2012 (10) TMI 312 - HC - Income Tax

Capital gains - Agreement of Sale vs. Agreement to Sell - determination of date of sale - Question is whether the transfer of the shares by the assessee took place on 22nd December, 1992 as contended by the Tribunal, or on 3rd January, 1992 as contended by assessee. - held that - Permission of the Central Government under section 372 of the Companies Act was granted by the Central Government only on 9th July, 1992. It was only thereafter on 22nd December, 1992 that the respondent effected a transfer of the shares to ATCL and received the balance consideration in respect thereof. The respondent declared the capital gain in respect of the transaction in the assessment year 1993-94. Transfer of shares took place on 3-1-1992 and not on 22-12-1992 as Agreement of Sale was completed on 3-1-1992 - assessee entitled to the benefit of the provisions of section 47(v) of the Act. - in favour of appellant.

Summary

Issues:
1. Interpretation of the date of transfer of shares for tax purposes
2. Binding nature of Circulars issued by CBDT
3. Entitlement to deduction under section 47(v) of the Income Tax Act

Interpretation of the Date of Transfer of Shares:
The appeal before the High Court involved a dispute regarding the date of transfer of shares by the assessee. The appellant argued that the transfer occurred on 3rd January, 1992, while the respondent contended that it took place on 22nd December, 1992. The court examined the agreement between the parties and determined that the agreement dated 3rd January, 1992, was an agreement to sell and not an agreement of sale. The agreement was subject to various conditions, including obtaining permission from the Central Government. The court highlighted that the sale was contingent upon fulfilling these conditions, and only earnest money was paid initially. The transfer of shares occurred on 22nd December, 1992, after obtaining the necessary permission, and the appellant declared the capital gain in the subsequent assessment year.

Binding Nature of Circulars Issued by CBDT:
The High Court addressed the issue of the binding nature of Circulars issued by the Central Board of Direct Taxes (CBDT). While the appellant raised a question regarding the applicability of Circulars that provide relief to the assessee, the court found it unnecessary to decide this issue due to the favorable finding for the respondent on the date of transfer of shares. Consequently, the court did not delve into the specific implications of Circulars issued by the CBDT in this case.

Entitlement to Deduction under Section 47(v) of the Income Tax Act:
Another significant issue in the appeal was the entitlement of the assessee to deduction under section 47(v) of the Income Tax Act. The court noted that as of the date of transfer of shares, the purchaser had become a holding company of the respondent, making it a subsidiary. This relationship qualified the transaction for the benefit of the provisions of section 47 of the Act. Consequently, the court dismissed the appeal, upholding the respondent's entitlement to the deduction under the specified section.

In conclusion, the High Court's judgment clarified the date of transfer of shares, the applicability of Circulars issued by the CBDT, and the entitlement to deduction under section 47(v) of the Income Tax Act, ultimately ruling in favor of the respondent based on the specific circumstances and legal provisions involved in the case.