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TMI Blog2014 (8) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... artners equally acquired the paid up equity capital of 15000000 equity share of Rs. 10/- each aggregating to Rs. 1500 lakhs i.e., the two joint venture partners had 50% share holding. 3. In the previous year i.e., assessment year 1999-2000, the respondent-assessee renounced in favour of Plansee their entitlement to subscribe 3000000 equity shares of Rs. 10/- each in the rights issue. Plansee's share holding increased to 58.3% and while respondent assessee's share holding got decreased to 41.7%. Thereupon, the respondent-assessee and Plansee had entered into an agreement dated 31st March, 1999. The agreement records that Seil Tezit Ltd. had proposed to offer one crore fresh equity shares of Rs. 10/- each for cash at par on rights basis, but the respondent assessee due to financial difficulties, was unable to subscribe to 40166667 shares which would be offered to them by way of rights offer and had decided to renounce the same in favour of Plansee. Further, Plansee on request agreed to buy the assessee's shareholding consisting of 12700000 equity shares for consideration of USD 600000, which on conversion, came to Rs. 2.02 per share of face value of Rs. 10/- each. 4. This, resulted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that it was not guided by market forces. (6) It has been done on the pretext that Siel Tizit was in need of funds. The rationale behind infusing additional funds at low prices defies logic. If the company's fund crunch was ,to-be met by this sale it should have been done at higher prices or at least at par on which the rights have been renounced. (7) No premium was received from Plansee Tizit. Its likely the premium was built into the low prices which were received by Siel Ltd. (8) Through this arrangement the assessee has been able to pass off capital losses without parting with its funds. The option retained for buy back point to a scheme which would be effectuated later. Going by the above it is established that the assessee has used the mutuality involved in the dealings between the two JV partners to sell shares at prices deliberately made lower than comparable prices at which the rights renunciation was offered. The sale should have been made at Rs. 10 per share at which the rights were renounced. If this was the case the assessee would not have incurred any loss on the sale of shares or Siel Tizit Limited to Plansee Tizit. It has been laid by the Honourable Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from 50% to 41.7% in the last year. As further capital infusion was required in the loss making venture, one crore equity shares of the face value of Rs. 10/- each for cash at par on rights basis were offered for subscription, which the respondent assessee did not want to subscribe because of their financial difficulties. On subscription of the fresh issue of one crore shares, the share holding of the assessee would have got reduced to mere 5% with Plansee becoming 95% shareholder. 8. In the assessment order, it is not recorded or stated that Siel Tizit Ltd. had not incurred substantial and huge loses. It was not contested that the respondent assessee was facing financial crunch. It is correct that the respondent assessee and Plansee were joint venture partners, but they were not controlled and under the same management. It is not a case of the Revenue that the two parties had common shareholders or common directors. In case of sale of this nature, the seller would like to get the best price and the buyer would like to purchase the shares on the depressed or lowest price, specially, when there were losses and further capital had to be inducted. It is, therefore, incorrect to hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n question under the provisions of the Foreign Exchange Regulation Act permitting Plansee to acquire shares in Seil Tizit Ltd. from the respondent assessee for US$ 600000. The relevant portion of the said letter reads as under:- "2. We advise that we have no objection to Siel Ltd. New Delhi (SL), the resident shareholders Siel Tizit Ltd. New Delhi (STL) transferring 1,27,00,000 shares of Rs. 10 each of STL in favour of Tizit Aktiengesellschaft, Austria (Plansee) for an aggregate consideration of US$ 600,000. 3. This permission may also be treated as Reserve Bank's permission u/s 29(1)(b) of FERA 1973 to Plansee for acquiring the above shares STL from SL, the above resident shareholders of STL. 4. This permission may also be treated as our permission of STL under Section 19(4) for effecting consequential changes in its Register and under Section 19(1)(a) of the FERA 1973 for the export of relevant share certificates of Plansee. 5. Please note that his permission shall remain valid for 3 months during which period all transfer formalities in respect of the above shares shall be completed." 13. The assessee had relied upon the valuation report, which was accepted by the Reserve B ..... X X X X Extracts X X X X X X X X Extracts X X X X
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