2009 (1) TMI 538 - AT - Income Tax

Issues Involved:
1. Computation of capital gains for a non-resident assessee.
2. Entitlement to replace the cost of acquisition with the Fair Market Value (FMV) as on 1-4-1981.
3. Restriction of computation of capital gains to 8,09,000 shares.
4. Levy of interest under section 234B of the Income-tax Act.
5. Adoption of FMV per share as on 1-4-1981.

Detailed Analysis:

1. Computation of Capital Gains for a Non-Resident Assessee:
The primary issue revolves around whether the assessee, a non-resident, can compute capital gains by adopting the FMV as on 1-4-1981 for shares acquired before this date. The Tribunal referenced the case of Alcan Inc. and held that the assessee is entitled to adopt the FMV as on 1-4-1981 for computing long-term capital gains. The Tribunal emphasized that sections 48, 49, and 55 of the Income-tax Act should be considered independently, and the option to adopt FMV is provided to avoid an unfair situation where historical costs would be irrelevant in contemporary computations.

2. Entitlement to Replace the Cost of Acquisition with FMV as on 1-4-1981:
The Tribunal affirmed that the assessee is entitled to replace the cost of acquisition with the FMV as on 1-4-1981. This decision aligns with the provisions of section 55(2)(b)(i), which allows such an option for assets acquired before 1-4-1981. The Tribunal directed the assessing authority to compute the capital gains after giving the benefit of FMV as on 1-4-1981.

3. Restriction of Computation of Capital Gains to 8,09,000 Shares:
The Tribunal addressed the issue of restricting the computation of capital gains to 8,09,000 shares, leaving 91,000 shares unaccounted due to the lack of inward remittance certificates. The Tribunal found that the non-resident assessee, who had no bank account in India, could only acquire shares by remitting foreign currency from abroad. The Tribunal directed the Assessing Officer to compute the capital gains for the total 9,00,000 shares, considering the cost of acquisition as discussed.

4. Levy of Interest under Section 234B of the Income-Tax Act:
The Tribunal examined whether interest under section 234B is applicable when payments to a non-resident are subject to TDS provisions. The Tribunal noted that the assessee received the sale consideration without TDS and failed to pay the advance tax on time. The Tribunal referenced the Special Bench decision in the case of Motorola Inc., which states that when payments are subject to TDS, the assessee cannot be held in default for advance tax. However, since the provisions of section 195 do not apply to non-resident companies, the Tribunal held that the assessee is liable to pay interest under section 234B for the default in advance tax payment.

5. Adoption of FMV per Share as on 1-4-1981:
For the assessment year 1999-2000, the Tribunal addressed the issue of adopting the FMV per share as on 1-4-1981. The revenue argued for a lower FMV, while the assessee contended for a higher value. The Tribunal found merit in the revenue's argument that the profits for the year 1996, which were abnormally high, contributed to the higher FMV. The Tribunal referred the issue back to the Assessing Officer for fresh adjudication, directing a re-evaluation of the FMV per share after giving the assessee an opportunity to be heard.

Conclusion:
The Tribunal's judgment comprehensively addressed the issues related to the computation of capital gains, the entitlement to adopt FMV as on 1-4-1981, the restriction of shares considered for capital gains, the levy of interest under section 234B, and the adoption of FMV per share. The Tribunal allowed the appeals in part, directing the Assessing Officer to recompute the capital gains and interest as per the Tribunal's findings.

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