ACIT Vs Anil Kumar Saha (ITAT Delhi)
Conclusion: Where the legality and validity of the agreement was under challenge, there was no infirmity into the order of CIT(A) to the extent it was held that the transfer of shares could not be subjected to capital gain tax in the year under consideration on the ground that the entire transaction had not fructified.
Held: Assessee was an individual. In scrutiny assessment, AO observed that in the foot note, a chart of computation was furnished along with revised return of income wherein, assessee had stated that during the year, he had received a sum of Rs.40 crores from ILFS on account of shares of ATS Estate (P.) Ltd. taken by M/s. IL & FS Trust Company Ltd. and IIRF Holding XV Limited., conditionally as per the terms of Share Purchase and Shareholder Agreement and shares Subscription and Share holders Agreement. Assessee had received money under a conditional agreement and therefore, the shares were not absolutely and forever transferred to M/s IL&FS Trust Company Ltd. and IIRF Holdings Ltd. Accordingly, no calculation on account of capital gain had been made for this transaction. However, under the abundant precaution and to avoid penal interest, assessee had paid a sum of Rs.5.75 crores as income tax and that was claimed as refund. Thereafter, AO after having received the reply, issued another notice dated 30.11.2011, thereby sought further information and cautioned assessee that in the event of not furnishing convincing and satisfactory reply to the queries, he would compute the capital gain at Rs.39,99,00,000/- on transfer of shares after adopting sale consideration of Rs.40 crores less cost of acquisition of Rs.1 lac. In response to the notice, assessee filed another reply which was not found to be satisfactory by AO and proceeded to compute the capital gain on transfer of shares. Hence, AO made addition on account of long term capital gain and short term capital gain and computed the income at Rs.40,49,21,179/- against the income declared of Rs.48,07,446/-. It was held that that agreement between the parties did not attain finality during the year under consideration hence, the impugned transaction in part ought not to have been taxed in the year under consideration. The agreement was to be a read as a whole, the transfer of shares under dispute could not be read into isolation. Moreover, one of the challenges before the Hon’ble High Court was regarding the legality of the MOU dated 03.03.2008. It was categorically prayed that MOU was void being contrary to the provisions of section 297 of the Companies Act, 1956. Therefore, under the peculiarity of the facts where the legality and validity of the Agreement were under challenge, there was no infirmity into the order of CIT(A) to the extent it was held that the transfer of shares could not be subjected to capital gain tax in the year under consideration on the ground that the entire transaction had not fructified.
FULL TEXT OF THE ORDER OF ITAT DELHI
Both appeals filed by the Revenue for the assessment year 2009-10 are directed against the order of learned CIT(A), Meerut, both dated 04.06.2012. For brevity, both these appeals are taken up together and are being disposed off by way of the consolidated order.
2. First we take up Revenue’s appeal in ITA No.4745/Del/2012 pertaining to Assessment Year 2009-10. The Revenue has raised following grounds of appeal:-
1. “That Ld. CIT (A) has erred in law and on facts in deleting the addition of Rs.39,98,45,580/- made on account of short term capital gain on transfer of shares, without appreciating the fact that there was a transfer of capital assets during the financial year in terms of the provisions of section 2(47) of the I.T. Act 1961 and thus ignoring that amended provisions of Explanation 2 to section 2(47) of the l.T. Act 1961 was applicable w.e.f. 01/04/1962.
2. That Ld. CIT (A) has erred in law and on facts in deleting the addition made on account of short term capital gain on transfer of shares by ignoring the actual transfer of capital asset during the previous year relevant to the assessment year 2009-10, without appreciating the fact that assessee has admitted the fact of transaction in respect of registration of the equity shares on transfer in the books of the company ATS Estate (P) Ltd in compliance to the terms of MOU between assessee and other co-promoters.
3. That Ld. CIT (A) has erred in law and on facts in considering the short term gain to be a long term gain, without appreciating the fact that the transfer of shares is complete between transferor and the transferee in terms of amended provisions of section 2(47) of the I.T. Act 1961.
4. That Ld. CIT (A) has erred in law and on facts in holding that there was only a transfer of “Controlling Interest”, ignoring the admitted fact that there was a transfer of 99,66,183 shares of ATS Estate (P) Ltd to M/s IL&FS Realty Fund and IIRF Holding XY Limited during the F.Y. 200809 which constitutes an asset.
5. That Ld. CIT (A) has erred in law as well as facts in ignoring the admitted transaction regarding sale of shares and in turn substituting his own imaginary transaction of sale of “Controlling Interest” .
6. That Ld. CIT (A) has erred in law and on facts in holding that the cost of acquisition of ATS Estates (P) Ltd to the assessee was Rs. 18.30 per share even though there was no obligation on the assessee to pay this sum for acquiring these shares.
7. That Ld. CIT (A) has erred in law and on facts in applying the ratio of the decision of Mumbai High Court in the case of Vodafone International Holding B.Y. Ys. Union of India reported in 311-ITR-46 which stands superseded by the Hon’ble Supreme Court decision dated 20th January, 2012 (247-CTR [SC] 1) in the same case of Vodafone International Holding B.Y. Ys. UOI.
8. That the order of Ld.CIT(A) deserves to be vacated and the assessment order passed by the Assessing Officer be restore.
9. That the appellant craves leave to amend any one or more of the grounds of the appeal as stated above and when need for doing so may arise.”
FACTS:-
2. The facts giving rise to the present case of the assessee are that the assessee is an individual and filed his return of income for the year under consideration on 28.07.2009 declaring total income of Rs.48,07,446/- which was subsequently revised vide income tax return dated 31.03.2011 declaring the same income. Subsequently, the case of the assessee was selected for scrutiny assessment as per the CBDT Guidelines. By framing the assessment u/s 143(3) of the Income tax Act, 1961 (“the Act”), the Assessing Officer (“AO”) observed that in the foot note, a chart of computation was furnished alongwith revised return of income wherein, the assessee had stated that during the year, the assessee had received a sum of Rs.40 crores from ILFS on account of shares of ATS Estate (P.) Ltd. taken by M/s. IL & FS Trust Company Ltd. and IIRF Holding XV Limited., conditionally as per the terms of Share Purchase and Shareholder Agreement dated 08.04.2008 and shares Subscription and Share holders Agreement dated 23.07.2007. It was stated that the share which were taken by IL&FS Trust Company Ltd. and IIRF Holding XV Limited from the assessee had been acquired by the assessee from M/s ATS Infrastructure Ltd. as per the terms of agreements between promoters dated 03.03.2008. Further, it was stated that the assesse had received money under a conditional agreement and therefore, the shares were not absolutely and forever transferred to M/s IL&FS Trust Company Ltd. and IIRF Holdings Ltd. Accordingly, no calculation on account of capital gain had been made for this transaction. However, under the abundant precaution and to avoid penal interest, the assessee had paid a sum of Rs.5.75 crores as income tax and that was claimed as refund. Thereafter, the Assessing Officer after perusing the agreement called for further information from the assessee. The information so called was supplied to the Assessing Officer. The Assessing Officer after having received the reply, issued another notice dated 30.11.2011, thereby sought further information and cautioned the assessee that in the event of not furnishing convincing and satisfactory reply to the queries, he would compute the capital gain at Rs.39,99,00,000/- on transfer of shares after adopting sale consideration of Rs.40 crores less cost of acquisition of Rs.1 lac. In response to the notice, the assessee filed another reply which was not found to be satisfactory by the Assessing Officer and proceeded to compute the capital gain on transfer of shares. Hence, the Assessing Officer made addition on account of long term capital gain and short term capital gain and computed the income at Rs.40,49,21,179/- against the income declared of Rs.48,07,446/-.
3. Aggrieved against this, the assessee preferred an appeal before Ld. CIT(A), who after considering the submissions, partly allowed the appeal of the assessee. Thereby, ld.CIT(A) deleted the addition made on account of capital gain by holding that there was no transfer of capital assets within the meaning of section 2(47) of the Act therefore, the capital gain cannot be chargeable to tax in Assessment Year 2009-10.
4. Aggrieved against this, the Revenue is in appeal before this Tribunal.
5. The only effective ground in this appeal is whether Ld. CIT(A) is in error in holding that the capital gain arising out of transfer of shares in question cannot be taxed in the year under appeal.
6. Ld. CIT DR vehemently argued that Ld.CIT(A) was not justified in holding that no taxable event arose in the year under appeal. Ld.CIT DR also filed a written submission, for the sake of clarity same is reproduced hereunder:-
1. “In this case, Mr. Geetamber Anand (GAL Mr. Ashwani Talwar (AT) and Mr. Anil Saha(AKS) (the assessee) were the promoters of ATS group companies. Mr. Anil Saha disengaged himself from the ATS group from 23.09.2007. This disengagement process involved following documentation; –
> MOU dated 03.03.2008 between Mr. Geetamber Anand, Mr. Ashwani Talwar and Mr. Anil Saha( the assessee)-
> MOU provides for exit of Mr. AKS from the ATS Group companies after taking net realized amount of Rs. 150 Crore. MOU deals with the methodology for realization of such amount by Mr. AKS.
> The Methodology provide that as a first step, GA & AT (other promoters) would ensure transfer of holding of ATS infrastructure Ltd. to the extent of 3 crore shares in ATS Estates Pvt. Ltd. to AKS (the assessee) for a sum of Rs. 54.90 cr @ Rs. 18.30 per share on or before 07.03.2008 (refer clause 1 of MOU).
> As a second step, AKS would sell such shares to third party which would be arranged by GA&AT. The arrangement as per MOU is to ensure the sale to third party by AKS at such a price to fetch net realizable value of Rs. 150 crores.
> MOU also specifies (refer clause 4 pg. 3) that if transfer of THREE crore shares of ATS Estates Pvt. Ltd. are not sufficient to fetch net realizable value of Rs. 150 crore for Mr. AKS (The assessee), then GA & AT would transfer further shares of ATS Estate Pvt. Ltd. to AKS.
Clause 7 of MOU deals with payment by AKS to ATS infrastructure Ltd. at decided price of Rs. 18.30 per share in respect of transfer of shares which in turn were sold by AKS.
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Clause 8 deals with next step of transfer of shareholding in ATS infrastructure Ltd. & other companies to GA&AT.
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Further, MOU dated 03.03.2008 contain following terms;-
