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TMI Blog2017 (6) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee would mean that it is denying it's corporate existence. This, after taking advantage of the separate existence of a Company under the Act. Therefore, after having incorporated the Limited Company and given it separate existence from it's share holders, it is not open to the Company to urge “Please ignore my separate existence and look at the persons behind me.“ If that be so, the Appellant/Company must opt for voluntarily winding up and then the shares being allotted to the individual members on liquidation would be governed by the family arrangement/settlement. Thus the Tribunal was correct in holding that the transaction of transfer of shares by the independent corporate entity was assessable to capital gain tax. - Decided in favour of the respondent/revenue and against the appellant/assessee - Income Tax Appeal No. 73 of 2002 - - - Dated:- 12-6-2017 - M. S. Sanklecha And Manish Pitale, JJ. Mr.C.J.Thakkar and Mr.S.C.Thakkar, Advocate for the Appellant Mr.B.N.Mohta, Advocate for the Respondents JUDGMENT ( Per M. S. Sanklecha, J. ) 1. This appeal under Section 260A of the Income Tax Act, 1961 (Act) challenges the order dt.23.4.2002 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agement and control of partnership firms and limited companies mentioned in schedule 'A' and related matters; (c) All matters connected with or related to or ancillary to the above referred matters; and (d) To give suitable orders and directions for implementation thereof . (c) On 30.4.1994, Justice Puranik rendered his Arbitration Award by way of family settlement. The Arbitration Award thereafter became decree of the Court dt.7.11.1994 under the erstwhile Arbitration Act, 1940. The above Award distributed the properties belonging to Mohota family amongst it's three groups. The Appellant/assessee was allotted to Group 'B'. M/s.R.S.Rekchand Mohota Spinning and Weaving Mills Ltd. and M/s. Vaibhav Textiles Pvt. Ltd. were allotted to Groups 'A' and C' collectively. (d) Thus, the settlement inter alia required members of Group 'B' (Mr.Gwaldas Mohta group), who were in control of appellant/assessee, to transfer the shares held by the appellant/assessee in M/s.R.S.Rekhchand Mohta Spinning and Weaving Mills Ltd. and M/s. Vaibhav Textiles Mills Ltd. in favour of members of Groups 'A' and 'C' collectively i.e. Mr.G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt/assessee was a Company incorporated under the Companies Act having a distinct and independent entity from it's share holders. Thus, while holding that the Award dt.30.4.1994 is a family settlement, the same can only be applied to members of Mohota family, who were party to the proceedings before the Arbitrator and not to a Limited Company such as Appellant/Company. Therefore, notwithstanding the fact that the Appellant/assessee was under control and management of the members of Mohota family, who were part of family settlement, yet the transfer of shares by the Company would be covered within the meaning of Section 2(47) of the Act so as to be assessable to Capital Gains Tax. Thus, the appeal of Appellant/assessee was dismissed by the order dated 17.6.1998 of the CIT (A). (h) Being aggrieved with the order dated 17.6.1998 of the CIT(A), the Appellant/assessee preferred an appeal to the Tribunal. The impugned order dtd. 23 April, 2003 upheld the view of the lower Authorities by holding that a family settlement would not amount to transfer as it only recognizes pre-existing rights. However, it held that the Appellant/assessee (even if controlled by members of a family), on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving Mills Ltd. and M/s. Vaibhav Textiles Pvt. Ltd. are not members of Mohota family and therefore, they were not part of family settlement. Consequently, the Arbitration Award dt.30.4.1994 arrived at as a family settlement cannot, in any manner, have any impact on the appellant/assessee's liability to tax under the Act. c) Transfer done by the appellant/assessee of it's shares in M/s.R.S.Rekhchand Mohota Spinning and Weaving Mills Ltd. and M/s. Vaibhav Textiles Pvt. Ltd. to members of Groups 'A' and 'C' is a transfer within the meaning of Section 2(47) of the Act. It does not fall under any of the exclusions provided in Section 47 of the Act. Thus, the impugned order dated 23 April, 2002 calls for no interference. 9. We have considered the rival submissions. There is no dispute before us that a family arrangement/settlement would not amount to a transfer. In fact, all the three Authorities under the Act have not disputed the aforesaid position in law. So far as the members of Mohota family are concerned, who are parties to the family settlement, any transfer inter se between them on account of family settlement would not result in a transfer so as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served that A shareholder has no interest in the property of the Company...... It has only a right to participate in the profits of the Company as and when the Company decides to divide them. The Company is a juristic person and is distinct different from it's share holders. It is the Company which owns the property and not the share holders. Therefore, the attempt of the share holder to lift the corporate veil at the instance of the share holder was rejected. In this case also, shares in M/s.R.S.Rekhchand Mohota Spinning and Weaving Mills Ltd. and M/s. Vaibhav Textiles Pvt. Ltd. are held by the appellant/assessee and not it's members. The members, therefore, cannot claim any rights to the property of appellant/assessee Company i.e. shares of M/s.R.S.Rekhchand Mohota Spinning and Weaving Mills Ltd. and M/s. Vaibhav Textiles Pvt. Ltd. as rightly held by the Authorities under the Act. 11. The submission of learned Counsel Mr.Thakkar that the entire transaction should be looked at wholistically bearing in mind the purpose and object of the settlement as recorded in the Arbitration Award dt.30.4.1994 so as to settle the dispute between members of the family and it was to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o find out who are the real persons in control of the incorporated Company. In the aforesaid case, the issue was with regard to amalgamation of 100% subsidiary company to it's holding company. The question which arose for consideration before the Calcutta High Court was whether an amalgamation between holding and subsidiary Companies would amount to transfer of capital asset in terms of Section 45 r/w. 2 (47) of the Act. The Calcutta High Court specifically referred to Section 47 of the Act and in particular, to Section 47, sub-clause (v) of the Act to hold that a transfer by a subsidiary company to the holding Company of the whole of it's share capital will not be regarded as transfer for the purposes of computing capital gains under Chapter IV-E of the Act. Further observations made by the Calcutta High Court to the effect that, on looking behind the facade of the Company, one would notice that all the assets of the subsidiary company are held by it's parent company which owns 100 % of it's shares. The aforesaid observations of the Calcutta High Court seems to provide the rationale for Section 47(v) of the Act in excluding a transfer of the entire share capital of ..... 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