2016 (6) TMI 852 - HC - Income Tax

Sale consideration of the shares - treated as income under the head Capital Gains OR Income from other sources - Held that - The receipt of consideration by the respondent assessee is only on account of the sale of its shares in M/s. Chaitra Realty Ltd. to M/s. Vishal Nirman (India) Ltd. This consequent to the offer letter received by it from the buyer i.e. M/s. Vishal Nirman (India) Ltd. which in fact is a concurrent finding by the CIT(A) and the Tribunal. This view taken on facts is a possible view and not shown to be perverse. This determination of fact viz. respondent assessees had sold its shares in M/s. Chaitra Realty Ltd. was determined on consideration of all the evidences led by the Revenue and does not involve the application of any principle of law to determine the same. Thus, the above determination is not a mixed question of fact and law as urged by the Revenue but a pure question of fact. In any event, the Revenue has made no attempt to show how the receipt of consideration by the respondent assessee is on revenue account to attract its classification as Income from other Sources . - Decided against revenue

Issues:
1. Determination of income from the sale consideration of shares as capital gains or income from other sources.
2. Interpretation of the B.I.F.R. scheme and its impact on the sale of shares.
3. Appropriation of surplus in the hands of the company owning the shares.
4. Treatment of the Prabhadevi property sale in relation to the shares transaction.
5. Classification of income from the sale of Chaitra Realty Ltd. shares as capital gains or income from other sources.

Analysis:
1. The primary issue in the case was whether the income from the sale of shares should be treated as capital gains or income from other sources. The Revenue contended that the transaction was not a sale of shares but an appropriation of surplus by the company owning the shares. However, both the CIT(A) and the Tribunal found that the sale of shares took place on 8th August, 2007, based on an offer letter from the buyer, not the earlier MoU dated 8th May, 2006. The receipt of consideration was deemed to be from the sale of shares, leading to the conclusion that the gains were to be taxed under the head "capital gains."

2. Regarding the B.I.F.R. scheme, it was noted that the company owning the shares was prohibited from selling or disposing of its shares during the B.I.F.R. reference period. The Revenue argued that the sale was in violation of the B.I.F.R. orders. However, the authorities found that the sale occurred after the company was discharged from the B.I.F.R. scheme, and the existence of the company owning the shares was relevant in determining the nature of the transaction.

3. The question of appropriation of surplus in the hands of the company owning the shares was raised by the Revenue, claiming that the valuation of shares was based on the surplus of the company. The authorities, however, determined that the consideration received was solely from the sale of shares to the buyer, and the valuation was based on the underlying asset of the company, i.e., the land held by it.

4. The issue of the Prabhadevi property sale was also addressed, with the Revenue arguing that the transaction involved the purchase of the property, not just the shares. However, it was established that the property continued to be owned by the company, and the sale of shares did not affect the ownership of the property. The gains from the sale of shares were distinct from the property transaction.

5. Lastly, the classification of income from the sale of Chaitra Realty Ltd. shares was debated, with the Revenue contending that it should be treated as income from other sources. However, the authorities upheld the classification as capital gains, considering the nature of the transaction and the ownership structure of the company. The appeals were ultimately dismissed based on the concurrent findings of fact by the CIT(A) and the Tribunal, with no costs awarded.

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