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TMI Blog2010 (3) TMI 874X X X X Extracts X X X X X X X X Extracts X X X X ..... tention that the long-term capital gain is being brought to tax by way of protective assessment. Secondly, there is no substantive assessment already made treating the capital gain as short-term capital gain. Therefore, there can be no protective assessment. Thirdly, there has been a demand (without any limitation that it should not been recovered) raised pursuant to the above assessment which also shows that the said assessment is not a protective assessment. The decision of the Mumbai Bench of the Tribunal in the case of M .P. Ramachandran [ 2009 (5) TMI 121 - ITAT BOMBAY-E] clearly applies to the facts of the present case. Escapement of income chargeable to tax or Not - Can the Assessing Officer entertain a belief that income chargeable to tax has escaped assessment? - According to the learned D.R., short-term capital gains are taxed at higher rate compared to long-term capital gain and if the capital gain is considered as having resulted in the hands of the assessee in assessment year 2000-01 it would be short-term capital gain since the shares were held by the assessee for less than a period 12 months. Therefore, according to the learned D.R., there was escapement of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - P.M. JAGTAP AND N.V. VASUDEVAN, JJ. S.E. Dastur for the Appellant. Hemant J. Lal for the Respondent. ORDER Per Bench. - ITA No. 475/Mum./09 is an appeal by the assessee by name Smt. Vimla S. Jajoo against the order dated 2-12-2008 of learned CIT(A)-IV, Mumbai relating to assessment year 2000-01. ITA No. 474/Mum./09 is also an appeal by the assessee by name Shri Suresh K. Jajoo against the order dated 2-12-2008 of learned CIT(A)-IV, Mumbai relating to assessment year 2000-01. 2. Issues involved in both the above appeals are identical and arise out of identical facts and circumstances. These appeals were heard together. We deem it convenient to pass this consolidated order. 3. Facts and circumstances under which, these appeals arise for consi-deration are as follows : The assessee Smt. Vimla S. Jajoo is an individual. She is in the business of dealing in shares and investments. For assessment year 2000-01, return of income declaring total income of Rs. 9,08,99,794 was filed by her on 27-10-2000. The return was processed under section 143(1) and no scrutiny was done in her case for the relevant assessment year. She had during the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per Annexure-I to the computation of income. During the course of assessment, the issue of capital gain has been examined. According to the details filed by the assessee, the assessee has purchased 37,000 shares of DSQ software on 9-4-1999 for a purchase consideration of Rs. 1,25,60,020. The scrips have been purchased in spot market Calcutta Stock Exchange through broking company Herald Equity Pvt. Ltd. These holdings have been sold on 12-4-2000 for Rs. 6,59,45,100. There is a long-term capital gains claim of Rs. 5,33,85,080 on these transactions. During the course of assessment proceedings, the assessee has furnished distinctive number of scrips and details of sale. According to contract note furnished the date of contract is 30-3-2000. However, the transactions has been carried forward as per exchange rules and finally settled in settlement period (30-3-2000 to 6-4-2000). The broker, Herald Equity Pvt. Ltd. has raised a bill on 12-4-2000 for these transactions marking delivery of shares. The assessee has claimed that the broker has raised these bills after schedule pay-in/pay-out of securities to Stock Exchange which was completed on 12-4-2000. As per the broker s bills which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settlement period (30-3-2000 to 6-4-2000). The bill was reportedly raised by the broker, Herald Equity (P.) Ltd. (in which the assessee s husband Suresh K. Jajoo is a director) for this settlement on 12-4-2000 for these transactions after completion of the settlement period. (3)Capital gains are taxable on accrual basis, and in the case of listed securities, the date of transaction is the date of sale/purchase of the security. Therefore, the shares were transferred on 30-3-2000, i.e., before the completion of one year from the date of purchase. As per Circular No. 704 of CBDT, dated 28-4-1995, the date of broker s note is to be treated as the date of transfer provided such transactions are followed by delivery. The extract of the Circular is as under : The Board is of the opinion that it is the date of broker s note that should be treated as the date of transfer in cases of sale transactions of securities provided such transactions are followed up by delivery of shares and also the transfer deeds. Similarly, in respect of the purchasers of the securities, the holding period shall be reckoned from the date of broker s note for purchase on behalf of the investors. In case the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee relied on the decision of the Hon ble Calcutta High Court in the case of Hall Anderson (P.) Ltd. v. CIT [1973] 47 ITR 790, wherein it was held that in the absence of definition of the term sale under the Income-tax Act, 1961 for determination of the date of sale, one must resort to the Sale of Goods Act, 1930, in cases of movable properties. It was submitted that shares and securities being movable property are treated as goods under section 2(7) of the Sale of Goods Act, 1930 and that under section 4 of the Sale of Goods Act, 1930 a sale takes place when the property in goods is transferred from the seller to the buyer. It was further submitted that the provisions of Sale of Goods Act, 1930 provides that a property in the goods passes at a time when the parties to the transaction intend it to pass. It was urged that transfer of ownership in goods is complete only with delivery in pursuance of an agreement to sell. Reliance was placed on the decision of the Hon ble Supreme Court in the case of CIT v. Bhurangya Cool Co. [1958] 34 ITR 802 wherein it was held that the title in the movable property passes when they are actually delivered to the buyer. Furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 23-3-2000 to 30-3-2000 for Rs. 46,81,22,650 and a long-term capital gain of Rs. 39,37,61,150 was declared on these transactions in assessment year 2001-02. According to him, the broker raised the bill for this transaction in the broker bill dated 8-4-2000 and delivery of shares and its corresponding pay-in/pay-out took place only on 8-4-2000. Since the corresponding sale and delivery had taken place only on 8-4-2000, the capital gain on sale was claimed to be a long-term capital gain and offered to tax in assessment year 2001-02. 8. The Assessing Officer passed an assessment order under section 143(3) of the Act for assessment year 2001-02 dated 27-2-2004; whereby he assessed long-term capital gain as declared by the assessee giving almost identical reasons as were given in case of Smt. Vimla Jajoo, which we have already extracted in the earlier part of this order. The Assessing Officer issued notice under section 148 of the Act for assessment year 2000-01 dated 22-3-2007 after recording following reasons : "Shri Suresh Jajoo : Assessment year 2000-01 : (1)From the assessment year 2001-02, it is seen that the assessee had purchased 2,00,000 shares of DSQ software on 5 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., relevant to assessment year 2000-01. (5)Since, the assessee has offered this income in assessment year 2001-02 as long-term capital gain, the same was accepted in that year by the Assessing Officer protectively, with the office note that the taxability of the same in preceding year on the basis of date of contract be examined by reopening the preceding year, if deemed fit. (6)Accordingly, the short-term capital gains of Rs. 39,37,61,150 have escaped assessment for the assessment year 2000-01. As per Explanation 2, clause ( c )( ii ) also, the capital gains have been assessed at too low a rate as long-term capital gains in respect of assessment year 2001-02. It is, therefore proposed that the assessment year 2000-01 be reopened since the income has escaped assessment. The tax effect and income escaping assessment exceeds the limits laid as per section 149(1)( b ), read with Explanation thereto. SD (CHATURBHUJ DAS) Asstt. Commissioner of Income-tax Circle 4(2), Mumbai." 9. In the reassessment proceedings, Shri Suresh Jajoo took a stand regarding taxability of long-term capital gain declared in assessment year 2001-02 as short-term capital gain in assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional grounds of appeal is dependent on the condition that he/she should adduce reasonable cause for not having raised grounds sought to be raised by way of additional grounds in the original grounds. It was further submitted that it is often said that the revenue cannot have change of opinion on a point of law. The same approach should also be applied when the assessee seeks to raise a point of law. He placed reliance on the decision of Mumbai Bench of the ITAT in the case of Batliboi Co. v. Dy. CIT [1998] 67 ITD 397 ; wherein it was held that there should be existence of good reasons for not raising the ground at the original stage. 13. Learned counsel for the assessee submitted that the reason for not raising the issue with regard to validity of initiation of reassessment proceedings was that proper legal advice came only when there was a conference with senior counsel and, therefore, additional ground was filed regarding validity of initiation of reassessment proceedings. It was reiterated that the facts are already available on record; and, therefore, additional ground has to be admitted for adjudication. It was also submitted that in Ground No. 1 in both the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the senior counsel that the assessee was enlightened about the merit of the additional ground and, therefore, present application has been filed. In these circumstances, we admit the aforesaid two additional grounds for adjudication. Since, the aforesaid grounds will go to the root of the matter and validity of assessment framed under section 148 of the Act, we deem it proper to consider the aforesaid issue first. 15. An initial objection was raised by the learned counsel for the assessee that the required approval as contemplated by section 151 of the Act for proceeding to issue notice under section 148 was not obtained. The learned D.R. produced the relevant approval of the CIT(A), Mumbai. We have perused the same and are satisfied that the required approval under section 151 has been obtained and, therefore, the objection raised by the assessees in this regard is rejected. 16. We have already noticed that the facts with regard to sale of 37,000 shares of DSQ software purchased by Mrs. Vimla Jajoo on 9-4-1999 and sold by her on 12-4-2000. In assessment year 2001-02, she claimed that these shares were purchased on 9-4-1999 and sold on 12-4-2000; and, therefore, capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make a specific mention that the assessee need not pay the demand attributable to any sum taxed on protective basis. It was further submitted by him that even as on date, order passed by the Assessing Officer for assessment year 2001-02 stands and has not been disturbed by a process known to law. For the proposition that in the case of protective assessment, no demand is generally raised, learned counsel for the assessee drew our attention to the following two decisions : u Jagnnath Hanuman Bux v. ITO [1957] 31 ITR 603 (Cal.); u Sunil Kumar v. CIT [1983] 139 ITR 880 (Bom.). 19. His next submission was that if the assessment done for assessment year 2001-02 was really a protective assessment, there was no reason for the Assessing Officer to issue a notice under section 148 of the Act after delay of more than three years. In this regard, he pointed out that the Assessing Officer passed the order under section 143(3) in the case of both the assessees for assessment year 2001-02 on 27-2-2004. Notice under section 148 for assessment year 2000-01 was issued by the Assessing Officer in the case of both the assessees only on 22-3-2007. According to him, the delay in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the Assessing Officer has no option but to tax it. According to him, just because a sum has already been taxed, it cannot be said that there was no escapement of income chargeable to tax. In this regard, it was submitted by him that if the capital gain on sale of shares is considered as short-term capital gains then rate of tax payable would be different; and cones- quently, there would be a greater liability to tax in the hands of the assessee compared to taxing capital gain as long-term capital gains in assessment year 2001-02. Thus, according to him, belief entertained by the Assessing Officer regarding escapement of income was reasonable belief; and, therefore, reassessment proceedings has to be held as proper. 23. Before us, both the learned counsel for the assessee and the learned D.R. have relied on the decision of Mumbai Bench of the ITAT in the case of M.P. Ramachandran v. Dy. CIT [IT Appeal No. 587 (Mum.) of 2005]. In the aforesaid case, facts were that in assessment under section 143(3) for assessment year 1997-98 was completed on 25-2-2000. On 3-11-2000, there was a search and consequent there to, notice under section 148 dated 26-3-2003 was issued to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Tribunal thereafter held that protective assessment cannot be independent of substantive assessment but always has to be later in pint of time to the substantive assessment. 26. Keeping in mind the principles as explained above, let us see whether the assessment for assessment year 2001-02 can be said to be a protective assessment. We have already extracted the order of the Assessing Officer for assessment year 2001-02 in para-3 of this order. 27. The gist of the conclusion of the Assessing Officer in assessment for assessment year 2001-02 is that he refers to the assessee s submission regarding the date of transfer being on 12-4-2000 when the broker raised the bill dated 12-4-2000 after scheduled pay-in/pay-out of securities to Stock Exchange was completed only on 12-4-2000. The Assessing Officer has accepted the above claim of the assessee but expressed a doubt that the transaction could be said to be completed on 30-3-2000 as per the contract note of the broker because the subsequent events like delivery of share certificate and receipt of payment are only formalities and, therefore, when these formalities are completed the date of sale would relate back to the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be no protective assessment. Thirdly, there has been a demand (without any limitation that it should not been recovered) raised pursuant to the above assessment which also shows that the said assessment is not a protective assessment. The decision of the Mumbai Bench of the Tribunal in the case of M.P. Ramachandran ( supra ) clearly applies to the facts of the present case. The Tribunal in the aforesaid case held as follows : "Coming back to our point we have to examine whether protective assessment/addition is possible under section 147 in respect of the same person and for the same period. When a regular assessment is made and later on it comes to the notice of the Assessing Officer that some income chargeable to tax has escaped assessment, he can resort to these provisions for reassessment. But if, as is the case under consideration, after the passing of the regular assessment order, the Assessing Officer has passed a block assessment order under section 158BC pursuant to search and seizure proceedings under section 132 and included one income in the block assessment, is he empowered to include the same income, on protective basis, in the reassessment of the original re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that ultimately the same conclusion will follow if the substantive addition is struck down at a place where it was made. In such a scenario the protective addition will get converted into substantive addition in the reassessment. That will also run contrary to the format of reassessment, being to tax an income which has escaped assessment. In that case again it will tantamount to reopening assessment on the basis of an item of income or disallowance, which has already been made in block assessment of the assessee, thereby leaving no income escaping assessment. Under these circumstances, we are satisfied that having made addition of Rs. 527.85 lakhs in the block assessment, the Assessing Officer was not justified in forming the belief, either on substantive or protective basis, that the same income has escaped assessment in the instant year. In CIT v. Wipro Finance Ltd. ( supra ) there was search action on the assessee. Some income was assessed as undisclosed income for the block period. The Assessing Officer made addition for the same in regular assessment on protective basis. When the matter came up before the Hon ble High Court, it was held that the same income which was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trary belief of the Assessing Officer in the form of an assessment of the very same capital gain as long-term capital gain in assessment year 2001-02 does not exist. Therefore, there cannot be any belief that capital gain has been assessed at too low a rate. The Hon ble Allahabad High Court in the case of Naresh C. Bhargava ( supra ) has held that where income which is sought to be brought to tax by issue of notice under section 148 is already assessed in another assessment year, the issue of notice under section 148 is not permissible. The Hon ble Bombay High Court in the case of CIT v. H.N. Shindore [1978] 113 ITR 679 had an occasion to deal with similar issue. The facts in the aforesaid case were that in 1950, the case of the assessee was referred to the Income-tax Investigation Commission. In 1952, the Commission submitted its report and, on the basis of the report, revised assessments were made on the assessee in respect of the assessment years 1943-44 to 1946-47. In 1955, the assessee filed a petition in the Supreme Court challenging the validity of the Taxation on Income (Investigation Commission) Act, 1947, and the revised assessments. In 1956, the Income-tax Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbitrary exercise of power to reopen a concluded assessment. Therefore, the existence of condition precedent for re-opening have to be satisfied before the Assessing Officer can proceed to assume jurisdiction to pass an order of reassessment. We are of the view, that in the present case, the condition precedent for valid initiation of reassessment proceedings have not been satisfied inasmuch as the belief that income chargeable to tax has escaped assessment does not exist. In the circumstances, we hold that initiation of reassessment is bad in law and consequently, the order of assessment is held to be bad, hence, annulled. 33. Since the initiation of reassessment is held to be bad in law, there may not be any necessity to deal with the appeal on merits. However, as both the parties have made elaborate submissions before us on merits, we deem it proper to decide the case on merits also. The grounds of appeal of the assessee which is common in both the appeals which relate to the merits of the case are contained in Ground No. 1 which reads as follows: 1.( i )The learned CIT(A) grossly erred in adding a sum of Rs. 5,33,85,030 as short-term capital gains as against the same bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... malities like delivery of securities, etc., and not the date of the broker s note. The assessees, therefore, want to rely on the order of assessment in the case of assessee s for subsequent assessment year. In the case of Vimla S. Jajoo, the documents sought to be filed are summary of transaction of sale of shares for assessment years 2001-02, 2002-03 and 2003-04 including the details of the relevant broker s bills, the order of assessment under section 143(3) for assessment years 2001-02 and 2003-04, intimation under section 143(1) for assessment year 2002-03 and order of the Tribunal in assessment year 2002-03 quashing the order of CIT under section 263 of the Act. In the case of Suresh K. Jajoo the documents sought to be filed are summary of transaction of sale of shares for assessment years 2001-02, 2002-03 and 2003-04 including the details of the relevant broker s bills, the order of assessment under section 143(3) for assessment years 2001-02 and 2003-04, order of assessment under section 143(3), read with section 147 for assessment year 2002-03 and order of the Tribunal in assessment years 2002-03 and 2003-04 quashing the order of CIT under section 263 of the Act. It was sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action of sale of shares at Rs. 1,778.48 Ps. is reflected and a corresponding purchase of shares of the same quantity of 57,000 shares for Rs. 1,782.30 Ps. is shown as carried forward. Thus, the transaction was carried forward to be settled in the next settlement period 30-3-2000 to 6-4-2000 at a price of Rs. 1,782.30 Ps. which is higher than the price at which the shares were to be sold in the broker s contract note dated 30-3-2000. There is another bill of the broker dated 12-4-2000 which evidences the fact that ultimately 57,000 shares were sold at Rs. 1,782.30 Ps. The bill refers to date of sale as 30-3-2000 followed by the word "D". This does not mean that there was delivery of shares on 30-3-2000. The transaction being a forward transaction there cannot be delivery on 30-3-2000. The date of actual delivery of shares was 11-4-2000 and the date of payment is 12-4-2000 as per the finding of the CIT(A). In the order of assessment for assessment year 2001-02, the Assessing Officer has observed that the transaction could be said to be completed on 30-3-2000 as per the contract note of the broker because the subsequent events like delivery of share certificate and receipt of payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present appeal. 39. In the order of assessment for the assessment year 2000-01 in the case of both the assessees, the Assessing Officer has come to the conclusion that the broker s note is the date on which the sale of shares takes place. In coming to the above conclusion, the Assessing Officer has placed reliance on Circular No. 704 of CBDT, dated 28-4-1995. The provisions of the Act draw a distinction between a short-term capital gain and long-term capital gains and accord different treatment for the purpose of levy of tax on such gain. The issue whether a particular asset is a long-term asset or short-term asset depends on the period of holding of the capital asset by the assessee. In the case of Transfer of Shares , there was confusion as what should be considered as date of purchase and date of sale for the purpose of ascertaining whether the capital asset was a short-term capital asset or long-term asset. Therefore, CBDT issued clarification vide Circular No. 704, dated 28-4-1995 where it was mentioned that when shares are transacted through stock exchanges, it is the established procedure that the brokers first enter into contracts for purchase/sale of securities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer 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 broker s note is only an agreement for sale. The condition attached to the agreement for sale is that there will be delivery of share certificates together with instrument of transfer in favour of the transferee. The further condition is that on receipt of the share certificate and instrument of transfer duly signed, the sale consideration has to be paid. It was, therefore, contended that sale is complete in the case of sale through brokers on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o our notice the decision of the ITAT Mumbai Bench in the case of Mrs. Hami Aspi Balsara (Taxpayer) v. Asstt. CIT [IT Appeal No. 6402 (Mum.) of 2008, dated 22-5-2009] decision of the Amritsar Bench in the case of Max Telecom Ventures Ltd. ( supra ) was distinguished and held to be not good law. 46. Our attention was also drawn to the manual on the working of the Stock Exchange, Mumbai to highlight the mode of effecting delivery after sale in a settlement period and the manner in which the buyer of shares pays-in the money and how the seller of the shares is paid-out the money. 47. Reference was also made to the decision of the Hon ble Supreme Court in the case of Installment Supply Ltd. v. STO [1974] 4 SCC 739, which explains the difference between sale and an agreement for sale and the point of time when sale is complete in a hire purchase transaction. 48. Per contra, the learned D.R. submitted that broker s note is sale not agreement for sale. According to him, broker s note evidences purchase or sale of shares as the case may be. It is a legally enforceable document. It was submitted by him that an investor cannot directly transact in a stock exchange and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Max Telecom Ventures Ltd. ( supra ). He, thus, submitted that the decisions of the CIT(A) has to be upheld. 49. The learned counsel for the assessee submitted in rejoinder that transfer of ownership in goods is necessary to conclude that there was a sale and in this regard relied on the decision of the Hon ble Supreme Court in the case of Alapati Venkataramiah v. CIT [1965] 57 ITR 185 wherein it was held that before capital gain could be brought to tax title must pass by any of the modes, viz., sale, exchange or transfer. In the context "transfer" means effective conveyance of the capital asset to the transferee. 50. We have heard the rival submissions. There is no dispute regarding facts of the case. They are as follows. The assessee Mrs. Vimla Jajoo, purchased 1,00,000 shares of DSQ Software Ltd. (hereinafter referred to as DSQ , on 9-4-1999 on spot basis. When shares are purchased on spot basis the transaction settled on the very same day or within next two days. The broker s contract note evidencing purchase is at page-1 of assessee s paper book. It is dated 9-4-1999. The broker s bill regarding the above purchase is at page-3 of the assessee s pape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1999 and 7-4-1999. 53. The assessee sold all the above shares. The broker s contract note regarding the sale is at page-2 of the assessee s paper book. It is dated 24-3-2000. It refers to the fact that the contract is a forward contract. It refers to the settlement period from 23-3-2000 to 30-3-2000. The broker s bill regarding the above sale is dated 8-4-2000. The bill refers to date of sale as 24-3-2000 followed by the word "D". This does not mean that there was delivery of shares on 24-3-2000. The transaction being a forward transaction there cannot be delivery on 24-3-2000. The date of delivery and date of pay-out was 8-4-2000 as per the findings of the CIT(A). 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 ) as follows : Transfer , in relation to a capital asset, includes, ( i )the sale, exchange or relinquishment of the asset; or ( ii )the extinguishments of any rights therein; or ( iii )the compulsory acquisition t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. Presently shares are not held in physical form and are evidenced by entry with the depository participants regarding ownership of shares in a particular company. Nevertheless evidence regarding ownership in the form of details of Depository Participant and instrument of transfer have to be given to the broker by the seller. The seller s broker in turn has to deliver it to the purchaser s broker and such delivery would be subject to the condition that the purchaser has made payment. Till such time delivery is effected and documents are handed over by the seller to his broker there cannot be a concluded sale. In other words, the broker s contract note is only an agreement to sell subject to the condition that the seller will deliver the documents to his broker. On such delivery by the seller, the broker will effect payment. It is only thereafter can it be said that the sale is complete. The issue has come up for consideration in several cases and the leading case is the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Rajagiri Rubber Produce Co. Ltd. ( supra ), the Hon ble Kerela High Court had to deal with a case where the assessee-company which held shares of other companies passed a resolution and the share certificates were delivered and consideration was also received during the accounting period relevant to the assessment year 1978-79. As between the transferor and the transferee, the transaction was complete. The Hon ble Court held that in the case of transfer of shares, for purposes of section 45 of the Income-tax Act, 1961, as between the transferor and the transferee, the transaction is complete when the share certificates are handed over. The mere fact that the company has not registered the transfers in its books would not justify the claim that the transfer took place only later. The sale of shares would, therefore, be complete only when the share certificate together wth the relevant instrument of transfer duly signed is delivered and sale consideration is received. 56. The next aspect that needs to be examined is regarding the Circular No. 704, dated 28-4-1995. The provisions of the Act draw a distinction between a short-term capital gain and long-term capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh Court has declared the law on the question arising for consideration it will not be open to a Court to direct that a Circular should be given effect to and not the view expressed in the decision of the Supreme Court or the High Court. In N.C. Upadyaya s case ( supra ), identical proposition has been laid down. It is, thus, clear that Circulars to the extent of giving relief to the assessee are binding but where they impose an additional burden not contemplated in the Act they are not binding. There may be cases where it would suit an assessee to claim the date of broker s note as the date of sale. If they do so, the Circular can help them to support their plea and the same will be binding on revenue authorities and they cannot say that date of transfer is not the date of broker s note. It is only in such a situation the Circular will be beneficial to the assessee and, therefore, binding on the Assessing Officer. In a situation where adopting the date of broker s note as the date of transfer is not advantageous to an assessee he can fall back upon the correct date of transfer in accordance with law ignoring the Circular. 58. We are also of the view that even Circular No. 70 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not unconditional contract for sale. The reliance placed by the learned D.R. on the decision in the case of Gurbax Singh ( supra ) is in the context of the point of time when a registered document will take effect and the Hon ble Supreme Court referred to the provisions of section 47 of the Registration Act, 1908, to hold that the registered document will operate from the date of the document and not from the date of registration. We are of the view that the said principle cannot be applied in a case of sale of shares which does not require any registration. 60. In the decision of the Amritsar Bench of ITAT in the case of Max Telecom Ventures Ltd. ( supra ), the material facts were that the assessee entered into an agreement titled "Share Purchase Agreement" with Telecom Investments India Private Limited (in short TIP ) on 17-3-1998 for sale of Rs. 40 lakhs equity shares of Rs. 10 each for a consideration of Rs. 5,49,51,32,184. In the return of income filed for the assessment year 1998-99, the assessee had shown capital gains arising on the sale of 40 lakhs equity shares to M/s. TIP. However, the assessee had claimed exemption in respect of such capital gains under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares. Subsequently, however, they claimed that no capital gains arose because the sale being conditional could not take place until the entire number of share were sold. However, the Assessing Officer rejected such submissions and brought capital gains to tax which was declared in the respective returns by the assessees. On appeal, the Ld. CIT(A) upheld the order of the Assessing Officer. The assessee filed a writ petition before the Hon ble Kerala High Court. The writ petition was dismissed by the Hon ble Kerala High Court. While dismissing the writ petition, the Hon ble High Court held that in the event of the totality of 1,19,760 shares not being transferred by reason of the failure to get the necessary sanction of the authorities, even the shares transferred are to be retransferred and the amount paid was to be returned. The Hon ble Kerala High Court held that what had been sold, had to be resold and the money paid had to be repaid in the event of even one share out of the totality of shares covered by the agreement remaining unsold. The High Court further observed that this was how the parties understood transaction at all material times and this was the reason for the filing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the assessee in the specified securities within six months reckoned from 1-4-2005 entitled the assessee for exemption under section 54EC. In the first place, we are in agreement with the contention of ld. counsel for the assessee that sale as contemplated under section 2( 47 )( i ) and extinguishment rights as contemplated under section 2( 47 )( ii ) are not mutually inter changeable. If a particular transaction is the transaction of sale then unless the sale is complete, no transfer can be said to have taken place because, as rightly pointed out by ld. counsel for the assessee, there will always be extinguishment of rights in case of sale and if a single right out of the entire bundle of property in capital asset is extinguished, then, the transfer would be taken as complete. This will lead to absurd situation. Had it been the intention of Legislature to treat the transfer on the basis of extinguishment of any right in capital asset then there was no necessity of including sale and exchange in the definition of ( transfer ) under section 2( 47 ). It is well-settled principle of interpretation that no word in an statute is superfluous and each word has to be assigned spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d decision. 13. Now coming to the Circular No. 704, dated 28-4-1995. This Circular deals with two situations. Firstly, shares listed on stock exchange and transfer taking place through brokers. Secondly, transactions taking place directly between the parties and not through stock exchange. We are concerned with the second situation. In this regard, it is mentioned in the Circular as under : "In case the transactions take place directly between the parties not through stock exchanges the date of contract of sale as declared by the parties shall be treated as the date of transfer provided it is followed up by the actual delivery of shares and the transfer deeds." This clearly shows that the date of contract of sale will be the date which the parties have agreed to. No other date can substitute the date as declared by the parties. In the present case, the date of contract of sale as understood by the parties is 1-4-2005 and the same cannot be substituted by the date of share purchase agreement because completion date was specified in Article 6 of the Share purchase agreement, which was not later than 4-4-2005 or such other later date that was mutually agreed in writing. As per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance under section 14A. ( b )without prejudice to the above, learned CIT(A) grossly erred in giving direction to apply rule 8D and ignored that the insertions of sub-sections (2) and (3) to section 14A by the Finance Act, 2006 are with effect from 1-4-2007 and not retrospective in nature." 65. Facts necessary for adjudication of Ground No. 2 are as follows : We have already noticed that the assessment in the case of both the assessees for assessment year 2000-01 was reopened to bring to tax capital gain on sale of shares, which were treated as long-term capital gain, assessment year 2001-02 as short-term capital gain in assessment year 2000-01, i.e., assessment year involved in this appeal. 66. We have also seen that in the reasons recorded for reopening assessment there were no other reasons assigned except the reason that capital gain on sale of shares was wrongly taxed as long-term capital gain. In the reassessment proceedings, the Assessing Officer, made a disallowance of Rs. 70,466 (in the case of Vimla S. Jajoo) and Rs. 10,000 (in the case of Suresh K. Jajoo) out of interest expenses claimed in profit and loss account, on the ground that these were expenses in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT in the case of Thacker Co. Ltd. ( supra ). The aforesaid case relates to assessment year 1999-2000. Assessment was reopened under section 148 of the Act for the reasons which did not relate to making a disallowance under section 14A of the Act. However, in course of reassessment proceedings, the Assessing Officer sought to invoke section 14A of the Act. The revenue took a stand that when assessment was validly reopened, there is no bar under the proviso to section 14A of the Act on the part of the Assessing Officer to make a disallowance. The Tribunal considered the issue and held as follows : "The Circular No. 11, dated 23rd July, 2001, the Board has reduced the rigour of the provisions of section 14A by providing in para 4 of the Circular that where assessment proceedings have become final before 1 April, 2001, then such proceedings should not be reopened under section 147. The Board has referred to the finality of the assessment proceedings, which is different from the completion of the assessment proceedings by formal order of assessment. It is the settled legal position that assessment proceedings are initiated by filing of the returns. Now, therefore, the question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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