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TMI Blog2016 (8) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... ommssioner of Income-tax(A) - 2, Hyderabad, dated 23- 12-2015 for AYs 2011-12. 2. Briefly the facts of the case are that the assessee company is an investment company filed its return of income for the AY 2010-11 on 15/10/2010 declaring loss of ₹ 8,20,77,710/-. However, the AO completed the assessment u/s 143(3) of the Income-tax Act, 1961 (in short the Act ) by making an addition of ₹ 97,18,78,900/-. 2.1 The only issue involved in this appeal is with regard to AO s action in making an addition of ₹ 97,18,78,900/- representing long term capital gains on sale of shares of assessee company, in Silicon Builders. The AO has adopted the Fair Market Value (FMV) at ₹ 843.24 per share, as against the actual price of ₹ 275 adopted by the assessee, as evidenced by a Share Purchase agreement and passing on the consideration through banking channels. The assessee-company transferred 18,18,180 equity shares in Silicon Builders to M/s Classic Realty Pvt. Ltd., during the assessment year under appeal, i.e., 2010-11, for a consideration of ₹ 50,00,00,000. These shares were acquired by it during AY's 2008-09 and 2009-10 at a cost of ₹ 50,00,00,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Corporation P Ltd., at that rate and Sri N Prasad, Director justified investments of his group companies in M/s. Bharathi Cement Corporation P Ltd., basing on its strong points like availability of market, technology, lime stone deposits etc and hence a different stand can't be taken now. 2.4. In this regard, the assessee filed its objections as under: The price of ₹ 1,450 was based on the offer to the group to acquire 15% of M/s Bharathi Cements at ₹ 300 crores, which works out to ₹ 342 per share. Since initially shares were purchased at a low value of ₹ 104 and ₹ 185, subsequently higher price was paid. However there is no record of such offer and who made the offer. 2.5. Further, the assessee submitted as under: The assessee has transferred the shares of M/s Silicon Builders @ ₹ 275 per share being its cost of acquisition to M/s Classic Realty Pvt Ltd, belonging to promoters of the cement company and explained the reasons therefor as follows during the assessment proceedings The promoters of the cement company have not taken separate consideration for transferring the controlling stakes, and also provided an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Silicon Builders 18,18,180X843.24=153,31,62,103 Less: Indexed cost of acquisition FY 2007-08 for ₹ 29,99,99,700 34,41,01,289 FY 2008-09 for ₹ 19,99,99,800 21,71,81,913 56,12,83,203 Long term capital gains u/s 112 97,18,78,900 3. Aggrieved with the above order, the assessee carried the matter in appeal before the CIT(A). 4. Before the CIT(A), the AR of the assessee relied on various case laws to submit that fair market value cannot be substituted for full value of consideration and that there is no charging mechanism to tax the difference of fair value and full value. 5. After considering the submissions of the assessee, the CIT(A) observed that the Act recognises the difference between 'full value of consideration' and its 'fair market value' with regard to shares with the insertion of sub section (viia) to section 56 w.e.f. 01-06-2010, i.e., for the assessment year 2011-12. Furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under section 48, it does not empower the AO to substitute the fair market value for the full value of consideration. 5.5. In view of the above observations, the CIT(A) relying on the decision of the jurisdictional ITAT, Hyderabad 'A Bench, vide order in ITA No.582/Hyd/2015 A.Y.2010-11 dt.20-11-2015 in the case of M/s. Suguni Constructions Vs ITO, directed the AO to accept the capital gains worked out on the basis of the actual consideration received as full value of consideration and directed to delete the addition of ₹ 97,18,78,900/- made by the AO. 6. Aggrieved by the order of the CIT(A), the revenue is in appeal before us raising the following grounds of appeal: 1. Whether in the facts and circumstances of the case the CIT(A) is correct in holding that the facts in the case of M/s. Sugini Constructions Limited are identical to the facts involved in the case of the assessee i.e.G2 Corporate Services Private Ltd? 2. Whether in the facts and circumstances of the case the CIT(Al ought to have appreciate that the sale of shares of M/s. Silicon Builders Limited (Which in turn held shares of Bharati Cement Corporation whose market value was ₹ 671/-) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate the share value of M/s. Silicon Builders. This, in our opinion, is fallacious. Hon ble Supreme Court in the case of CIT V/s. George Henderson (66 ITR 622) has held that the expression full consideration in the main part of S.12(B)(2) of the Indian Income-tax Act, 1922 cannot be considered as having a reference to the market value of the asset transferred, but the expression only named the full value of the thing received by the transferor in exchange for the capital asset transferred by him. S.12(B)(2) of the Indian Income Tax Act, 1922 is analogous to S.48 of the Income Tax Act,1961. This fact has been taken note of by the coordinate bench of the Tribunal (Mumbai Bench) in the case of Reliance Communications Infrastructures V/s. CIT (34 SOT 245) as under- 24. In our opinion, as a provision of S.48 of the Act of 1961 is analogous to S.12B(2) of the Act of 1922 and hence, the interpretation given by their Lordships to the expression full value of the consideration is equally applicable to the expression appearing in S.48 of the Act of 1961. Even after giving anxious consideration to the scheme of computation of capital gain, it is seen that there is no provision to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;full value of consideration'. The method of computation as prescribed under section 48 superficially mention that 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 the following amount, namely: - (i) expenditure incurred wholly and exclusively in connection with such transfer, and (ii) the cost of acquisition of the asset and the cost of any improvement thereto . The 'full value of consideration' is clearly different from the 'fair market value'. Section 50D inserted w.e.f. 01.04.2013 permits fair market value being the full value of consideration in certain cases where as a result of transfer of capital asset by and assessee the consideration received or accruing is not ascertainable or cannot be determined. Under section 50C, there is special provision for substitution of full value of consideration in cases where Stamp Authorities adopts a particular value, i.e. deemed to be the full value of consideration received or accruing. Reference to Valuation Officer under section 55A is also for the limited purpose of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 case of a sale, the full value of the consideration is the full sale price actually paid. The legislature had to use the words full value of the consideration because it was dealing not merely with sale but with other types of transfer, such as exchange, where the consideration would be other than money. If it is therefore held in the present case that the actual price received by the respondent was at the rate of ₹ 136 per share the full value of the consideration must be taken at the rate of ₹ 136 per share. The view that we have expressed as to the interpretation of the main part of section 12B(2) is borne out by the fact that in the first proviso to section 12B(2) the expression full value of the consideration is used in contradistinction with fair market value of the capital asset and there is an express power granted to the Income-tax Officer to take the fair market value of the capital asset transferred as the full value of the consideration in specified circumstances. It is evident that the legislature its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration because it was dealing not merely with sale but with other types of transfer, such as exchange, where the consideration would be other than money. If it is therefore held in the present case that the actual price received by the respondent was at the rate of ₹ 136 per share the full value of the consideration must be taken at the rate of ₹ 136 per share. The view that we have expressed as to the interpretation of the main part of section 12B(2) is borne out by the fact that in the first proviso to section 12B(2) the expression full value of the consideration is used in contradistinction with fair market value of the capital asset and there is an express power granted to the Income-tax Officer to take the fair market value of the capital asset transferred as the full value of the consideration in specified circumstances. It is evident that the legislature itself has made a distinction between the two expressions full value of the consideration and fair market value of the capital asset transferred and it is provided that if certain conditions are satisfied as mentioned in the first proviso to section 12B(2), the market value of the asset transferred, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et represents the actual consideration untruly declared or disclosed by him. This approach in construction of subsection (2) falls in line with the scheme of the provisions relating to tax on capital gains. It may be noted that section 52 is not a charging section but is a computation section. It has to be read along with section 48 which provides the mode of computation and under which the starting point of computation is the full value of the consideration received or accruing . What in fact never accrued or was never received cannot be computed as capital gains under section 48. Therefore, sub-section (2) cannot be construed as bringing within the computation of capital gains an amount which, by no stretch of imagination, can be said to have accrued to the assessee or been received by him and it must be confined to cases where the actual consideration received for the transfer is understated and since in such cases it is very difficult , if not impossible, to determine and prove the exact quantum of the suppressed consideration, subsection (2) provides the statutory measure for determining the consideration actually received by the assessee and permits the revenue to take the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2002 and is not applicable to the impugned assessment years. Hence, for the period prior to the insertion of section 50C no addition can be made by invoking the ratio of this section. The first appellate authority at page 21 of his order has rightly observed that, what in fact never accrued or was never received cannot be computed as capital gain. He relied on the decision of the Calcutta High Court in the case of CIT vs. Smt. Nandini Nopani (1998) 230 ITR 679. He rightly held that it is manifest that the consideration for the transfer of capital asset is what the transferor receives, in lieu of assets he parts with, i.e. money or monies worth and that the expression 'full consideration' cannot be construed as having reference to the market value of the assets transferred but refers to the price bargained for by the parties and it cannot refer to the adequacy of the consideration. He also rightly observed that the Legislature has used the words 'full value of the consideration' and not 'fair market value of the assets trnsferred'. He recorded that the Assessing Officer has not brought on record any material to show that the assessee has received more than ..... 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