2018 (4) TMI 1138 - HC - Income Tax

Transfer u/s 2(47) - capital gain - shares owned by the appellant at NIIT were not transferred in the assessment year 1998-99 but were transferred on 05.05.1998 (Assessment Year 1999-2000) when the same were delivered by the bankers to the purchasers (Glad Investment Pvt. Ltd.) - Held that - We reject and not take into consideration the factual contention that the transfer deeds were received by NIIT on 22nd August 1997, which contention even otherwise is rather strange, if not incongruous for Deutsche Bank AG has stated that the assessee, i.e. Arjun Malhotra, had deposited the said shares as security with the bank on 10th September, 1997 for a loan of ₹ 2 Crores which was extended to M/s GIPL. If the shares had been deposited by the assessee with NIIT on 22nd August, 1997, then the shares would not have been pledged by the assessee as security with Deutsche Bank AG on 10th September, 1997. Shares were certainly not pledged by M/s GIPL. This is undisputed. The letter purportedly dated 14th August, 1997 also appears to be back dated for the first paragraph of the letter states that I had provided the 100,000 shares of NIIT as collateral security for grant of loan to Glad Investments. Shares are currently registered in your name . The shares were pledged with the bank on 10th September, 1997 and this fact was acknowledged and accepted in the letter dated 17th March, 2001. Therefore, it should be accepted that the letter though dated 14th August, 1997 was in fact issued after the shares pledged were registered in the name of M/s GIPL, sometimes after 10th September, 1997. The findings recorded by the tribunal as to the date of transfer are primarily based on facts. Decided against the assessee and in favour of the Revenue. Entitled to exemption u/s 54F - Held that - The appellant-assessee has not placed on record any document or material referred to in the impugned order or the orders of the authorities to establish and show that the conclusion drawn was wrong and contrary to material on record. In fact, had the Assessing Officer not treated the shares as transferred in the AY 1999-2000, the appellant-assessee would not have been entitled to benefit under Section 54F of the Act on sale of 100000 NIIT shares to M/s GIPL as per the findings approved and recorded by the tribunal i.e., the assessee being owner of an existing house. Substitution of the sale consideration with the market value of the shares quoted at the stock exchange - AO had on the basis of the fair market value increased the total sale consideration - Held that - The appellant-assessee had acquired non-cumulative preference shares on transfer of 100000 equity shares of NIIT. This is not in debate or doubt. This is not the case of the Revenue that the market value of the noncumulative preference equity shares were issued by M/s GIPL were of a higher value. Non-cumulative preference shares did not have right of conversion. Non-cumulative preference equity shares were redeemed at par during the relevant period and payment of ₹ 5,00,00,000/- was received - Tribunal was not correct in holding that the market value of the shares quoted in the stock exchange on 5th May, 1998 can be taken as a basis for computing capital gains under Section 48 - Decided in favour of the assessee and against the Revenue

Issues Involved:
1. Whether the shares owned by the appellant at NIIT were transferred in the assessment year 1998-99 or in 1999-2000.
2. Whether the appellant was entitled to exemption under Section 54F of the Income Tax Act, 1961.
3. Whether the market value of the shares quoted at the stock exchange on 05.05.1998 should be adopted for computing capital gains under Section 48 of the Income Tax Act.
4. Whether the penalty for concealment of income under Section 271(1)(c) of the Income Tax Act was correctly deleted/cancelled.

Detailed Analysis:

1. Transfer of Shares:
The primary issue was whether the shares were transferred in the assessment year 1998-99 or 1999-2000. The Assessing Officer (AO) and Tribunal concluded that the shares were transferred on 05.05.1998, not on 14.08.1997, as claimed by the appellant. The shares were delivered by Deutsche Bank AG to M/s GIPL on 05.05.1998, which was taken as the date of transfer. The Tribunal held that the agreement dated 14.08.1997 was not adhered to, and the shares were pledged with Deutsche Bank AG as collateral security for a loan to M/s GIPL. The Tribunal found no evidence of the allotment of preference shares on 14.08.1997 and concluded that the transfer occurred in the assessment year 1999-2000.

2. Exemption under Section 54F:
The appellant claimed exemption under Section 54F for the assessment year 1998-99, asserting that he did not own any other residential property. However, the Tribunal found that the appellant owned a residential house in Mussoorie, which he claimed to have sold on 20.07.1997. The Tribunal observed that the sale agreement was not executed on proper stamp paper, and there was no evidence of the cheque for the advance payment being honored. The Tribunal concluded that the appellant had not handed over possession of the property before purchasing the immovable property at Golf Links, thus denying the exemption under Section 54F.

3. Market Value for Capital Gains:
The AO substituted the actual sale consideration of ?500 per share with the market price of ?1,493 per share on 05.05.1998, increasing the total sale consideration from ?5 Crores to ?14.93 Crores. The Tribunal upheld this substitution, distinguishing the case from K.P. Verghese v. ITO, where the Supreme Court held that the actual consideration should be taken into account, not the market price. The Tribunal reasoned that the transaction was not at arm's length, and the sale consideration shown was not the real consideration. However, the High Court disagreed, stating that the AO could not substitute the actual sale consideration with the market value without evidence of understatement. The High Court cited precedents, including K.P. Verghese, emphasizing that the actual consideration received should be used unless there is proof of understatement.

4. Penalty for Concealment of Income:
The Revenue's appeal regarding the deletion of the penalty for concealment of income under Section 271(1)(c) was not framed as a substantial question of law. The High Court noted that since the substantial question of law in ITA No. 405/2005 was answered in favor of the appellant, the appeal regarding the penalty would be treated as dismissed.

Conclusion:
The High Court upheld the Tribunal's findings on the transfer of shares and the denial of exemption under Section 54F. However, it reversed the Tribunal's decision on substituting the sale consideration with the market value, ruling in favor of the appellant on this issue. The appeal regarding the penalty for concealment of income was dismissed. The appeals were disposed of with no order as to costs.

← Previous Next →