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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 ..... mpanies and transferee company but all other formalities under the provisions of the companies Act, 1956 like execution of instrument of transfer, recording of transfer in share certificates handing over the share certificates, books of accounts, all other records and documents as well as control and management of the companies have been carried out which proves that there is transfer of shares to the buyer DRDL - There was an extinguishment of assessee's rights over the shares – Decided against assessee. Advance from several persons – Held that:- 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 - Before the CIT (A), the assessee submitted that the sum was refund of advance previously made and has been duly disclosed in the books of accounts – The assessee failed to substantiate his claim – The issue was restored for fresh adjudication. Unsecured loan taken – Held that:- The assessee has failed to furnish any evidence to prove the source of creditor's past savings – The assessee has not submitted PAN and Bank statement of the creditor before the lower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 of various companies in favour of DRDL in consideration of the advance sale consideration and depositing the balance sale consideration in escrow account. In the annual return filed before the ROC on 9th July, 2008 the assessee has shown transfer of shares of various companies to DRDL and the entire share holding of the company was in the name of DRDL and its associates. The Assessing Officer therefore concluded that the assessee had transferred the entire share capital in various companies to DRDL during the financial year 2008-09. However, since the assessee had not shown the income from transfer of shares in the return filed, the Assessing Officer issued a show cause notice to the assessee on 13-12-2011 requiring him to explain as to why capital gains arising on sale of share should not be brought to tax. In response to the notice issued by the Assessing Officer, the assessee submitted a detailed reply claiming that no capital gains accrues due to the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was kept in the form of FDR in escrow account and the sellers have issued a post dated cheque for the loan amount, which was kept in joint locker. The seller has transferred the entire share capital in the name of the buyer and delivered the physical share certificate with requisite share transfer deeds duly signed by the seller. The seller has appointed nominee directors of the buyer in the 13 companies. The seller has vacated the office along with duly signed resignation letters. The buyer has taken possession of all the records, registers and other documents of 13 companies. The seller has completed all corporate and legal formalities including filing of forms with ROC. The Assessing Officer noted that the annual report of one of the companies filed with the ROC clearly indicates the transfer of shares in favour of the DRDL. The DLF Limited has also included the names of the companies in its annual report for the financial year 2008-09 as its subsidiary company. Therefore, the Assessing Officer noted that all the technical formalities of transfer of shares of the 13 companies was completed and the DRDL has become the owner for all the 13 companies during the year." 5. The Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision in the case of CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294. The assessee also relied upon various other decisions of Hon'ble Supreme Court and different High Courts. 7. The CIT (A) after considering the submissions of the assessee noted that in none of the grounds raised in memorandum of appeal the assessee has disputed the fact that the transfer of shares has taken place. Hence, going by the grounds of appeal, it is presumed that the assessee has accepted that there was transfer of shares and accordingly the assessee must be held to be liable to capital gains. The CIT (A) further deliberating on the issue relied upon a decision of the Income-tax Appellate Tribunal in case of Max Telecom Ventures Ltd. v. Asstt. CIT [2008] 114 ITD 46 (ASR) wherein the assessee had entered into an agreement for sale of shares. In the return of income the assessee had shown capital gains arising on the sale of shares. During the assessment proceedings, the assessee filed a revised return of income with a note stating that the sale of shares was disclosed in the return as an abundant precaution and that since some of the conditions in the agreement for sale of shares had not been complied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the Assessing Officer. Being aggrieved, the assessee is in appeal before us. 8. The learned authorised representative for the assessee reiterating almost identical submissions as advanced before the CIT (A) and Assessing Officer submitted that the assessee is in the real estate business. On 26-4-2004, the 14399 sq. yards of land was purchased from one Smt. Lakshmi Narain Bhavanani in the name of M/s Gajjala Constructions Private Limited and 12 other companies and two others for a consideration of Rs.54,03,300/-. On 3-8-2005, unregistered MOU was entered into between 13 companies and M/s DLF Retail Limited for sale of the above land. However, since the title was in dispute with regard to the property in question the buyer DRDL expressed its reluctance to go ahead with the deal as per the MOU and as a result, the same was rescinded. On 14-11-2005 another unregistered MOU was entered between the shareholders of 13 companies with M/s DRDL for the purpose of sale of shares of these companies wherein the 13 companies also acted as consenting parties. On 23-5-2008, the third unregistered MOU was entered between M/s DRDL with the shareholders of 13 companies for purchase/transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell and u/s 4(4) of sale of goods Act an agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. He further submitted that section 19(1) of sale of goods Act provides that where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. U/s 19(2) of sale of goods Act, for the purpose of ascertaining intention of the parties, regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. 10. Section 60 of Sale of Goods Act deals with repudiation of contract where either party to a contract of sale repudiates the contract before the date of delivery and the other party may either treat the contract as subsisting and wait till the date of delivery, or he may treat the contract as rescinded and sue for damages for the breach. The ld AR submitted if the terms of the MOU dated 24-6-2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon of the Hon'ble Supreme Court in case of Vasudev Ramacandra Shelat v. Pranlal Jayanand Thakur AIR 1974 SC 1728. 12. The learned AR submitted that the substance has to be seen whether any income really accrues to the assessee. In this context, the learned AR relied upon the decisions of Hon'ble Supreme Court in the following cases: (1) E.D. Sassoon Co. Ltd. v. CIT [1954] 26 ITR 27 (SC) (2) CIT v. Shoorji Vallabhdas Co. [1962] 46 ITR 144 (SC) (3) Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC) He further submitted that presence or absence of entry is not conclusive to decide whether income accrues to the assessee or not. Treatment given in the books of accounts by the purchasers is also not relevant. In this context, the learned AR relied upon the following: (a) CIT v. Ashokbhai Chimanbhai [1965] 56 ITR 42 (SC) (b) CIT v. Motilal C. Patel Co. 173 ITR 666 13. So far as the decision in case of Max Telecom Ventures Ltd. (supra) relied upon by the learned CIT (A), the learned authorised representative for the assessee submitted that the said decision is not applicable to the facts of the present case. With regard to the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re land on the terms indicated therein and the total sale consideration was agreed at Rs.67,47,58,000/-. The second MOU dated 14-11-2005 was entered into between the parties for sale of shares held by shareholders in the 13 companies to DRDL. The third MOU dated 23-5-2008 provided that the assessee and the consenting parties i.e. 13 companies have transferred the entire share capital to DRDL and handed over the control and management of these companies to DRDL. It also mentioned the sale consideration of the total shares at Rs.67,47,58,000/- and the said MOU also mentions that the buyer DRDL has given a part of the sale consideration in advance to the assessee and the balance sale considerations is to be deposited into the Escrow account. We are concerned with the aforesaid MOU as it pertains to the financial year relevant to the assessment year under dispute. The aforesaid MOU makes it clear that it is for the purpose of transfer of shares of 13 companies to the buyer DRDL. In the preamble of MOU dated 23-5-2008, it has been mentioned as under: "And whereas in consideration of receipt of the advance share sale consideration, the confirming party and the sellers have alread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 13 companies. The Escrow agreement entered into between the seller, buyer and Oriental Bank of Commerce also in clear terms mentions that the sellers have transferred the entire share capital of 13 companies to the buyers for an aggregate sale consideration of Rs.67,47,58,000/-. Out of the aforesaid sale consideration, the buyers have already given advance of Rs. 19,19,90,323/- to the sellers and the balance sale consideration of Rs.47,35,67,678/- is to be deposited in Escrow account by way of FDs in the joint names of the seller and buyer. It is also specified in the aforesaid Escrow agreement that in consideration of receipt of the advance share sale consideration, the 13 companies and the sellers have handed over possession of the larger property. The MOU dated 24-6-2009 under which all the earlier MOUs were cancelled/terminated also confirms the fact that the share holding of the these companies as well as ownership control and management was earlier owned by the buyer i.e. DRDL for ready reference the relevant clause from the MOU is extracted hereunder: "And whereas the shareholding of the land owning companies was earlier owned and held by one or more of the buye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided that the transfer also would mean the extinguishment of any right in the asset. In the aforesaid context, it has to be seen whether there is a sale, relinquishment or extinguishment of rights of the sellers in shares. As we have stated herein before the reading of the different clauses of MOUs dated 23-5-2008, 24-6-2009 escrow agreement dated 28-5-2008 certainly gives an impression that the intention of the parties is to transfer the shares in favour of the buyer i.e. DRDL. For achieving the aforesaid object, the assessee-appellant i.e., the sellers have executed transfer forms in favour of the buyer DRDL, transferring the entire share capital of all 13 companies. The transfer forms bear the signature of both the sellers and the buyers and also mention the share certificate number. The transfer of shares in the name of the buyer DRDL has also been mentioned in the share certificates copies of which are also placed in the paper book. The transfer of shares have also been recorded in the books of accounts of the respective companies and also has been reflected in the annual return submitted before the ROC by the transferor company as well as transferee company. The MOUs also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transferor and transferee notwithstanding the fact that the same may not be registered in the register of members. Until such alteration in the company's record takes place however the interaction between the company and its shareholders or debenture holders as per its records, does not affect the genuineness of the transaction of transfer which in fact has taken place between its shareholder/debenture holder and other persons and subsequent transfers which have otherwise taken place in accordance with the law of transfer of movable property. The Court further referred to the decision of Hon'ble Supreme Court in case of Howrah Trading Co. Ltd v. CIT [1959] 36 ITR 215 wherein it is held that transfer of shares of a company takes place either by a fully executed document as provided under the companies Act or by what are known as "blank transfers" where the name of the transferor is entered and the transfer deed signed by the transferor is handed over with the share scrip to the transferee who if he so chooses, completes the transfer by entering his name and then applying to the company to register his name in place of the previous holder of shares. The company recognises no per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respectfully agree with the proposition of law laid down by the Hon'ble Apex Court in those decisions. However, suffice it to say that ratio laid down in a decision is in consideration of certain facts and circumstances involved in that case. It cannot be applied uniformly to all the cases, unless the facts are identical. In the facts of the present case, the recitals in MOUs and the conduct of the parties in executing the transfer forms by the sellers in favour of the buyer recording of transfers in the share certificates and books of accounts of the respective companies and the annual return filed before ROC would clearly demonstrate the fact that the intention of the assessee was to transfer the shares to the buyer DRDL for a consideration and the transaction is complete on delivery of share certificates and executing the instrument of transfer. This is further evident from the fact that in pursuance to the transfer of shares, control and management of all 13 companies were handed over to the buyer DRDL. We are not convinced with the contention of the learned authorised representative for the assessee that mere entries in the books of accounts do not prove transfer. In the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer for giving an opportunity to the assessee to explain the source of Rs.19,58,156/- and thereafter decide the issue in accordance with law. 25. In ground No.3, the assessee challenged the confirmation of addition of Rs.5 lakhs representing the loan taken from K. Suvarna. Briefly, the facts are, in course of assessment proceedings, the Assessing Officer finding that the assessee had shown unsecured loan from different persons, asked him to furnish the details. The assessee submitted the details of the unsecured loan by furnishing names, addresses and amount advances and PAN Nos. Etc. The Assessing Officer on verifying the details noticed that in respect of K. Suvarna an amount of Rs.5 lakhs was received but she does not have PAN Number. On verification of confirmation letter, he further noticed that the creditor also did not mention that the loan was advanced out of past savings. Since the assessee has failed to furnish any evidence to prove the source of creditor's past savings, the Assessing Officer added the amount of Rs. 5 lakhs to the income of the assessee by treating it as unexplained cash credit. The assessed challenged the same before the CIT (A). 26. In co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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