AS UNDER: 3 ITA NO. 92 5/K/201 2 PRAMOD KUMAR CHAUDHARY , AY 2004 - 0 5 2. WHEN THE SECURIT IES ARE TRANSACTED THROUGH STOCK EXCHANGES, IT IS THE ESTABLISHED PROCEDURE THAT THE BROKERS FIRST ENTER INTO CONTRACTS FOR PURCHASE/SALE OF SECURITIES AND THEREAFTER, FOLLOW IT UP WITH DELIVERY OF SHARES, ACCOMPANIED BY TRANSFER DEEDS DULY SIGNED BY THE R EGISTERED HOLDERS. THE SELLER IS ENTITLED TO RECEIVE THE CONSIDERATION AGREED TO AS ON THE DATE OF CONTRACT. THE BOARD ARE OF THE OPINION THAT IT IS THE DATE OF BROKER S NOTE THAT SHOULD BE TREATED AS THE DATE OF TRANSFER IN CASES OF SALE TRANSACTIONS OF SECURITIES PROVIDED SUCH TRANS ACTIONS ARE FOLLOWED UP BY DELIVERY OF SHARES AND ALSO THE TRANSFER DEEDS. SIMILARLY, IN RESPECT OF THE PURCHASERS OF THE SECURITIES, THE HOLDING PERIOD SHALL BE RECKONED FROM THE DATE OF THE BROKER S NOTE FOR PURCHASE ON B EHALF OF THE INVESTORS. IN CASE THE TRANSACTIONS TAKE PLACE DIRECTLY BETWEEN THE PARTIES AND NOT THROUGH STOCK EXCHANGES, THE DATE OF CONTRACT OF SALE AS DECLARED BY THE PARTIES SHALL BE TREATED AS THE DATE OF TRANSFER PROVIDED IT IS FOLLOWED UP BY ACTUAL DELIVERY OF SHARES AND THE TRANSFER DEEDS. SUBSEQUENTLY, CBDT ALSO ISSUED CIRCULAR NO. 7 6 8 DATED 24.06.1998 UNDER THE NEW SYSTEM OF DEMATERIALIZATION OF SECURITIES AND BOARD HAS REAFFIRMED THE ABOVE REPRODUCED CIRCULAR NO. 704 , WHICH WOULD APPLY IN CERTAIN CIRCUMSTANCES AS UNDER: 4. THE PRI M ARY ISSUE UNDER THE INCOME - TAX ACT IN THE CASE OF SECURITIES WHETHER HELD IN PHYSICAL FORM OR IN THE DEMATERIALIZED FORM REMAINS THE DETERMINATION OF COST OF ACQUISITION AND THE PERIOD OF HOLDING . THE BOARD HAD EARLIER ISSU E D CIRCULAR NO. 704, DATED 28TH APRIL, 1995, WHICH EXPLAINS THE MANNER IN WHICH THE 'DATE OF TRANSFER' AND 'PERIOD OF HOLDING' MAY BE DETERMINED. THIS PRIMARY POSITION AS REGARDS THE 'DATE OF TRANSFER' AND ' PERIOD OF HOLDING DO ES NOT CHANGE EVEN WHEN THE SECURITIES ARE HELD IN THE DEMATERIALIZED FORM. THE ONLY PROBLEM WHEN SECURITIES ARE HELD IN DEMATERIALIZED FORM IS THAT THE DISTINCT TRAIL LINKING EVERY SHARE TO A CERTIFICATE AND ITS UNIQUE DISTINCTIVE NUMBER LINKING IT WITH I TS SUBSEQUENT SALE IS NOT AVAILABLE. 5. SECTION 45(2A) STIPULATES THAT IN THE CASE OF SECURITIES HELD IN DEMATERIALIZED FORM, FOR DETERMINING 'DATE OF TRANSFER' AND 'PERIOD OF HOLDING', THE FIFO METHOD WOULD BE APPLICABLE. THE FIFO METHOD IS GENERALLY USED TO DETERMINE THE VALUE OF ANY ITEM MOVING OUT OF A STOCK ACCOUNT AND THOSE REM AI NING IN STO C K AT A NY P OINT OF T I M E . WHEN APPLIED TO AN ACCOUNT HOLDING DEMATERIALIZED S T OCK , I T I MPLIES T HAT, O U T OF THE EX I STI NG HOLDINGS, THE ITEM THAT FIRST EN T ERED I NT O THE ACCO U NT IS DEE M E D T O BE THE FI RST TO BE SOLD OUT . HOWEVER, ONCE A SALE IS LINKED WITH AN EARLIER PURCHASE FOR DETERMINATION OF THEIR DATE OF TRANSFER AND PERIOD OF HOLDINGS . BOARD S CIRCULAR NO. 704 WOULD BE APPLICABLE. THAT IS TO SAY THAT TH E RELEVANT CONTRACT NOTES AS EXPLAINED IN CIRCULAR NO. 704 WILL HAVE TO BE REFERRED TO, FOR ASCERTAINING THE COST OF THE SECURITY SOLD AND THE DATE OF TRANSFER. 5 . WE FIND THAT THE AO HAS TAKEN THE DATE OF HOLDING OF SHARES FROM CREDIT TO THE DEMAT ACCOUNT OF ASSESSEE ON 28.02.2002. SIMILARLY, THE DATE OF SALE, ACCORDING TO AO, SHOULD BE TAKEN AS 26.06.2003 WHICH IS THE DATE WHEN SHARES ARE DEBITED IN THE DEMAT ACCOUNT OF THE ASSESSEE AND NOT THE DATE OF SALE FROM THE DATE OF CONTRACT DATED 26.05.2 003. ADMITTEDLY, THESE ARE OFF MARKET TRANSACTION AS ADMITTED BY LD. COUNSEL FOR THE ASSESSEE AS WELL AS LD. SR. DR . S ALE S AND PURCHASE S OF THE SAME ARE TO BE GOVERNED BY THE CBDT CIRCULAR NO. 768 DATED 24.06.1998 I.E. IF IN PHYSICAL 4 ITA NO. 92 5/K/201 2 PRAMOD KUMAR CHAUDHARY , AY 2004 - 0 5 FORM THE SAME MAY BE TREATED AS PURCHASED FROM THE DATE OF CONTRACT NOTE AND SOLD IN OFF MARKET THEN THE DATE OF SALE IS TO BE TAKEN AS MENTIONED IN THE CONTRACT NOTE. THIS VIEW OF OURS IS SUPPORTED BY THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL AMRITSAR BENCH IN THE CA SE OF MAX TELECOM VENTURES LIMITED V ACIT (2008) 301 ITR (A T ) 90 (AMRITSAR) WHEREIN IT IS HELD AS UNDER: A BARE READING OF THE AFORESAID CLAUSE (47) OF SECTION 2 SHOWS THAT EXPRESSION 'TRANSFER' USED IN THE ACT HAS MUCH WIDER MEANING AND CONNOTATION AND TH E SAME IS NOT ONLY CONFINED TO SALE. IT EXTENDS AND COVERS MANY OTHER SITUATIONS FOR THE PURPOSE OF CAPITAL GAINS UNDER THE ACT. NOWHERE, THE SECTION SAYS THAT DEFINITION OF 'TRANSFER' SHALL BE AS PER THE DEFINITION OF SALE UNDER THE SALE OF GOODS ACT, 19 30. IN THE CASE OF CIT V. TATA IRON AND STEEL CO. LTD. [1993] 113 CTR 99 ; [1994] 206 ITR 196, THE HON BLE BOMBAY HIGH COURT HAS HELD THAT THE WORD 'TRANSFER' IN SECTION 2(47) OF THE ACT HAS A VERY WIDE MEANING. ITS MEANING CANNOT BE NARROWED DOWN BY REFER RING TO THE PROVISIONS OF OTHER STATUTES WHICH ARE QUITE DIFFERENT AND APPLICABLE IN DIFFERENT CONTEXTS. THUS, RELIANCE OF THE ASSESSEE ON SECTION 4 OF THE SALE OF GOODS ACT, 1930, IS MISPLACED AND NOT CORRECT AND, THEREFORE, IT IS NOT APPLICABLE TO THE FA CTS OF THE PRESENT CASE. NOW, THE NEXT ISSUE THAT REQUIRES TO BE CONSIDERED BY THIS BENCH IS WHETHER THE DATE OF TRANSFER OF SHARES IN THIS CASE SHOULD BE RECKONED AS MARCH 17, 1998, I.E., THE DATE OF EXECUTION OF THE AGREEMENT FOR SALE OF SHARES ON APRIL 23, 1998, I.E., WHEN DELI VERY OF SHARE CERTIFICATES ALONG WITH TRANSFER DEEDS WERE HANDED OVER TO THE PURCHASER. THE PROVISIONS OF THE DRAW A DISTINCTION BETWEEN A SHORT - TERM CAPITAL GAIN AND LONG - TERM CAPITAL GAIN AND ACCORD DIFFERENT TREATMENT FOR THE PURPOSE OF LEVY OF TAX ON S UCH GAIN. THE ISSUE WHETHER A PARTICULAR ASSET IS A LONG - TERM ASSET OR SHORT - TERM ASSET DEPENDS ON THE HOLDING OF THE CAPITAL ASSET BY THE ASSESSEE. IN THE CASE OF 'TRANSFER OF SHARES', THERE WAS CONFUSION AS WHAT SHOULD BE CONSIDERED AS DATE OF PURCHASE A ND DATE OF SALE FOR THE PURPOSE OF ASCERTAINING WHETHER THE CAPITAL ASSET WAS A SHORT - TERM CAPITAL ASSET OR LONG TERM ASSET. THEREFORE, THE CENTRAL BOARD OF DIRECT TAXES ISSUED CLARIFICATION VIDE CIRCULAR NO. 704, DATED APRIL 28, 1995, WHERE IT WAS MENTION ED THAT WHEN SHARES ARE TRANSACTED THROUGH STOCK EXCHANGES, IT IS THE ESTABLISHED PROCEDURE THAT THE BROKERS FIRST ENTER INTO CONTRACTS FOR PURCHASE/SALE OF SECURITIES AND THEREAFTER, FOLLOW IT UP WITH DELIVERY OF SHARES, ACCOMPANIED BY TRANSFER DEEDS D ULY SIGNED BY THE REGISTERED HOLDERS. THE SELLER IS ENTITLED TO RECEIVE THE CONSIDERATION AGREED TO AS ON THE DATE OF CONTRACT. IN SUCH CASES, IT WAS CLARIFIED THAT THE DATE OF TRANSFER OF SHARES SHOULD BE THE DATE OF THE BROKER'S NOTE PROVIDED SUCH TRANS ACTIONS WERE FOLLOWED UP BY DELIVERY OF SHARES AND ALSO THE TRANSFER DEEDS. THE BOARD FURTHER CLARIFIED THAT IN RESPECT OF TRANSACTIONS IN SHARES DIRECTLY BETWEEN THE PARTIES AND NOT THROUGH THE STOCK EXCHANGE, THE DATE OF CONTRACT OF SALE AS DECLARED BY T HE PARTIES SHALL BE TREATED AS THE DATE OF TRANSFER PROVIDED IT IS FOLLOWED UP BY ACTUAL DELIVERY OF SHARES AND THE TRANSFER DEEDS. NOWHERE, THE SAID CIRCULAR SAYS THAT THE SAME WOULD NOT BE APPLICABLE IN A CASE WHERE THE AGREEMENT WAS FOR CONDITIONAL SALE . EVEN IF, CERTAIN CONDITIONS ARE STIPULATED IN THE AGREEMENT, THE CIRCULAR TAKES CARE OF THE SAME BECAUSE IT QUALIFIES THE DATE OF CONTRACT FOR SALE SHALL BE TREATED AS THE DATE OF TRANSFER PROVIDED IT IS 5 ITA NO. 92 5/K/201 2 PRAMOD KUMAR CHAUDHARY , AY 2004 - 0 5 FOLLOWED UP BY ACTUAL DELIVERY OF SHARES AND THE T RANSFER DEEDS IN A CASE WHERE THE TRANSACTION IS NOT FOLLOWED BY DELIVERY OF SHARES AND TRANSFER DEEDS DUE TO NON - FULFILMENT OF THE CONDITIONS, IT WILL NOT BE REGARDED AS TRANSFER FOR THE PURPOSE OF CAPITAL GAIN. THEREFORE, THE UNCERTAINTIES ARISING IN TH E CONTRACT ON ACCOUNT OF STIPULATION OF CERTAIN CONDITIONS HAVE BEEN TAKEN CARE OF BY SUBSEQUENT DELIVERY OF SHARES AND TRANSFER DEEDS 6. WE FIND FROM THE ABOVE PROPOSITION THAT THE DATE OF HOLDING OF SHARES IN THE CASE OF OFF - MARKET TRANSACTION IS TO BE TAKEN FROM THE DATE OF CONTRACT NOTE, WHETHER DATE OF PURCHASE OR DATE OF SALE. SIMILARLY, IN THE GIVEN FACTS OF THE CASE, THE DATE OF HOLD ING OF SHARES IS TO BE RECKONED FROM THE DATE OF CONTRACT NOTE OF PURCHASE I.E.10.05.2002 TO THE DATE OF CONTRACT NOTE FOR SALE OF SHARES I.E. 26.05.2003 AND IN THE GIVEN PERIOD THE TOTAL MONTH EXCEEDS TWELVE MONTHS AND THE ASSESSEE S PROFIT ARISING OUT OF SALE OF SHARES IN GRL SHOULD BE ASSESSED AS LONG TERM CAPITAL GAIN. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. 7 . IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED . 8 . ORDER IS PRONOUNCED IN THE OPEN COURT ON 2 9 . 0 1 . 2 0 1 5 S D / - S D / - ( N. K. SAINI ) (MAHAVIR SINGH) ACCOUNTANT MEMBER J UDICIAL MEMBER DATED : 2 9 T H JANUARY , 201 5 JD.(SR.P.S.) - COPY OF THE ORDER FORWARDED TO: 1 . / A PPELLANT PRAMOD KUMAR CHAUDHARY , L/H OF LATE RENU CHAUDHARY, C/O RUSTAGI & CO. 19, R. N. MUKHERJEE ROAD, EASTERN BUILDING, 1 ST FLOOR, KOLKATA - 700 001. 2 / RESPONDENT ITO, WARD - 36 (1) , KOLKATA . 3 . ( )/ THE CIT (A), KOLKATA 4. 5. / CIT KOLKATA / DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, / BY ORDER, /ASSTT. REGISTRAR .