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TMI Blog2013 (9) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case and in law, the Tribunal's finding that the appellant had purchased the shares of Millennium Alcobev Pvt. Ltd. with the object of trading in them and not to hold as a capital asset is perverse and such that no person reasonably instructed as to the facts and the law could come to? 3) While this appeal was pending, the appellant took out a notice of motion being Notice of Motion No.2189 of 2012 seeking a stay on the recovery of the disputed tax and interest, payable consequent to the impugned order dated 25 April 2012. This Court by order dated 15 January 2013 disposed of the above notice of motion staying the recovery of the disputed tax and interest till the appellant's Miscellaneous Application filed under Section 254(2) of the Act was disposed of by the Tribunal. 4) On 10 May 2013, the Miscellaneous Application filed by the appellant under Section 254(2) of the Act was dismissed by the Tribunal. The appellant thereafter amended the present appeal and also challenged the order dated 10 May 2013 dismissing the Miscellaneous Application. However, no substantial questions of law have been raised by the appellant as arising out of the order dated 10 May 2013 on its Misc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant to be appointed Manager of M/s. MABL. Pursuant to the above agreements all the above three shareholders contributed by subscription to the share capital of M/s. MABL in May 2003 i. e. assessment year 200405. The contribution of S&N and UB was by subscribing to 40% of the issued equity share of M/s. MABL at share price of Rs.87.95 per share and Rs.35.83 per share respectively while the appellant subscribed to 20% of the issued equity shares of M/s. MABL at a price of Rs.21.30 per share. (d) The Assessing Officer by order dated 29 December 2009 held that the amounts earned on sale of shares by the appellant would be taxable under the head profit and gains of business and not under the head capital gains. This was after negating the appellant's contention that they had subscribed to the shares in M/s. MABL as a strategic investment in an unlisted company. The Assessing officer held that the appellant was not an investor in shares as it had subscribed to the shares in May 2003 out of borrowed funds, which according to him no investor would do. Besides holding that the appellant had subscribed to 20% of the issued equity shares capital of M/s. MABL at the price of Rs.21.30 per s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt span of 12 days and the same was without any interest only as a mode of bridge financing. Therefore, the subscription to the shares of M/s. MABL by borrowing of funds was not with a view to leveraging finance but with an intent to hold the shares. In the result, CIT (A) concluded that the intention of the assessee while investing Rs.6.54 crores at Rs.21.30 per share for acquiring 20% shares of M/s. MABL was not with an intention to trade in shares but to acquire the management in M/s. MABL. So far as the application of Section 28(ii) of the Act to the present facts is concerned the CIT(A) held that the amount received on sale of shares is not an amount received on surrendering its right to manage M/s. MABL. Therefore, application of Section 28(ii) of the Act to the present facts is not legally tenable. In these circumstances, the CIT(A) by order dated 29 July 2009 allowed the appellantassessee's appeal before it. (f) Being aggrieved by the order dated 29 July 2009 the revenue filed an appeal to the Tribunal. The Tribunal by its order dated 25 April 2012 allowed the revenue's appeal holding that the amounts earned on sale of shares is to be brought to tax under the head business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hargeable to tax under the head profit and gains of business and not under the head capital gains. 7) Being aggrieved by the order dated 25 April 2012 of Tribunal the appellant assessee is in appeal before us on the two substantial questions of law referred to herein above. 8) Mr. J. D. Mistri, learned Senior Counsel in support of the appeal submits as under: ( i) The issue arising in the present case is concluded in favour of the appellant by the decision of the Apex Court in the matter of Ramnarain Sons (P) Ltd. (supra). The distinction made by the Tribunal in the impugned order that in this case no managing agency right was acquired, failing to appreciate that right to manage M/s. MABL was acquired by subscribing to 20% of shares of M/s. MABL Thus, in view of the Apex Court order Ramnarain Sons (P) Ltd. (supra), the appeal be allowed; (ii) The finding of the Tribunal in the impugned order that M/s. MABL had accumulated losses and its book value being Nil, no investor will purchase shares at such a high price when no dividend is likely to be declared in the foreseeable future, is perverse. The investor in this case was not a passive investor, but an investor with right to man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant company did not have any rights to manage M/s. MABL. This finding of the Tribunal is perverse as no Manager ever enjoys absolute/unbridled rights while managing a corporate enterprise. 9) As against the above Mr. A. R. Malhotra, learned Counsel for the revenue in support of the impugned order submits as under: (i) The impugned order of the Tribunal calls for no interference as the decision of the Apex Court in Ramnarain Sons Private Limited (supra) is not applicable to the present facts. This is in view of the fact that in the case of Ramnarian Sons (P) Ltd. (supra) the appellant had acquired control of the managing agency by virtue of purchase of shares at a price higher than the market value, while this case 20% acquisition of equity shares of M/s. MABL does not give the appellant controlling interest in M/s. MABL and therefore, the aforesaid decision is inapplicable. (ii) During the course of the hearing before the Tribunal the appellant has not pointed out the fact that the shares had been subscribed to by the other two partners namely UB and S&N at Rs.39.85 per share and Rs.89.95 per share respectively. Therefore, the Tribunal has had no occasion to consider this issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent case. In the matter of Ramnarain Sons (P) Ltd. (supra) the Apex Court was concerned with the issue whether acquisition of shares in Dawn Mills Company Limited at a price higher than the market price for acquisition of it managing agency was a capital asset. The issue arose in the context of whether the sale of some of those acquired shares subsequently at a loss was a revenue loss or capital loss. In the above context, the nature of acquisition was considered by the Apex Court. In the above case, market price of shares of Dawn Mills was Rs.1610/while the appellant had purchased them at the rate of Rs.2321/per share. It was a assessee's contention before the Supreme Court that the purchase of shares which led to the acquisition of managing agency was in the nature of carrying on trade in the shares and the subsequent sale of such shares or part thereof should is a revenue loss. The Apex Court negatived the assessee's contention and held that the shares of Dawn Mills were purchased for the purpose of acquiring its managing agency. The fact that the Managing agency could be utilized for earning profit could not lead to the conclusion that shares so purchased were on revenue acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed share capital and the appellant could not sell the same during that period. In case the appellant had to sell during three years lock in period the sale was restricted only to the other two parties to the shareholders agreement. Moreover, even after the three year lock in period was over, the other two parties to the agreement continue to have right of preemption in respect of the appellant's shareholding. In view of the aforesaid restriction and prohibition the person who subscribes to such shares would not do so for the purpose of trading in it as the transferability of the shares is very restricted making it a most unsuitable instrument for purposes of trading. Further the fact that the appellant held shares for almost 31 months before selling them is another factor to indicate that these shares were not subscribed to by the appellant for the purpose of trading in them. In the matter of M/s. Ramnarian Sons (P) Ltd. (supra) also the shares had been purchased out of borrowed funds and yet the Apex Court held that the same would not by itself indicate/evidence an intent to deal in shares. In this case the appellant had borrowed funds from outside for a period of 12 days witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary to resolve the above issue as the respondent revenue do not deny/dispute before us that the shares were subscribed to by S&N at Rs.87.95 per share and by UB at Rs.35.83 per share. Therefore, the fact that other share holders have subscribed at higher price is an undisputed position. This would also establish that perception of the potential of the M/s. MABL on the part of the appellant was not solitary and unique. To our mind even if the perception of the appellant was solitary and unique, it would make no difference. 17) Be that as it may, even if the price at which the shares were subscribed to were higher than its book value that again by itself would not lead to the conclusion that in such cases purchase has been done not by investor in share but by trader in shares. On the contrary the investor in shares would in the normal course hold shares for a longer period of time even in liquor business (though not affected by business cycle prevailing in most of the industries) as time would be taken to establish a place in the market. Therefore, the scrip may become profitable over a period of time. In contrast a trader in shares normally holds shares for a shorter period ..... X X X X Extracts X X X X X X X X Extracts X X X X
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