2016 (5) TMI 1154 - HC - Income Tax

Reopening of assessment - sale price of the shares - certain shares were held by the Assessee for a period less than 12 months - Held that - The queries raised by the AO and the submissions made by the Assessee in response thereto amply bear out that the AO had examined the WSSPA, the revised WSSPA and the letter dated 27th December 2006 issued by SEBI to revise the public offer price for PLL shares from ₹ 152 per share to ₹ 190 per share. In these given facts, there could be no dispute that the AO had examined all relevant facts with regard to the sale price of the shares in question and had made the assessment accordingly. Insofar as the allegations that certain shares were held by the Assessee for a period less than 12 months is concerned, the same is disputed by the Assessee. During the course of proceedings, Mr Salil Aggarwal, learned counsel for the Assessee has handed over a statement of shareholding as enclosed with the Assessee s letter dated 12th August, 2009. This statement clearly discloses various dates on which subject shares were acquired by the Assessee. This indicates that certain shares had been acquired by the Assessee by way of a gift. Undisputedly, for the purposes of considering whether the same were long-term capital assets or not, the date on which the donor acquired the shares is relevant and not the date on which the Assessee aquired the shares in question. In any view of the matter, it is not disputed that the statement of shareholding indicating the dates on which the subject shares were acquired was provided to the AO in response to the queries raised by him. Thus, it cannot be accepted that the AO did not consider the same while making the assessment order. Thus, it is apparent that the present case is one where the issuance of the impugned notice is occasioned by a change of opinion, which given the scope of Section 147-148 of the Act, is impermissible. - Decided in favour of assessee.

Issues Involved:
1. Validity of notices issued under Section 148 of the Income Tax Act, 1961 for reopening assessments.
2. Whether the consideration received from the sale of shares included a non-compete fee taxable as business income.
3. Allegation of a change of opinion by the Assessing Officer (AO) without fresh tangible material.
4. Consistency in the treatment of similar transactions in other cases.
5. Examination of whether certain shares were held for less than 12 months and thus qualified as short-term capital assets.

Detailed Analysis:

1. Validity of Notices Issued Under Section 148:
The Petitioners challenged the notices issued under Section 148 of the Income Tax Act, 1961, which sought to reopen their assessments for AY 2007-08. They also impugned the orders rejecting their objections against the assumption of jurisdiction under Section 147. The court noted that the AO had not referred to any new material other than what was already examined during the initial assessment proceedings. The AO's belief that the Petitioners' income had escaped assessment was based solely on previously examined material, making the reopening of assessments invalid as it was merely a change of opinion.

2. Non-Compete Fee as Business Income:
The core issue was whether part of the consideration received from the sale of shares, specifically ?38 per share, was a non-compete fee taxable as business income under Section 28(va) of the Act. The AO believed that the revised WSSPA, which did not ascribe any consideration for non-compete covenants, was void and thus the non-compete fee should be taxed as business income. However, the court found that this view was already considered during the initial assessment, and the AO had accepted the sale price of ?190 per share without segregating the non-compete fee.

3. Allegation of Change of Opinion:
The court emphasized that the AO's initiation of reassessment proceedings was based on a change of opinion, which is impermissible under Section 147-148 of the Act. The AO had examined all relevant facts, including the WSSPA, revised WSSPA, and SEBI's letter during the initial assessment. The court cited the Supreme Court's decision in CIT v. Kelvinator of India Ltd., which held that a mere change of opinion cannot justify reopening assessments.

4. Consistency in Treatment of Similar Transactions:
The court noted that in the case of another promoter shareholder, Hulas Rahul Gupta, the AO had accepted the sale of shares at ?190 per share and assessed the gains as capital gains. The Tribunal had also rejected the Revenue's contention that the revised WSSPA was void and that the non-compete fee should be taxed as business income. The court observed that the AO had not been consistent in his treatment of similar transactions.

5. Examination of Shareholding Period:
The AO alleged that certain shares were held by the Assessee for less than 12 months, thus qualifying as short-term capital assets. However, the court found that the Assessee had provided a statement of shareholding indicating the dates of acquisition, including shares acquired by way of gift. The date of acquisition by the donor was relevant for determining whether the shares were long-term capital assets. The court concluded that the AO had considered this information during the initial assessment, and thus the reassessment was based on a change of opinion.

Conclusion:
The court allowed the petitions, setting aside the notices dated 28th March 2012 and 21st March 2012, and quashed the reassessment proceedings. The court reiterated that the AO's actions were based on a change of opinion without any fresh tangible material, which is impermissible. The parties were left to bear their own costs.

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