2010 (5) TMI 663 - AT - Income Tax

Summary

Issues Involved:
1. Determination of the date of transfer of shares.
2. Applicability of Section 47(v) of the Income Tax Act.
3. Allegation of tax avoidance through colorable devices.
4. Binding nature of CBDT Circular No. 704.

Issue-wise Detailed Analysis:

1. Determination of the Date of Transfer of Shares:
The primary issue was whether the transfer of shares from the assessee to ATCL occurred on 3-1-1992, the date of the agreement, or on 22-12-1992, the date when the transfer was effected. The assessee argued that the sale was completed only when all conditions, including the approval from the Central Government under section 372 of the Companies Act, 1956, were fulfilled. The Tribunal agreed with the assessee, stating that the actual transfer took place on 22-12-1992, when the share certificates and transfer deeds were delivered, and the consideration was received. The Tribunal emphasized that shares are "Goods" under the Sale of Goods Act, 1930, and the transfer is complete only upon fulfillment of all conditions and actual delivery.

2. Applicability of Section 47(v) of the Income Tax Act:
Section 47(v) exempts transfers of capital assets between a subsidiary and its holding company from capital gains tax, provided the holding company holds the entire share capital of the subsidiary. The Tribunal found that on 22-12-1992, when the transfer of shares was effected, the assessee was a wholly-owned subsidiary of ATCL. Therefore, the transfer was not taxable under Section 47(v). The Tribunal rejected the revenue's argument that the transfer occurred on 3-1-1992, when ATCL did not hold the entire share capital of the assessee.

3. Allegation of Tax Avoidance through Colorable Devices:
The revenue alleged that the assessee and ATCL structured the transactions to evade capital gains tax. The Tribunal, however, found no evidence of colorable devices or fraudulent intent. Citing the Supreme Court's decision in Azadi Bachao Andolan, the Tribunal recognized legitimate tax planning and concluded that the transactions were genuine and executed in the normal course of business. The Tribunal noted that the sequence of events, including the agreement for sale, obtaining government approval, and the eventual transfer of shares, did not indicate any dubious or sham transactions.

4. Binding Nature of CBDT Circular No. 704:
The revenue relied on CBDT Circular No. 704, which states that the date of the broker's note is the date of transfer for shares transacted through stock exchanges. The Tribunal clarified that while Circulars can provide relief to taxpayers, they cannot impose additional burdens not contemplated by the statute. The Tribunal held that Circular No. 704, which aligns the date of transfer with the broker's note, is not binding if it contradicts the legal provisions regarding the completion of a sale. The Tribunal emphasized that the actual transfer of shares, involving delivery and payment, determines the date of transfer.

Conclusion:
The Tribunal concluded that the transfer of shares from the assessee to ATCL took place on 22-12-1992, during the assessment year 1993-94, and was exempt from capital gains tax under Section 47(v) as the assessee was a wholly-owned subsidiary of ATCL at that time. The Tribunal dismissed the revenue's allegations of tax avoidance and held that the CBDT Circular No. 704 was not binding in this context. Consequently, the appeals by the assessee were allowed, and the assessments for the years 1992-93 and 1993-94 were revised accordingly.