2010 (8) TMI 74 - HC - Income Tax

Capital Gain - The assessee sold 3,500 equity shares of M/s. Rentiers and Financiers (P) Ltd. of the face value of Rs. 800 each to his family members at Rs. 110 per share through entries effected in their respective accounts with M/s. Riviera Apartments Pvt. Ltd. The Income-tax Officer estimated the sale consideration of these shares at Rs. 230 per share. By applying the provisions of section 52 of the Income-tax Act, the Assessing Officer computed the capital gain at Rs. 4,20,000 as against Rs. 35,000 declared by the assessee. The Commissioner (Appeals) was of the opinion that provision of section 52 were not attracted. This was confirm by Tribunal. Held that- there was no infirmity in the order of Commissioner (Appeals) and Tribunal. But the method adopted by assessing officer is not corret.

Summary

Issues:
1. Capital gains on transfer of equity shares
2. Clubbing of income under section 64(1)(ii) of the Income-tax Act

Capital gains on transfer of equity shares:
The Tribunal referred two questions to the court regarding the addition of Rs. 4,20,000 made by the Assessing Officer on account of capital gains from the transfer of 3,500 equity shares. The Commissioner of Income-tax (Appeals) held that section 52 was not applicable based on the Supreme Court's decision in K.P. Varghese v. ITO [1981] 131 ITR 597. The court agreed, emphasizing the need to prove that the assessee received more than the declared consideration. The Assessing Officer's valuation method was criticized for not considering the appropriate valuation methods for shares of an ongoing concern. The court cited CWT v. Mahadeo Jalan [1972] 86 ITR 621, highlighting the relevance of the yield or dividend method for valuation in such cases. Since the Assessing Officer failed to show that the consideration was understated and the assessee received more than declared, the court ruled in favor of the assessee, stating that no addition could be made under section 52 of the Act.

Clubbing of income under section 64(1)(ii) of the Income-tax Act:
The court deemed it unnecessary to address the second question regarding the deletion of the wife's salary income of Rs. 36,000 clubbed with the assessee's income. This decision was based on the insignificant tax effect of the issue. Therefore, the court did not delve into the details of this matter.

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