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TMI Blog2013 (12) TMI 958X X X X Extracts X X X X X X X X Extracts X X X X ..... s available on record noticed that as per the information received from ITO, Ward-2-(2), the assessee had entered into transaction of sale of shares during the financial year relevant to the assessment year under dispute. The Assessing Officer called upon the assessee to furnish the details of transaction of shares. On verification of details submitted by the assessee, the Assessing Officer noticed that the assessee had entered into a memorandum of understanding on 23-5-2008 as per which the assessee has sold shares of various companies to DLF Limited. In consideration whereof the assessee had received certain amount as advances and in the annual return of the company the transfer of shares is reflected. He further noted that as per clause-1 of MOU dated 23rd May, 2008 the assessee had agreed to transfer the entire share capital and handed over ownership and management of the companies to DRDL. As per clause -5 of MOU, the assessee has transferred the entire share capital to DRDL and delivered the share certificates duly signed. He further noted that in para-4 of the MOU dated 24th June, 2009 entered by the assessee with DRDL, the assessee had transferred the entire share capital o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (10) It is submitted that the proposal to tax the income may be dropped." 4. The Assessing Officer after considering the submission of the assessee found them to be not acceptable for the following reasons:- (a) The various MOU entered into between the assessee and his family members with DRDL and particularly the MOU dated 23-5-2008 shows that the assessee is the seller and DRDL is the buyer and the seller and buyer have agreed for total sale consideration of Rs.67,47,58,000/- at the rate of Rs.943.72 per share for 55,000 shares of each company totalling to Rs. 13 companies. The buyer had an advance of Rs.19,90,90,323/- to the assessee and an amount of Rs.47,35,67,678/- was kept in a Escrow account. (b) As per the last para of the MOU on page 3, the sellers have approached the buyer and offered to transfer the entire 13 companies share capital and hand over ownership and management of the 13 companies to the buyer on the condition that the balance share sale consideration is kept in Escrow account and the loan amount is returned to the seller. Accordingly, the balance sale consideration of Rs.47,35,67,678/- wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration kept in the Escrow account had been appropriated by DRDL, therefore no transfer can be said to have taken place. It was further contended that income is chargeable to tax when the right to receive the income became vested in the assessee and since the right to receive the sale consideration in Escrow account and to retain the advance received without payment would accrue only when it became payable i.e., when the assessee company would have completely settled the litigation at its cost and expenses within the time frame of 12 months and to the satisfaction of the DRDL. It was further submitted that terms of MOU dated 14-11-2005 required the assessee to settle all litigation and amount spent for fulfilling the obligation fell within the realm of expenses incurred wholly and exclusively in connection with the transfer or alternately the cost of improvement to the title of property. It was submitted that the amount of money to be spent to comply with the conditions was neither known nor ascertainable. Since the litigation was continuing even till date, it was submitted that since the computation had failed in the case, capital gains could not be charged following the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Kerala High Court n the case of K.N. Narayanan v. ITO 145 ITR 373. The CIT (A) concluded that as the assessee had handed over shares and the transfer deeds have been duly registered in the records of the companies, the transfer had been duly taken note of by the Registrar of Companies, and the management of the companies had been handed over to DRDL there is transfer of shares. The CIT (A) further held that this factual position is also acknowledged in the MOU dated 24-6-2009 as the said MOU recognised that the assessee was earlier the owner of the shares, that these shares were transferred by it to DRDL and that shares were being transferred back by DRDL to the assessee. The MOU further makes it clear that the transfer of the shares from the assessee to DRDL was complete and final. The CIT (A) thus came to a conclusion that under the circumstances transfer of shares have taken place from the assessee to DRDL, hence, the assessee is liable to capital gains. She further held that the subsequent transactions involving the purchase of shares by the assessee, cannot be held to negate the fact of earlier transfer. On the aforesaid finding, the CIT (A) sustained the addition made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposit account with OBC along with its accrued interest was released in favour of the buyer and the buyer also took credit of TDS thereon. It was therefore submitted by the learned authorised representative for the assessee that the real intention between the parties is not transfer of shares which would be further evident from the facts that there was no independent value of shares which is demonstrable from share application form, where value of shares have not been mentioned. The learned authorised representative for the assessee referring to the share certificates submitted in the paper book, contended that share certificate also mentioned neither consideration nor the value of shares. The learned authorised representative for the assessee submitted that as per the definition of goods under the sale of goods Act shares are movable properties. He submitted that as per section 4(2) of the sale of goods Act, a conduct of sale may be absolute and conditional. U/s 4(3) of sale of goods Act, where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called as sale, but where the transfer of the property in the goods is to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led in the manner acceptable to the buyer and there are in all about 11 cases pending in land grab court and 5 cases in civil courts as on the date of entering into the agreement and which are mostly unresolved even till date. It was therefore submitted that such a conditional sale cannot fasten the liability u/s 45 of the Act. The real intention of the parties from the terms of the agreement is to be seen without going to the form. The learned AR submitted that if all the MOUs are read as a whole the fact which will emerge that there was no transfer of shares in the real sense of the terms. The sale of shares was conditional and which was ultimately terminated. What was kept in Escrow account was taken by the buyer. No consideration could be said to arise as no consideration was received on account of transactions in shares. Hence full value of consideration has never accrued and received. The learned authorised representative for the assessee submitted that the substance of the transaction has to be seen over the form. The learned AR submitted that in respect of shares, the provision of TP Act will apply and not the Companies Act. In this context, the learned AR relied upon of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransferred in the name of the buyer DRDL not only in the books of accounts but also have been recorded with ROC. Hence, it cannot be said that there is no transfer of shares. He further submitted that the assessee has also not refunded the advance amount received from DRDL. The recitals in the MOU also mentions that there was transfer of shares. In the circumstances, it cannot be said that there is no accrual of capital gain on account of transfer of shares. 15. We have considered rival submissions of the parties and perused the material on record as well as the orders passed by the revenue authorities. We have also examined the documents submitted in the form of paper book filed by the assessee. We have also carefully applied our mind to the decisions relied upon by the parties. The issue before us is whether there is transfer of shares of 13 companies made by the assessee to DRDL so as to make it chargeable to capital gains tax. For deciding this issue, it is necessary to look into the MOUs entered into between the parties. The aforesaid MOUs though are unregistered but they certainly indicate the intention of the parties. In the first MOU dated 3-8-2005, which was entered into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant, physical, peaceful lawful and actual possession of the subject property to the buyer on 14 November, 2005 and the buyer is in vacant, physical, peaceful, lawful and actual possession of the subject property and every part thereof to the exclusion of all since 14 November, 2005." 17. In clause-5 of the aforesaid MOU, it has been specifically mentioned that the seller has transferred the entire share capital in the name of the buyer i.e. DRDL and has delivered to the buyer share certificates representing the entire CP share capital along with share transfer deeds duly signed by the seller. It further specifies that the sellers have ensured vacation of the office of the Director of the Confirming Parties by the sellers and by the other directors of the company other than the nominee directors of the buyer, if any, along with duly signed resignation letters for the said purpose being delivered by the sellers to the buyer. It further specifies that the buyer has taken possession of statutory records and documents filed with ROC, receipt by the buyer of all records, registers, statutory records, documents filed with the ROC, PAN, TAN, DIN of the existing directors, corporate docume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssession of DRDL on release of the balance sale consideration of Rs.47,35,67,676/- along with accrued interest thereon in Escrow account in favour of the DRDL. 19. A careful reading of the aforesaid MOUs would reveal the fact that the assessee has transferred the shares of 13 companies in favour of the buyer DRDL for a total consideration of Rs. 67,47,58,000/-. In the aforesaid factual background, it has to be seen whether the transfer of shares to DRDL comes within the meaning of the expression "transfer" as defined in section 2(47) of the Act. The said provision is extracted hereunder:- "2(47) " transfer", in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock- in- trade of a business carried on by him, such conversion or treatment;] 6[ or] (v) any transaction involving the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken over the control and management of the 13 companies whose share certificates were transferred to the buyer. 21. Therefore, the transfer of shares is complete in all respects from the assessee to the DRDL as there is extinguishment of rights of the assessee over the concerned shares. In these circumstances, in our view, there is a transfer of shares by the assessee in favour of DRDL within the meaning of section 2(47) of the Act. The Hon'ble Delhi High Court in case of CIT v. Bharat Nidhi Ltd. 133 ITR 447 after considering various provision of the sale of goods Act held that only when the shares are ascertained and in a deliverable state it can be said that there is a transfer of shares. An agreement to transfer shares in a company accompanied with actual instrument of transfer would denote the transfer of shares. In the case of K.N. Narayanan (supra), the Hon'ble Kerala High Court held that if an instrument of transfer is duly executed and is delivered to the company along with the concerned share certificates and when the transfer is registered in the books, the transferee gets full title for the purpose of companies Act, 1956. The Hon'ble Rajasthan High Court in case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rued in the year of transfer." 22. The ratio laid down by the Income-tax Appellate Tribunal, Amritsar Bench in case of Max Telecom Ventures Ltd. (supra) also supports this view. So far as the decisions relied upon by the learned authorised representative for the assessee in case of Vasudev Ramacandra Shelat (supra) it is completely in a different context and does not apply to the facts of the present case. In that case, the share certificates were given as gifts by the donor to the donee, the donor also signed several blank forms so as to bring transfer of donated shares in the registers of the various companies and share certificates in his own name. However, the share certificate could not be transferred in the register of various companies before the death of the donor. In this factual context, the Hon'ble Supreme Court held that a transfer of property rights in shares recognised by transfer of property Act may be antecedent to the actual vesting of all rights of ownership of shares and exercise of the rights of shareholders in accordance with the provisions of the company law. However, the ratio laid down cannot be construed to mean that the provisions of company's Act will no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Rs.19,58,156/- representing the advance taken from several parsons. The facts of the issue are, during the assessment proceedings, the Assessing Officer noticed certain credits appeared in the cash book totalling to Rs.19,58,156/-. When the Assessing Officer asked the assessee to explain such entries, the assessee failed to explain the deposits by furnishing the names and addresses, amounts received etc., and even confirmation letters were also not produced by the assessee In absence of either confirmation letters or other information called for, the Assessing Officer therefore treated the amount of Rs.19,58,156/- as unexplained credit and added it to the total income of the assessee. The assessee being aggrieved preferred an appeal before the CIT (A). Before the CIT (A), it was submitted by the assessee that the sum of Rs.19,58,156/- was refund of advance previously made and has been duly disclosed in the books of accounts. The CIT (A) however confirmed the addition by observing that the assessee has not substantiated its stand that the sum of Rs.19,58,156/- was the repayment of the advance. 24. We have considered rival submissions of the parties and perused the material on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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