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2016 (1) TMI 1081 - AT - Income TaxAddition as Long Term Capital Gain - Held that - A perusal of the agreements would show that nowhere in the agreement it has been stated that the consideration paid by M/s. DEN Network is in respect of the three components as stated by assessee, and no such bifurcation has been given in any of the agreements placed on record by the assessee. On the contrary a perusal of Share Purchase Agreement would show that M/s. DEN Network has purchased 10 equity shares of M/s. Manoranjan Satellite Pvt. Ltd. at a premium of ₹ 2,49,900/- per share. Thus, the intrinsic value calculated by the assessee for determining the value of shares of the said company for transfer on the same date does not hold ground. If the cost of shares at which M/s. DEN Network purchased the shares of M/s. Manoranjan Satellite Pvt. Ltd. is applied to the shares transferred by the assessee, it would give more realistic results 25,00,000/10 x 253 ₹ 6,32,50,000/-. In so far as the payment towards transfer of fixed asset is concerned, a perusal of asset transfer agreement at pages 32 to 35 of the paper book would show that the assessee had transferred the assets of the proprietorship firm to M/s. Manoranjan Satellite Pvt. Ltd. for a consideration of ₹ 9 lacs in compliance of the JV agreement. Thus, the consideration received by assessee on transfer of shares from M/s. DEN Network does not include consideration for transfer of assets. After thoroughly examining the documents on record, we are not convinced with the arguments of the ld. AR of the assessee on the bifurcation of consideration or that the assessee is not liable for Long Term Capital Gain on transfer of shares in the impugned assessment year. In our considered view that the assessee has rightly disclosed in principle the Long Term Capital Gain from sale of share in the impugned assessment year (subject to the computation of correct amount of Long Term Capital Gain). - Decided against assessee
Issues Involved:
1. Confirmation of Long Term Capital Gain (LTCG) addition of Rs. 6,25,49,232. 2. Bifurcation of the total consideration received by the assessee. 3. Tax liability on the performance guarantee amount. Detailed Analysis: Issue 1: Confirmation of Long Term Capital Gain (LTCG) Addition The primary issue in the appeal was the confirmation of the addition of Rs. 6,25,49,232 as Long Term Capital Gain by the Assessing Officer (AO). The assessee declared LTCG of Rs. 5,80,27,549 on the slump sale of her proprietary business, M/s. Manoranjan Video and Cable Services. The AO, however, computed the LTCG at Rs. 6,25,49,232, leading to an addition of Rs. 45,21,683. The Commissioner of Income Tax (Appeals) upheld this addition, which the assessee contested before the Tribunal. Issue 2: Bifurcation of the Total Consideration The assessee argued that the total consideration received from M/s. DEN Digital Entertainment Network Pvt. Ltd. (DEN Network) should be bifurcated into three components: 1. Transfer of 253 equity shares of M/s. Manoranjan Satellite Pvt. Ltd. 2. Transfer of assets valued at Rs. 9 lacs of the proprietary business. 3. Undertakings/assurances of performance of the joint venture business valid up to 28-12-2010. The assessee contended that the intrinsic value of the shares should be considered for calculating LTCG, which was Rs. 2,976 per share, resulting in a sale consideration of Rs. 7,52,928 for 253 shares. The balance amount of Rs. 6,09,70,835 was claimed to be received towards performance assurance/warranty, which should be taxed in the assessment year 2011-12. Issue 3: Tax Liability on the Performance Guarantee Amount The assessee argued that the amount received towards performance guarantee could not be treated as income in the impugned assessment year, as it was conditional and refundable upon non-compliance of the undertaking by 28-12-2010. Tribunal's Findings: Issue 1: Confirmation of Long Term Capital Gain (LTCG) Addition The Tribunal upheld the findings of the Commissioner of Income Tax (Appeals), agreeing that the assessee had correctly disclosed the LTCG in principle, subject to the correct computation of the amount. The Tribunal found no merit in the assessee's claim that the entire amount should not be treated as LTCG. Issue 2: Bifurcation of the Total Consideration The Tribunal concurred with the Commissioner of Income Tax (Appeals) that the bifurcation proposed by the assessee was artificial and without basis. The agreements did not support the bifurcation into three components. The Share Purchase Agreement indicated that M/s. DEN Network paid Rs. 12,50,00,000 for acquiring 503 equity shares, and there was no mention of separate consideration for performance guarantees or asset transfer within the joint venture agreement. Issue 3: Tax Liability on the Performance Guarantee Amount The Tribunal dismissed the assessee's argument that the performance guarantee amount should be taxed in the assessment year 2011-12. The Tribunal noted that the Commissioner of Income Tax (Appeals) had rightly rejected this contention, emphasizing that standard warranty clauses do not defer the realization of income to future years. Conclusion: The Tribunal dismissed the appeal of the assessee, confirming the addition of Rs. 6,25,49,232 as Long Term Capital Gain and rejecting the bifurcation of the consideration received. The Tribunal upheld the findings of the Commissioner of Income Tax (Appeals) and concluded that the assessee was liable for LTCG in the impugned assessment year. Order Pronouncement: The order was pronounced on Monday, the 04th day of January, 2016.
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