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2015 (12) TMI 35 - AT - Income TaxComputation of capital gains under S.48 - transfer of equity shares - CIT(A) confirming the order of the Assessing Officer in substituting the full value of the consideration with fair value of consideration - Held that - The reason for computing the capital gain by the Assessing Officer by estimating the sale consideration is that the shares of Bharati Cements have fetched a higher amount as compared to the shares of Silicon Builders, which is holding the shares of Bharati Cements. As seen from the order of the CIT(A), the Assessing Officer has worked out the net worth of Bharati Cements to arrive at the share value of Bharati Cements to estimate the share value of M/s. Silicon Builders. This, in our opinion, is fallacious. Hon ble Supreme Court in the case of CIT V/s. George Henderson (1967 (4) TMI 18 - SUPREME Court) has held that the expression full consideration in the main part of S.12(B)(2) of the Indian Income-tax Act, 1922 cannot be considered as having a reference to the market value of the asset transferred, but the expression only named the full value of the thing received by the transferor in exchange for the capital asset transferred by him. S.12(B)(2) of the Indian Income Tax Act, 1922 is analogous to S.48 of the Income Tax Act,1961. Thus we direct the Assessing Officer to adopt the full value of consideration as received by the assessee on sale of shares of M/s. Silicon Builders at cost to be the full consideration for computation of capital gains on such sale. - Decided in favour of assessee
Issues Involved:
1. Substitution of full value of consideration with fair value of consideration for computing capital gains under Section 48 of the Income Tax Act, 1961. 2. Validity of the Assessing Officer's estimation of sale consideration based on the market value of shares. Detailed Analysis: Issue 1: Substitution of Full Value of Consideration with Fair Value of Consideration The primary issue in this case revolves around the substitution of the full value of consideration with the fair value of consideration for computing capital gains under Section 48 of the Income Tax Act, 1961. The assessee sold shares at cost, but the Assessing Officer substituted this with a higher fair value, leading to a higher capital gains tax. The assessee contended that this substitution was not permissible under the law. The tribunal referred to the Supreme Court's decision in CIT V/s. George Henderson (66 ITR 622), which clarified that the "full consideration" should be understood as the full value of the thing received by the transferor in exchange for the capital asset, not the market value of the asset transferred. This principle was reiterated in multiple cases cited by the assessee, including Reliance Communications Infrastructures V/s. CIT (34 SOT 245) and Morarjee Textiles Ltd. V/s. ACIT (ITA 1979/Mum/2009). The tribunal noted that Section 48 of the Income Tax Act, 1961, does not provide for substituting the sale consideration declared by the assessee with the market value, except in specific provisions like Section 50C, which applies to land or building assets. The tribunal emphasized that the Assessing Officer does not have the authority to substitute the fair market value for the full value of consideration unless explicitly empowered by the Act. Issue 2: Validity of the Assessing Officer's Estimation of Sale Consideration Based on Market Value The tribunal found that the Assessing Officer's approach of estimating the sale consideration based on the market value of shares was flawed. The Assessing Officer had assumed that the shares of Silicon Builders should be valued similarly to the shares of Bharati Cements, which fetched a higher price. However, this assumption was not supported by any provision in the Income Tax Act that allows for such substitution. The tribunal referenced the Supreme Court's decision in CIT Vs. Gillanders Arbuthnot & Co. (1973 AIR 989), which held that the full value of consideration in the context of a sale is the actual sale price received, not the market value. This principle was further supported by the case of K.P. Varghese vs. ITO (1981) 7 Taxman 13(SC), which stated that the burden of proving any understatement of consideration lies with the revenue, and the full value of consideration should be what was actually received by the assessee. The tribunal concluded that the Assessing Officer's action of revaluing the sale price was not justified as per the legal precedents. The tribunal directed the Assessing Officer to adopt the full value of consideration as received by the assessee on the sale of shares of Silicon Builders at cost for computing capital gains. Conclusion: The tribunal allowed the appeal of the assessee, setting aside the orders of the Assessing Officer and the CIT(A). The tribunal directed that the full value of consideration as received by the assessee should be adopted for computing capital gains, in accordance with the legal precedents and provisions of the Income Tax Act. Result: The appeal of the assessee is allowed.
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