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TMI Blog2003 (4) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... ds, etc. was to be considered and decided may be released. In view of this position, the arguments were concluded in this appeal alone on 20th March, 2003, and other appeals were released for listing for hearing in future. Hence, the present appeal is being decided. 4. Before proceeding to adjudicate the grounds taken in this appeal by the assessee-appellant, we consider it proper to record the relevant facts relating to this matter in brief. These facts are as under: (1) The assessee, Shri Rajendra Singh, sold 16,00,000 shares of M/s Jai Prakash Industries Ltd. to M/s Peartree Electrical Industries (P) Ltd. @ 12.50 per share. In this regard, an agreement was executed on 24th April, 1990. The AO noticed that the transfer of shares was registered in the share transfer register of the company on 22nd Nov., 1990, and on this date, quoted rate of shares of M/s J.P.I.L was at Rs. 24.50 share. In this view, since shares were transferred otherwise than for adequate consideration, this transaction constituted a deemed gift within the meaning of s. 4(1)(a) of GT Act. (2) As the assessee had not filed any return of gift, the AO issued notice under s. 16 on 14th July, 1994, in response ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal taken before him. Thus, the contention of the assessee was that the issue relating to validity of the initiation of escaped assessment proceedings has remained unadjudicated. Since ground Nos. 3 and 7 relate to the same aspect of the matter we proceed to consider these grounds all together. (7) Before considering the arguments of the learned representatives of the parties on these grounds, we think it proper to reproduce the reasons recorded by the AO for initiating assessment proceedings. The statement of reason recorded by him is as under: "During asst. yr. 1991-92 relevant to financial year 1990-91 assessee had shown sale of equity shares of JIL @ Rs. 12.50 per share to M/s Essjay Enterprises (P) Ltd. The shares were transferred in the register to the company on 22nd Nov., 1990, when the quoted price of share was Rs. 24.50 per share. Thus, the transfer in question has been made otherwise than for adequate consideration and is a case of deemed gift under s. 4(1)(a) of GT Act. I have reason to believe that taxable gift of Rs. 1,92,00,000 escaped assessment for asst. yr. 1991-92. Notice under s. 16 is hereby issued." (8) On 31st Dec., 1996, the assessee noted the reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also referred to some discounted value of Rs. 10.96 on the date of sale. 5. The learned counsel for the assessee Shri Thakkar submitted that though the AO initiated proceedings for escaped assessment by recording reasons, but he has not made the assessment order on the basis of such reasons and rather he has followed the case of the other assessee viz., Shri S.K. Dixit, in whose case, the facts were totally different, inasmuch the date of transfer in that case was taken to be 18th April, 1990, which was the date of agreement to sell the shares, whereas in the notice issued under s. 16, in the case of present assessee, the date of entry in the register of transferee company was taken as date of transfer. According to him, therefore, there was no nexus between the reasons recorded and the assessment made. The learned counsel also submitted that in the case of Shri S.K. Dixit, the AO had followed the decision of Hon'ble Supreme Court of India in the case of V.R. Shelat vs. P.J. Thakar (1999) 45 Comp. Cases 43 (SC), which basis has not been adopted by him while passing assessment order in the case of the present assessee. The learned counsel also submitted that only those reasons, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CTR (SC) 418 : (1999) 236 ITR 34 (SC) (iv) Grover Nursing Home vs. ITO (2001) 167 CTR (P H) 509 : (2001) 248 ITR 493 (P H) 8. We have carefully considered the facts and circumstances of the case, the material to which our attention was invited and the rival submissions. First of all, we would like to dispose of ground No. 7 taken by the assessee in this appeal. According to this ground, the learned CGT(A) has not adjudicated specific grounds taken before him for challenging the validity of the proceedings under s. 16(1) of the GT Act. 9. We have gone though the order passed by the learned CGT(A). As referred to above, he has followed his order in the case of Ashok Kumar Sharma. He has also held that the AO was justified in initiating the proceedings under s. 16 of the GT Act and in taxing the appellant to deemed gift. Thus, the grounds relating to initiation of proceedings under s. 16 have been decided by the learned first appellate authority. We have also gone through the order of Ashok Kumar, which is dt. 28th Nov., 1996. A perusal of the said order shows that in paras 5 to 10 of that order learned CGT(A) has considered the issue and rejected grounds No. 1 and 2 taken up b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aras 4 and 3. However, since the detailed arguments have been made by the learned counsel for the assessee by referring to other connected cases for showing the contradictory approach of the Department, we consider it proper to narrate some additional facts relating to determination of taxable gift in the other connected cases of the group to which the assessee belonged, because in all these cases, the assessees have transferred shares by entering into agreements and by executing the transfer deeds, etc. and the issue in all these cases related to the ascertainment of the date of transfer and the determination of the taxable gifts on account of transfer of shares. The factual position as emerges from the material on record is as under: Name of the Assessees Details Rajendra Singh D.G. Kadkade A.K. Sharma S.K. Dixit G.T.A. No. 6/A/1998 9/A/1997 3/A/1997 Not Known Date of notice under s. 16 14.7.1994 1.2.1994 13.12.1993 21.3.1994 Date of agreement to sell the shares 24.4.1990 24.4.1990 18.4.1990 18.4.1990 Agreed selling price per share ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... April, 1990, i.e., the date on which physical delivery of share certificates along with the executed transfer deed took place. The relevant portion of his finding in this regard is as under: "5. Now, the first question that arises is that what is the date of transfer of shares to be taken in this case? It has been submitted by the assessee in this regard that the date of transfer is 18th April, 1990, when the agreement was entered into between the assessee and the purchaser, transfer deed was duly executed, and the physical delivery of the share certificates along with duly executed transfer deed was given to the purchaser namely, M/s Sequences Estates (P) Ltd. It is established law that the transfer of movable property is complete when the delivery of the property is given to the purchaser irrespective of the fact whether consideration for the transfer had passed or not. It has been repeatedly held by the Courts that the transfer of shares in a limited company is complete as between the transferor and the transferee as soon as the transfer deed duly signed by the transferor is handed over to the transferee or his agent along with the share certificates and the transferee or his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tificates and/or the date of agreement and not the date of entry in the register of the transferee company, which was taken by the Department as the date of transfer of shares and on that basis, the amount of taxable gift was determined. Thus, in the present case a total different approach has been adopted by taking the date of entry of transfer of shares in the register of the transferee company as the date of transfer of shares. 21. The learned representatives of the parties have made detailed and elaborate submissions on various aspects relating to the issue. It is not possible to reproduce such detailed arguments in the body of this order. We shall, therefore, consider only relevant arguments in brief. 22. According to the learned counsel for the assessee, the assessee had transferred 16 lakhs shares @ Rs. 12.50 and in this regard, instrument of transfer was executed on 18th April, 1990, on Form No. 7B, which is on prescribed form and in order to set out the modality of payment, etc., a further agreement dt. 22nd April, 1990, was executed between the transferor and the transferee. The learned counsel in this regard invited our attention to the document i.e., the share trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery of shares is not proved from the instrument of transfer also. It is not proved that the shares were actually transferred and delivered on that date or prior to it or subsequent to it. (3) The decision of the Hon'ble Supreme Court of India in the case of Shelat was on different facts relating to a case of gift and the same has no application to the present matter. 28. Thus, the learned Senior Departmental Representative fully supported the view taken by the learned CGT(A). 29. In reply, the learned counsel for the assessee pointed out that the decision of Hon'ble Supreme Court of India in the case of 'V.R. Shelat vs. P.J. Thakar (1995) 45 Comp. Cas 43 (SC)' is fully applicable. Regarding the proof of delivery of shares or transfer of share certificates, it was pointed out by him that in its reply dt. 1st Jan., 1997, the assessee had specifically submitted before the AO that the shares were actually transferred on 24th April, 1990, when the transfer deed in respect of the shares in question was duly executed and the physical delivery of the share certificate along with the duly executed transfer deed were given to the transferee company namely, M/s Peartree Electrical (P) L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order in the case of other three assessees and the assessment order in the case of Shri S.K. Dixit, perhaps, has even become final. Since the Department has taken the date of execution of share transfer certificate, as the relevant date for determining the transaction of transfer of shares in three other cases, the same approach should have been adopted in the case of the present assessee, in order to maintain consistency and uniformity. In view of the above referred discrepancy, the approach of the Department is found to be self-contradictory and inconsistent. We cannot uphold such an inconsistent approach, particularly when there are no justifying reasons for adopting a different approach in the case of the present assessee. 33. There are other serious discrepancies also. On perusal of the assessment order and order of learned CGT(A), it is found that while passing assessment order in the case of the present assessee, the AO followed the assessment order in the case of S.K. Dixit, but the irony of the situation is that the approach adopted in the case of S.K. Dixit has not been followed in this case. To repeat, if that case was followed, then it was the date of execu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we have to examine the nature of the property involved the shares and have also to ascertain the mode of transfer of said property. 40. The shares are included in the definition of 'goods' as per cl. 7 of s. 2 of Sale of Goods Act. This provision runs as under: "(7) "goods" means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale;" 41. Since the share is to be treated as goods or movable property, the transfer in such property passes, when the transfer of property in the goods takes place i.e., by the delivery of goods. 42. The mode of transfer of goods is prescribed in ss. 4 and 5 of the Sale of Goods Act i.e., by executing the contract of sale. However, since the transfer of shares involves acquisition of certain rights and interest in such property by the purchaser of shares, the provisions of the Companies Act, which regulate the mode of acquiring such rights also become relevant. 43. The issue relating to mode of transfer of shares came before the Hon'ble Supreme Court of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India observed as under: "Thus, we find that in Barucha's case a distinction was made between "the title to get on the register" and "the full property in the shares in a company". The first was held to have been acquired by mere delivery, with the required intention, of the share certificate and a blank form signed by the transferor. The second is only obtained when transferee, in exercise of his right to become a shareholder, gets his name on the register in place of the transferor. The antecedent right in the person to whom the share certificate is given with a signed blank transfer form under a transaction meant to confer a right or title upon him to become a shareholder, is enforceable so long as no obstacle to it is shown to exist in any of the articles of association of a company or a person with a superior right or title, legal or equitable, does not appear to be there. We think that s. 6 of the Transfer of Property Act justifies such a splitting up of rights constituting "property" in shares just as it is well recognized that rights of ownership of a property may be split up into a right to the "corpus" and another to the "usufruct" of the property and then separately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1956, are similar. 47. In the case of Sheela Devi Chamaria vs. Tarachand Saraogi Ors. (1987) 163 ITR 406 (Cal), the Hon'ble Calcutta High Court has followed the decision of Hon'ble Supreme Court of India in the case of V.R. Shelat. 48. After quoting the observations of the Hon'ble Supreme Court of India in that case, the Hon'ble High Court has observed as under: "In the light of the observation made by the Supreme Court, it must be held that the gift of the shares was complete as soon as the shares were handed over to the plaintiff along with the blank transfer form duly signed by Motilal. The non-recording of the transfer in the books of the company did not invalidate the gift in any way. Although the plaintiff would not be regarded as a shareholder by the company until the transfer was recorded in the books of the company, nonetheless, in the eye of law, it was the plaintiff who was the owner of the shares and the gift was completed by the delivery of the share certificates along with the blank transfer form duly signed by the transferor. The plaintiff has acquired a complete legal right to have the shares registered in her name." 49. Thus, according to the Hon'ble Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the certificate of shares and must be lodged with the company within the prescribed period. For completing the formality of registration, the mode prescribed under s. 108 is mandatory, but the procedure for registration of transfer in the transferee company cannot be a relevant aspect for determining the transaction of transfer of shares, which is an independent act and which has to be anterior in point of time. Sec. 112 of the Companies Act lays down the procedure for certification of transfer. Certification, in effect, means a statement by the company, that certain documents have been delivered to the company for the purposes of transfer of shares. It is a kind of receipt. Thus, for the purposes of affairs of the transferee company, the entry in the register of members of the company is relevant. In the case of Howrah Trading Co. Ltd. 29 Comp. Cas (SC) has explained the point by observing as under: "It, therefore, follows that the equitable right of the transferee gets metamorphosed into the absolute right of a shareholder only when the names of the transferees after the recognition of the transfer, are entered on the register. This can be viewed from another angle and it is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble Supreme Court of India by its decision rendered in the case of Shelat. The contention of the learned Senior Departmental Representative that the case of Shelat relates to transaction of gifts and, therefore, distinguishable, cannot be accepted, because we are concerned with the mode of transfer of shares, which may be either by way of sale or by way of gift, etc. 55. We, therefore, hold that it is the date of delivery of share certificates along with the execution of the deed of transfer and not the date of entry of registration in the register of transferee company, which is the decisive date for determining the date of transaction of 'sale' in the case of transfer of shares. 56. So far as the case of present assessee is concerned, as referred to above, the assessee had submitted before the Departmental authorities that the transaction of sale was completed on 24th April, 1990, on which date the share certificates were delivered and the transfer deed was executed. Since the AO did not dispute this version of the assessee, in our view, the matter stood concluded there. The learned first appellate authority too followed the same course. It may also be pointed out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the shares in question was duly executed and physical delivery of the share certificates along with duly executed transfer deed were given to the transferee company, namely, M/s Peartree Electricals (P) Ltd. on that date. Thus, in view of the version of the assessee as set out in the above referred reply, the delivery of share certificates, etc. was made on 24th April, 1990, after the execution of the agreement. In view of the above stated facts, all the necessary requirement for transferring the shares stood satisfied on 24th April, 1990. If in pursuance or in compliance to the deed of agreement dt. 22nd April, 1990, the delivery of the share certificate was made on that date i.e., on 22nd April, 1990, as asserted by the assessee, if that is done, nothing else remained there for completing the transaction of sale of shares between the assessee and the transferee (purchaser) and the property in the shares stood transferred to the purchaser. 59. Although, after considering the documents referred to above and the version of the assessee, we should have held that the sale of shares was completed on 24th April, 1990 however, since a doubt has been raised by the Department and argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oted value of shares and its actual sale price." 63. According to the learned counsel, in view of the above reasons, as advanced in the reply of the assessee dt. 1st Jan., 1997, the difference stood explained. A reference was also made to the reply of the assessee dt. 27th Jan., 1997, in which also the following plea was taken: "2. It appears that in initiating the gift-tax proceedings, the quoted price of the share has been taken to be the 'market value' for the purpose of s. 4(1)(a). Quoted price need not always be the market value. In my case why it is not so has been fully explained by the following three factors: (i) that the shares were sold ex-dividend i.e., dividend @ 50 paise per share was received by me even though the shares were sold before the date of declaration of dividend; (ii) the transaction for sale was direct and no brokerage was paid in the deal; (iii) the shares were sold in bulk. It is common knowledge that where the shares are sold in bulk the price realized is always less than the quoted price; On the above facts, the consideration passed is quite fair and reasonable and the same cannot be considered to be inadequate. This point has not been giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Madras High Court has observed in the case of CGT vs. Indo Traders Agencies (Madras) (P) Ltd., that the provision of GT Act is designed to check evasion of tax by persons transferring property for inadequate consideration. Thus, if a person had effected a gift, which would be without consideration, he would be liable to be taxed under the Act. The same person may, in order to avoid the tax, transfer the property for paltry consideration, so as to get out of the operation of the Act, then he can be made liable under s. 4(1)(a) of the GT Act. It is this attempt at evasion, which was sought to be parted by enacting s. 4(1)(a) of the GT Act 71. The decision of Hon'ble Madras High Court in the case of Indo Traders Agencies (Madras) (P) Ltd. was cited with approval by the Hon'ble Supreme Court of India in the case of Reva Investment Ltd. vs. CGT (2001) 167 CTR (SC) 471 : (2001) 249 ITR 337 (SC). Hence, it will be proper to refer to the detailed reasons given by their Lordships of the Hon'ble Madras High Court. It has been pointed out that the provision of s. 4 of the GT Act is similar to one in s. 16 of the IT Act, 1961. It was also pointed out that when transfer of property bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the assessee. In our view, all the three reasons assigned by the assessee certainly explained the justification for the agreed rates. 76. It may also be pointed out that the approach of the AO in rejecting the explanation of the assessee was contrary to the views of Hon'ble Supreme Court of India approving the decision of Madras High Court in the case of Indo Traders, at p. 322 wherein the following observation was made: "The relevancy of the market price as shown by the provision is only to fix the quantum of the value of the gift after it is found that the transaction was for inadequate consideration. When once the GTO assumes jurisdiction and is in a position to establish that the property has been transferred otherwise than for adequate consideration then there is no option for him but to take the market value of the property as on the date of transfer and compare it with the value of the consideration as shown by the party. The difference will be deemed to be a gift made by the transferor. If the legislature had contemplated as a universal rule that the market value should alone be the criterion for testing the adequacy of the consideration, the provision would have b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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