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TMI Blog2010 (5) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 consisting of 13 shares of Rs. 100 each. Out of the above 13 shares, one share was held by M/s. Ameer Trading Corporation Ltd. (ATCL). ATCL was a group concern of the assessee-company and both the assessee and ATCL belong to Atul Group of the Companies. On 22-4-1990, ATCL acquired one more share of the assessee. On 20-11-1992, ATCL acquired remaining 12 shares of the assessee. Thus, ATCL became a holding company of the assessee as on 20-11-1992 holding entire share capital of its subsidiary, namely, the assessee . 4. The assessee held 4,07,320 shares of a company by name M/s. Amal Rasayan Ltd. (ARL). On 3-1-1992, the assessee entered into an agreement for sale of shares of ARL to ATCL. Principal terms of the agreement dated 3-1-1992 between the assessee and ATCL are as follows : "(1)The Vendor agrees to sell and the purchaser agrees to purchase subject to the purchaser receiving the permission of the Central Government under section 372 and such other applicable provisions of the Companies Act, 1956. 4,07,320 shares of Rs. 60 per share. (2)The purchaser has this day paid to the vendor, the sum of Rs. 1,200 as and by way of earnest money and balance of purchase money amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... othing contained in clause ( iv ) or clause ( v ) shall apply to the transfer of a capital asset made after the 29th day of February, 1988, as stock-in-trade." 6. While completing assessment for assessment year 1993-94, the Assessing Officer was of the view that the actual transfer of shares had taken place on 3-1-1992, though transfer deed were executed only on 22-12-1992. He was of the view that there was taxable capital gain in the hands of the assessee in assessment year 1992-93. The Assessing Officer was of the further opinion that the relationship of 100 per cent holding and subsidiary company was acquired by the ATCL only with an intention of evading capital gain tax and only as a subterfuge and fit to be ignored. The Assessing Officer was of the further opinion that that in assessment year 1992-93, there was no relationship of holding and subsidiary company between the assessee and ATCL and since, the sale had taken place in previous year relating to assessment year 1992-93, the benefit of section 47( v ) was not available to the assessee. The Assessing Officer also relied on the CBDT Circular No. 704, dated 17-4-1995, coming to the conclusion that the date of sale will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that under section 45 profit or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head Capital gains and shall be deemed to be income of the previous year in which the transfer took place. Section 2( 47 ) defines Transfer and among other things also includes transfer by way of sale. The mode of transfer applicable in the case of the assessee is "sale". It was submitted by him that shares are "Goods" within the meaning of the Sale of Goods Act, 1930 (SGA) and, therefore, the provisions contained therein as to the point of time when transfer takes place would be relevant. He referred to the provisions of section 4 of the SGA and submitted that there is a difference between sale and an agreement for sale. According to him, the Agreement dated 3-1-1992 is only an agreement for sale. The condition attached to the agreement for sale is that the approval of the Central Government under section 372 of the Companies Act, 1956 has to be obtained. It was, therefore, contended that sale will is complete only when the approval of Central Government under section 372 is obtained and thereafter there is a duly execute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne, it must not be to flout laws but to carry out the rules of law and the dicta of the Court; it must not be to override the provisions of law but to overcome heavy burden of taxation. According to him by no stretch of imagination, can it be said that the assessee adopted any colourable device. It was pointed out by him that on 3-1-1992, the assessee entered into an agreement for sale of shares and got the approval from Central Government on 9-7-1992. On 20-11-1992, ATCL acquired the entire shareholding of the assessee. On 22-12-1992, the transfers of shares of ARL were effected. According to him, the sequence of events cannot lead to any inference of any colourable device being adopted but were legally valid steps for which none have any objection. Further reliance was placed on the decision of the Hon ble Bombay High Court in the case of CIT v. Walfort Share Stock Brokers (P.) Ltd. [2009] 310 ITR 421 wherein the Hon ble Bombay High Court reiterated the principle laid down by the Hon ble Supreme Court in the case of Azadi Bachao Andolan ( supra ). 12. He submitted that Circular No. 704 of CBDT, dated 28-4-1995 was issued under the following circumstances. The provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Hon ble Supreme Court in the case of UCO Bank v. CIT [1999] 237 ITR 889. 13. Learned DR reiterated the stand of the revenue as reflected in the order of the revenue authorities. Further reliance was placed on the provisions of Sale of Goods Act and it was submitted that contract of sale was an unconditional one and, therefore, as on the date of signing the agreement, sale is complete. It was also submitted by him that there was inordinate delay in completing sale even after getting approval of Central Government for sale of shares. It was submitted that the assessee weighted for ATCL to become 100 per cent holding company and then completed transfer of shares only with a view to avoid payment of capital gain tax. According to him, there was no proper explanation for the delay in completing the sale even after getting approval of the Central Government for transfer of shares. It was further submitted that orders of the revenue authorities should be confirmed. 14. We have considered the rival submissions. Under section 45, profit or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illed, the contract is called an agreement to sell. (4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred." A reading of section 4(1) shows that when a person wants to sell shares he has to offer to transfer his right, title and interest in favour of an intending buyer. The seller has to, therefore, deliver share certificates together with the instrument of transfer duly signed by him so that transfer of ownership can be effected in favour of the purchaser. 15. The issue as to when transfer in the case of shares is complete came up for consideration in several cases and the leading case is the decision of the Hon ble Supreme Court in the case of Vasudev Ramchandra Shelat v. Pranlal Jayanand Thakar [1975] 45 Comp. Cas. 43. In the said case, there was a gift of shares by the donor to the donee under a gift deed which was followed by delivery of share certificates to the donor together with blank transfer forms (instrument of transfer). The donor died before the registration of the transfer in the register of the company. The question before the Hon ble Court was whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see were effected. Therefore, sale will is complete only when the approval of Central Government under section 372 is obtained and only when a duly executed instrument of transfer and delivery of the same together with the share certificates to the transferee and after receiving the consideration for sale from the transferee takes place. The actual transfer took place only on 22-12-1992 and that would be the date of transfer of shares. We, accordingly, hold that there was no transfer of shares on 3-1-1992, as contended on behalf of the revenue, when the agreement for sale of shares was entered into between the assessee and ATCL. The learned D.R. s reliance on section 20 of SGA which lays down that in an unconditional contract for sale of specific goods in a deliverable State, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price or the time of delivery of the goods, or both, is postponed is again not acceptable. We have already seen that under the agreement for sale of shares approval of Central Government under section 372 was necessary. Further the assessee had to hand over share certificates and ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Bombay High Court in the case of Walfort Share Stock Brokers (P.) Ltd. ( supra ) has reiterated the principle laid down by the Hon ble Supreme Court in the case of Azadi Bachao Andolan ( supra ). The right of the parties to enter into transactions according to their free will and choice has always been protected. On the facts and circumstances prevailing in the present case, it is difficult to accept that the rule in McDowell Co. Ltd. s case ( supra ) can be applied. We, therefore, hold that the action of the revenue authorities in invoking the above rule in the present case is not justified. 18. On the Circular of the CBDT, we are of the view that the Circular of CBDT is contrary to the provisions of law regarding the point of time when sale can be said to have taken place. According to the learned D.R., the Circular is conclusive as to the point of time when sale of shares can be said to have taken place. The law is well-settled that Circulars issued by the CBDT can neither impose a burden on the taxpayer or otherwise put him in a worse position than he was under the Statute, nor can it pre-empt or override any judicial interpretation of a provision by the Courts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Circular clarified that the date of transfer of shares should be the date of broker s note provided such transactions were followed up by delivery of shares and also the transfer deeds. The Board further clarified that in respect of the transactions of shares directly between the parties and not through stock exchange, date of contract of sale as declared by the parties shall be treated as the date of transfer provided it is followed up by actual delivery of shares and the transfer deeds. The Circular, thus, recognizes the fact position in law that transfer is complete only when share certificates together with transfer deed duly signed are delivered and payment received by the seller. 20. For the reasons given above, we hold that the transfer of shares of RSL by the assessee to ATCL took place only on 22-12-1992, i.e., during the previous year relevant to assessment year 1993-94 and that as on that date the asssessee was a wholly-owned subsidiary of ATCL and, therefore, there was no taxable transfer of shares. The claim of the assessee in this regard in assessment year 1993-94 is directed to be accepted and the assessment in assessment year 1992-93 is held to be not cor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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