9911796707
TMI Blog2000 (1) TMI 994X X X X Extracts X X X X X X X X Extracts X X X X ..... . & Wvg. Mills Ltd. 73,000 Total 2,70,000 The father of the assessee viz. Dr. Mohanlal Piramal, acting on his behalf and on behalf of the other shareholders, entered into an agreement with M/s. Akshar Investments Private Limited and M/s. Anusandhan Investments Private Limited for sale of 2,70,600 shares owned by the family members and associate concerns on 1st November, 1985 and the consideration for transfer of shares was fixed at Re. 1 to the six shareholders described above irrespective of number of shares held by them. The further consideration for transfer of shares was described in clause 2 and clause 3 of the agreement. A company named as M/s. Piramal Spinning & Weaving Mills Limited (hereinafter referred to as PSWML) which is the family concern of Piramal family had advanced a loan to PRL and as on 31st March, 1986, the outstanding stood at ₹ 61,89,030.56. Another company, viz. M/s. Alpana Investments Private Limited had also advanced loan to the said PRL and the outstanding as on the end of the previous year was ₹ 1,57,944.41. The purchasers agreed to repay the loans to the aforementioned companies. The repayment of loan to these companies was also consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile making the fresh assessment on the directions of the CIT(A) the Assessing Officer adopted the average rate of the day, which was between ₹ 23 and ₹ 21.50 as on 1-11-1985. The long-term gain was determined at ₹ 9,94,087 as under :- Value of shares of PRL @ ₹ 22.25 each...81150 × 22.25 = 18,05,587 Less : Face value of shares @ ₹ 10 each...8,11,500 Long-term capital gain..9,94,087 7. The total income of the assessee was computed at ₹ 6,21,194. The CIT(A) confirmed the decision of the Assessing Officer by holding that the decision of the Supreme Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597 and the decision of the Bombay High Court in the case of Babubhai M. Sanghvi v. CIT [1974] 97 ITR 213 were distinguishable on facts. It was pointed out by the CIT(A) that the consideration of Re. 1 per shareholder (wrongly mentioned Re. 1 per share) was not the only consideration but in fact something more than that. It has been pointed out that the assessee and all other family members have received from the purchasers not just Re. 1 per shareholder but certain other advantages and benefits referred to in the agreement. He has accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y invoked the said section as the consideration received by the assessee has been disclosed in the agreement. It was further contended that the Assessing Officer has considered various factors, which in his opinion constituted benefits derived by the shareholders as a result of transfer of shares. It was contended that the factors considered by the Assessing Officer could in no way be considered as an additional consideration for the transfer of shares. According to the learned counsel there was a simple case of transfer of shares for the apparent consideration of Re. 1. The learned counsel pointed out that the purchasers had admittedly agreed to repay the loans to the concerns of Piramal family. That was an obligation of the debtor towards the creditor. That obligation being discharged may not amount to any benefit conferred upon the creditor. It was accordingly contended that the repayment of the loan could not be considered as a benefit derived by the vendors of shares. Similarly guarantee was given by Dr. Mohanlal Piramal in his individual capacity and replacing the guarantor by releasing Dr. Mohanlal Piramal from the obligation does not confer any monetary benefit upon him and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sclosed. It was further reiterated that the three items, which have been taken into consideration by the revenue, have no relevance to the actual consideration received. The AO has not valued the benefit of the three factors referred to by him in the assessment order but has adopted the value of shares as prevailing in the stock market on the date of transfer. According to the learned counsel the assessee had not received the consideration as per the market quotations on the day of transfer and therefore, section 52(2) has no application. It was further contended that the value of shares varies from time to time. It was pointed out that the rate of shares was around ₹ 13 per share on several occasions. Therefore, the Assessing Officer was not justified in adopting the rate of ₹ 22.25 per share. 14. The learned counsel further pointed out that after the taking over of company by the purchasers the assets of PRL have been revalued as on 31st of March, 1986 and the entire loss of more than ₹ 2.00 crores reflected in the Balance Sheet got wiped out. Therefore, the chances of repayment to the creditors were quite high and there was no risk involved to the shareholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lish that no benefit had been derived from the factors described in the agreement and that the assessee had suffered a loss on account of sale of shares. It was further contended that the Assessing Officer had no means to assess the value of the benefits received by the assessee and other shareholders. In such circumstances he was justified in adopting the value as per the Stock Exchange quotations which the market value of the shares on the date of transfer. The learned DR contended that the assessee having received four benefits which are clearly described in the purchase agreement of shares the Assessing Officer was justified in invoking section 52 of the Act. 17. We have given our careful consideration to the rival contentions. The issue in this case is as to whether the Assessing Officer was justified in assessing the long term capital gain in the sale of shares at ₹ 11,36,100 subject to deduction under section 80T as against the returned loss of ₹ 8,11,499. The facts have been given in the preceding paragraphs and need not be repeated. As per the sale agreement the consideration as per monetary terms is Re. 1 per shareholder irrespective of number of shares held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result of transfer of the capital asset. In other words, in computing the capital gains it is not only the full value of consideration received which is to be taken into account but also the full value of consideration accruing as a result of the transfer of capital asset. This view is also supported by the decision of the Supreme Court in the case of George Henderson & Co. Ltd. (supra). In this case it was held that full value of consideration for which transfer of capital asset is made does not mean the market value of assets transferred but the price bargained for by the parties to the sale. However in this very case it was further held that the consideration for the transfer of a capital asset is what the transferor receives in lieu of assets he parts with, i.e., money or monies worth. It has further been held that the Act provides that the amount of capital gain shall be computed after making certain deductions from the "full value of the consideration for which the sale, exchange or transfer of the capital asset is made". In the case of a sale the full value of consideration is the full sale price actually paid. The Legislature had to use the words "full value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection with each and every one of the aforesaid personal guarantees and undertakings. 4.The Registered Office of the Company is at present situated at Piramal Bhavan, Ganpatrao Kadam Marg, Bombay-400 013, the Purchasers shall forthwith cause to remove the said registered office in other place of the choice of the purchasers and also further cause the Company to surrender the tenancy in respect of the said premises and given vacant possession of the premises. 21. A perusal of clause 1 of the agreement reproduced above reveals that the consideration for transfer of shares is token consideration of Re. 1 for the entire lot of each shareholder and further consideration described in clause 2 and clause 3. Clause 2 makes it obligatory upon the purchasers to liquidate the loans together with interest thereon to the date of repayment. These loans are indicated in the Second Schedule to the agreement which may be indicated hereunder:- 1.Piramal Spg. & Wvg. Mills Limited ₹ 61,89,030.56* 2.Alpana Investments Private Limited ₹ 1,57,944.41* *(including interest upto date after deducting Tax at source) 22. An important question has been raised before us as to whether the repaym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve but not well founded. The hazards of litigation involved in recovering the amount from the debtor for whom the guarantee has been given are involved. Therefore a benefit has accrued to the vendors (considered as a group) in terms of money to the extent of the value of such hazards of litigation. 24. Though we have held that as per Clauses 2 and 3 of the agreement valuable benefits have accrued to the assessee in lieu of the transfer of shares, yet it appears that the value of such benefits may not be substantial. However, the substantial benefit derived by the assessee, in our view, is as per Clause 4 of the agreement. As per Clause 4 of the agreement reproduced elsewhere in this order, the vendors got vacant possession of the premises at Piramal Bhavan, Ganpatrao Kadam Marg, Bombay. Before we proceed further, it may be necessary to deal with the issue as to whether the benefits derived by the assessee under Clause 4 of the agreement is permitted to be treated as part of the consideration as it is not so described in the agreement. It is well-settled principle of law that in order to construe an agreement one has to look to the substance or the essence of it rather than to its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the vendors. As already pointed out, the shares are quoted in the Stock Exchange. The market value of the shares is known as on the date of transfer. A prudent person would always enter into a bargain, which is most beneficial to him. Keeping in view the market value of shares on the date of sale it will not, in our view, be unreasonable to presume that the value of the benefits that accrued to the shareholders as per clauses 2, 3 and 4 of the agreement was at least to the extent of the market value of the shares. If the vendors had sold the shares in the market they would have realised near about the value as per the quotations in the Stock Exchange. The contention of the assessee that the benefits as per Clauses 2, 3 and 4 are Nil is not well founded. The explanation of the assessee that since the accumulated losses in the case of the company were more than ₹ 2.00 crores, therefore, the shareholders liquidated the shares in consideration of low price is bereft of reasons. In Para 14 of this order we have referred to the contention advanced by the learned counsel for the assessee that the purchasers had revalued the assets on 31st of March, 1986 and the entire loss of more ..... X X X X Extracts X X X X X X X X Extracts X X X X
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