9911796707
TMI Blog2012 (8) TMI 805X X X X Extracts X X X X X X X X Extracts X X X X ..... g the previous year to the relevant assessment year 1993-94, the assessee had sold certain shares of Rustom Spinners Ltd and had shown a long term capital gain of Rs. 1,46,792/- and short term capital gain of Rs. 7,41,563/- on sale of such shares. The assessee had also sold 80200 equity shares of Rustom Mills and Industries Ltd. for total consideration of Rs.4,01,000/-. On such sale of shares, the assessee had claimed long term capital loss of Rs.8,38,798/-. 3. The Assessing Officer noted that the shares of Rustom Mills and Industries Ltd., which the assessee sold were pledged with the IDBI Bank. The original share certificates were also lying with the said Bank. The assessee had also handed over duly executed transfer forms to IDBI. The Assessing Officer, therefore, called upon the assessee to clarify how under such circumstances the assessee could sell the shares. The Assessing Officer further noted that the purchaser company, viz. Bijal Investment Ltd and the assessee company, viz. Biraj Investment Pvt. Ltd. were part of the same group of companies. The Assessing Officer also noted that directors of both these companies were common. He noticed that the husband of the common Dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t value. He was, therefore, of the opinion that the ratio of the decision of the Supreme Court in the case of McDowell & Co. Ltd. v. CTI 154 ITR 148 would apply. 6. The assessee carried the matter further in appeal before the Tribunal. The Tribunal by the impugned order reversed the orders passed by the Revenue Authorities. Tribunal placed reliance on a decision of the Madras High Court in the case of A.M.P. Arunachalam v. A.R. Krishnamurthy, 49 Company Cases 662 (Mad) wherein the facts were that R had borrowed a sum of Rs.35,000/- with security of 5000 shares held by him in a private limited company. The share certificates together with blank transfer forms duly signed by R were handed over to the creditors. R sold the shares to the plaintiff requesting him to discharge the debts due to defendant Nos.1 and 2 amounting to Rs.37,602/- out of the sale consideration. He authorized defendant Nos.1 and 2 to deliver the share certificates and the blank transfer forms on the debt being discharged. When defendant Nos. 1 and 2 failed to hand over the share certificates together with blank transfer deeds signed by R and other related documents, the 1st plaintiff instituted suit seeking decl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any registered transfer of shares, the Apex Court held that such action on the part of the Company was contrary to law. 10. Counsel placed heavy reliance on the decision in the case of McDowell & Co. Ltd. (supra) to contend that transaction itself should be ignored as being a colourable device to avoid tax. Counsel drew our attention to some of the observations made in a recent decision in the case of Vodafone reported in 341 ITR 1, wherein the ratio of the decision in the case of McDowell & Co. Ltd. (supra) came up for consideration in view of the later decision of the Apex Court in the case of Union of India v. Azadi Bachao Andolan, 263 ITR 706. 11. On the other hand, learned counsel Shri Bandish Soparkar for the respondent assessee contended that this is not a case of colourable device. The assessee in its own wisdom desired to dispose of certain loss making shares. No provision of the Act or any other provision of law prohibits the assessee from disposing of such assets. Simply because during the same year, the assessee also sold certain other shares for a profit, it cannot be stated that there was an attempt to avoid tax. 12. Counsel submitted that what section 108 of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the asset altogether what he enjoys now is an abridged right which cannot be identified with the fullness of the right which he enjoyed in the asset before it entered the partnership capital. 14. Having thus heard the learned counsel for the parties, we find that the relevant facts are not in dispute. The respondent assessee sold shares of Rustom Mills and Industries Ltd for a sum of Rs.4,01,000/- on which transaction, the assessee claimed long term capital loss of Rs.8,38,790/-. During the same period, the assessee also sold certain shares of Rustom Spinners Ltd. and showed long term capital gain of Rs.1,46,792 and short term capital gain of Rs.7,41,563/-. It is also not in dispute that the shares of Rustom Mills and Industries Ltd. were pledged by the assessee with IDBI Bank. The original share certificates along with the transfer form duly signed by the assessee were in possession of the IDBI Bank. The assessee had also undertaken not to transfer such shares. 15. Despite such facts, we are of the opinion that the assessee having entered into the agreement dated 24th March 1993 with the purchaser Company and further having given power of attorney dated 30th March 1993 and re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and further fulfilling the procedural requirements specified therein has been delivered to the company along with the certificate relating to the shares or debentures along with the letter of allotment of shares or debentures. Therefore, it would not be difficult to envisage that if the purchaser company had tried to register the same in its name by virtue of the present transfer, such attempt would be met with stiff resistance from IDBI Bank. 16. In the present proceedings, however, we are not concerned with such internal disputes. We are primarily concerned with the question whether by virtue of the agreement dated 24th March 1993, and the irrevocable power of attorney given by the assessee to the purchaser company on 30th March 1993, and also having received the full sale price of the shares, section 2(47) of the Act apply. In our opinion, the assessee did transfer whatever rights it had in the shares to the purchaser company. If such transfer is not recognized by the IDBI and there are other legal implications of breach of undertaking given to IDBI, such issue wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to claim loss which it did not suffer and thereby seek set off against the capital gain received by it during the year under consideration. 18. In the case of Commissioner of Income Tax v. Sakarlal Balabhai 69 ITR 186, a Division Bench of this Court observed that avoidance of tax cannot include every case of reduction of tax liability of an assessee. The assessee may enter into a transaction which has the effect of diminishing his income and consequently reducing his tax liability. In such a case, there would be no avoidance of tax, For example, a case where the assessee makes a gift of shares to his son. By reason of gift income from the shares would not accrue to the assessee but would accrue to the son and to that extent the income of the assessee would be diminished and his tax liability reduced. This cannot be regarded as a case of tax avoidance even if the motive of the assessee in making the gift was to save tax on the income from shares at a higher rate applicable to him. 19. Under the circumstances, even without referring to the decision of the Apex Court in the case of Azadi Bachao Andolan (supra) and the observations made in the later decision in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
