9911796707
TMI Blog2017 (12) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... call/put option, for which transfer price of the shares was determinable on FMV of the share value of VIL. What has been accrued to the assessee is the price of the shares which was to be determined as per the mechanism provided in the Framework Agreements, which stipulated FMV of VIL. * Thirdly, section 50D as invoked by Ld. CIT (A) would not be applicable on the facts and circumstances of the case; and if at all it could have been brought to tax in the hands of the transferor under the deeming fiction of Section 50CA or Section 56(2)(x), then same are not applicable for the year under consideration as these provisions are applicable from the A.Y. 2017-18. * Lastly, the value of the SBPL shares as per FMV of VIL would be 131.86 per share as determined above; and accordingly, AO is directed to compute the capital gain taking the sale value of SBPL at 131.86 per share. Rationalisation of capital gain arising from transfer of right shares and rights renouncements - not allowing the cost of interests expenditure capitalized from the acquisition of ‘right shares’ at the time of transfer - Held that:- In our opinion in case of the assessee who has subscribed to ‘right shares’ by paying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was 36 months and not 12 months as per the first proviso to section 2(42A) (as applicable during the year under consideration), read with section 2(29A) of the Act. 1.2 That the CIT(A) erred on facts and in law in holding that the shorter period of 12 months to qualify as 'long term capital asset' was only applicable to unlisted shares sold during the period 01.04.2014 to 10.07.2014, in terms of second proviso to Section 2(42A), which was inserted by the Finance (No.2) Act, 2014 with effect from 01.04.2015. 2.That the CIT(A) erred on facts and in law in re-computing the amount of capital gain arising from sale of shares of M/s Scorpio Beverages Pvt. Ltd. ('SBPL') by substituting actual sales consideration of ₹ 9,97,92,44,200 with alleged fair market value of ₹ 2233,42,850,070, determined by adopting price per share of ₹ 142.70. 2.1 That the CIT(A) erred on facts and in law in confirming the action of the assessing officer in substituting actual sale price with notional/alleged consideration, determined as per alleged fair price of ₹ 142. 70 per share, invoking section 50D of the Act. 3. That the CIT(A) erred on facts and in law i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry /an affiliate of earlier Hutchison Group and later on Vodafone International; * 3GSPL: 3 Global Services Pvt. Ltd., affiliate of Vodafone Group * TIL:Telecom Investments India Pvt. Ltd., in which Vodafone had direct and indirect interest in Vodafone India Pvt. Ltd. * HEL: Hutchison Essar Ltd. * VIHL: Vodafone International Holdings Pvt. Ltd. * VIL: Vodafone India Pvt. Limited. * Kotak: Kotak Mahindra Capital Ltd. (Valuer) * DCF: Discounted Cash Free Flow Method: * NAV: Net Asset Value Method * FMV: Fair Market Value. 4. Since the major issue relates to the addition made on account of computation of capital gain by enhancing the fair market value of SBPL shares as raised vide ground no. 2, therefore, we are taking up this issue first. Both the parties have made their detailed submissionsduring the course of hearing. At the time of hearing, the Revenue has filed a petition for admission of 'additional evidences'under Rule 29 of ITAT Rules, 1963 by bringing on record; (i)Framework Agreement of 01.03.2006; (ii) write up on the structure of erstwhile Hutchison Group and the details of its acquisition of interests pertaining to Indian Telecommunication Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56448.03 crores. However as far as this valuation of entire equity shares of VIL is concerned, the AO has not ultimately disputed this figure which was worked out on the basis of 'Discounted Cash Free Flow Method' (DCF).Thereafter, he noticed that, while determining the share value of SBPL, the Valuer first adopted the DCF method in determining the value of VIL but later on switched to Net AssetValue method (NAV) while arriving the value of SBPL. He thus, held that theNAV method cannot be the correct basis of valuation of SBPL shares, because the value of SBPL shares have been arrived at ₹ 5.40 per share, while the valuation of VIL was ₹ 56,448.30 crores, he thus, came to a conclusion thatthe valuation adopted by the assessee for the SBPL shares is not based on the fair market price. He has also noted that SBPL's holding in VIL was 9.65%, which though has been strongly objected/contested by the assessee before us that the same has wrongly been taken at 9.65%, but instead it is 8.90%. 6. The AO, thereafter, traces the background of transaction of acquisition and sale of shares of SBPL which has been discussed by the AO at pages 22 to 26 of his assessment order.In sum a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken at US $ 25 billion and incase the price of the HEL exceeds US $ 25 billion then the valuation of the SBPL shares would be determined accordingly. Thus, it was submitted that the transfer price of the entire SBPL shares was $ 266.250, that is, ₹ 1088 crores as per the then exchange rate. When 49% of the shares were sold on the basis of same transfer price at ₹ 533 crores, i.e. 49% of 1088 crores, then the balance share value was ₹ 555 crores alongwith the value of right shares at ₹ 300 crores shares, aggregating to ₹ 855 crores. Hence, what the assessee had sold at ₹ 1241.32 crores was more than ₹ 855 crores payable as per the framework agreement. The AO, however after detailed discussion held that the assessee had indirectly held shareholding in VIL at 3.95% through chain of intermediaries from SBPL to VIL and the valuation adopted by the valuer of VIL comes out to ₹ 56448.30 crores and if the value of 3.95 % share held by the assessee is to be worked out, then the same comes to ₹ 2233.73 crores and accordingly, the share value comes to ₹ 142.70 per share. Thereafter, he discusses how there has been extreme movement o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006 between Mr. Analjit Singh, Scorpio Beverages Pvt. Ltd., MV Healthcare Services Pvt. Ltd., 3 Global Services Pvt. Ltd. ("3 GSPL") and ND Callus Info Services Pvt. Ltd. b) A write up on the structure of Hutchison Group and the details of its acquisition of interest pertaining to the Indian telecommunications market, titled 'History Hutchison Group-India. c) Financial statements of Scorpio Beverages Pvt. Ltd. and its step down subsidiaries, namely, ND Callus Info Services Pvt. Ltd., MV Healthcare Services Pvt. Ltd., Telecom Investments India Pvt. Ltd. ("TIL") and Jaykay Finholding (India) Pvt. Ltd. The financial statements have been downloaded from the website of MCA, as filed by the respective companies." 10. Ld. Spl. Counsel, Shri G.C. Srivastava, vehemently submitted that these documents are quite relevant and has a vital bearing on the issues involved as it not only gives the background of the nature of agreements and transactions entered between the parties but also provides the basis for determination of valuation of shares which is the subject matter of the dispute. The argument put forth by the Special Counsel on these documents can be summarized in the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transfer price. (iv) Thiswrite up would help the Hon'ble Bench in having a comprehensive understanding of the background of the issues involved. C) Financial Statements of Subsidiaries:- (i) This paper book contains financial statements of Scorpio Beverages Pvt. Ltd. and its step down subsidiaries including Jaykay Finholding India Pvt. Ltd. (ii) One of the issues involved in the ground of appeal no. 2 is the mechanism to work out the value of shares of HEL and whether or not the valuation of shares done by Kotak Mahindra and relied upon by the appellant before the lower authorities and the Hon'ble ITAT should account for the liabilities of the step down subsidiaries. The financials as contained in the paper book contain copies of the Balance Sheet and its corresponding schedules which give details of such liabilities. In the event the liabilities are to be taken into consideration, as urged by the appellant, the correctness or otherwise of such liabilities can only emerge from a reading of these financials. (iii) The amount of capital contributed by the appellant by way of right issue was utilized in acquisition of further shares. The appellant has not disclosed ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench of the Tribunal in the case of L.G. Electronics Pvt. Ltd. (ITA No.510/Del/2011), wherein the Special Bench after referring to catena of decisions held that the additional evidence produced by the Revenue should be entertained provided opportunity is given to the opposite party to controvert the additional evidence. In this case also, the additional document was filed before the Tribunal before the commencing of the arguments of the Revenue and after completion of the arguments of the Ld. Counsel for the assessee. Thus, in the light of the judgment of Special bench which was rendered on similar set of facts and circumstances, these additional evidences should be admitted as it would only bring factual clarity to the issues involved and there is no attempt whatsoever on the part of the Revenue to set up any new case for the revenueby filing these documents. Lastly, he prayed that when the question of substantial justice involved, all procedural and technical aspects must yield in the interests of justice. 12. Vehemently, opposing the filing of such additional evidence, Mr. Ajay Vohra had filed detailed rejoinder in writing which for the sake of ready reference are reproduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecuted in 2006 between the appellant along with companies in which the appellant held direct and indirect interest, with 3 Global Services Private Limited ('GSPL') providing certain options to GSPL to acquire shareholding in the aforesaid companies belonging to the appellant. (The detailed terms and conditions of the said agreement are discussed in detail infra.) The aforesaid agreement has been sought to be produced as additional evidence by the Revenue to draw analogy from the methodology for determining the sale consideration for shares on exercise of certain options outlined under the said agreement, with the method for determination of sale consideration agreed between the parties under the impugned Framework agreement dated 5.7.2007. It is further alleged that the aforesaid agreement goes to the root of the matter involved in ground of appeal no.2 and was never brought to the notice of the lower authorities by the appellant. It is submitted that the aforesaid agreement has no relevance with the transaction under consideration and is, therefore, not required to be admitted nor considered for adjudicating the impugned ground of appeal, for the following reasons: • Vodaf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued by NDC to GSPL nor shares of MVH were acquired by GSPL from Scorpio. Before the aforesaid agreement could have been acted upon or the various options Rested with different parties therein could have been exercised, the entire stake of Hutchison Group in the Indian telecom company, i.e., HEL was acquired by Vodafone International in May, 2007. As a result of the aforesaid acquisition, the existing option agreements entered by various Indian partners, including the appellant, with Hutchison Group were rescinded and superseded by new agreements entered into with the Vodafone Group on fresh terms and conditions. It was under the aforesaid circumstances that the aforesaid agreement dated 01.03.2006 was rescinded and fresh agreement dated 05.07.2007 was entered into between the parties ('Analjit Singh' and 'Neelu Analjit Singh'), with inclusion of Vodafone International Holdings BV as a confirming party, on completely fresh terms and conditions agreed between the parties. Reference in this regard can be made to Clause 11.11 of the impugned agreement dated 05.07.2007 which clearly provided that on execution of the said agreement all earlier agreements between the parties would stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to be placed on record as additional evidence not having been considered by the AO and not being relevant to the transaction, being subject matter of ground No.2 and 2.1, does not, therefore, call for being admitted. (b) Re:Write up on the structure of Hutchison Group in India As pointed out by the Ld. Special Counsel of the Revenue during the course of oral arguments, the captioned write up on the structure of Hutchison Group has been drawn from the written statements filed by Vodafone Group in their SLP filed before the Supreme Court in the case reported at 341 ITR 1. Even the preamble to the aforesaid write up categorically provides that the same has been prepared on the basis of public record and other information available in the public domain, which reads as under:- i. As far as the information relating to the structure of Hutchison Group (as defined below), and its acquisition of interests pertaining to the Indian telecommunications market is concerned, we have gathered particulars frompapers that were in our possession, from public records, and other informationthat had been gathered at the time of the due diligence process. ii. At places where there were gaps, enqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pleadings filed before the Supreme Court, does not, in our respectful submission, constitute "evidence" which can be taken on record for adjudicating the present appeal of the appellant, considering that - (i) the appellant was not even a party in the litigation before the Supreme Court; (ii) the pleadings of Vodafone do not bind the appellant; and (iii) as per the preamble to the aforesaid write up, the same was prepared on the basis of documents/information available in public domain and certain general enquiries. Reliance, in this regard, is placed on the decision of the Supreme Court in the case of Kishanchand Chela Ram vs. CIT 125ITR 713, wherein, the Court while allowing the appeal of the assessee observed that third party document, based on hearsay, was not a legally valid and admissible piece of evidence. The relevant observations of the Court in this regard are as: "Moreover, this letter was said to have been addressed by the manager of the bank to the ITO on 18-2-1955 in relation to a remittance alleged to have been sent on 16-10- 1946 and it is impossible to believe in the absence of any evidence to that effect, that manager who wrote this letter on 18-2-1955 must ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that this is not a correct approach to thisobjection. A counsel may be appearing in several matters closely connected with oneanother, but when the parties sought to be are knowledge of the Counsel cannot, certainly be treated as the knowledge of the party In this case there is no dispute that Choodamani Iyer as such was not a party to any the previousproceedings. In fact, his grievance is that his family was not permitted to cross-examine Harihara Iyer the original proceedings. Apart from the fact that the statements of Harihara Iyer relied upon by the Tribunal are not legal evidence in these proceedings the reference to Choodamani Iyer can relate only to Choodaniani Iyer as representing the N.S.V. family and not in his individual capacity Further, the statement of Harihara Iyer is absolutely valueless inasmuch as Choodamani Iyer never got an opportunity to cross-examine Harihara Iyer. Thus the entire evidence that is relied on by the Tribunal is the evidence adduced in Harihara Iyer's case.It is also contended by the learned counsel appearing for the Department that a business which was admittedly being carried on escapes without anybody being made liable to pay the tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x department also did not notify to the Income-tax Officer that on the basis of that Bahi they had made enquiries from other parties with whom M/s. Goel Iron Stores had dealings and which were mentioned in that Bahi. If only the transactions relating to the assessee were mentioned in that Bahi, then on the face of it was unreliable. The Income-tax Officer gravely erred in relying on the entries from the Uchanti Bahi without ascertaining their correctness from any other source andacted on a mere suspicion which was not justified. For these reasons, we hold that theedgy of entries from the Uchanti Bahi supplied to the Incometax Officer by the sales tax department was not legal and admissible evidence on which the Income-taxOfficer could act far imposing extra burden of income-tax on the assessee. We are further of the opinion that the Appellate Assistant Commissioner took the correct view of the matter and rightly deleted the addition of ₹ 13,955 which had been made by the Income-tax Officer to the income of the assessee. The Income-tax Appellate Tribunal erred in law in restoring that deletion merely on the basis of the copy of the Uchanti Bahi of M/s. Goel Iron Stores supplie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f accounts of such companies as on 31.12.2013 or 28.02.2014, the aforesaid financial statements are, in any case, irrelevant. Attention in this regard is invited to the following extract from the valuation report at page 90 of the paper book: "VALUATION METHODOLOGY AND ASSUMPTIONS We have computed the equity valuation of SBP, and the value of each company in the HoldCo Chain, based on the value of the downstream investments of SBP, or the respective company in the HoldCo Chain, as the case may be (which, in each such case, is linked to the value of VIL), and adjusting the same for the net value of other assets and liabilities of such company based on the books of accounts of such company as on31 December. 2013. except that in case of any outstanding preference shares, the same is been valued as on 28 February. 2014 as per its contractual terms.' In view of the above, the financial statements of the earlier year(s) or even for the year ending 31.03.2014 will not be relevant and / or determinative of the value adopted by Kotak for such companies. Further, (while adopting the book value of assets as on 31.12.2013 or 28.02.2014, Kotak has reduced the accrued liability towards ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the intermediate companies. In that view of the matter, the Revenue cannot, in our respectful submission, be permitted at this belated stage to refer to the balance sheet of various companies so as to dispute the valuation arrived at by Kotak for the various companies, which issue, as submitted earlier, has been raised without prejudice and in the alternate to the main submission, namely, no power with the assessing officer to substitute actual consideration with any other hypothetical / notional value. PRAYER For the aforesaid cumulative reasons, it is submitted that the aforesaid various additional evidenced sought to be placed by the Revenue for the first time before the Tribunal deserve to be rejected and not admitted /taken into consideration while adjudicating ground of appeal No.2 raised by the appellant. C. Decision on the admissibility of additional evidence filed by the Revenue:- 13. We have heard the rival contentions and also perused the relevant additional evidences filed by the Revenue qua its implication thereof on the issues involved. So far as the Framework Agreement dated 01.03.2006 is concerned, it is between the AS, SBPL, MVH, 3GSPL and NDS. 3 GSPL is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they have been involved in the share holding pattern of Hutchison Group in India and the percentage of shareholding in HEL which has been taken over by the Vodafone in May 2007. Though nothing much turns around on this write-up of the structure and has no direct bearing on the adjudication of the issues involved but it merely gives the background to understand how various entities were involved in the share holding pattern by different entities including the assessee in HEL and later on VIL after take over post May 2007. Thus, it is not in the form of additional evidence, therefore, we are not taking any much cognizance of this document filed before us and, therefore, we are rejecting the said document for admission,exceptthat slight reference may be made in our order only for the purpose of giving the prequel of the events. 15. Lastly, so far as the various financial statements of intermediary companies are concerned, these documents have been filed by the Revenue only in support of the valuation of the shares which has been considered by the independent valuer 'Kotak Mahindra Capital' for the purpose of demonstrating the correct state of affairs of liability and investment of v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts entire stake with respect to telecom business being carried on in India through HEL to Vodafone International Holdings BV and consequently the name of HEL was changed to VIL.Pursuant to the aforesaid change in shareholding of HEL from Hutchison to Vodafone Group, a Framework Agreement was entered on 05.07.2007 amongst the following: * Assessee and Mrs. Neelu Analjit Singh (i.e. AS); * SBPL and two subsidiaries thereof, i.e., MVH and NDC; * Vodafone international Holdings B.V. ('Vodafone International); and * 3 Global Services Private Limited (now known as Vodafone India Services Private Limited), which was an indirect subsidiary of Vodafone International [hereinafter referred as 'GSPL']. 17. The above referred Framework Agreement provided that as and when permitted by applicable law including the limits imposed by the Government of India, on foreign investment in the telecommunication sector, GSPL, or person(s) nominated by GSPL, shall have the option to acquire the shares of Scorpio from AS. The relevant clauses of the Agreement are reproduced hereunder for the sake of ready reference: (d) In consideration of the grantof the Call Option by AS to GSPL, GSPL or an A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Transfer Price a) For the purposes of determining the Transfer Price in accordance with Clause. 4.6, the following formula shall be applied:- (i) The Transfer Price shall be an amount equal to the aggregate ofIndian Rupees equivalent of US$266,250,000 (United States Dollars Two Hundred arid Sixty Six Million Two Hundred and Fifty Thousand only), converted into Rupees at the prevailing US$:Rs. exchange rate published in the London edition of the Financial Times on the business day immediately prior to the Completion Date PLUS (ii) Where the fair market value of the entire issued share capital of HEL exceeds US$25,000,000,000, the SBP Value, converted into Rs. at the prevailing US$:Rs. Exchange rate published in the London edition of the Financial Times on the Business Day immediately prior to the Completion Date such aggregate amount being the Transfer Price. For the avoidance of doubt, the Transfer Price shall not in any event be less than the amount referred to in paragraph (a) (i) above. For the purpose of paragraph (a)(ii) of this Schedule 1, the SBP value means the proportion of such part of the fair market equity value of the entire issued share capital of HEL w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ggregated to ₹ 1088 crores. He pointed out that as per the exchange rate of ₹ 40.88 per USD as on 08.05.2007, the amount equivalent to USD 25 billions, aggregated to ₹ 1,02,200 crores. The option fee received has been offered and assessed to tax as revenue receipt, year after year. In the financial year 2009-10, there was change in FDI regulations relating to sectoral cap, which enabled GSPL to acquire some shares in Scorpio and thereby increase its indirect shareholding in VIL. Accordingly, on 07.04.2009, CGP and a person nominated by GSPL and AS entered into an agreement relating to transfer of 4900 shares of SBPL, constituting 49% stake, by assessee to CGP in accordance with the terms and conditions agreed vide Framework Agreement dated 05.07.2007. Having regard to the valuation for 10.0% stake in SBPL at ₹ 1088 crores agreed under the Framework Agreement dated 05.07.2007; appellant sold 4900 shares, i.e., 49% stake in SBPL, to CGP for ₹ 533 crores (i.e., 49% of ₹ 1088 Crores). Necessary applications were filed before FIPB, for the aforesaid divestment which was approved by FIPB on 04.12.2009. Pursuant to the aforesaid approval, consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stake in Scorpio held by AS, at re-negotiated lumpsum consideration of ₹ 1241.32 crores, as against lumpsum consideration of ₹ 855 crores originally payable as per the Framework Agreement dated 05.07.2007 read with the Fourth Supplement deed dated 07.08.2012, in the manner incorporated above. Accordingly, CGP filed necessary application before FIPB seeking approval for the aforesaid acquisition, wherein the proposed consideration of ₹ 1241.32 crores, was duly disclosed and thereafter approved by FIPB on 20.02.2014. Pursuant to the aforesaid approval from FIPB, AS and CGP entered into Share Purchase Agreement dated 12.03.2014, prescribing the terms and conditions for transfer of the entire 51% stake held by AS in SBPL to CGP for consideration of ₹ 1241.32 crores. Mr. Vohra pointed out that although the lumpsum consideration receivable by assessee as per the Framework Agreement dated 05.07.2007 read with Fourth Supplement thereto dated 07.08.2012, aggregated to ₹ 855 crores only, the parties mutually, agreed for enhanced consideration of ₹ 1241.32 crores, under 'Share Purchase Agreement dated 12.03.2014'. The relevant clauses of the said Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration with a notional consideration or any fair market value. The Courts have held that the word 'full value of consideration received' does not mean the 'fair market value' and in support, he relied upon the following judgments, compilation of which has been filed separately before us:- • CIT V. George Henderson and Co. Ltd. 66 ITR 622 (SC) (heavy reliance was placed on this decision) • CIT V. Gillanders Arbuthnot & Co.: 87 ITR 407 (SC) • K. P. Varghese v. ITO: 131 ITR 597 (SC) • CIT v. Shivakami Co. P. Ltd. 159 ITR 71 (SC) • CIT v. NandiniNopany: 230 ITR 679 (Cal.) • CIT v. Ms. Sushila Mittal & Others: 250 ITR 531 (Del.) • CIT V. Kami Singh 256 ITR 165 (Del) • CIT V. Smt. Sushila Devi 256 ITR 179 (Del.) • CIT v. Nilofer I. Singh: 309 ITR 233 (Delhi) • CIT v. Nilofer I Singh :309 ITR 233 (Del.) • Dev Kumar Jain v. ITO : 309 ITR 240 (Del.) • Sanjay Chawla v. ITO: 89 ITD 586 (Del.) • Bigjos Stores (P) Limited v. ACIT: 106 Taxman 127 (Del.) 21. Clarifying the intention of legislature, Mr. Vohra submitted that, wherever the legislature intended to substitute the actual con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ypothetical income', which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account." 15. The above passage was cited with approval in Morvi Industries Ltd. v. CIT [Morvi Industries Ltd. v. CIT, (1972) 4 SCC 451 : 1974 SCC (Tax) 140 : (1971) 82 ITR 835] in which this Court also considered the dictionary meaning of the word "accrue" and held that income can be said to accrue when it becomes due. It was then observed that: (SCC p. 454, para 11) "11. ... the date of payment ... does not affect the accrual of income. The moment the income accrues, the assessee gets vested with the right to claim that amount even though it may not be immediately." 16. This Court further held, and in our opinion more importantly, that income accrues when there "arises a corresponding liability of the other party from whom the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical/notional consideration/ fair market value of the asset subject of transfer. The difference, if any, between the fair market value of the asset and the actual consideration received was taxed as deemed gift under section 4(1)(a) of the Gift Tax Act, 1958 in the hands of transferor, until repeal of the said Act with effect from 01.10.1998. Accordingly, after abolition of the Gift Tax Act, the difference between the fair market value and actual consideration received on transfer of the capital asset was not subject to taxation in the hands of either the transferor or the transferee. In order to overcome the aforesaid lacuna, sub-clauses (vii)/(viia) were inserted in section 56(2) of the Act by the Finance Act, 2009 and 2010, with effect from 01.10.2009/ 01.06.2010, respectively, to deem the difference between the fair market value of the capital asset, subject of transfer, determined on the basis of prescribed method in Rule 11U/11UA of the Rules and the actual consideration paid, therefore, as income chargeable to tax under the head "income from other sources" in the hands of the recipient / transferee. Reference in this regard he pointed out that can be made in the Memorandum e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feree in terms of sections 56(2)(vii) /(viia) /(x) of the Act. Accordingly, in the absence of any provision providing the assessing officer with the power of substituting the actual consideration with the fair market value, the action of the assessing officer and upheld by the CIT(A) cannot be sustained, being contrary to law. 24. He further submitted that the assessee has computed long term capital gain on shares of SBPL by taking into account, the actual consideration received amounting to ₹ 997.92 crores and if the Revenue alleges that the assessee received in amount in excess of the declared consideration, then onus was on the revenue to demonstrate with tangible evidence that excess consideration had actually passed on or has been received by the assessee. In support of this proposition, he referred to the decision of the Hon'ble Supreme Court in the case of K.P. Varghese vs. ITO, 131 ITR 597. He pointed out that it is not the departmental case that the assessee or his wife Mrs. Neelu Analjit Singh had received anything over and above the sale consideration of ₹ 1241.32 crores as disclosed and approved by FIPB. Otherwise also, the hypothetical amount of ₹ 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as such.In absence of any change in facts more particularly qua the agreement dated 05.07.2007 and mode of computation of transfer price contained in Schedule 1 thereof, the Revenue now cannot be permitted to change its stand and argue that actual consideration received by the assessee on transfer of share needs to be substituted with alleged market fair value. In support of principle of consistency to be followed, he relied upon catena of judgments which are as under:- • Radhasoami Satsang vs. CIT: 193 HR 321 (SC) • CIT vs. Excel Industries Ltd.: 358 ITR 295 (SC) • DIT(E) vs. Apparel Export Promotion Council:244 ITR 734 (Del) • CIT vs. Neo Polypack (P) Ltd.: 245 ITR 492 (Del.) • CIT vs. Dalmia Promoters Developers (P) Ltd.: 281 ITR 346 (Del.) • DIT vs. Escorts Cardiac Diseases Hospital: 300 ITR 75 (Del.) • CIT vs. P. Khrishna Warrier: 208 ITR 823 (Ker) • CIT vs. Harishchandra Gupta: 132 ITR 799 (Ori) 26. Coming to the issue of invoking of section 50D from first appellate stage by the Ld. CIT (A), Mr. Vohra submitted that the said section does not empower the Assessing Officer orthe Revenue authorities to substitute t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declared/determined consideration agreed between the parties with the fair market value of the assets subject to transfer. Thus, he submitted that the substitution of actual sale consideration of ₹ 1241.32 crores with hypothetical consideration of ₹ 2233.42 crores is sans any authority of law and, therefore, cannot be upheld and same should be deleted. 27. After having made his detailed submissions that the addition made by the AO by enhancing the sale consideration for the purpose of computing the capital gain, Mr. Vohra by way of alternative argument and without prejudice to his earlier submission, submitted that,if FMV of the capital assets can be substituted by actual/full value of consideration received on transfer thereof u/s 45 r.w.s. 48 of the Act, the addition made in the assessment order is based on several factual inaccuracy, inconsistency etc. which otherwise cannot be sustained. He highlighted the following discrepancies in the order of the AO and point wise rebuttal of such observations and conclusions of the Assessing Officer in the assessment order which by and large have been confirmed by the Ld. CIT(A):- (i) Allegation of the assessing officer: Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isputed by the Special Counsel of the Revenue also. (iii) Ignoring value of intermediary companies, while computing FMV of Scorpio adopting enterprise value of VIL determined by Kotak: In the assessment order, the assessing officer directly applied the indirect interest of the appellant/Scorpio in VIL to enterprise value of VIL, i.e., ₹ 56448 crores, to compute the FMV of Scorpio at ₹ 2233.36 crores, thereby ignoring the value of intermediary companies. Rebuttal by the Assessee: A. Reasons behind engagement of Kotak: As per clauses 2.1 and 2.2 of the Share Purchase Agreement dated 12.3.2014,the entire shares held by AS in Scorpio were agreed to be sold for "transfer price" of ₹ 1241.32 crores, which was a mutually negotiated and agreed consideration.Clause 3.2 of the said Agreement provided that the parties would request Kotak, a SEBI registered Category I merchant banker, to prepare a valuation report relating to the fair market value of VIL pursuant to Schedule 1 of the Framework Agreement dated 5.7.2007, to confirm the transfer price determined by the parties. Further it would be pertinent to point out as per paragraph 2.2 of Annex - 2 of Consolidated FDI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed for valuing different downstream companies. "Background CGP, as a shareholder of SBP, has requested Kotak Mahindra Capital Company Ltd. (' KMCC') to carry out an equity valuation of SBP as of February 28, 2014 ("Valuation Date") and provide the price per share of SBP, in relation to the proposed acquisition of shares of SBP that CGP does not already own from the Sellers. SBP, through a series of companies in the HoldCo Chain, is an indirect shareholder of VIL. We have carried out the equity valuation of VIL using a Sum of the Parts Approach, which involves valuation of VIL Group (which is involved in providing telecom services across all telecom circles in India) and the value of VIL's42% equity stake in Indus. The valuation of both VIL Group and Indus has been done using the Discounted Cash Flow methodology ("DCF") - primarily based on the information and representations received from CGP and VIL. The valuation of VIL so arrived at has been factored in while valuing each of the companies in the HoldCo Chain and SBP considering the net value of other assets and liabilities in the respective companies, to arrive at the value of SBP. This Report is to be used only for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the structure chart on page 6 of Kotak's Valuation Report. On perusal of the same, he submitted that it would be seen that SBPLwas not directly holding shares in VIL, but held economic interest therein through several intermediate companies, which had independent assets and liabilities. Although, the said companies were mainly investment companies, having shareholding in subsidiary companies, such investments were financed through third party borrowings, which in our respectful submission ought to be considered while computing the value of holding companies including SBPL. Accordingly, since SBPL had no direct shareholding in VIL, which was held through several intermediate companies, the valuation of SBPL was to necessarily factor the net assets (i.e. assets less debts) position of all such intermediate companies, as rightly carried out by the Valuation Expert, viz., Kotak in its Valuation Report. Thus, he submitted that the aforesaid method followed by Kotak in considering the value of intermediaries companies is a universally acceptable method and was also factored in by the parties at the time of negotiating the consideration for transfer of shares under the Framework Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for the reason that the Framework Agreement dated 01.03.2006 was entered amongst the assessee, SBPL [a company wholly owned by the assessee]; MVH [a wholly owned subsidiary of SBPL]; NDC [a wholly owned subsidiary of MVH] & GSPL (a company belonging to the Hutchison Group at the relevant time]. The aforesaid agreement has no relevance with the transaction under consideration as HEL is no longer the party and, therefore, it is neither required to be admitted nor should be considered for adjudication or the impugned issued. VIL, i.e., the company engaged in the business of providing telecommunication services across different circles in India, prior to takeover by Vodafone International in May 2007, was held by Hutchison Group, Hong Kong with certain other Indian partners and was known as Hutchison Essar Limited, ('HEL'). Accordingly, in the aforesaid agreement, Vodafone International Holding BV was not a party, which joined as a confirming party in the later agreement dated 05.07.2007. Further, the contours and terms and conditions of the agreement dated 01.03.2006 were at substantial variance with the subsequent agreement dated 05.07.2007. To highlight the difference in the subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be such FMV as determined in accordance with schedule 2 to the agreement. Schedule 2 For the purpose of determining Transfer Price, the following formula shall be applied: Clause 4.6: Transfer price shall be determined in accordance with formula set out in Schedule 1, subject to a maximum of an aggregate of ₹ 150 billion as reduced by the amount payable to AS as option fee. Schedule 1 i. USD 266,250,000 converted into INR at the prevailing exchange rate published in London Edition of Financial times on the business day immediately prior to the completion date. a) Transfer Price shall be equal to the FMV of 0.23% of the issued share capital of HEL. a) FMV of HEL shall be such FMV as may be determined by Hongkong offices of Goldman Sachs, ABN Amro or HSBC a) The above formula would apply regardless of the amount of third party debt or other liabilities in MVH or any other company in which MVH has an interest and irrespective of the fact that SBP is not a direct shareholder in HEL. ii. Where FMV of the entire issued share capital of HEL exceeds USD 25,000,000,000 (Rs. 102200 crores converted at an exchange rate of ₹ 40.88), the SPB value; converted into INR at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard to contend that the terms of the agreement dated 05.07.2007 need to be ignored and seek to draw reference to the terms of the old agreement dated 01.03.2006, sought to be placed on record as additional evidence, to canvass an altogether new case for the first time before the Tribunal. 31. Without prejudice to the aforesaid arguments, Mr. Ajay Vohra submitted that even the relevant clause i.e. clause 4.6 read with Schedule II relating to determination of transfer price contained in the aforesaid agreement dated 1.3.2006, do not support the fresh plea of the respondent Revenue qua accrual of notional fair market value as the consideration for transfer of shares of SBPL for the following reasons:- a. The computation of transfer price of the shares at 0.23% of the fair market value of theissued share capital of HEL agreed in the Schedule II of the said agreement was subject to terms and conditions contained in clause 4.6 thereof. The said clause provided that the transfer of relevant shares by appellant to GSPL would happen at fair market value, as may be agreed between the parties. It was only when the parties would fail to reach agreement qua such fair market value, that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 billion, converted into rupees at prevailing exchange rate as on the completion date i.e. 08.05.2007. It would be pertinent to point out that, the exchange rate r a i l i n g as on 08.05.2007 amounted to ₹ 40.88 per dollar (which has not been disputed by the Ld. Special Counsel of the Revenue). Accordingly, the equivalent fair market value of HEL/VIL at USD 25 billion, amounted to ₹ 1,02,200 crores. In the present case, FMV of HEL/VIL in the year of transfer of the impugned shares was computed at ₹ 56,448 crores only, as per the valuation carried out by Kotak, which has been accepted by the Revenue. Accordingly, since the aforesaid FMV of HEL/VIL computed at ₹ 56,448 crores, did not exceed the threshold FMV of ₹ 1,02,200 crores as stipulated in Schedule 1 of the Framework Agreement, the aforesaid clause (a)(ii) relating to computation and payment of additional consideration never became applicable. In that view of the matter, in accordance with the terms of the Framework Agreement dated 05.07.2007, AS was entitled to receive lump sum consideration of USD 266.25 million only for the entire shares of Scorpio held at that point of time, i.e., prior to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised consideration payable for such transfer. While it is true that the essence of the Framework Agreement dated 5.7.2007, viz., vesting of put/ call option and transfer of shares pursuant thereto was retained in the Share Purchase Agreement dated 12.3.2014, the execution of such an agreement was necessary in order to document the factum of transfer of shares consequent upon exercise of call option by GSPL and revision in the sale consideration payable by GSPL. It cannot, therefore, be said that the Share Purchase Agreement dated 12.3.2014 was superfluous.Without prejudice to the above, if the Share Purchase Agreement dated 12.03.2014 and the revised higher consideration of ₹ 1241.32 crores stated therein was superfluous, as contended by the Revenue, then AS was only entitled to receive consideration ofRs.855 crores for transfer of remaining original shares and entire right shares, as stipulated in the original Framework Agreement dated 5.7.2007 read with the Fourth Supplement thereto, which alone could be adopted for the purpose of computing capital gains on transfer of shares of Scorpio, to the detriment of the Revenue. 34. During the course of the hearing, it was noticed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of VIL exceeded USD 25 billion as per clause (a) (ii) of Schedule 1 of the Framework Agreement dated 05.07.2007, considering that the additional acquisition of shares of VIL by the intermediary companies resulted in corresponding increase in the indirect economic interest of Scorpio in VIL. In the instant case, the onus was on the Revenue to prove that for such additional acquisition, the appellant was legally entitled to any amount over and above the declared consideration in the Share Purchase Agreement dated 12.3.2014, with corresponding liability fastened on CGP to pay such an amount, albeit in violation .of the approval granted by the FIPB, by leading tangible evidence in that regard. The Revenue has miserably failed to discharge such burden and has purely on surmises, suspicions and conjectures averred that for computing capital gains on sale of shares of SBPL "some higher consideration" needs to be substituted in place of the declared consideration, without making an attempt to quantify such alleged higher consideration. 36. Thus, he concluded that the actual/declared consideration received by the assessee which is more than the fair market value shares of SBPL should regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finances under the guarantee of the Hutchison Group and the monies would be invested by the appellant in the equity of the Indian company, HEL, with a further stipulation that the shares so owned by the appellant would be subject to call/put option. It was contemplated that as and when the foreign equity cap is relaxed, Hutchison group would exercise the option and the shares would be acquired from the appellant at a predetermined price, a chart showing the holding structure is enclosed as annexure 1 to this written submission. d) On 1st March, 2006, a framework agreement was entered into amongst the appellant, Scorpio Beverages Pvt. Ltd. (SBP), MVH Services Ltd. (MVH), 3 Global Services Pvt. Ltd. (3GSPL) and ND Callus Ltd. Scorpio Beverages Ltd. was held 100% by the appellant and his wife. MV Healthcare Ltd. was a 100% subsidiary of SBP Ltd. and ND Callus was again a 100% subsidiary of MVH Ltd. Under this framework agreement, it was agreed that in consideration of 3GSPL providing financial assistance for ND Callus to subscribe to 38.78% shares in TIL (which holds directly and indirectly 19.54% in HEL), Scorpio granted 3GSPL a right to subscribe to equity in ND Callus and/or to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one with similar call/put options etc. A new framework agreement was entered into on 5th of July, 2007, withthesame parties in place and Vodafone Pic acting only as a confirming party. (g) Mr. Srivastava emphasize the point that Vodafone paid the price of 67% interest in HEL to Hutch group which included the stake held by the appellant in the Indian company. Hence, it may be appreciated that Vodafone had acquired the interest in HEL held through the appellant directly from Hutch. The new Framework Agreement was necessary fallout of the transaction already entered into between Vodafone and Hutch and the new Framework Agreement of July 2007 was entered only to transfer the economic interest hitherto held by Hutch to Vodafone with the entire arrangements in spirit remaining unchanged. (h) Under 'the Framework Agreement dated 5th July, 2007, entered into amongst the same very parties as were parties to Framework Agreement 2006 (Vodafone joining in only as a confirming party, similar call/put options were granted and the transfer price was determined at: USD 266.25 million converted into INR at the prevailing exchange rate as on completion date, i.e., 8th of May, 2007. PLUS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... While it was stipulated under the Framework Agreement of 2006 as also under the Framework Agreement of2007 that the valuation of HEL shares at the time of exercise of option and the transfer would be done by Valuers of international repute specifically named under these agreements, no valuation was ever done as stipulated in these Framework Agreements, to find out the correct value of HEL shares and the proportionate interest of the appellant in these shares. If the parties to the agreement did, in fact, adhere to the terms of the agreement, such a valuation has been withheld and has not been placed before the Revenue. (q) While the Framework Agreement of 2007 clearly stipulated a price of 266.25 million representing the proportionate value of HEL shares, taking the total value of HEL shares at USD 25billion, the other part of the agreement of revaluing the shares of HEL when the value exceeds 25 billion was never carried out. It is interesting to note that the Enterprise Value of HEL was determined at 18 billion in February, 2007 and at 25 billion in July, 2007 after the consolidation and the company having been taken over by Vodafone. There has been a phenomenal growth in telec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entage of the holding of the assessee in HEL and later on in VIL at different points of time and also a chart showing accrued sale consideration of call option under different agreement which has quite a relevant bearing on the said issue therefore, for the sake of readyreference same is reproduced hereunder:- Accrued Sale Consideration of Call Options Sale consideration as per different agreements: A. Agreements entered by parties:- S. No . Agreement s Date Value of consideration Value of shares Remarks 1. Framework Agreement 2006 01.03.2006 Fair market value (FMV) of issued share capital of HEL 0.23% of value of shares of HEL The liability of intermediary companies not to be recognized for working out the transfer price. 2. Framework Agreement 2007 05.07.2007 Indian Rupees equivalent of US$ 26,62,50,000 + If fairmarket value of issued share capital of HEL exceeds US$ 25,00,00,00,000 (25 Billion) the SBP Ltd. value converted into Rupees at prevailing US$ + Call option fee from GSPL of an amount of US$ 10.2 million per annum accruing on a daily basis. 26,62,50,000 X 40.88 ( rate of US$ in July, 2007) = ₹ 10,88,43,00,000/10,000 ₹ 10,88,430. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L as per framework agreement 2007 -10.2 mil US$ + Additional annual call option fee from VISPL as per amended framework agreement 2010-3.2 mil US$ No valuation was done when the framework agreement amended in 2010 NDC acquires 51% in AG Mercantile by SPA dated 10th May 2010 which holds 23.97% in TII. This substantially raises the share of AS in HEL/VIL. Sale consideration not raised. Only Additional call option fee given. Amended Framework Agreement not made available. S. No . Agreement s Date Value of consideration Value of shares Remarks 4. Framework Agreement as amended in 2011 24.11.2011 As Sh. Analjit Singh sold only 4,900 he received 49% of ₹ 1088 Cr. i.e. ₹ 533.33 Cr. (US$ 130,462,500) which is ₹ 10.88 lacs per share as on 17.12.2009. Sh. Analjit Singh has already received US$ 130,462,500. For balance sale of shares, the balance amount of US$ 135,787,500 was to be received on sale of 5100 shares + Call option fee from GSPL of an amount of US$ 10.2 million per annum accruing on a daily basis as per framework agreement 2007. + Call option fee from M/s VISPL (formerly GSPL) of an amount of US$ 3.2 million per annum accruing on a dai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1*12,413,206,20 0) MrsNeeluAnaljit Singh 2,433,962,000 (10/51*12,413,206,20 0) The value per share is worked out as under:- 12,41,32,06,200 / 19,50,05,079 = ₹ 63.65 The assessee has not provided any valuation as to how the assessee has reached the figure of ₹ 1241.32 Cr. Rs.1241.32 cr. (300 Cr. + 941.32 Cr.) As per the submission dated 30.12.2016 the total consideration received is ₹ 12,41,32,06,200/-. The breakup of this amount is :- Rights share - 300 Cr. (@15.38 per share) Original share - 941.32 Cr. Rs.18,45,726/- per share As per the submission dated 30.12.2016 of the assessee, the original share i.e. 5100(4100 + 1000) shares were sold at ₹ 9,41,32,06,200 /- in terms of agreed price. It is not clear how the agreed price was arrived at by both the parties to transaction. For original shares, the price works out to be ₹ 18,45,726/- (9,41,32,06,200 / 5100) per share. It is worth noticing that on the same day i.e. on 12.03.2014 as per the Sale purchase agreement dated 12.03.2014 the value of shares of S. No . Agreement s Date Value of consideration Value of shares Remarks M/s SBP Ltd. was valued at two different prices i.e. @ ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s higher than the valuation done by a merchant banker. Valuation by Hybrid method. Therefore,it arrived the share price of SBP Ltd. by following a Hybrid method which is not a prescribed method as per the Income Tax Act / Rules, nor by any yardstick, a recognizable /correct method of valuation. 39. Apart from that, he also filed a chart showing working of the liabilities of the subsidiary companies for computing the share value of SBPL. 40. After explaining the factual backdrop and referring to the various relevant clauses of the Framework Agreements specifically that of 2006 and 2007, Mr. Srivastava vehemently argued that the addition made by the AO is not only justified on facts but also in law. He submitted that it is not simple case of purchase and sale of a capital asset. In the present case, the appellant held the shares in the Indian company, HEL/VIL, for the benefit of Hutch/Vodafone primarily to beat the foreign equity cap for which the appellant was paid call option fee for holding the shares and with a stipulation that the shares would be transferred to Hutch/VIL once the cap is lifted at a pre-agreed price. It is precisely for this reason that the decisions relied up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the issues was examined in the context of section 12B of the 1922 Act, where the language used was 'full value of consideration for which the sale or transfer of assets is made'. It is in this context, the Hon'ble Apex Court held that in case of sale, the full value of consideration is full sale price actually paid. Further the expression "full value of consideration" cannot be constituted as market price but as the price bargain by the parties for sale. There could be no debate on such a proposition as laid down by the Hon'ble Supreme Court. But the language of section 48 is entirely different from section 12B of the old Act, because now the expression used is "the full value of consideration received or accruing as a result of transfer of the capital assets". 42. The word "accruing" would mean the right to receive. Here in this case, the assessee had a right to receive the proportionate fair market value of HEL shares and this right had flown to him in 2006 when the loan financing was made available to him and under that special arrangement, he subscribed to the equity of HEL to facilitate Hutch to hold their interest to that extent without trespassing the foreign equity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the parties or to suggest that once the SPA was signed all other earlier arrangements became a nullity. It is submitted that the options were exercised in full including the right shares. When the right shares are issued, these are subscribed on the basis of the entitlement of the existing shareholder but after these are subscribed, these get merged into the total equity of the company. There is no separate market price of right shares as distinct from original shares. The market price of right shares will always be the same per share as that of the original shares. Under the SPA, the value of original shares comes to ₹ 18,45,726 per share but the value of right shares comes to only ₹ 15.38 per share which is absurd on the face of it.In the first place, the value of right shares cannot be different from the original shares. In fact, at the point of sale there can be no such distinction as the right share or the original share. Secondly, the Framework Agreement itself provided that the option would be exercised for whole or part of the shares held in SBP which, in turn, holds in HEL/VIL. This kind of bifurcation of the shareholding into original shares and right shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India is a matter of record and the transaction cannot be regarded as having been entered into independent third parties. The assessee had contended at the time of hearing that the Revenue ought to establish that the parties have duly acknowledged their rights before substituting any price for the declared price. This plea is wholly misplaced. Once the agreement between the parties sets out the transfer price, the onus is not on the Revenue to establish the mode and the manner in which the obligations have been mutually discharged/settled particularly in cases of such close association. Revenue has only to demonstrate that the right to receive a certain consideration accrued to the appellant.The manner of discharge of the right is in the exclusive knowledge of the assessee. Revenue has no onus to demonstrate beyond the accrual of the right to the amount of consideration. The onus would be on the assessee to justify the transfer price which is in departure of the price actually agreed for under the Framework Agreement. The case of CIT v Balbir Singh Maini in CA no.15619/2017 relied upon by the appellant, in fact, goes to support the case of Revenue because in the present case the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted with the group. The Framework Agreement of 2006 as also of 2007 clearly stipulated that the valuation of shares would be done by agencies of international repute and their names were also agreed to between the parties. It is difficult to believe that such an exercise was not done despite a clear stipulation under the Framework Agreement. This is not a normal course of things. Either the valuation exercise has been done as contemplated in the Framework Agreements and the results of such valuation are not being made available to the Revenue or the exercise of carrying out a valuation has been left to a closely associated party like Kotak Mahindra in complete violation of the terms of the Framework Agreement of 2006 as also of 2007.The AO has not disputed the valuation of shares of HEL/VIL as done by Kotak. He has not gone into the question whether the enterprise value of HEL had exceeded USD 25 billion. He has only adopted the value of HEL shares as determined by Kotak and has taken the same as the basis for determining the value of appellant's indirect holding in HEL. Since Assessing Officer has not questioned the valuation of HEL shares, therefore, same is not raised by the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44. Lastly, on the issue of applicability of section 50D, he submitted that the said section provided that fair market value of the asset may be taken as the full value of consideration if the consideration received or accruing as a result of the transfer is not ascertainable or cannot be determined. In the facts of the present case, the consideration accruing as a result of transfer of right shares cannot be determined independent of the original shares and to that extent the provisions of section 50D would also get attracted. The contention of the assessee that under the present regime of taxation, the difference between the fair market value of the asset and the consideration received is subject to tax in the hands of the purchaser of the asset under section 56(2)(x) or (viia) is misplaced. These are not alternate basis of taxation. For the difference between the arm's length value of consideration and the actual consideration, the buyer is charged to tax under section 56 irrespective of the consequences that may flow in the hands of the seller. In view of the above, the action of the AO in adopting the proportionate market value of HEL shares as the full value of consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y belonged to the assessee. It was a joint venture between the Hutchison Group and Max Group. 50% of the shares in HMTL were held by Max telecom Venture and 49% by Hutchison Telecom (India) Ltd., a Mauritius based company. Between the years 1994 to 2004, several acquisition and expansions took place, whereby various groups like Essar, Hinduja and Kotak Group through various companies held substantial stake at different points of time. Under the regulation of Government of India as it then stood, the foreign equity participation in the telecommunication industry could not exceed 49% of the total capital. The Hutchison Group held direct interest in the Indian company called as Hutchison Essar Ltd. (in short "HEL") to the extent of nearly 42%; and 10% of the interests were held through indirect holdings. The balance out of the total stake of 67% was held through the companies owned and controlled by the AS and other entities. Major share of HEL was held by Telecom Investment India Pvt. Ltd. through various subsidiaries and TIL in turn was majorly held by CGP India Investment Ltd. which was subsidiary of Hutchison Group. With view to beat the equity cap of 49%, an arrangement was enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .6 of the said agreement, gave the stipulation of 'transfer price' which was payable in pursuance to put/call option which was to be determined in the following manner:- (a) Such fair market value as may be agreed between the Parties; and if the Parties fail to reach agreement within 30 days of the date of the Transfer Notice, then; (b) Such fair market value as may be determined in accordance with the formula set out in Schedule 2. Schedule 2 of the said agreement defined the transfer price in the following manner:- (a) The transfer price shall be equal to the fair market value of 0.23% of the issued share capital of HEL. (b) The Schedule also provided in very clear terms as under: "For the avoidance of doubt, the above formula will apply to the transfer price regardless of the amount of third party debt or other liabilities in MVH or any other company in which MVH has an interest and irrespective of the fact that SBP is not a direct shareholder in HEL." Thus, under the Framework Agreement of 2006, the value of the share capital of SBPL (i.e., transfer price of SBPL) was agreed to 0.23% of value of shares of HEL and the liability of the intermediary companies was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... converted into INR with the then prevailing exchange rate,it would have exceeded ₹ 1 lakh crores. Since, the second stipulation never came into picture or parties have not revisited this clause, then in that case,US $ 266.25 million was recognized as the transfer price of entire SBPL shares. However, on a hind sight perusal of the fair market value calculation as given in Schedule-2, it is seen that an illustrative working has been given to calculate the equity fair market value of SBPL/NDC/MVH. The said illustration for the sake of ready-reference is reproduced hereunder:- (in US $ millions) Item As per Illustrative example in Schedule 2 Market enterprise value of HEL 26,327 Less: Net debt of HEL (1,327) Equity value of HEL 25,000 Less: Holding company discount 40% (10,000) Implied 100% equity value of HEL at TIL level 15,000 Enterprise value of TIL (19.54%) 2,931 Less: Investment cost of TIL (419.75) Profit on disposal 2,511.25 Less: long term capital gains tax on profit (22.7%) (569.05) Post tax enterprise value of TIL 2,361.95 Less: net debt of TIL (160.45) Less: book value of preference shares (570.29) Indicative equity fair ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital valuation at US$ 25 billion can be the price for all future reference. Be it that as may be, one thing is fairly evident that the transfer price as per this agreement also is based on FMV of HEL. This is substratum of the matter that the FMV of HEL and later on VIL has to be reckoned as transfer price. 50. In view of the facts as narrated above, following points can be deduced:- * The 'Framework Agreement dated 01.03.2006' envisaged fair market value of issued share capital of HEL for determining the value of SBPL shares. * Even if we agree with the contention of the Ld. Sr. Counsel, Mr. Ajay Vohra that the agreement of 05.07.2007 alone is to be reckoned, then we find that in 'Framework Agreement of 2007' also, not only the similar clause of call/put option has been enshrined but also the determination of transfer price is by and large based on fair market value of equity share of HEL. * In the agreement of 2007, the SBPL value of US $ 266.25 million was based on fair market value of HEL. In terms of INR, the value of SBPL shares in the year 2007 aggregated to ₹ 1088 crores. * So far as the option fee is concerned, there is no dispute and the assessee has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Ld. Spl. Counsel for the Revenue before us. 54. In the year 2013, there was a change in FDI regulation, whereby 100% FDI was allowed in telecom sector and accordingly, application dated 24.10.2013 & 19.11.2013 were filed by the CGP before FIPB seeking approval for the acquisition of remaining 51% stake in SBPL for an agreed consideration of ₹ 1241 crores. On 20.02.2014, FIPB accorded approval for purchase of 51% stake in SBPL by CGP. In pursuance thereof a 'Share Purchase Agreement' was entered between the AS and CGP on 12.03.2014, whereby CGP purchased the entire 51% stake of the AS in SBPL for an aggregate consideration of ₹ 1241.32 crores. The relevant recitals as given in the sale purchase agreement are as under:- (A) "The company is engaged in the business of investing (but not trading) in securities of telecommunications companies in India. (B) Presently, AS holds 51% of the issued equity share capital of the company and CGP holds 49% of the issued equity share capital of the company. (C) Pursuant to the Framework Agreement (as defined below). As is entitled to exercise options, subject to certain terms and conditions set cut in the Framework Agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the consideration of ₹ 1241.32 crores is concerned, no working of the determination of sale price of the shares has been mentioned. Clause 3.2 as reproduced above though indicate that Kotak Mahindra has been requested to prepare a valuation report relating to the fair market value of the entire issued share capital of VIL pursuant to Schedule-1 to the framework agreement (i.e. dated05.07.2007) to confirm the transfer price determination by the parties. As discussed in detail herein above, the transfer price in Framework Agreement dated 05.07.2007 in Schedule-1, the value of the HEL has been stated to be US $ 25 billion and this is borne out from the fact that subclause (ii) of clause (a) provides that the transfer price would be different when the fair market value of the entire issue share capital of HEL exceeds US $ 25 billion, then there would be change in SBPL value. Otherwise, the transfer price of the SBPL shares was fixed at US $ 266.25 million which was based on some illustrative working given in Schedule-2 by taking the fair market value of entire issued share capital of HEL at US $ 25 billion. Though, there is absolutely no clarity as to whether this illustrative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vehemently argued that u/s 45(1) r.w.s 48, what is chargeable under head "capital gain" is the full value of the consideration received or accruing as a result of the transfer. He specifically drew our attention to section 48 of the Act which for the sake of ready-reference, the relevant portion is reproduced hereunder:- 48. "The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:- (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto." What has been envisaged here in this section is the full value of consideration received or accruing as a result of the transfer of capital asset. Mr. Vohra had strongly contented that the "full value of consideration" does not refer to or can be said to mean fair market value. In support strong reliance was placed on the judgment of Hon'ble Delhi High Court in the case of CIT vs. Nilofar I. Singh reported in 2009 (309 ITR 323) and catena of other judgments, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , such deeming fiction of taxing the difference on the basis of fair market value on the transfer of the capital assets in the hands of the transferee/transferor have been brought by specific provisions as discussed above. Ostensibly for the A.Y. 2014-15, neither the provisions of section 50CA nor section 56(2)(x) are applicable in this case, therefore, by invoking these provisions, addition cannot be made in the hands of the transferors, i.e., the assessee. 57. Before we deal with the expression "accrued" used in section 48 and whether on the facts and circumstances of the present case, the sale consideration as mentioned in the share purchase agreement dated 12.03.2014 can be said to be "accrued" to the assessee or not, we will deal in brief the invoking of the provision of section 50D of the Act from the stage of CIT (A). For the sake of ready-reference, section 50D is reproduced hereunder:- "Fair market value deemed to be full value of consideration in certain cases. 50D. Where the consideration received or accruing as a result of the transfer of a capital asset by an assessee is not ascertainable or cannot be determined, then, for the purpose of computing income chargeab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the agreement has to be reckoned as fair market value. This section has no application in the present situation, otherwise also, if section 50D could have applied for substituting the actual consideration of the fair market value in situation like that of the assessee, then there was no reason or occasion for the legislature to introduce specific section, viz., section 50CA by Finance Act 2017, w.e.f A.Y. 2017-18. This section as discussed in detail has been specifically brought in the statue to tax the FMV of unlisted shares in the hands of the transferor. However being a substantial provision thedeeming provision envisaged therein cannot be applied retrospectively. On this aspect, without going into much detail analysis, the arguments of Mr. Ajay Vohra as noted above are upheld as such and we hold that, invoking of the provision of section 50D to justify the fair market value by the Ld.CIT(A) is not correct and the same is rejected. 58. We will now dwell uponthe core issue raised by the parties, that is, whether the sale consideration of ₹ 1241.32 crores can be said to have been "accrued" to the assessee in the facts and circumstances of the case as discussed in detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be exercised as when the cap is lifted at a pre-agreed price.The Framework Agreement of 2006 which is the precursor to the framework agreement of 2007, the stipulation for the value of consideration/transfer price was based on fair market value of issued share capital of HEL and such value of shares was determined at 0.23% of the value of shares of HEL. Later on when this framework agreement was superseded andre-entered between the parties on 05.07.2007, again the basis of transfer price for the entire share value of SBPL was linked with the fair market value of entire issued share capital of HEL (later on VIL). How it is linked with the fair market value of HEL, we have already discussed in the forgoing paragraphs. Succinctly, put the Scheduel-1 which was for the determination mechanism of the transfer price of the SBPL's shares, has fixed the transfer price in the year 2007 at US $ 266.25 million which converted into INR was ₹ 1088.43 crores. This transfer price of US $ 266.25 million was based on some illustrative working given in Schedule-2 which was though was to come into operation when the condition of the 2nd clause was to be fulfilled, i.e., the fair market va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrued to the assessee is only as per the share purchase agreement dated 12.03.2014 is not acceptable. 60. Once we have held that the accrued sale consideration of SBPL shares is linked with the fair market value of VIL, then we have to see as to what should be the valuation of SBPL shares. The assessee before the Revenue authorities and also before us, has strongly contended that the independent valuer Kotak who has valued the shares of SBPL at ₹ 5.40 per share is the key to benchmark the price on which assessee has sold the shares under put option clause. First of all, on the bare perusal of the said 'Valuation Report' which has been placed in the Paper Book before us by the Ld. Sr. Counsel at page 85 to 190, it is seen that the equity value of VIL has been worked out by adopting DCF method in the following manner:- Valuation Construct, as on February 28, 2014 Details INR in Million Enterprise Value of VIL (A) 900,899 Enterprise value of Indus 432,701 Less:Net Debt of Indus (as on February 28, 2014) 67,909 Equity Value of Indus(B) 364,792 Consolidated Enterprise Value (A+42%B) 1,054,112 Less:Net Debt of VIL (as on February 28,2014) 489,629 Equity Value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in this Report, and we assume no risk of any material adverse change having any impact on the businesses of VIL group. Indus, companies in the HoldCo chain and SBP." The said disclaimer of Kotak Mahindra itself diminishes the various figures of liabilities which have been taken into consideration while valuing the shares of SBPL. In any case, the liability of the intermediary companies which can be reduced for the purpose of valuation has to be seen with reference to Rule 11UA(2)(a), wherein following liabilities have stated to be not to be included:- [2](a) the fair market value of unquoted equity shares =(A-L)× (PV), (PE) where, A =book value of the assets in the balance-sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance-sheet as asset including the un-amortised amount of deferred expenditure which does not represent the value of any asset; L = book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:- (i) the paid-up capital in respect of equity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndirect stake of SBPL in VIL was 8.9% and if the stake of the assessee in VIL on pass through basis is taken, then it will come to 3.6512% being 41% of 8.905% and not 3.95% as considered by the AO. Based on this clarification of exact percentage of shareholding at the time of hearing, we directed the concerned AO and the Addl. CITwho were present at the time of hearing to give a proper working of the value of SBPL's share,firstly, by taking the fair market value equity of VIL at ₹ 56,448.30 crores; secondly, to consider the actual liabilities as shown in the balance sheet of the intermediary companies as on 31.03.2013 (because the sale/transfer of shares took place on 12.03.2014, i.e., prior to 31.03.2014); and lastly, to give the actual value of SBPL's shares based on this calculation after taking into consideration the correct holding of SBPL in VIL at 8.9055% and assessee's stake which was 3.6512 %. Based on these guidelines, the AO has filed the following calculation which is reproduced hereunder:- Name of the Company Shareholding in the immediate step down subsidiary in the chain Details Value as per Kotak Mahindra(in INR million) VIL valuation as per Kotak DCF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilities - Market Value of Investment in MVH -1.45 Investme nt Activities Equity value of SBP 2,065 52,293 Total SBP shares 382,362,900 SBP valuation per share 5.4 131.86 AO had taken the value at ₹ 142.7 per share in the assessment order. But after taking the correct share of the assessee on SBPL as directed by us, the value will come to ₹ 131.86 per share by taking the 3.6512% share of assessee in VIL. 64. Based on this calculation, the SBPL value has been arrived at ₹ 131.86. So far calculation for arriving at this price in terms of our guidelines, Ld. Sr. Counsel has not disputed this figure, albeit he has challenged the entire valuation set out herein on the ground that the actual consideration received has to be accepted, which we have discussed in detail that is not tenable. Accordingly, we hold that the value of shares for which the sale consideration said to have been accrued to the assessee has to be worked out at ₹ 131.86 per share. Thus, the AO is directed to compute the capital gain by taking the sale consideration by adopting the per share value of SBPL at ₹ 131.86. 65. In view of the finding given above, following conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken for acquisition of right shares. As discussed in the earlier part of the order, the assessee has subscribed to ₹ 15,67,64,689/- right shares of SBPL on 09.08.2012 which was financed directly out of the loan borrowed from Capricon Health Services Pvt. Ltd. on which interests aggregating to ₹ 39,95,01,050/- (Rs.13,88,26,342 in FY 2012-13 & ₹ 26,06,74,708/- in FY 2013-14) was paid from the date of acquisition till the date of transfer of such shares. The assessee's claim has been that, since the interest expenditure incurred on such borrowing has a direct nexus with the acquisition of the shares of the aforesaid company, therefore, same was capitalized as part of the cost of acquisition of such shares for the purposes of computing capital gain arising from transfer thereof. 67. The AO first of all, observed that the meaning of the cost of the cost of acquisition and cost of improvement as appearing in section 48 & 49 has been restricted by the scope of section 55(2). He also distinguished the decision of the Delhi High Court in the case of Mithlesh Kumari (92 ITR 9) relied upon by the assessee on the ground that it was under the old Act and now there is change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, therefore, entire premise of the AO is based on wrong assumption of facts. He submitted that under the Act, distinction has been made between the assets held by an assessee for different purposes,like, stock in trade, assets used for the purpose of business; and capital asset held as investment and not used for the purposes of business. The objective behind classification of assets in the aforesaid categories is that the Act provides different provision for computation of interest of each asset and also provide different treatment qua the liability of interest expenditure incurred on borrowed funds utilized for acquiring such assets. Since, in the present case, the shares of SBPL was held as capital assets which had no nexus with the business of the assessee, the cost of acquisition for the purpose of computing the capital gains on transfer thereof is to be determined in terms of section 48. He submitted that u/s 48 of the Act, what is to be reduced is the cost of acquisition/ indexed cost of acquisition and cost of improvement of the capital assets. In the absence of any provision in the Act providing the method of computation of cost for the purpose of section 48, other than s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a repetitive basis over a short period of time, are not qualifying assets. Assets that are ready for their intended use or sale when acquired also are not qualifying assets."The aforesaid clause of the Accounting Standard clearly excludes assets like shares which are ready for intended use as soon as the same are acquired, from the meaning of 'qualifying assets' for the purpose of applying content and treatment of various cost contained in the said Standard. Hence, the assessing officer has grossly erred in applying the aforesaid Accounting Standard to hold that the interest expenditure incurred on borrowed funds, after acquisition of shares, cannot be capitalized as part of cost of acquisition of such shares and consequently holding that the appellant had flouted the provisions of the Accounting Standards.In the absence of any specific Accounting Standard dealing with the treatment of borrowing costs incurred in relation to acquisition of shares, the cost of such shares has to be determined on the basis of normal commercial principles do not prohibit an assessee to capitalize the interest expenditure incurred after acquisition of shares as part of cost thereof. He further submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the said asset.The claim of the assessee with regard to the interest on borrowed funds is admittedly not a deductible item under (ii) and (iii). The claim is that the interest payable on the borrowed funds forms part of the cost of acquisition of the capital asset. He submitted that under the normal meaning of the expression "cost of acquisition", the cost can only include the price paid for acquiring the asset and it cannot include any other expense incurred by the appellant post the acquisition of the asset. It is obvious that the interest accrued after the acquisition of the asset and the period of such interest extends till the date of transfer. The amount of interest that the assessee may have to pay cannot, thus, represent the cost of acquisition. The cost of acquisition of an asset cannot vary from month to month or year to year depending upon how long the borrowed funds have remained outstanding, nor the cost of an asset will be one if acquired out of own funds and will be the other if acquired out of borrowed funds. Such a proposition defies logic even in commercial terms. The expression "cost of acquisition" has been statutorily defined in section 55(2) in an exhaust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding any expenditure in respect of which any allowance is admissible under any provision of sections 8,9,10 and 12" It is seen that under the said section 12B of the 1922 Act, there was a provision which implied that only deductions not admissible under sections 8,9, 10 and 12 could be added to the cost of capital asset. It was in this backdrop, that the court came to the conclusion that interest on borrowed funds constituted cost of acquisition.This decision, he submitted that is no longer relevant for the reason that the law as applicable w.e.f. 01.04.1995 defines the expression "cost of acquisition" in express terms and in an exhaustive manner for the right shares and bonus shares. In view of the change in law, the decision is wholly inapplicable.Regarding reliance placed on further decisions like KS Gupta (119 ITR 372), Maithreyi Pai (152 ITR 247), Trishul Investments (305 ITR 434), Raja Gopal Rao (252 TTJ 449)etc., He submitted that in none of these cases, the issue was the determination of the cost of acquisition of right shares of bonus.These were cases mostly relating to house property, or other kinds of immovable properties and in nowhere the amended provisions have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard to the interest on borrowed funds was not at all there in this case. 72. After distinguishing judgments relied upon by the assessee, Mr. Srivastava also placed reliance upon certain decisions like in the case of L.N. Dalmia reported in 207 ITR 89, where the question of deduction of interest while computing capital gains was examined.It was held that the assessee was not entitled to claim the amount paid/payable as interest while computing the amount of capital gains. Reference was also made by him to the decision in the case of Octavious Steel & Co. Ltd. reported in 82 taxman 79, where the Hon'ble HC of Calcutta held that the cost of acquisition of asset must be understood in its common sense, i.e., it must represent the expenditure incurred in acquiring the asset. It further held that certain expenditure made later on cannot take the place of the cost of acquisition. The Hon'ble Court went on to observe that except for the provisions like section 43A where special provision is made for determining the cost of acquisition, the cost of acquisition would be the price paid for acquiring the asset. Lastly, he placed reliance on coordinate bench decisions in the cases of Macintosh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er asset, for purpose of section 48 of the Act, in the determination of capital gains arising from transfer of such "asset. It is illusory to draw such an artificial distinction and contend that the ratio of the said judgment is limited in its application to acquisition of land alone. The issue, thus, that arises is with regard to capitalization of interest expenditure incurred after the date of acquisition of a capital asset, which is not a business asset in terms of section 48 of the Act, which in stands answered in favour of the assessee by the decisions of the various Courts relied upon by the assessee supra, wherein it has been held that interest expenditure incurred even after the date of acquisition of the capital asset shall be liable to be added to the cost of such asset for purpose of the aforesaid section. The Revenue was unable to controvert the proposition of law laid down in the said decisions by pointing out any decisions to the contrary. Further, the other consequential argument of the Respondent Revenue that the cost of acquisition of the capital asset as on the date of acquisition is sacrosanct and cannot be varied subsequently, is contrary to the legal position l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the decision of Kolkata High Court in the case of L.N. Dalmia (supra) & CIT vs. Octavious Steel & Co. Ltd. are again distinguishable on facts. For making distinction, he has made his detailed submissions in his written submissions filed before us. 74. Without prejudice, Mr. Ajay Vohra submitted that if the Hon'ble Bench is pleased to uphold the contention of the revenue that interest paid on acquisition of right shares is to be allowed as deduction while computing the under the head "income from other sources", then same has to be allowed as deduction while computing the income under the head "income from other sources" and resultant loss should be allowed to set off against the income from capital gains in terms of section 71; and further direction should be issued to allowed deduction income incurred in the earlier year 2013-14 AY. He also relied upon the following decisions to canvass that the Tribunal has the power to issue direction for allowance for interest expenditure incurred during the AY 2013-14 against the option fee earned in that year and discussed under the head "other sources":- JCIT v. HMA Udyog Limited: ITA No.2230/Del/1999 (Del); and Perfect Equipments v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the Revenue that cost actually paid for acquisition would, in all circumstances to be regarded as the cost of right shares in terms of section 55(2)(aa) and same is not opened in enhancing/variation is not based on correct appreciation of law and, therefore, deserves to be rejected. He thus, submitted that the interest capitalized upto the date of transfer has to be allowed as cost of acquisition. DECISION 77. We have heard the rival submissions and considered the entire gamut of facts placed before us and the provision of lawand decisions referred to at the time of hearing. As discussed in our earlier part of the order, the assessee had subscribed to 15,67,64,689'right shares' of SBPL on 09.08.2012, i.e., inthe F.Y. 2012-13, in terms of 4th Supplement Agreement.The said right shares were financed directly out of the loan borrowed from Capricon Health Services Pvt. Ltd. on which interest aggregating ₹ 39,95,01,050/-(i.e., ₹ 13,88,26,342 in F.Y. 2012-13 & ₹ 26,06,74,708/- in F.Y. 2013-14), was paid from the date of acquisition till the date of transfer of such shares on 12.03.2014. The assessee had claimed the interest expenditure incurred on such borrowin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration" received on transfer, aggregate of the following amounts;firstly, the expenditure incurred wholly and exclusively in connection with such transfer; and secondly, the cost of acquisition of the assets and the cost of any improvement thereto.Section 49 illustrates various costs with reference to certain modes of acquisition. Whereas, section 55 defines the scope of the terms "adjusted", "cost of improvement" and "cost of acquisition" for the purpose of sections 48 & 49. Sub-section (2) of section 55 enlists as to what should be the "cost of acquisition in certain cases." Clause (aa) of section 55(2) which is relevant for ourpurpose is reproduced hereunder:- 55(2) For the purposes of sections 48 and 49, "cost of acquisition",- (a) xxxxxxxxxxxxxxxxxx (aa) in a case where, by virtue of holding a capital asset, being a share or any other security, within the meaning of clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) (hereafter in this clause referred to as the financial asset), the assessee- (A) becomes entitled to subscribe to any additional financial asset; or (B) is allotted any additional financial asset without a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constituted as exhaustive, i.e., the amount actually paid for acquiring such assets and no any other payment or cost incurred for acquiring such assets. Whence the cost of acquisition with regard to the additional financial assets, i.e., right shares has been strictly circumscribed to the amount actually paid for acquiring such shares,then it is not open to include any other costs like interest expenditure incurred or accrued on loan taken for acquiring the right shares. Had there been the intention of the legislature to allow any additional cost to such kind of additional financial assets, then there was no requirement to insert part A in clause (aa) and sub-clause (iii) which specifically confines the cost of acquisition to mean actual amount paid. Thus, we are in complete agreement with the contention of the Ld. Special Counsel, Mr. G.C.Srivastava that under the scope and provision of Section 55(2)(aa) read with sub clause (iii) thereto, incase of right shares the cost of interest expenditure cannot be allowed as deduction as cost of acquisition for computing the capital gain on sale of right shares. 79. Before us, Ld. Sr. Counsel Mr. Vohra afterreferring to the Memorandum expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of the financial instrument such as right shares, right entitlement, etc. and in absence of any such provisions, the Courts have laid down certain methods for determining the cost. For avoiding such kind of situation, the Finance Bill proposed to introduce the computation of cost of acquisition which have been acquired without cost, then in that case, cost of acquisition has to be taken on NIL and where the assessee becomes entitled to such financial assets like right issue, then the cost of acquisition will be the amount actually paid. This has been clarified also by the notes and clauses of the Finance Bill and also by the CBDT Circular No.684 dated 10.06.1994. The relevant clause18 of the Notes and clauses on sub-section (2) of section 55 of the income Tax Act, 1961 is reproduced hereunder:- "It is also proposed to insert a new clause (aa) for the purpose of defining the cost of acquisition of a share or any other security (referred to as "financial asset" in the section), and of the right to renounce the entitlement, in those cases where the assessee becomes entitled to subscribe to additional financial assets on the basis of rights issue. The cost of acquisition in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties as to whether the cost of interest can be capitalized for the purpose of cost of acquisition while computing the transfer of shares or not, we are not entering into semantics of such arguments, because here in the present case, the cost of acquisition is purely on acquisition of right shares and as discussed in the foregoing paragraphs, only amount actually paid would be allowed and no such interest can be allowed as cost of acquisition in the case of rights shares in terms of section 55(2). All such arguments placed by the parties have been rendered academic in view of our finding given above. Accordingly, we hold that the AO was justified in not allowing the cost of interests expenditure capitalized from the acquisition of 'right shares' at the time of transfer. 82. Now coming to the alternative argument put forth by the Ld. Sr. Counsel, Mr. Ajay Vohra before us that, the interest expenditure incurred on the loan taken for acquiring the right shares in SBPL in the FY 2012-13, should be allowed while computing the income shown under the head "income from other sources"; and he also pleaded that direction should be given that such interest should be allowed against "income fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission of this Tribunal under Rule 11 of ITAT Rules or under any other Rule to raise such plea. If at all this plea was sought to be raised then same should have been done by way of additional ground or by way of any application on which respondent Revenue would have been given opportunity to raise any objection or put forth their argument. Such a plea at the re-joinder stage without any opportunity to the respondent,would be difficult to entertain especially when the facts regarding to admissibility of such claim is not arising from the impugned order. Accordingly, we reject such plea taken by the Ld. Sr. Counsel for the assessee at the re-joinder stage without complying with the necessary requirement of Rules or giving the opportunity to the other party to rebut or place its objections. Thus, Ground No.3 & 3.1 are dismissed. E. Issue relating to gain arising from sale of unlisted shares to be taxed as long-term capital gain or short term capital gain 83. In the return of income, the assessee has declared income of ₹ 825,12,22,942/- under the head 'long term capital gains' in respect of following shares sold during the year under consideration:- Name of script Date of pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ths, if the particular share is transferred during the period beginning on 01.04.2014 and ending on 10.07.2014. After referring to these provisions, he re-characterized the long term capital gain and short term capital gain. 84. Ld.CIT(A) too upheld the action of the AO, observing that shorter period of holding of 12 months qua the unlisted shares instead of 36 months was applicable only in respect of shares transferred during the period beginning on 01.04.2014 and ending on 10.07.2014 in terms of newly inserted 2ndproviso to section 2(42A) brought in the Statute by Finance (No.2) Act, 2014, w.e.f 01.04.2015, i.e., AY 2015- 16. Ld.CIT(A) held that since the impugned transaction of the transfer of unlisted shares of SBPL took place before 01.04.2014 and not between 01.04.2014 to 10.07.2014, therefore, the benefit of the newly inserted 2ndproviso to section 2(42A) was not available to the assessee. Arguments on behalf of the Assessee: 85. Before us, Ld. Sr. Counsel, Mr. Vohra after inviting our attention to the provisions of section 2(42A) as was applicable to the year under appeal, i.e., in the AY 2014-15, submitted that it is an unambiguous from the plain reading of the section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clarifies that the purport of the amendment in proviso to section 2(42A) was to extent to the benefit of shorter period of holding of 12 months to all other financial instruments/securities which are listed on stock exchange in order to provide level playing field in investment in shares of a company whether listed or unlisted. Coming to the amendment brought by the Finance (No.2) Act, 2014, whereby the provisions of section 2(42A) were further amended and the words "shares held in a company" were removed from first proviso w.e.f. 01.04.2015, thereby taking away the benefit of shorter period of holding of 12 months available to unlisted shares to qualify as long term capital assets.Simultaneously, 2ndproviso was inserted to provide that unlisted shares sold during the period 01.04.2014 to 10.07.2014 would enjoy the benefit of shorter period of holding of 12 months to qualify as long term capital assets. The said amendment itself goes to prove that the benefit of shorter period of 12 months was available to unlisted shares prior to the said amendment and if the contention of the AO is to be accepted then there was no necessity for the legislature to introduce the aforesaid amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and other securitiesin the same basket. One cannot be read independent of the other. The contention put forth by the assessee cannot flow from the language employed in the proviso. If the legislative intent were to treat the shares as a different class from other securities, the only way such an intent could be expressed was either to add a second proviso carving out an exception to the first proviso or to use the expression"securities (other than shares)" in the proviso itself as has been done in the proviso while carving out similar exception for units by the subsequent amendment made by the Finance Act of 2014. The law as amended reads 'a security (other than a unit)'. This could be the only way the provisions would have been drafted had the legislative intent been the same as the appellant is seeking to canvass.This contention becomes significant in view of the fact that the law as enacted, imports the definition of 'securities' as contained in the Securities Contracts Regulation Act by virtue of Explanation 2 to the provision. It would really be a wholly untenable proposition to suggest that the qualification of being listed in a stock exchange will apply to all securities oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in treating the right shares as short term capital asset and applying the prescribed rate of tax accordingly. DECISION 89. We have heard the rival submissions, perused the relevant finding given in the impugned order as well as the relevant provisions as referred to by the parties. From the facts as narrated above, it is not in dispute that the period of holding of unlisted shares, i.e., 'rights shares' of SBPL is more than 12 months and less than 36 months (23 months). The assessee had offered the gains arising from sale of such shares as 'long term capital gain' which has been re-characterized/reclassified as short term capital gains by the Revenue authorities. At this stage, it would be quite relevant to refer to the relevant provisions under the Act. First of all, Sub-section (29A) of Section 2, defines'long term capital asset' to mean a capital assets which is not a short term capital assets. The expression"short term capital asset has been defined in sub-section (42A) of section 2 which at the relevant time, i.e. upto A.Y. 2014-15 read as under:- "(42A) "short-term capital asset" means a capital held by an assessee for not more than thirty-six months immediately preceding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been substituted." Here no such condition was placed in the aforesaid proviso for shares to be listed on a recognized stock exchange for taking the benefit of the reduced period of holding. When amendment by the Finance Act, 1994 was brought in the statute, so far as the category "share held in a company", was concerned, the same was not disturbed, albeit, new category was included like 'any other security listed in recognized stock exchange in India'.The said provision was amended to extend the benefit of shorter holding period, to a new category of securities other than shares in a company. Under this provision, the condition of listed in a recognized stock exchange was applicable only to the new category and not to the earlier category of 'shares held in a company'. This has been clarified by Memorandum explaining the provision in the Finance Bill which read as under:- "Period of holding in the case of securities and units of Mutual Funds Long-term capital assets enjoy certain tax concessions vis-a-vis short-term capital assets. The Income-tax Act defines long-term capital assets as those assets which are not short-term. Short-term capital assets are those capital ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a unit of an-equity oriented fund or a zero coupon bond], the provisions of this clause shall have effect as if for the words "thirty-six months", the words "twelve months" had been substituted: Provided further that in case of a share of a company (not being a share listed in a recognised stock exchange) or a unit of a Mutual Fund specified under clause (23D) of section 10, which is-transferred during the period beginning on the 1st day of April, 2014 and ending on the 10th day of July, ~ 2014, the provisions of this clause shall have effect as if for the words "thirty-six months", the words "twelve months" had been substituted: " [Emphasis added is ours] The aforesaid provision which has been brought in the Statute w.e.f. 01.04.2015 applicable from the A.Y. 2015-16 has now removed the exceptionfor the unlisted shares from the benefit of shorter period, because in the 1st Proviso, the benefit of period is now only limited to security listed in recognized stock exchange in India and to other financial instruments. In this manner the Legislature has clearly withdrawn the benefit of shorter period of less than 36 months for the unlisted shares. But, the 2nd proviso makes it v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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