2012 (9) TMI 1190 - AT - Income Tax

Summary

Issues Involved:
1. Classification of shares as long-term or short-term capital assets.
2. Deductibility of expenses related to the dissolution of SYNCON u/s 48.
3. Eligibility for exemption u/s 54F for investment in residential property.
4. Determination of the cost of acquisition of shares.

Summary:

Issue 1: Classification of Shares as Long-Term or Short-Term Capital Assets

The Revenue contended that the shares should be considered short-term capital assets as the share certificate was issued just before the sale. The CIT (A) examined the facts and found that the shares were held by the assessee since at least 31.3.2003, supported by the balance sheet and annual reports. The Tribunal agreed with the CIT (A)'s findings, stating that the date of the share certificate does not reflect the date of purchase. Therefore, the shares were correctly classified as long-term capital assets, and this ground of the Revenue was rejected.

Issue 2: Deductibility of Expenses Related to the Dissolution of SYNCON u/s 48

The assessee claimed a deduction for payments made to other partners of SYNCON, arguing that the dissolution was a precondition for the sale of shares to Aptech. The CIT (A) allowed the deduction, stating that the expenditure was incurred wholly and exclusively in connection with the transfer. However, the Tribunal disagreed, noting that the payments were not a condition precedent to the sale of shares and appeared to be an attempt to create a deductible liability. Therefore, the Tribunal set aside the CIT (A)'s order and restored the AO's disallowance of the expenditure.

Issue 3: Eligibility for Exemption u/s 54F for Investment in Residential Property

The AO disallowed the exemption u/s 54F, arguing that the assessee already had two houses and that the investment was not solely in the assessee's name. The CIT (A) found that the two adjacent units with a common entrance constituted a single residential unit and that the investment was made from the assessee's funds, with the spouse's name included for convenience. The Tribunal agreed with the CIT (A)'s findings and rejected this ground of the Revenue.

Issue 4: Determination of the Cost of Acquisition of Shares

The AO considered the cost of acquisition of shares as Nil, citing the lack of specific mention of consideration in the Board resolution. The CIT (A) found that the shares were issued at par for Rs. 10 each, supported by the balance sheet disclosures. The Tribunal agreed with the CIT (A)'s findings, allowing the cost of acquisition at Rs. 10 per share. This ground of the Revenue was dismissed.

Conclusion:

The appeal filed by the Revenue was partly allowed, with the Tribunal rejecting the Revenue's grounds on the classification of shares, exemption u/s 54F, and cost of acquisition, but allowing the ground on the deductibility of expenses related to the dissolution of SYNCON.