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TMI Blog2012 (10) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... n transfer of shares were liable to tax during the previous year relevant to assessment year 1997-98? C. Whether the Tribunal was legally correct in holding that the capital gains was assessable in the assessment year 1997-98 even when there was no transfer of shares as provided for and contemplated under the Companies Act? F. Whether on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the agreement was one for transfer of immovable property? I. Whether the Tribunal misinterpreted the deed of agreement dated 19.8.1996 and erroneously took the view that the proprietary right in the shares vested in the buyer on the payment of the first installment. The Tribunal failed to take into consideration that no transfer deed transferring the certificate was ever issued by the appellant in the relevant assessment year 1997-98 nor was he recorded as a shareholder in the records of the company? K. Whether on the facts and in the circumstances of the case, the Tribunal erred in law in taking into account irrelevant material and ignoring essential material and evidences on record? L. Whether on the facts and in the circumstances of the case, the concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom of two flats, the concerned parties also agreed to seek permission under Section 269 UL (3) of the I.T. Act from the Appropriate Authority at Mumbai, which was duly granted on 8/11/1996. 7. The assessee filed return for the accounting period 1.4.1996 to 31.3.1997 (A.Y. 1997-98) on 27.6.1997 declaring income of Rs.39,18,664/-, including agricultural income of Rs.1,85,806/-. The return was processed under Section 143 (1) (a) on 24.12.1997, on an income of Rs.39,18,664/-. The case was subsequently fixed for hearing by issuing notice under Section 143 (2). On the chargeability of capital gains, the A.O. found that as per Clause-7 of the agreement dated 19.8.1996, upon receipt of first installment the assessee would have no right, title and interest in the said shares of the company and the buyer will become owner of the same. The assessee had received first installment on 31.10.1996, after which he was left with no right, title or interest in the shares. Clause-10 of the agreement provided that consequent to purchase of 100% transfer voting interest and controlling power in the company was given to the buyer i.e. SRF Ltd. The possession and ownership of the society shares and pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is any transfer either of the shares or of the immovable property during the assessment year under appeal. It was not necessary to find out whether the buyer had made the payment of sale consideration within the period stipulated in the sale agreement dated 19.8.1996. What is necessary is to see whether in law there is any transfer of the shares of M/s Rajendra Lal Shadi Lal & Company (P) Ltd. to M/s SRF Ltd. Unless the shares are so transferred, there is no question of transferring any immovable property held by that company in spite of grant of no objection certificate by the appropriate authority. M/s SRF Ltd. already enjoyed property as tenant, and unless something more was done, it could not be said that the agreement by itself enable it to enjoyment of the property. There was nothing to indicate any such effect of transferring of the property. The buyer had possession of the property as tenant and there was nothing more to show that any fresh lease of any enjoyment was granted. On the interpretation of the clauses of the agreement, the CIT (A) held that by virtue of Clause 7 of the agreement, the buyer became owner either of the shares or of the immovable property owned b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he agreement was to transfer the shares on receipt of the first installment, as it was found that the physical delivery of the share certificates and the payments of the sale consideration are not the prime factors to decide time of transfer or sale of movable goods/ shares. The Tribunal, thereafter, held in paragraphs 26, 27 and 28 as follows:- "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 flats, owned by M/s. Rajendra Lal Shadi Lal & Co. Pvt. Ltd., through transfers, its entire shareholding in favour of the buyer. We would find that it was not only a transfer of shares, but in fact it was a transfer of two flats situated at Cumballa Hill, Mumbai, through 100% of transfer of shareholding in M/s. Rajendra Lal Shadi Lal & Co. Pvt. Ltd., in favour of the buyer i.e. M/s. SRF Limited. During the course of hearing, it has been candidly accepted by the learned counsel for the assessee that M/s. Rajendra Lal Shadi Lal & Co. Pvt. Ltd. did not have any other asset except these two flats in Olympus Apartments, Altamount Road, Cumballa Hill, Mumbai and was not involved in any other business act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable as a shield only against the transferor, the proposed vendor from disturbing the possession 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 buyer to claim an ownership right in the property. The parties to this agreement have also treated this agreement to sale of immovable property and after this agreement they approached the Appropriate Authority for no objection under section 269 UL (3) of the Act. The specific clause with respect to this ownership of these two flats by the company was also inserted in this agreement. If this agreement is to be examined in the light of the further acts of the assessee, which are evident from the certificate under section 269 UL (3) of the Act and a letter dated 31st October, 1996, one would find that this agreement was executed to sell these two f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 (47) (vi) of the Act for the purposes of holding that the shares were actually transferred to the buyer in the assessment year 1997-98 was totally misplaced and illegal. The Tribunal was not justified in law in holding that the capital gains were assessable in the assessment year 1997-98, when there was no transfer of shares either as per proceedings of Sale of Goods Act or the Transfer of Property Act or as it was provisions of the company law and the provisions of the Income Tax Act in the previous year ending 31.3.1997. The Tribunal also erred in holding that the agreement was one for transfer of immovable property. The immovable property did not belong to the assessee appellant nor the said property was sold. It was only the shares, which were agreed to be sold and thus alleged capital gains in respect of the said property could not be assessed in the hands of the appellant. It is submitted that M/s SRF Ltd., the buyer was already the tenant in possession of the property and continued to be so even after execution of the agreement to sale in as much as it continued to pay rent to M/s Rajendra Lal Shadi Lal & Co. Pvt. Ltd., till the shares and the share transfer forms were act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held that only a person, who is on the register is in the full sense of the word the owner of the share. But the title to get on the register consists in the possession of a certificate together with a transfer signed by the registered holder. It further relied upon in holding that under Section 21 unless shares were specified by serial numbers, which can be identified it cannot be said to be a contract for sale of specified goods as contemplated by Section 21 of the Act, as they would remain unascertained. In Kuppiah Chetty v. Saraswathi Ammal, AIR 1941 Mad 769 it was held that an agreement to transfer shares in a company accompanied with the actual instrument of transfer which has not been completed so far as the transferor could complete it does not amount to a transfer deed sufficient to cause the title to pass. By itself it would be nothing more than an enforceable agreement to convey and until the transfer endorsement is signed the shares would be unascertained goods and would not be in a deliverable state. The Delhi High Court also cited Bank of India Ltd. v. Jamsetji A. H. Chinoy, AIR 1950 PC 90, 07 in which it is observed that in India a purchaser of shares (which under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd. v. Commissioner of Income Tax (Kerala High Court) (Supra) it was 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. 18. In Smt. Raj Rani Devi Ramna v. Commissioner of Income Tax (Patna High Court) (Supra) it was held that properties do not necessarily pass as soon as the instrument is registered, for the true test is the intention of the parties. Registration is prima facie proof of an intention to transfer, but it is no proof of an operative transfer if there is a condition precedent as to the payment of consideration or delivery of the deed. Thus the seller may retain the deed pending payment of price and, in that case, there is no transfer until the price is paid and the deed is delivered. If the intention is that title should pass immediately, even though the consideration has not been paid, title passes, that is, failure to pay the consideration for a conv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lments and finally paid upto 10.3.2000 the assessee appellant and his wife did not sign the transfer deeds, so as to transfer the shares in favour of the buyer nor the shares were delivered to the buyer or their solicitors. The flats at Bombay were already under tenancy and no fresh document were executed, in pursuance to the transfer of shares in respect of property. The sale as such could not be said to have been affected as according to the intention of the parties the transfer was to be complete and all consequences were to ensue after payment of the last installment, which was paid on 10.3.2000, after which the appellant deposited the sale consideration on 27.3.2000, in notified securities claiming capital gains as exemption from tax in terms of Section 54EC of the Act. 20. Shri Shambhu Chopra has relied upon the reasoning given by the Tribunal in support of his submissions and has further relied upon Jasbir Singh Sarkaria, In re, (2007) 294 ITR 196 (Authority for Advance Rulings); Smt. Raj Rani Devi Ramna v. Commissioner of Income Tax (Supra); CIT v. Ghaziabad Engineering Co. (P) Ltd., 2001 (249) ITR 244; Chaturbhuj Dwarkadas Kapadia v. Commissioner of Income Tax, 2003 (260) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y High Court examining the provisions of the amended Act w.e.f. April 1st, 1988 enunciated the principles for the applicability of Section 2 (47) (v) and held that the Court should not go into by the date of actual possession. The Court should actually go by the date, when irrevocable license was given indicating passing of or transferring the complete control over the property in favour of the developer. The possession then that the date of contact would be relevant to decide the year of changeability. 22. In CIT v. Ghaziabad Engineering Co. (P) Ltd. (Supra) the Delhi High Court held that since the registered document took effect from the date of its execution, the transfer became operative, when the lease deed was executed and not when it was registered and accordingly the assessee was entitled to exemption under Section 247 (vi). 23. In CIT v. Mormasji Mancharji Vaid (Supra) the Full Bench of Gujarat High Court held that for the purposes of tax on capital gains under Section 45 the transfer of immovable property of value exceeding Rs.100/- is affected on the date of execution of the document of transfer and not either on the date of presentation of the document for registratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment by the buyer to the sellers to the complete satisfaction of the solicitors. In case of delay in payment of the installments the buyer was liable to pay interest at the rate of 18% per annum for the period of default. The agreement thus clearly stipulated that though the transfer deeds will be executed and the shares will be transferred in the name of the buyer in the records of the company, the actual delivery of scripts had to await the full payment. The physical custody of the share certificate was to remain with the solicitors until full payment namely the payment of third installment was made by 30.4.1997. 25. It is admitted that the third instalment was paid with delay between 15.2.1999 to 10.3.2000, much after the agreed date i.e. 30.4.1997. The stipulation in para 6 that on the execution of the transfer deed on the payment of first installment necessary steps will be taken to get all the 8000 shares transferred in the name of the buyer in the records of the company representing 100% of the voting interest and controlling powers in the company, was hedged with the conditions that the scripts will be kept with the solicitors mutually agreed upon between the parties to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the shares or the properties held by the company would be treated to be transferred or deemed to be transferred in the financial year ending on 31.3.1997. 28. In Chaturbhuj Dwarkadas Kapadia v. Commissioner of Income Tax (Bombay High Court) (Supra) the test laid down was the passing of or transferring the complete control over the property and not any execution of agreement or power of attorney. The Bombay High Court also found that almost the entire sale consideration of Rs.1,85,63,220/- in that case except for small amount of Rs.9,98,000/- was paid on 31st March, 1996. In the present case the first installment of Rs.1.25 crores out of total sale consideration of Rs.5 crores was paid on 20.8.1996, which was credited to the account of the assessee on 23.8.1996. The remaining sale consideration was paid later upto 10.3.2000. The balance of the installments of Rs.1.85 crores was paid between 15.2.1999 to 10.3.2000. 29. In the circumstances as above, we find that the Tribunal committed error in law in holding that Section 2 (47) (vi) will be attracted, and that immovable properties were transferred with the agreement of sale of shares, which were actually an agreement of sale ..... X X X X Extracts X X X X X X X X Extracts X X X X
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