Case Law Details
IN THE ITAT MUMBAI BENCH I’
SIL Employees Welfare Trust
Versus
Joint Commissioner of Income-tax, 15(3), Mumbai
IT APPEAL NO. 4822 (MUM.) OF 2009
[ASSESSMENT YEAR 2005-06]
AUGUST 8, 2012
ORDER
Vijay Pal Rao, Judicial Member
This appeal by the assessee is directed against the order dated 12.6.2009 of the Commissioner of Income Tax (Appeals) for the Assessment Year 2005-06.
2. The assessee has raised the following grounds:
1. The Ld. CIT(A) erred in enhancing the assessment at the behest of the Assessing officer who had completed the assessment and such action of the Ld. CIT(A) is arbitrary unjust, unwarranted, mala fide and illegal.
2. For that the Ld. CIT(A)’s action in enhancing the assessment on account of alleged short term and long term capital gains of Rs. 1062388/- and Rs. 1158620/- respectively without
(a) rejecting the certificate issued by Sterlite Industries (India) Ltd. and
(b) Without rejecting the Appellant’s contention that capital gains under the Income-tax Act, 1961 can be levied only on the amount of net consideration received in excess of the cost of the capital asset. is arbitrary, unjust, unwarranted, mala fide and illegal.
3. For that there is no provision under the Income-tax Act, 1961 to charge capital gains tax on the market value of the capital asset even when the consideration received is less than the market value and the action of the Ld. CIT(A) in ignoring the provision of the Income-tax Act,1961 in this regard is arbitrary, unjustified, unwarranted, malafide and illegal.
3. At the time of hearing, the ld AR of the assessee has submitted that the assessee does not press ground no.1 and the same be dismissed as not pressed. The ld DR has no objection, if the ground no.1 is dismissed as not pressed. Accordingly, we dismissed the ground no.1 being not pressed.
4. Ground nos. 2 & 3 are regarding enhancement of assessment by the Commissioner of Income Tax (Appeals) on account of short term and long term capital gains.
5. The assessment u/s 143(3) was completed by the Assessing Officer on 28.12.2007 whereby certain additions were made. The assessee challenged the action of the Assessing Officer before the Commissioner of Income Tax (Appeals). During the proceedings before the Commissioner of Income Tax (Appeals), a remand order was passed asking the Assessing Officer to submit the remand report. The Assessing Officer, in the remand report dated 19.1.2009, has pointed out that during the financial year 2003-04, the assessee was allotted 16910 shares @ Rs. 180 per share by M/s Sterlite Industries (I) Ltd. Later on, the company issued bonus shares at the ratio of 1:1 on 31.3.2004 and in this way; the assessee trust has got additional 16910 shares.
5.1 During the year under consideration 1840 and 1368 shares in two lots were transferred to the persons as per the directions of the company in lieu of the settlement. The Assessing Officer worked out the capital gain being long term capital gains in respect of 1848 and short term capital gain in respect of 1368 shares on the basis of market price of the shares and accordingly, prayed the Commissioner of Income Tax (Appeals) to enhance the assessment to Rs. 11,58,620/- as long term capital gains and Rs. 10,62,388/- as short term capital gain. Consequently, the Commissioner of Income Tax (Appeals) enhanced the assessment to the extent of the above amounts as short term capital and long term capital gains.
5.2 The ld. AR of the assessee has submitted that the assessee trust was allotted initially16910 equity sharers @ Rs. 180 per share and consequently, due to the issue of bonus shares in the ratio of 1:1, additional 16910 share were allotted and the average cost price of the share was reduced to Rs. 90/- per share. In the year under consideration, the trust has transferred 3208 shares to the persons on the directions given by the company and received a sum of Rs. 2,88,620/-, being the cost of the shares @ Rs. 90/- per share. Thus, the assessee did not receive more than the cost which was actually paid by the assessee and therefore, there is no question of any capital gain in the hand of the assessee. The ld AR has further submitted that the shares were given to the persons as per the settlement of the grievance and therefore, no price was charged from the persons to whom the shares were transferred. The amount was received by the assessee trust from the company. The ld AR has contended that after omission of sec. 52(2), there is no provision in the statute for taking the market price as the full sale consideration on transfer of capital asset. He has relied upon the following decisions:
(i) Dy. CIT v. Jindal Equipment Leasing & Consultancy Services Ltd. [2011] 131 ITD 263
(ii) ITO v. Manjit Singh [2010] 128 TTJ 82 (Chd.) (UO)
(iii) Tej Pratap Singh v. Asstt. CIT [2009] 116 ITD 388 (Delhi)
(iv) ICICI Ltd v. Jt. CIT [2008] 115 ITD 25 (Mum.)
(v) Moral Trading & Investment Ltd v. Dy. CIT [2010] 127 ITD 127 (Delhi)
6.1 On the other hand, the ld DR has relied upon the order of the Commissioner of Income Tax (Appeals).
7. We have considered the rival submissions and carefully perused the relevant material on record. The assessee is an employees’ welfare Trust of the Employees of M/s Sterlite Industries (I) Ltd. There is no dispute that the shares were allotted by the company to the assessee initially @ Rs. 180 per share and due to bonus issue, the cost price of the shares were reduced to Rs. 90 per share. During the year under consideration, as per the directions of the company, 3209 shares were transferred to 15 different parties in two lots. The assessee received from the company a sum of Rs. 2,88,620/- @ Rs. 90 per share. There is no allegation either by the Assessing Officer in the remand report or by the Commissioner of Income Tax (Appeals) that the assessee understated sale consideration; but addition has been made by taking into consideration the market price of the shares.
8. There is nothing on record and there is no indication of any material to demonstrate that the assessee has received more consideration than what has been shown from the sale of shares in question. When there is no indication of understatement of sale consideration by the assessee, then the market value of the shares on the date of transfer can not be construed as full value of consideration under section 48 of the I T Act. The expression ‘full value’ as per section 48 means the whole price received or accruing, as a result of transfer of capital asset without any deduction whatsoever and therefore, for computation of capital gains, deductions are permitted as per section 48. Hence, section 48 does not have any reference to the market value of the asset; but it refers only to the consideration received or accruing as agreed between the parties to the transaction. When the bona fide of the transaction and the actual sale consideration received by the assessee has not been suspected, then for the purpose of computation of capital gains, the full value of consideration can not be substituted by market price or value of the capital asset as on the date of transfer. It is not a case of the Assessing Officer in the remand report or the Commissioner of Income Tax (Appeals) that the assessee has understated the sale consideration and actually received more sale consideration than shown by the assessee. Therefore, in the absence of any inference by the Commissioner of Income Tax (Appeals) that the assessee has concealed the actual sale consideration, the capital gain cannot be computed by taking the full value consideration as market value as on the date of transfer. On this point, there are series of decisions of honourable Supreme Court as well as honourable High Court as relied upon by the learned A.R. of the assessee.
9. In view of the above discussion, we hold that the market price of the shares cannot be taken as full value consideration for the purpose of computation of capital gain as per sec. 48 when there is no under statement of sale consideration.
10. In the result, the appeal filed by the assessee is allowed.
