Whether the shares which came to be registered in the names of Purchaser in statutory records of the Company did not represented transfer of shares by the Seller in terms of Sec. 2(47) of the I. T. Act.
In the year 2008 the appellant Sh. Anil Kumar Saha with the consent of other two promoters i.e. Sh. Getamber Anand and Sh Ashwani Talwar decided to quit from ATS Group of Companies and agreed to transfer all his shares in various Group companies held by the appellant in favour of other two co-promoters Sh. Getamber Anand and Sh. Ashwani Talwar for a consideration of Rs. 150 Crores, Memorandum of Understanding of this affect was also entered into, copy of the MOU is placed on record. The ATS Infrastructure Ltd. were owning lot of land parcels and inventory in form of finished & unfinished apartments of its own or through its subsidiary companies but were short of liquid funds, therefore in order to pay the agreed amount, all the three promoters agreed to transfer certain shares of M/s ATS Estates Pvt. Ltd.(out of the holdings of ATS Infrastructure Ltd.) to M/s IL&FS Trust Co. Ltd. and IIRF Holdings XV Ltd. to generate the requisite funds. To generate funds in the hands of appellant Sh. Anil Kumar Saba, a mechanism was devised according to which first 3,00,00,000 shares of ATS Estates Pvt. Ltd. were agreed to be transferred by ATS Infrastructure Ltd. in favour of the appellant on a price of Rs. 18.30 per share and then these shares were to be sold to third parties to generate the necessary funds. In this line the promoters have approached IL&FS Trust Co. Ltd. and IIRF Holdings XV Ltd. to purchase approx. 90 Lacs shares of ATS Estates Pvt. Ltd. (out of 3 lacs shares transferred to the appellant) at a price of Rs. 44.12 per share that has generated a consideration of approx. Rs.40 Crores in the hands of appellant. In lieu to this net received amount of approx. Rs. 24 Crores (Rs. 40 crores – 16.47 crores), the appellant as per the agreement in the Exit MOU, proportionately, transferred 80000 shares of ATS Infrastructure Ltd. out of his total holdings of 5,00,400 shares in favour of co-promoters Sh. Ashwani Talwar and Sh. Geetamber Anand. Thus, in order to implement the terms of MOU, the promoters entered into two further transactions through agreements, one agreement was between the appellant and ATS Infrastructure Ltd., which was executed on 03.03.2008 wherein the ATS Infrastructure Ltd. agreed to sell 3,00,00,000 (three crore) shares of ATS Estates Pvt. Ltd. to appellant for a consideration of Rs. 18.30 per share. This agreement was signed by the appellant, ATS Infrastructure Ltd, ATS Estates Pvt. Ltd and Co-promoters Sh. Geetamber Anand and Sh. Ashwani Talwar. In part compliance to this agreement 90 Lacs shares of A TS Estate Pvt. Ltd. were transferred and physically handed over to the appellant by A TS Infrastructure Ltd. Copy of agreement is placed on record. Another agreement was executed between appellant and M/s M/s IL&FS Trust Co. Ltd. and IIRF Holdings XV Ltd. on dated 08.04.2008. In this agreement M/s IL&FS Trust Co. Ltd. and IIRF Holdings XV Ltd. agreed to purchase 90,66,183 equity shares of M/s ATS Estates Pvt. Ltd. for a consideration of Rs. 40 Crores at a price of Rs 44.12 per equity share subject to certain terms and conditions. It is important to mention that this agreement was signed by the appellant and by other two Co-promoters Sh. Geetamber Anand & Sh. Ashwani Talwar, M/s ATS Infrastructure Ltd., A TS Promoters & Builders Pvt. Ltd. and M/s A TS Estates Pvt. Ltd. Copy of Agreement is placed on record. The Brief terms and conditions on the basis of which M/s IL&FS Trust Co. Ltd. and IIRF Holdings XV Ltd. has purchased the shares from the appellant are as follows: I. This agreement of share purchase is the part of earlier agreement dated 23rd July, 2007 between the Co-promoters Sh. Getamber Anand, Sh. Ashwani Talwar & Sh. Anil Kumar Saha, M/s ATS Infrastructure Ltd. and M/s ATS Estates Pvt. Ltd. wherein purchaser i.e. M/s IL&FS Trust Co. Ltd. and IIRF Holdings XV Ltd. has invested in M/s ATS Estates Pvt. Ltd. a sum of Rs. 105 Crores by way of subscription of Equity & Convertible.
As per information received from M/s ATS Estate (Private) Limited and also as per Registrar of Members and Share Ledger, 9000000 equity shares of M/s ATS Estate Private Limited were registered in the name of Anil Saha (the assessee) as on 01.04.2008 which were as a result of transfer from Mis ATS Infrastructure Ltd. to Anil Saha. Thereafter, Mr. Anil Saha transferred 1191949 equity shares to IL&FS Trust Co. Ltd and 7874234 equity shares to IIRF Holding XV Ltd. This fact has been confirmed by M/s ATS Estate (P) Ltd. in response to notice under section 133(6) of the act.
The assessee had stated during the assessment proceeding u/s 143(3) 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, ITA Nos.4745/Del/2012 & 4952/Del/2013 4 | P a g e 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/-.
Held –
The true commercial transaction which the parties intended to carry out was transfer of assessee’s controlling interest in ATS Group in favour of remaining 2 promoters. There is no dispute about the basic fact that assessee along with Getambar Anand and Ashwini Talwar was the principal promoter of ATS group having equal proportional controlling interest. It was assessee’s controlling interest in the ATS group which was the real subject matter of transfer by the assessee in favour of remaining 2 promoters at and or a consideration of Rs.150 crores. The controlling interest was a valuable right and constituted capital asset within the meaning of Sec 2(14) of the Act. Since the promoters did not have ready funds to acquire the said asset a pre ordained scheme was devised by the promoters which was to be executed through series of transactions to be carried out through intermediate companies such as ATS Infrastructure Ltd and ATS Estate Pvt. Ltd etc. However the ultimate object which the parties desired to achieve was transfer of assessee’s controlling interest in the ATS Group. In order to achieve this object the assessee along with other 2 promoters proposed to execute series of preordained transactions so that the agreed consideration of Rs.150 crores could be received by the assessee. In the context of the preordained scheme of arrangement 90 lacs shares were transferred by ATS Infrastructure Ltd to the assessee and then by the assessee to 2 real estate funds. However even the purchase of these shares by 2 real estate funds was subject to numerous covenants including obligation on part of the same set of promoters as also on ATS Infrastructure Ltd to buy back these shares in predetermined manner. On these facts therefore I find that the transactions in question were not based on independent commercial consideration. The impugned transactions could not be divorced from the main and primary transaction contemplated by the MoU dated 03.03.2008.The transaction in question was subservient to the principal transaction contemplated by MoU dated 03.03.2008. Admittedly during the financial year ended 31.03. 2009 the capital asset being assessee’s controlling interest in ATS Group was not transferred by the assessee. It is true that under the agreement dated 03.03.2008 the assessee acquired right of specific performance against the co-promoters and it was also evidenced from facts – that with a view to give effect to the said object certain intermediate steps were carried out by the parties during F.Y.2008-09. The facts on record however showed that even till date the transaction contemplated by the MoU dated 03.03.2008 was not consummated and attained finality. In fact the assessee till date has not relinquished his controlling interest in ATS group of companies. It further appeared from the facts on appeared from the facts on record that the entire arrangement evidenced by MoU dated 03.03.2008 remained unexecuted. In fact at present the matter is sub judice before the Company Law Board. In terms of the decision of the Company Law Board, the arrangements envisaged by the MoU dated 03.03.2008. See 2(47) of the I T Act and therefore the capital gain as not chargeable to tax in A.Y. 2009- 10. The AO shall however be free to assess such income in the year in which he finds that assessee’s controlling interest in ATS group of companies was actually transferred. While assessing such income the AO will not only take into account the cash consideration but also the value of movable and immovable assets that will be received by the assessee in terms of MoU dated 03.03.2008. In terms of the above directions the AO shall revise the assessment of the A.Y. 2009-10.
Thus, it can be inferred that the 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. In our considered view, the Agreement is to be a read as a whole, the transfer of shares under dispute cannot be read into isolation. Moreover, one of the challenge before the Hon’ble High Court was regarding legality of 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 Agreement was under challenge, we do not see any infirmity into the order of Ld.CIT(A) to the extent it is held that the transfer of shares cannot be subjected to capital gain tax in the year under consideration on the ground that the entire transaction has not fructified.
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