2002 (10) TMI 21 - HC - Income Tax

Capital gains on account of the sale of shares - Tribunal had considered the matter properly and had adopted Rs. 38.50 plus Rs. 65 as the value of one ESSAR share and had directed the assessing authority to adopt the said figure for the purpose of computation of the capital gains arising out of the sale of the shares of SISCO. The Tribunal had clearly entered a finding that this is the price of one ESSAR share agreed to between the parties. We have also independently considered the matter and have come to the same finding. Thus even accepting the contention of the appellant that it is the price which is agreed to by the parties which should be taken as the full value of the consideration received the said test is satisfied in the present case. - The Tribunal had directed the assessing authority only to adopt Rs. 38.50 per share which is the price per share agreed to by the parties. We are in full agreement with the order of the Tribunal

Summary

Issues:
1. Computation of capital gains based on the valuation of shares in a company.
2. Interpretation of the consideration for the sale of shares as per the offer made by another company.

Issue 1: Computation of Capital Gains
The appellant held 255 equity shares in a company and sold them to another company as per an open offer. The appellant computed capital gains based on the offer's terms, valuing the shares at Rs. 10 each. However, the assessing authority valued the shares at Rs. 72, resulting in a higher capital gains assessment. The first appellate authority accepted the appellant's computation, but the Tribunal determined the value of each share at Rs. 38.50. The appellant contended that the agreed price between the parties should be considered for computation, citing relevant legal precedents. The Tribunal found that the offer clearly stated the price of one share as Rs. 38.50 plus Rs. 65, rejecting the appellant's interpretation. The Tribunal's decision to adopt Rs. 38.50 plus Rs. 65 as the share value for capital gains calculation was upheld, dismissing the appeal.

Issue 2: Interpretation of Consideration for Sale of Shares
The appellant argued that the consideration for selling shares was explicitly stated in the offer, comprising 50 equity shares of another company and Rs. 65 in cash for each share. The appellant relied on legal principles emphasizing the importance of the agreed price between parties for tax assessment. The Tribunal analyzed the offer terms, noting that the price offered per share was Rs. 38.50 plus Rs. 65, contrary to the appellant's claim of Rs. 10 per share. The Tribunal's decision to consider the agreed price of Rs. 38.50 plus Rs. 65 for each share was upheld, emphasizing the need to apply tax laws based on the transaction's legal rights. The Tribunal's interpretation aligned with the offer's explicit pricing details, leading to the dismissal of the appeal.

This judgment clarifies the valuation considerations for capital gains tax assessment in share transactions and underscores the significance of interpreting the agreed price between parties as specified in the transaction documents. The decision highlights the importance of adhering to the terms of the offer in determining the value of shares for tax purposes, ensuring consistency with legal principles and precedents in tax law interpretation.