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TMI Blog2004 (11) TMI 295X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee had transferred the shares of M/s. Rajendra Lal Shadi Lal Co. (P.) Ltd. to M/s. SRF Ltd. in the previous year relevant to the assessment year 1997-98 as per agreement dated 19-8-1996. As per para 6 of the agreement, the assessee has undertaken to execute transfer deeds and take all necessary steps to get all the shares transferred in the name of the buyer after the receipts of first instalments as per Annexure I of the agreement. The instalments was paid on due date and as per clause 7 the assessee was left with no right, title and interest in the shares of the company and the buyer became the owner of the same. Any deferment in the receipt of sale consideration does not alter the chargeability of capital gains under section 45(1). The Assessing Officer has also discussed this issue in detail in the body of the assessment order. The Assessing Officer was, therefore, justified in making above addition on the facts and circumstances of the case." 2. We have heard the rival submissions and carefully perused the orders of the authorities below and the documents placed on record. 3. Apropos ground No. 1, it is noticed from the record that during the course of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor of the company against a salary of Rs. 40,000 and a commission which will be allowed subject to the limits of the total remuneration as laid down in sections 198 and 309 read with Schedule 13 of the Companies Act equivalent to his annual salary subject to the maximum of 3 per cent of the net profits as reduced by the remuneration paid to him by way of salary and perquisites. The learned Departmental Representative further contended that once it is held that the commission is a part of the salary and the salary is always to be taxed on due basis, the Assessing Officer was justified in taxing the said commission on due basis. In support of his contention he placed reliance upon clause (a) of section 15 of the Act. The learned Departmental Representative further invited our attention to the fact that the commission was debited to the company's account during the financial year 1996-97 relevant to the assessment year 1997-98, but the assessee has not credited the same to his accounts. The learned Departmental Representative placed reliance upon the judgment of the Delhi High Court in the case of CIT v. Mehar Singh Sampuran Singh Chawla [1973] 90 ITR 219 in which at page No. 227, T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntification of commission cannot be done before the end of the financial year. Whenever it was done after the approval of the accounts it was offered to tax and the assessee had been following the same system of accounting in earlier year, which was accepted by the Revenue. No doubt, every assessment year is an independent assessment year, but rule of consistency must be followed in all circumstances until and unless some new evidence is brought on record, which lead to the Revenue to some contrary decision. Since the commission income was offered to tax in the year in which it was quantified, no loss was caused to the Revenue. In the instant case, the accounts were approved by the AGM held on 30th September, 1997 and this commission income was offered to tax in the financial year 1997-98 relevant to the assessment year 1998-99. The learned counsel for the assessee further placed reliance upon the judgment of the Apex Court in the case of J.P. Shrivastava Sons (Bhopal) (P.) Ltd. v. CIT [1965] 57 ITR 624 in which Their Lordships have held that the managing agency commission for the accounting period was only due and payable after the accounts of the managed company are passed at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh the judgment of the Madras High Court in the case of CIT v. Seshasayee Bros. (P.) Ltd. [1999] 239 ITR 471 in which the facts are quite similar to the present case. In that case the assessee was a Pvt. Ltd. company and during the previous year relevant to the assessment year 1970-71 the assessee acted as a managing agent for M and also S. The Tribunal, however, allowed the appeal of the assessee. On reference to the High Court and the Hon'ble High Court has held that the additional remuneration became due only after the audited balance sheet and profit and loss account of the company were led before the company's General Body Meeting and approved by the same. We have also carefully perused the judgments on which the Revenue has placed heavy reliance and we find that in the case of E.D. Sassoon Co. Ltd. v. CIT [1954] 26 ITR 27 it was observed by the Apex Court that accrual of income does not depend on its ascertainment of the accounts cast by the assessee. But in the instant case, we have to find out whether the commission income has been accrued to the assessee before the finalization of the accounts, if yes; the assessee's case is strictly covered by the aforesaid judgment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany called SRF Ltd. of Delhi at Rs. 20,000 per month for a period of 32 months from 1-8-1994 to 31-3-1997 for which an agreement was also executed on 28-10-1994. On 19-8-1996 the assessee and his wife jointly entered into an agreement to sell the entire share capital of M/s. Rajendra Lal Shadi Lal Co. Pvt. Ltd. for a sale consideration of Rs. 5,00,00,000 @ Rs. 6,250 per share. As per this agreement the total purchase price of 8,000 fully paid up equity shares of the company shall be Rs. 5,00,00,000 including the earnest money of Rs. 1,25,00,000. The balance amount of Rs. 3,75,00,000 shall be paid in three subsequent instalments, which are as under:- ------------------------------------------------------ Instalment Value Payable on First Rs. 1,25,00,000 31-10-1996 Second Rs. 1,25,00,000 1-1-1997 Third Rs. 1,25,00,000 30-4-1997 ------------------------------------------------------ As per this agreement, on payment of the first instalment, the seller will execute Transfer Deed and will take all the necessary steps to get the said 8,000 shares transferred in the name of the buye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of certificate was also filed. No doubt the assessee has entered into an agreement with M/s. SRF Ltd., but it was never acted upon or materialized. As such, there was no transfer of shares as per the terms of the agreement and thus, there was no question of capital gain having arisen to the assessee in the impugned assessment year. It was further contended that the final payment was received on 10th March, 2000. As such, the capital gain arose only in March, 2000 and since the assessee intended to invest the entire consideration in the securities permitted under sections 54EA and 54EC, there would be no liability towards capital gains. 10. The Commissioner of Income-tax (Appeals) examined the issue when the shares in the company can be said to have been transferred in the light of various judicial pronouncements. After having observed that the shares continued to remain with the assessee till the end of the previous year Le. 31-3-1997, the CIT (Appeals) held that the shares in question were thus not transferred to M/s. SRF Ltd. during the assessment year under appeal and he accordingly deleted the addition made on account of capital gain of Rs. 4,77,14,279 from the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Property Act. The learned Departmental Representative further invited our attention to the Lease Agreement executed between M/s. Rajendra Lal Shadi Lal Co. Pvt. Ltd. and M/s. SRF Ltd. in which the possession of two flats in the Olympus Apartments situated at Altamount Road, Cumballa Hill, Mumbai were given to M/s. SRF Ltd. at the nominal monthly rent of Rs. 20,000, because these flats are situated in posh area, and market rent of these flats is in lakhs. Admittedly, the possession of the property was retained by M/s. SRF Ltd., the buyer of the shares, as per the agreement. The learned Departmental Representative further contended that admittedly the shares were finally transferred to M/s. SRF Ltd. and the only issue in dispute is about the date of transfer of shares in the company. Whether it relate to the date of agreement executed between the assessee and M/s. SRF Ltd. or it would be the date on which shares were finally transferred in the name of the buyer. 12. The learned Departmental Representative, Mr. Sanjay Kumar, invited our attention to the provisions of Sales of Goods Act with the submission that in the transaction of shares. Sales of Goods Act are applicable an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the agreement, the property in shares was not passed to the buyer. The learned counsel for the assessee further contended that when the buyer did not make the payment within the stipulated period, the assessee declined to sign the transfer deed nor did he take any step to get the same shares transferred in the name of the buyer in the records of the company. Since the shares were neither transferred nor physically handed over either to the buyer or to the solicitors or to any other person for and on behalf of the buyer, the property in shares did not pass to the buyer during the impugned assessment year. The entire sale considerations of shares were finally received on 10th March, 2000 and the assessee thereafter signed the transfer deeds and took necessary steps for transfer of shares in the name of the buyers in the records of the company. Since the assessee intended to invest the entire consideration in the securities permitted under section 54EA or such securities as are permitted under the newly inserted securities under section 54EC within a period of 6 months of the receipt of the entire consideration there would be no liability towards the capital gain and also no liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the assessment has opined that through an agreement to sell the assessee has transferred his rights in the share in favour of the buyer and, as such, it was a complete sale. He accordingly worked out the capital gain and charged to tax in the impugned assessment year. Now the short question before us is whether the sale of shares were affected during the assessment year 1997-98 when this agreement for sale was executed and the first instalment was received or whether it was on the date when the last instalment of the sale consideration was received. It is also noticed from the agreement to sell and the orders of the lower authorities that the impugned transactions does not only relate to the transfer of shares, but through the transfer of shareholdings of M/s. Rajendra Lal Shadi Lal Co. Pvt. Ltd., two flats in the Olympus Apartments situated at Altamount Road, Cumballa Hill, Mumbai, were also transferred in favour of the buyer. It is also evident from the record that these two flats at a posh locality were given on rent to the buyer on a nominal rent of Rs. 20,000 per month and he was also allowed to continue with the possession after the execution of the sale agreement. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 to 54 4995 - 5000 6 55 5001 -7800 2800 56 to 83 7801 - 8000 200 84 85 ----------------------------------------------------- Total 8000 ----------------------------------------------------- for a total consideration of Rs. 5,00,00,000 @ Rs. 6,250 per share. The Sellers hereby acknowledge receipt of Earnest Money of Rs. 1,25,00,000 for which a separate stamped receipt has been signed and delivered to the buyer by the Seller. It is agreed between the parties that the balance payment amounting to Rs. 3,75,00,000 shall be paid by the Buyer as per Annexure-1. 2. That the Sellers have represented to the Buyer that the total issued share capital of the Company is Rs. 8 lakhs (Rs. 8,00,000) divided into 8000 equity shares of Rs. 100 each fully paid-up, all of which at present are held by following persons: --------------------------------- Name No. of shares --------------------------------- Shri Rajat Lal 7784 Smt. Poonam Lal 216 --------------------------------- 8000 ----------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 395 and 181 - 185 covered by Certificate Nos. 47 and 48) of Olympus Co-operative Housing Society Limited, 5-C, Altamount Road, Cumballa Hill, Mumbai. It is specifically assured by the Sellers that the Company has not pledged the shares of the said Society nor created any other kind of encumbrance, charge, lien of any nature and shall keep the Buyer and/or its nominee(s) fully indemnified and harmless against all the losses and also damages in respect of the said shares. 10. That consequent to purchase of 100% shares transfer, voting interest and controlling power in the Company, M/s. Rajendra Lal Shadi Lal Co. Pvt. Ltd. by the Buyer, the possession and ownership of Society shares and premises attached thereto as referred in (9) above shall vest with the Buyer through the said Company and thus if needed, both parties shall obtain "No Objection Certificate" from Appropriate Authority as per provisions of section 269(UC) of the Act and if Appropriate Authority deciding to opt for pre-emptive purchase, they will get similar rights and obligations as of Buyer as provided in this Agreement. All the legal expenses shall be borne by the respective parties who incur the same. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed both the parties shall obtain no objection certificate from the Appropriate Authority as per provisions of section 269(UC) of the Act and if the Appropriate Authority decides to put off preemptive purchase they will obtain similar rights as per the buyer as provided in this agreement. It was also agreed as per clauses 6 7 of this agreement, that the sellers have undertaken to execute the transfer deeds upon receipt of first instalment as per Annexure - I and it will also take all necessary steps to get 8,000 shares transferred in the name of the buyer. The sellers further admitted that upon the receipt of the first instalment they would be left with no right, title and interest in the said shares of the company and the buyer will become the owner of the same. The buyer will have no right to deal with or transfer with these shares till the final instalment is fully paid. 16. As per schedule of payments given in Annexure -1, it was made clear that after the transfer of shares in the name of M/s. SRF Limited, the said share will be kept in the custody of solicitors till the final instalment is paid by the buyer and the solicitors will release these shares on furnishing the evid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in them is transferred or passed to the buyer at such time as the parties to the contract intend it to be transferred and for the purpose of ascertaining the intention of the parties reference shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. 18. In the case of M Siddique Co. v. P.L. Rangiah Chettiar AIR 1948 Mad. 122 it has been held that when there is an un-conditional contract for the sale of specific goods in a deliverable state, the property in goods passes to the buyer when contract is made and it is immaterial whether the time of payment of the price or the time for delivery of the goods or both is postponed. Where goods are already in custody or control of the buyer, all that is required is that there should be an apportionment of the goods by the buyer in respect of particular contract. 19. The Hon'ble Allahabad High Court in the case of Dwarka Das Ajodhya Prasad v. Ram Ratan AIR 1922 All. 458 has held that the property in goods passes as soon as the contract of sale of goods is made even if the delivery is postponed. It has also been made clear through judgment in District Board v. F. Hira Singh Jagat Singh AIR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that the delivery or payment or both shall be postponed. It is, therefore, apparent that sale can be complete without affecting immediate delivery and even without immediate payment. 22. In the case of R. Dalmia v. CIT ILR 1971 (1) Delhi 39, Their Lordships have held that according to section 19 of the Sales of Goods Act where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend, it to be transferred and for the purpose of ascertaining the intention of the parties regards shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. The question as to when the ownership in the shares is to be passed on the buyer depends upon the intention of the parties, which has to be ascertained from the conduct and the circumstances of the case. 23. Through judgment in the case of A.M.P. Arunachalam v. A.R. Krishnan 49 ITR 662 (sic) Their Lordships of the Hon'ble Madras High Court have made it clear that when once a person, who has right to possess the goods or has the right to have legal possession of such goods asserts and manifests ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property in shares immediately passes to the buyers as per clauses 6 and 7 of the agreement and the sale/transfer is effected. After the receipt of the first instalment, the seller and the buyer moved to the appropriate authority for sanction under section 269UL(3) of the Act and accordingly no objection was granted by the appropriate authority vide its letter dated 8th of November, 1996. The parties to the agreement have also taken a step for the appointment of the solicitor, to whom the transfer deeds can be handed over for the safe custody. If all these facts and circumstances are to be viewed simultaneously, one would find that the intention of the parties to this agreement was to transfer the shares on receipt of the first instalment, as it has been repeatedly held that the physical delivery of the share certificates and the payments of the sale consideration are not the prime factors to decide the time of transfer or sale of the movable goods/shares. 26. If we examine this agreement on the other point of view whether it was an agreement to sale of shares or it was an agreement to sale of two Hats, owned by M/s. Rajendra Lal Shadi Lal Co. Pvt. Ltd., through transfers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(47) of the Act would certainly come into play and according to section 2(47) of the Act the transfer in relation to a capital asset includes any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act. Section 53A of the Transfer of Property Act provides for a shield of protection to the proposed transferee to remain in possession against the original owner, who has agreed to sale to the transferee if the proposed transferee satisfied other conditions of section 53A. This protection is available as a shield only against the transferor, the proposed vendor from disturbing the possession of the proposed transferees, who are putting in possession pursuant to such an agreement. In the instant case, the buyer got the initial possession of the property through the lease deed against a rent and the buyer remained in possession even after the agreement to sale and the buyer have also made the compliance of the terms of the agreement though there may be a delay in making the payments of the instalments, but that does not disentitle the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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