Commissioner of Income Tax Central IV vs. M/s. B. Arunkumar & Co. Income Tax Appeal NO.2337 OF 2013 dt 8/3/2016 . (Bom HC)
(Affirmed Mumbai ITAT decision in ACIT Cir.16(3) vs. M/s. B. Arunkumar & Co., ITA No.8272/M/11, AY : 2008- 09, Bench B, dt: 24.05.2013).
The assessee was a firm belonging to one Harshad Mehta Group. The assessee firm owned 19% shares in a company namely M/s. Inter Gold (India) Pvt. Ltd. Shares in the aforesaid company were acquired by the assessee-firm during the years 2002 and 2003 at different rates and these shares were not tradable in the open market. The balance share holding in M/s. Inter Gold was held by Sh. Arun Kumar Mehta family members (38%) and by foreign companies (41%). The assessee sold its 19% shareholdings in M/s. Inter Gold (India) Pvt. Ltd. to one M/s. Rosy Blue (I) (P) Ltd. and returned a capital loss on account of indexation. The consideration for the sale of shares in two tranches was Rs.750 per share and Rs.936 per share respectively.
The Assessing Officer did not accept the capital loss as claimed and sought to substitute the consideration received by the assessee at Rs.936 and Rs.750 per share with the value of Rs.1,225 per share as consideration received on the sale of its shares to M/s. Rosy Blue India Pvt. Ltd. This substituted value being the breakup value of the shares, was taken as its fair market value (FMV). In the result, the Assessing officer worked out the long term capital gains at Rs.4.57 crore instead of loss at Rs.3.65 crore as claimed. Being aggrieved, the assessee carried the issue in appeal to the CIT (Appeals). The CIT (Appeals) allowed the appeal of the assessee. He held that in the absence of any provision in the Act to replace the consideration received on sale of shares, by adopting the market value is not permissible.
In contrast, attention was drawn to section 50C, which provides for substitution of the consideration received on sale of land and buildings by the stamp duty value of land and buildings (immovable property). He further held, that the Assessing Officer cannot substitute the consideration shown as received on sale of shares by the assessee in the absence of evidence, to indicate that the consideration disclosed on sale of shares was not the complete consideration received and/or accrued to the assessee. Being aggrieved, the Revenue carried this issue in appeal to the Tribunal. The Tribunal reiterated the findings of fact rendered by the Commissioner of Income Tax (Appeals) that the transfer of the shares at the declared consideration was not done by the assessee with the object of tax avoidance or reducing its tax liability. The Tribunal, in the impugned order, placed reliance upon the decision of the Apex Court in CIT vs. Gillaners Arbuthnot and Co. (87 ITR 407) and CIT vs. George Henderson & Co. Ltd. (66 ITR 622), to conclude that, where a transfer of a capital assets takes place by sale on receipt of a price, then the consideration fixed/bargained for by the parties should be accepted for the purpose of computing capital gains. It cannot be replaced by the market value or a notional value. The full value of consideration is the money received to transfer the assets. Accordingly, the Tribunal dismissed the Revenue’s Appeal and upheld the order of the CIT (Appeals).
The Revenue before the Hon’ble High Court, contented that the decisions of the Apex Court relied upon in the impugned order were rendered under Income-tax Act, 1922 and therefore, would not apply while considering the Act.
The Hon’ble court held that, it was not the case of the revenue that the amount disclosed by the respondent assessee, was less than what has been received by them or what had accrued on sale of its shares. The revenue has not in any manner shown that the consideration disclosed by the assessee to the revenue, is not the correct consideration received by them and that the same should be replaced. Moreover, wherever the Parliament thought it fit ,that the consideration on a transfer of a capital asset has to be ascertained on the basis of market value of the asset transferred, specific provision has been made in the Act. To illustrate section 50C provides for stamp value duty in case of transfer of land or buildings. Similarly, section 45(2) and 45(4) provide that in cases of conversion of the investment into stock in trade or transfer of shares on dissolution of a firm to its partners respectively has to be at market value. The consideration disclosed on sale of shares by the assessee was infact the only consideration received/ accrued to it, no occasion to substitute the same can arise. Accordingly, the appeal of Revenue was dismissed.
