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TMI Blog2016 (1) TMI 1081X X X X Extracts X X X X X X X X Extracts X X X X ..... ould show that the assessee had transferred the assets of the proprietorship firm to M/s. Manoranjan Satellite Pvt. Ltd. for a consideration of ₹ 9 lacs in compliance of the JV agreement. Thus, the consideration received by assessee on transfer of shares from M/s. DEN Network does not include consideration for transfer of assets. After thoroughly examining the documents on record, we are not convinced with the arguments of the ld. AR of the assessee on the bifurcation of consideration or that the assessee is not liable for Long Term Capital Gain on transfer of shares in the impugned assessment year. In our considered view that the assessee has rightly disclosed in principle the Long Term Capital Gain from sale of share in the impugned assessment year (subject to the computation of correct amount of Long Term Capital Gain). - Decided against assessee - ITA No. 2144/PN/2012 - - - Dated:- 4-1-2016 - SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM For The Assessee : Shri S.N. Doshi For The Revenue : Shri Dheeraj Kumar Jain ORDER PER VIKAS AWASTHY, JM : The appeal has been filed by the assessee against the order of Commissioner of Income Tax (Appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving a proprietary concern in the name of M/s. Manoranjan Satellite Cable Network. The assessee and Shri Lalit R. Shinde formed a company M/s. Manoranjan Satellite Pvt. Ltd. and purchased 500 shares each in the said company @ ₹ 100/- per share in the year 2000. Thereafter, the assessee and Shri Lalit R. Shinde entered into a joint venture agreement with M/s. DEN Digital Entertainment Network P. Ltd. (hereinafter referred to as the DEN Network ) on 28-12-2007. As per the joint venture agreement the assessee and Shri Lalit R. Shinde agreed to sell 253 and 252 shares respectively to DEN Network for a sale consideration of ₹ 12,50,00,000/- w.e.f. 01-03-2008. The joint venture agreement is at pages 6 to 14 of the paper book. The assessee and Shri Lalit R. Shinde agreed to merge their respective proprietary business firms with M/s. Manoranjan Satellite Pvt. Ltd. w.e.f. 01-03-2008. The assets of the proprietary business of the assessee were valued at ₹ 9 lacs and that of Shri Lalit R. Shinde at ₹ 16 lacs. M/s. DEN Network subscribed to 10 shares of M/s. Manoranjan Satellite Pvt. Ltd. for a total consideration of ₹ 25 lacs and purchased 253 shares from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. The ld. AR submitted that on the transfer of 253 equity shares the Long Term Capital Gain would be : Sale consideration as per intrinsic value Rs.7,52,928/- Less: Indexed cost of acquisition of the shares transferred Rs.3,43,36/- Long Term Capital Gain Rs.7,18,592/- There would be no Capital Gain on transfer of assets as the written down value of assets as on 01-01-2008 is the same that has been received on transfer of assets i.e. ₹ 9 lacs. As regards the tax liability of ₹ 6,09,70,835/-, the ld. AR submitted that the said amount has been received conditionally towards the performance assurance/warranty given by the assessee. If at all the said amount is to be assessed to tax it would be in the assessment year 2011-12 as the performance warranties would come to an end on 28-12-2010 i.e. in the financial year 2010-11. In any case the amount received in respect of performance guarantee cannot be treated as income in the impugned assessment year as the amount is refundable on non-compliance of the undertaking and termination of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shinde incorporated a company, M/s. Manoranjan Satellite Pvt. Ltd., wherein both acquired 500 shares each. During the period relevant to the assessment year under appeal M/s. DEN Network entered into a joint venture agreement with the assessee, Shri Lalit R. Shinde and M/s. Manoranjan Satellite Pvt. Ltd. for transfer of shares, assets and business. A joint venture agreement dated 28-12-2007 was executed amongst the aforesaid parties. Apart from the joint venture agreement, Share subscription, Share purchase and Shareholders agreement dated 01-03-2008 (hereinafter referred to as the Share Purchase Agreement ) and Asset Transfer agreement dated 01-03-2008 were executed. The latter agreement was between M/s. Manoranjan Satellite Pvt. Ltd. and M/s. Manoranjan Video and Cable Services. As per the Share Purchase Agreement, M/s. DEN Network acquired 253 shares of the assessee and 252 shares of Shri Lalit R. Shinde in M/s. Manoranjan Satellite Pvt. Ltd. The DEN Network also acquired 10 equity shares in M/s. Manoranjan Satellite Pvt. Ltd. thereby increasing its holding in the said company to 51%. As per the joint venture agreement dated 28-12-2007 M/s. DEN Network agreed to pay total consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sting Shareholder B (d) By March 30th, 2008: ₹ 2,04,06,859/- to Existing Shareholder A ₹ 2,04,93,141/- to Existing Shareholder B (e) Upon IPO: ₹ 1.91 Crores worth shares of DEN (at IPO Price) to Existing Shareholder A ₹ 1.91 Crores worth shares of DEN (at IPO Price) to Existing Shareholder B (f) In addition to the above mentioned Consideration, DEN shall pay an additional sum of ₹ 5 Crores (Rupees Five Crores Only) as Performance Bonus to the Existing Shareholder if the following targets are fulfilled by the JVC with the help of the Existing Shareholders: 10000 direct connections, over and above the direct connections mentioned In 4(II)(I), are added within 12 months of Incorporation of the JVC. Revenue from minimum 10000 additional indirect connections start coming In the JVC within 12 months of Incorporation of the JVC. However, It is agreed between the Parties that in case, within 12 months of Incorporation of JVC, the new direct connections brought In by the Existing Shareholder are less than such numbers as are mentioned above, the Performance Bonus lo be paid by DEN shall be adjust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has paid an amount of ₹ 25 lacs (Rupees Twenty Five Lacs) vide Cheque no. 399998 dated December 27th, 2007 drawn on Syndicate Bank, Hauz Khas, New Delhi to the proprietorship firm, Manoranjan Satellite Cable Network wherein the Existing Shareholder A is the proprietor, the receipt of which is acknowledged by the Existing Shareholder A. Upon execution of the this Agreements: ₹ 25 Lacs to the Existing Shareholder B Upon execution of this Agreement, DEN has already paid an amount of ₹ 25 lacs (Rupees Twenty Five Lacs) vide Cheque no. 401313 dated December 26th, 2008 drawn on Syndicate Bank, Hauz Khas, New Delhi to the Existing Shareholder B the receipt of which is acknowledged by the Existing Shareholder B. By March 10th, 2008: ₹ 2,04,06,859/- to Existing Shareholder A ₹ 2,04,93,141/- to Existing Shareholder B By April, 30th, 2008: ₹ 2,03,69,379/- to Existing Shareholder A ₹ 2,05,30,621/- to Existing Shareholder B Upon IPO: ₹ 1.91 Crores worth shares of DEN (at IPO Price) to Existing Shareholder A ₹ 1.91 Crores worth shares of DEN (at IPO Price) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The contention of the assessee is that the assessee is not liable for any Long Term Capital Gain on the transfer of shares. In the return of income the assessee has erroneously offered the amount from transfer of shares as Long Term Capital Gain in the impugned assessment year. 10. According to the ld. AR the equity shares of M/s. Manoranjan Satellite Pvt. Ltd. transferred to M/s. DEN Network has to be valued on the basis of intrinsic value of shares. The ld. AR has given the detailed calculation of intrinsic value of share of M/s. Manoranjan Satellite Pvt. Ltd. as on 29-02-2008 at page 37A of the paper book. The assessee has calculated the intrinsic value of share at ₹ 2,976/- per share. According to the assessee the assessee has earned Long Term Capital Gain of ₹ 7,18,592/- on transfer of 253 equity shares which is computed as under: Sale consideration as per intrinsic value Rs.7,52,928/- Less: Indexed cost of acquisition of the shares transferred Rs.3,43,36/- Long Term Capital Gain Rs.7,18,592/- According to the assessee the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a premium of ₹ 2,49,900/- per share. Thus, the intrinsic value calculated by the assessee for determining the value of shares of the said company for transfer on the same date does not hold ground. If the cost of shares at which M/s. DEN Network purchased the shares of M/s. Manoranjan Satellite Pvt. Ltd. is applied to the shares transferred by the assessee, it would give more realistic results 25,00,000/10 x 253 = ₹ 6,32,50,000/-. In so far as the payment towards transfer of fixed asset is concerned, a perusal of asset transfer agreement at pages 32 to 35 of the paper book would show that the assessee had transferred the assets of the proprietorship firm to M/s. Manoranjan Satellite Pvt. Ltd. for a consideration of ₹ 9 lacs in compliance of the JV agreement. Thus, the consideration received by assessee on transfer of shares from M/s. DEN Network does not include consideration for transfer of assets. 13. After thoroughly examining the documents on record, we are not convinced with the arguments of the ld. AR of the assessee on the bifurcation of consideration or that the assessee is not liable for Long Term Capital Gain on transfer of shares in the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X
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