9911796707
TMI Blog2011 (2) TMI 1436X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/Kol/2010 AY 2006-07 [by the revenue] 3. Initially the revenue had taken following three ground of appeal:- 1. That the Ld. CIT(A) erred on facts and in law, that Controlling interest has a separate existence from the shares and is separately tradable. 2. That the 1.4. CIT(A) erred in holding that for the purposes of capital gains only the portion of ₹ 74.20 should be considered as sale value and the balance was non taxable ignoring the judgment of Madras High Court in the case of Venkatesh Minor vs CIT 243 ITR 367 where the facts were absolutely identical. 3. That the Ld. CIT(A) was not justified in upholding the contention of the assessee that consideration amounting to ₹ 4,69,50,288/- was received for parting with Controlling interest and thus was not taxable. 4. However, subsequently vide AO's letter dated 24th May, 2010 following seven grounds have been taken by the revenue. 1. That the ld. CIT(A) erred on facts and in law, that Controlling interest has a separate existence from the shares and is separately tradable. 2. That the Ld. CIT(A) erred in holding that for the purposes of capital gains only the portion of ₹ 74.20 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ells was also submitted. It was contended by the assessee that only ₹ 74.20 could be taken as sale consideration received for transfer of shares and the balance amount of ₹ 30.80 could not be taxed as the same was on account of transfer of capital asset which had no cost of acquisition. Reliance was placed on the following:- CIT vs. B.C Srinivas Shetty 128 ITR 294 (SC) 5.1 The AO held that managerial control is not a separately tradable entity. It forms an inalienable part of the whole share. Share and managerial control could not be traded separately. Reliance was placed by him on the following cases:- a. Maharani Ushadevi vs. CIT 131 ITR 445(MP) b. Venkatesh (Minor) vs. CIT 243 ITR 367(Mad) c. C.R Rajendra vs. CIT 125 Taxman 55 d. CIT vs. Mahadeo Ram Kumar 166 ITR 477(Cal) 5.2 The AO in terms of section 48 of the Act took the full value of consideration for transfer of impugned shares at ₹ 105/- per share and calculated the short term capital gain at ₹ 5,33,52,600/- and long term capital gain at ₹ 10,40,35,050/-. 6. Aggrieved the assessee filed appeal before the ld.CIT(A). 7. Before the ld. CIT(A) the submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p in relation to the Group shareholding as a whole and controlling the affairs of the said company. Hence control ling interest rights were always held, enjoyed and exercised by the promoter Group. All the various holders of the 24% of the promoter's shares all along acted in concert. (3) Immediately prior to 28th January 2006 and 30th January 2006 the dates involved in the issues involved herein negotiations took place between the Promoter Group namely, Neotias and Sekhsari as on the on hand and Holcim Group, a Swiss Group, on the other hand, for takeover of the Promoter Group share holding and acquisition of the control and affairs of the said company. This understanding was given formal shape and put down in writing and implemented by two different Agreements namely: (i) Share Purchase Agreement dated 28th January 2006 between the Promoter Share Holders and Holcim Group for sale and transfer on the said date 14.8%of the shares of the company namely, 200000000 Equity Shares of the company by the promoters to Holcim Group at a price of ₹ 105.00 per share. (ii) Having regard to the statutory requirements under the share listing agreement of the 'company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appointed by the Company in the General Meeting. It does not in any other manner deal with the quest ion of control of a company by the share-holders. (6) Therefore the Companies Act, itself has been deficient in relation to the matter of control of a Company. Control of a company therefore more or less had always been a quest ion of the fact of control than de-jure control. In fact and in law it has not been the requirement in the matter of 'management and control of the affairs of a company, particularly a Public Limited Company, that the persons in control thereof must own or hold individually or as a block majority shares or more than 50% shares of the company. There has been as in the instant case and in various other cases of leading Public Companies that the persons in control of affairs of the company and/or promoters held less than 51% shares but have been in control or held the control ling interest and are enjoying controlling interest of the company. It is also a fact, which is easily demonstrated from public information, that in cases of most of the prominent public limited companies, persons or groups owning majority shares or substantial block of shares i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of resignations of promoter Directors, Mr. Vinod Kumar Neotia, Mr. Pulkit Sejsharia and Mr.Harshvardhan Neotia 97-100 3. Copy of letter dated 30.01.2006 informing the Stock Exchanges about the purchase of shares from the promoters by Holderind Investment Ltd and also about the resignations of the promoter Directors 101-102 4. Copy of letter of offer issued by Holderind Investments Ltd in connection with the proposal to acquire further 20% of the equity in the company as per SEBI (Takeover Regulations) 1997 123-162 5. Copy of first quarter interim report for the year 2006 by Holeim Ltd informing in shareholders that they have management control of Gujarat Ambuja Cements Ltd. 168-189 (8) The public offer was duly made and completed where Holcim was able to acquire additional shares of the company in the open offer. Having regard to the aforesaid facts, the relevant Stock Exchanges SEBI and FIPB sanctioned the aforesaid transaction between the Promoter and Holcim a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare and as price of the control. It is the contention of the assessee that apportionment is legally permitted in case of composite price paid for two different elements comprised in one transaction. In support of such apportionment the assessee relied upon Valuation Report of M/s. Deloitte Haskins and Sells dated 28th July 2006 whereby the valuer determined the value of non controlling value of shares at ₹ 74.20 per equity share only (Paper Book I - Page 121). The value of controlling interest transferred therefore amounted to ₹ 30.80 per share. The per share value is merely a method of calculation and is not a value of the share so far as the value of control ling interest is concerned. It is the contention of the assessee that the value of controlling interest namely ₹ 30.80 per share is not taxable as it had and has no cost of acquisition and as per well settled principles of law under the Income Tax Act, 1961. Issue: The question for decision before the Hon'ble Commissioner of Income Tax (Appeals) therefore are: (1) Whether the transaction in question involved in addition to and apart from the transfer of shares a transaction of transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can not be considered separately from the shares themselves. Each share represents a vote in the management of the company Controlling interest is therefore inextricably attached to the block of the shares and can not form a separate asset by itself Section 48 which prescribes the method of computing capital gains states that the income chargeable under the head capital gains shall be computed by deducting from the full value of consideration received or accruing as a result of the transfer of the capital asset...:. . There is only one material asset, and that is the shares of GACL, this asset may contain within it many subsidiary rights, profits and privileges which would follow to the buyer as an inseparable content along with the transfer of the material asset. Whatever consideration is received or accrues, is by virtue of the transfer of shares and not by differentiated subsidiary rights which are neither fungible nor separately tradable. Thus it is abundantly clear that the action of the assessee of artificially splitting the value of consideration received i not tenable or logical grounds and also in the light of the judgments quoted above, and the whole exercis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of control of a company or controlling interest as a part of or inextricably linked with or an intrinsic quality of a share or otherwise. Sec. 255 of the Companies Act only says that the Directors are to be elected in the General Meeting. Control of any organization or a control of affairs of any organization is basically a defacto issue. It is not always and as an essential condition necessary and it is not a pre-condition that those who have control of affairs of an organization or the person having controlling interest or desire to acquire control must have a de-jure authority for the same. Over the history as shown in relation to the affairs of a company that persons have acquired first de-facto control and acquire de-jure either not at all or later. It is not to say and it is not being suggested that dejure control is not a fact but what is being emphasized is that shares based control is not a condition precedent or an essential condition to acquire or retain control of an organization. A promoter of a company or a person or a group who establishes business organization or any other organizations may continue to be in control of the affairs of the company or organization ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal of both by a new company . Gower, at page 540 notes four different methods by which a person wishing to obtain control of a company may go about it- Anyone wishing to obtain control of a company may go about it in one of four main ways: (i) he may buy the company's undertaking, (ii) he may make a general offer to the shareholders to purchase their shares or sufficient of them to give control, (iii) he may do a deal with the existing board whereby they sell their shares to him and resign their offices, filling the casual vacancies, thus created, by his nominees or (iv) he may seek to acquires, by purchase on the stock exchange or otherwise, sufficient shares to enable him to wage a successful battle of proxies with the existing management so that they are dismissed and replaced by his nominees. In all except the fourth case it will be necessary, or atleast desirable, to have the concurrence of the existing directors. If they receive some special benefits in return for their support will this be a secret profit for which they must account? From the aforesaid observations of Gower it is clear that in order to takeover control of a company acquisition of any r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such company in accordance with the Regulations Regulation - 11 requires a person acquiring more than 15% to less than 55% of shares or voting right to make public offer, it he intends to acquire such shares. The most significant part of the SEBI Regulation for our purpose is Regulation -12, which reads as follows: Acquisition of control over a company 12. Irrespective of whether or not, there has been any acquisition of shares or voting right in a company, no acquirer shall acquire control over the target company unless such person makes a public announcement to acquire shares and acquire such shares in accordance with the Regulations. Explanation to Regulation - 12 states that for the purpose of this regulation, acquisition shall include direct or indirect acquisition of control of a target company by virtue of acquisition of companies whether listed or unlisted, whether in India or abroad. Control is defined in Regulation 2(c) - to include - control shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er (A) Shareholding of Promoter and Promoter Group 1. Indian (a) Individuals/Hindu Undivided Family (b) Central Government/State Governments (c) Bodies Corporate (d) Financial Institutions/Banks (e) Any Others (Specify) Sub Total (A) (1) 2. Foreign a. Individuals (Non-Residents individuals/Foreign Individuals b. Bodies Corporate c. Institutions d. Any Others (specify) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Group Sr.No. Name of the Shareholder Number of Shares Shares as a percentage of total number of shares(i.e Grand Total (A)+(B)+(C) indicates in statement at para(1) Above 1 2 Total (I)(c) Statement showing Shareholding of person belonging to the category Public and Holding more than 1% of the total number of share Sr. No. Name of the Shareholder Number of Shares Shares as a percentage of total number of shares(i.e Grand Total (A)+(B)+(C) indicates in statement at para(1) Above 1 2 Total (I)(d) Statement showing details of lock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s where similar company jurisprudence is existing. (D) The three decisions herein before mentioned relied by the Assessing Officer were rendered in circumstances when the aforesaid requirement of law relating to change in control of the affairs of the company was not there and they do not deal with or lay down any principle or the principle laid down therein is not concerned with a situation arising out of circumstances relating to acquisition of control of a company. The reliance on the said decisions therefore in the facts and circumstances of the instant case was therefore wholly irrelevant and inappropriate and the principle laid down therein can not be held to be the law as on the present day in the present day's circumstances, relevant to the case of the appellants herein. In any event on the facts of those cases, as well, the said decisions are not applicable here: (i) Maharani Ushadevi vs CIT : 131- ITR-445 (MP) - Page 449 It was a question of determination of cost of acquisition of shares - acquired at a price higher than the market price. The ITO and the Tribunal held that the difference was payment for controlling interest. This was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported by law. (G) Various judicial decisions point out to the facts that control ling interest value could be considered separately and distinctly. The House of Lords in Gold Coast Selection Trust Ltd. vs. Humphrey [17 ITR (Supl) page 19 at Page 26] observed if the asset takes the form of fully paid shares, the valuation will take into account not only the terms of agreement but a number of other factors such as prospective yield, marketability, there may also be an element of value in the fact that the holding of the shares gives control of the company . This decision of the House of Lords in Gold Coast Selection Trust Ltd., clearly demonstrates that control is a factor to be considered separately. The said factor does not relate to all shares of the company but is restricted to a part of block of shares only and where such block of shares give control question of valuation of control arises. In Short vs. Treasury Commissioners (1948) (2) All England Reports Page 509 = 1948 AC 534 question relating to separate value of controlling interest practically arose before the House of Lords. In March 1947 the Ministry of Air Production under the Defence Regulations appoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny way diminished. The principle laid down therein by the House of Lord clearly demolishes the principle sought to be propounded by the Assessing Officer. This has been recognized by the authorities on Company Law. Grower in his aforesaid commentary at page-346 refers to [Dean vs. Prince (1953) Chancery 590] a decision of Justice Herman where the court recognized and held that the fair value of the block of shares conferring control must include something about the brake-up value of the asset in respect of those control. Therefore, control is a factor to be valued separately and is not a question of mere valuation of a share more particularly when the quest ion of value of a block capable of giving controlling interest is involved. Pennington in his Company Law - 4th Edition - recognizes at Page 830 as follows: Moreover, except' in a case where the transferee company and its subsidiaries held more than 10 per cent of the class of shares bid for before the offer was made, the transferee company may pay a higher price for shares held by a controlling shareholder or group of shareholders than it offers to the other shareholders; the difference in price does not ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Parasaran for the Department pointed out that the very purpose of entering into agreement between the two foreigners was to acquire the controlling interest which one foreign company held in the Indian Company and therefore, the transfer was subject to Indian Income Tax Act. The Department relied upon the disclosure made and permission obtained in respect of the said transfer under the regulatory provisions of New York Stock Exchanges, SEBI Takeover Code, Listing Agreement of the Indian company and FIPB permission in relation thereto. Since it was a transfer relating to transfer of controlling interest such permission were required and disclosures were made. Therefore, controlling interest was and is an asset distinct and separate from the shares. The Department was not interested in initiating the proceeding had it been a transfer of mere sale of shares only. The Court in Para -161 accepted the content ion of the Income Tax Department and held that Shares in themselves may be an asset, but in some case like the present one, shares may be merely a mode or vehicle to transfer some other assets. In the instant case the subject mater of transfer as contracted between the parties a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower apart from mere acquisition of shares. It was also conceivable that Mulraj Karsondas in going through the transaction that Mulkraj might give K D Jalan not only the shares but certain other advantages. But the question should be examined from the point of view of the appellant and what we have to see is what the appellant parted with and what the appellant got in return? It should be noticed that the appellant itself had no controlling interest in the Elphinstone Mills. Page 593 - There is nothing on the record of the case to support the theory that the transaction with K D Jalan was not a transaction by Mulraj Karsondas himself but the transaction of the entire group. No controlling power was held by the appellant in Elphinstone Mills and it was not in a position to procure the resignation of directors or to bring about the appointment of person of their choice of K D Jalan as director nor was it in a position to call upon the managing agent to relinquish its office. All this was possible for Mulraj Karsondas. ......................................... Therefore the court held that what was received by the assessee in that case was price of shares alone and cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature and cannot be looked as a mere appendix to acquisition of shares. (iv) The aforesaid views further finds support from the decision of the Patna High Court in the case of Raghuvir Narayan Sing reported in 147 ITR 447. The court negatived the content ion of the department that the entire consideration received was liable to be taxed as capital gain on account of shares and no part of it could be held as price for delegating the power of management of the company. (J) As a matter of fact it can be pointed out that in the case of Maruti, the Government received from Suzuki a substantial consideration only for transfer of control of the company exclusively to Suzuki, irrespective of the fact that Government did not part with any of the shares held by it in Maruti. The amount received was a payment of premium for control of the management of the company and no part of it related to shares; These facts clearly establish that in order to give control of a company to a person even shares are not required as a vehicle and control can be transferred without shares. One does not follow the other necessarily and therefore if a transaction involves transfer of both the shares and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompensation paid was in respect of two distinct matters one taking the character of capital recent and the other of a revenue receipt, we do not see any principle which prevents the apportionment of the income between the two matters. The difficulty in apportionment cannot be a ground for rejecting the claim either of the revenue or of the assessee. In the present case the apportionment has to be made on a reasonable basis....... The Supreme Court again in CIT -vs- Ahmedbhai Umarbhai and Co., 18-ITR-472 at pages 496 observed- In the case of a composites business, i.e., in the case of a person who is carrying on a number of businesses, it is always difficult to decide as to the place of accrual of profits and apportionment inter Se. . . . Profit or loss has to be apportioned between these business in a business like manner and according to well established principles of accountancy......... Non-taxability of consideration for control ling interest It is well established in law for income Tax that a capital asset for which there is no cost of acquisition is not subjected to taxation uls.45 of the Act. This principle has been well established by the Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffer (the GACL Open Offer) under and in accordance with the Regulations 12 read with 10 of the Securities Exchange Board of India. It would not be out of place to deduce from the said words that the open offer is being made to acquire the control of the GACL. If, as the assessee has all along been contending, the controlling interest and share had the element of mutual severability, then there was no need for Holderind to make an open offer for purchase of shares. It could have merely bought the management control without buying the shares. The intention stated of Holcim is to acquire control of GACL and not acquiring control and shares both , for the obvious reasons that management control would be an automat ic fall out of sell of shares. 3. Third is the letter to Stock Exchange. I have no comments to make on this and in my opinion they have no bearing on the facts of the case. 4. Fourth is Copy of form 32 filed with RoC. I have no comments to make on this. Fifth is the copy of letter to the Stock Exchanges. I have no comments on the same. 5. Sixth is the valuation report by Deloitte Haskins and Sells. In my opinion this valuation does not have any conseque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icably attached to the block of the shares and can not form a separate asset by itself. This dictum, being of the jurisdictional High Court was binding on the assessee. Similar view has been expressed In the case of Maharani Ushadevi vs. CIT, as reported in 131 ITR 445 (MP) wherein it was held that controlling interest is an incidence arising from holding a particular number of shares in a accompany. It cannot be separately acquired or transferred. It flows from the fact that a number of shares are held by a person. This interpretation was also echoed in the cases of Venkatesh (Minor) vs CIT [2000] 243 ITR 367 (Mad) and C.R. Rajendra vs CIT [2002] 125 Taxman 55. 14. Fourteenth is the copy of decision of Bombay High Court in the case of V dafone Ltd. On page no 227 there is a judgment of Supreme court in the case of CIT vs Jeewanlal Ltd. AIR 1953 SC 473, wherein it has been noted that When a shareholder holding the majority of shares authorizes an agent to vote for him in respect of shares so held by him, the agent acquires no interest, legal or beneficial,. in the shares. The title in the shares remain vested in the share holder. The share holder may revoke the author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eements and all subsequent steps taken in consequence thereof are not disjointed facts but have to be read together. There is a dovetailing about them, which cannot be ignored. However he now accepts the fact and the position that deal was both for share and control. So the price received has to be apportioned between the two. On the first Page of his Remand report AO observes- It would not be out of place to deduce from the said words that the open offer is being made to acquire the control of the GACL . Para 3to 11: The statutory informations were filed as Holcim wanted and negotiated for Control. The Valuation Report is relevant in so far as to determine the value of control to be apportioned for the purposes of taxation. Para 12 The AO has not correctly appreciated the facts of Maruti case. Suzuki was a partner in control of Maruti. After May 2002 agreement exclusive (majority) control passed to Suzuki. The agreement recognizes that for earlier control and for passing the majority control a separate consideration, i.e. control premium was paid by Suzuki to GO! Premium was paid by Suzuki to GO! for the control of Maruti it got from GO! It had already got the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y High Court in the said judgment held that controlling interest was a separate asset, which was distinct from the shares. He drew further support from the judgment of the Hon'ble Patna High Court in the case of Raghuvir Singh reported in 147 ITR 447(Pat) and the press release issued by the Ministry of Disinvestment, Government of India dated 14.05.02. 12. The ld. CIT(A) further held that the total consideration of ₹ 105/- per share was required to be apportioned towards price for selling the shares and the price for transferring the controlling interest in company, M/s.GACL. That apportionment is required to be done in the facts and circumstances existing in the present case, the ld.CIT(A) was of the view, was also supported by the following cases of the Hon'be Apex Court:- a. Best and Co. Pvt. Ltd. 60 ITR 11(SC) b. Ahmed Bhai Ummer Bhai and Co. 18 ITR 472(SC) 13. The ld. CIT(A) held that the valuation of shares without controlling interest as done by Deloitte Haskins and Sells was required to be accepted. He, therefore, directed the AO to take the full value of consideration for transfer of impugned shares at ₹ 74.2 per shares and work out the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any case, the judgment of Hon'ble Bombay High Court has been rendered later in time after considering the decisions in 131 ITR 445 and 243 ITR 367. This is, therefore, relied on. The ld.CIT(A) was not justified in doing so. Specially in view of jurisdictional High Court's decision in CIT vs. Mahadeo Ram Kumar (supra). As such the jurisdictional High Court in the said judgment observed as under:- It appears to us that the controlling interest attached to the said block of shares cannot be considered separately from the shares themselves. Each share represents a vote in the management of the company. Controlling interest is, therefore inextricably attached to the block of the shares and cannot form a separate asset by itself. VI. The case of Maruti Suzuki does not establish that shares and controlling interest are separable. The moment Suzuki became the larger shareholder, control passed to it automatically. This would show that controlling interest could not be traded separately. The judgment in the case of Vodpahone and Technip are not applicable in the present case. VII. The judgment in the case of CIT vs. Jeewanlal [24 ITR 475(SC)] also supports the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le for controlling the affairs as well as managing the business of M/s. GACL since inception and till the time of the impugned transaction, which took place in January 2006. Being part of the promoter group, the respondent assessees alongwith the Sekhsarias enjoyed the controlling rights relating to the management of the company. II. As per share purchase agreement dated 28-01-06, 20 crore shares equal to 14.78% of the shares of M/s. GACL were transferred by promoters group in off market transaction at ₹ 105/- per share. In the said agreement an implied understanding was there to ultimately confer on Holcim the control of the company by the promoters. This being so, as per SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997, Regulation-12 came in force and the requirement of the Regulation was complied with by the purchaser by making requisite public offer at ₹ 90.64 per share. However, by the said open offer Holcim was able to get only.3,66,481 shares thereby holding less than 15% share of GACL as the close of the open offer. If control of the company was not handed over to Holcim, there was no need to comply with Regulations-12 of SEBI (Substant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to block of shares cannot be considered separately. Thus, above decision of the court cannot be used in all circumstances and in respect of all transactions to suggest that even one share which carries with it one vote, controlling interest is embedded in the share. The other decisions are also distinguishable. VI. Taking note of Hindusthan Motors judgment of the Hon'ble Calcutta High Court, Gower's Commentary on Principles of Modern Company Laws, Hon'ble Apex Court's decision in the case Technip SA (2005)(S) SCC 465] and the press release dated 14-5-02 by the Ministry of Disinvestment, G.O.I in the case of Maruti Udyog Ltd, it has to be held that controlling interest could be a separate and distinct capital asset, which could be transferred along with shares, share being only a vehicle to transfer such capital asset. This view is also supported by Hon'ble Bombay High Court in the case of Vodaphone International (supra). It is contended that there is no dispute that as a matter of fact there was transfer of control by respondent assessee to Holicim along with the shares. VII. As it is contended that controlling interest and shares sans controlling interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. b. Copy of D-mat a/c of the assessee portraying transfer of impugned shares. c. Copy of Exhibit-B of agreement dated 28-01-06 being power of attorney and Board's Resolutions d. Annual reports of the company ending in 2005 and 2006. e. Memorandum of Article of Association of M/s. GACL f. Composition of Board of Directors prior and subsequent to share sale agreement. 20.1 However, the assessee has shown his inability to furnish the following documents:- a. Copy of D-Mat account b. Power of Attorney and Board's Resolutions being Exhibit-B of agreement dated 28-01-06. It has also failed to furnish any evidence of Holicim complying with Regulations -7 of SEBI Regulations 1997. 21. We, therefore, proceed to decide the appeal on the basis of evidence available on record. 22. We have heard the parties and perused the record of the tribunal. We have also gone through the various submissions made and case laws relied upon by both the parties. 22.1 At the outset we would like to clarify that even though the revenue has taken various grounds of appeal, the subject matter of appeal before the tribunal is the transactions entered into by the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would vary depending on the completeness of such control. 22.4 Based on the above factual findings, we will proceed further. 22.5 It is a well settled principle of law that while analyzing a document what is expressly written therein and the surrounding circumstances are required to be taken into consideration. Nature and character of transactions entered into through such a document could not be determined by the label, which the parties may ascribe to the transaction. As such the Hon'ble Bombay High Court in their judgment in the case of Vodaphone International (supra) in para 140 have analyzed the above position of law. 22.6 Keeping the above position of law in view, we proceed to interpret the share purchase agreement dtd. 28-1-06. In preamble of the said agreement, it is mentioned as under:- D Holicim Mauritius desires to purchase the Sale Shares from the Sellers, and the Sellers desire to sell and transfer the Sale Shares to Holcim Mauritius on the terms and subject to the conditions more specifically set forth in this Agreement. 22.7 In definition and interpretation article 1.9 reads as under: Reference to agreements shall include a reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l provide to the Sellers DPs duly executed delivery transactions in the prescribed form for the transfer of the Sale Shares from the Seller DPs to the Holcim OP Account with HSBC Mumbai for the benefit of Holcim Mauritius and shall cause each of the Seller DPs (i) to duty acknowledge such instructions, and to deliver a copy of such acknowledgement to Holcim Mauritius, and (ii) credit the Sale Shares to the Holcim OP Account, and (c) Holcim Mauritius shall cause HSBC Mumbai to release to RMIL, the banker's drafts representing the Sale Consideration payable to RMIL and the Other Sellers. 22.10 Article 5 relating to non-complete undertaking reads as under: 5: Non-Compete Undertaking In consideration of RMIL and each of the Other Sellers jointly and severally undertaking for a period of three years after the Closing Date, not to enter or engage directly or indirectly, into any business activity in India or from or out of India that is in the filed of manufacturing, marketing and trading of cementitious material, clinker, concrete, concrete products, aggregates, mortar and asphalt or related activities and services (each, a Rs. stricted Business) without the pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 Suresh Neotia 1,149,360 Details of d-mat account 10090033 Name of Depository UTI Bank Ltd Share of sales consideration (Rs.90/- per share) 103,442,400 Non-Compete Component (Rs.15/- per share) 17,240,400 Total Sale consideration (Rs.105/- per share) 120,682,800 22.12 From the recital in the said agreement, relevant portions of which have been reproduced by us hereinabove, it is crystal clear that the sale of share was completed on 28-01-06. The object of sale was the share and full value of share sale consideration was ₹ 90/- per share. ₹ 15/- per share was paid by the purchaser on account of non-compete undertaking. Thus, total sale consideration of ₹ 105/- per share consisted of above two items. It did not relate to transfer of any controlling interest as claimed by the assessee. As such what the assessee is claiming to be 'controlling interest' is nothing, but fulfillment of non-compete undertaking. We note that even when the ld.AR for the assessee was asked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articles of association has been modified in any way in view of share purchase agreement dated 28-01-06. The promoters' group excluding Holderind Investment Ltd, however, in compliance to article 5 of the said agreement has limited the total share holding in M/s. GACL below 10% of the total shares. 22.15 The above fact also supports our finding that total sale consideration of ₹ 105/- per share does not include any consideration for transfer of so-called controlling interest as claimed by the assessee. 22.16 As regards the full value of consideration of transfer of shares of M/s.GACL as per agreement dated 28-01-06, the agreement itself states the same to be ₹ 90/- per share. It has not been disputed by the ld. AR for the assessee that full value of sale consideration has no relationship with 'market value 'of the capital asset. Thus, there is no question of determination of market value of impugned capital asset being share. In this view of the matter, the valuer's report as submitted by the assessee has no relevance for adjudication of the issue at hand. 22.17 The ld.AR for the assessee has contended that the 'controlling interest' was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. RKBK Fiscal Services P.Ltd. 100,000 0.007 10068179 UTI Bank Ltd. 9,000,000 1,500,000 10,500,000 2. Likhami Commercial Co Ltd. 9204000 0.68 10079819 -do- 828360000 138060000 966420000 -do- 1329000 0.10 10159101 -do- 119610000 19935000 139545000 3. Bimla D.Poddar 1516230 0.11 10103918 -do- 136460700 22743450 159204150 4. Govind Commercial Co. Ltd 905250 0.07 10159097 -do- 81472500 13578750 95051250 -do- 8334000 0.62% 10079827 750060000 125010000 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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