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TMI Blog1998 (4) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... pany, and had objected the share loss on surmise and conjectures, was based on no evidence or partly relevant or partly irrelevant evidence and is otherwise perverse and arbitrary ? 3. Whether, considering the totality of the facts and in the circumstances of the case, the Tribunal was correct in law in directing the AO to allow the share of loss of Rs. 3,38,861.50 to the assessee-company ?" 2. The assessee-company claimed loss of Rs. 3,38,861.50 from the following dealings: ------------------------------------------------------------------------------------------- Date of Shares No. of Cost Date of Sale Loss purchase shares sale &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds : (i) Within 66 days, i.e., on 14th Sept., 1981, the assessee-company repurchased all the shares of Jokai India Ltd. for a sum of Rs. 3,82,375. (ii) On scrutiny of the bank statement of both assessee-company and Shri R. L. Kanoria, it transpires that on 10th July, 1981, the assessee-company issued a cheque for a sum of Rs. 5,56,000 to Shri R. L. Kanoria when the assessee-company had only Rs. 999.37 in their credit balance. (iii) On the same date Shri R. L. Kanoria issued a cheque for Rs. 6,56,046 to the assessee-company to purchase the above noted shares when Shri R. L. Kanoria had only Rs. 434.53 in the bank account for disposal. Both the assessee-company and Sri R. L. Kanoria had their account with United Commercial Bank, at No. 2, India Exchange Place, Calcutta, and neither actual transfer of money took place nor the transferee had any source to purchase the share. (iv) While repurchasing the shares of Jokai India Ltd. again Shri R. L. Kanoria issued a cheque for Rs. 3,82,000 to the assessee-company and the assessee-company issued a cheque for Rs. 3,82,275 for repurchase. Here also the parties had only petty balance in their bank accounts and had no money for such tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; 1,000 Against the above loan receipt the assessee made the following payments immediately after the receipt. Rs. 13-4-1981 By clearing 5,525.53 8-6-1981 -do- 2,00,000.00 23-6-1981 -do- 1,00,165.00 21-7-1981 -do- 1,081.00 &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee-company. The Tribunal held as under : "We have carefully considered the rival submissions, facts and circumstances of the case and material on record. It is not in dispute that the assessee-company carried on business of share dealings. It is also not in dispute that sale of all shares and repurchase of shares of Jokai India Ltd. are supported by vouchers. The shares of three companies were sold to R.L. Kanoria for a total consideration of Rs. 5,56,055 and the amount was received through cheque which was duly credited in the bank account of the assessee. The purchase of shares of Jokai India Ltd. is also reflected in the bank account of the assessee. The assessee's claim that sale of shares was effected through spot delivery has also not been refuted. Thus prima facie the transactions have been established. For treating these transactions as non-genuine, the lower authorities took into account the fact that transactions were carried with the chairman of the assessee-company. The CIT(A) held that transactions to be colourable device claimed at tax avoidance and, therefore, liable to be ignored in view of the decision of the Supreme Court in the case of McDowell & C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he loss claimed in share dealings. The share loss has to be allowed and we direct the lower authorities to allow the loss to the assessee. The lower authorities were not justified in treating the three transactions of different shares as one transaction. The sale of shares of General Fibre Dealers Ltd. and Bhagatpur Tea Co. are required to be considered separately. It is not in dispute that these companies had not declared any dividend for the past several years and had huge accumulated losses. The shares of these companies were not quoted in the market but had nil value by the break-up method on the date of sale. It is also not disputed that Sri Kanoria was a creditor of the assessee-company and on the loan advanced by him, the assessee-company was paying interest at Rs. 18 per annum when it was receiving no income from the share holdings. The assessee's case that sale of shares was effected to reduce liability to pay interest is borne out from the record. We are also unable to agree with the CIT(A) that the assessee-company as "debtor" could dictate and get any price for shares from Sri Kanoria. There is nothing on record to refute the assessee's claim that there was no buyer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of prudence after a few years although selling and buying of same scrip in short interval, is not uncommon in share dealing business. From Sri Kanoria's account it is evident that in the sale purchase transaction the assessee-company reduced its loan liability at Rs. 3 per share and thus had gained, to the above extent. If purchase and then sale and the resultant loss was to be questioned it was to be done in the case of Sri Kanoria. Therefore, as stated earlier, the transactions have been duly accepted. Thus on totality of circumstances we are unable to hold the transaction as non-genuine. The Revenue has failed to establish its case and rejected share loss on surmise and conjectures. For the above reasons, we allow loss in share dealings to the assessee as claimed. Accordingly, we set aside the orders of the lower authorities on this point and direct the AO to allow the above loss to the assessee." Against the said order of the Tribunal, the instant reference has been directed. 4. The questions raised by the Revenue and referred by the Tribunal to this Court seek to challenge the aforesaid order of the Tribunal mainly on the ground that the same is passed on no evidence or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each other, The ultimate purpose of the assessee and Sri Kanoria is to claim loss in their income-tax assessment. It has further been submitted on behalf of the Revenue that the Tribunal did not consider all the grounds of objection mentioned by the ITO or by the CIT(A) nor has dealt with the same. The Tribunal mainly based its findings on the ground that the consideration of Rs. 5,56,055 was received through cheque and was duly credited in the bank account of the assessee. The Tribunal did not appreciate properly the fact that the transaction was between the company and its chairman and there was no substantial credit of the parties in the bank, at the time when the cheques were issued by the assessee as well as by its chairman all upon the same bank, viz., United Commercial Bank. It has also been submitted that all transactions through cheques are not sacrosanct nor do they by themselves make the transaction genuine. It has also been argued on behalf of the Revenue that even assuming that some of the transactions were accepted in case of assessment of Kanoria, it is not conclusive to hold that the transactions should be accepted as genuine, so far as the company is concerned, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of share dealings is a vague and not a correct finding. (f) It has also been contended that the Tribunal has not dealt with the objection of the ITO that sale through broker of listed shares are essential under the Securities Contracts (Regulation) Act of 1956, and in this case, sale of shares of Jokai India Ltd., was not done through any broker. There is no finding of the Tribunal on this contention except recording rival submissions. (g) The Tribunal did not appreciate that by these fictitious transactions, the assessee- company and Kanoria tried to claim the assessee-company wanted to help its chairman, Mr. Kanoria, to gain control over the other two companies and to claim short-term loss under the head "Capital gain" in respect of the shares of Jokai India Ltd. It has been argued on behalf of the Revenue that this is a case of tax avoidance by resorting to fictitious transactions between the assessee-company and its chairman, Mr. Kanoria, and the principle laid down by the Supreme Court in McDowell's case, applies to the facts of this case. It has further been submitted on behalf of the Revenue that it is the duty of the Court in the facts and circumstances to lift and/o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the company to show cause why assessments made may not be reopened. The appellant moved the High Court for quashing of such notice and having failed, carried the matter in appeal to the Supreme Court. A Division Bench of the Supreme Court in McDowell and Co. Ltd. vs. CTO (1977) 1 SCR 914, examined the provisions of the Excise Act and the Rules made thereunder as also the provisions of the ST Act. The Supreme Court took the view : "We hold that intending purchasers of the Indian liquor who seek to obtain distillery passes are also legally responsible for payment of the excise duty which is collected from them by the authorities of the excise Department." The Supreme Court then proceeded to determine whether excise duty paid directly to the excise authorities or deposited directly in the State exchequer in respect of Indian liquor by the buyers before removing the same from the distillery could be said to form part of the taxable turnover of the appellant distillery. Precedents were referred to and the Court came to the conclusion that excise duty did not go into the common till of the appellant and did not become a part of the circulating capital. Therefore, the sales-tax author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old at the time of or before the delivery of the goods and any other sums charged by the dealer, whatever be the description, name or object thereof'. The definition clearly indicates that the total amount charged as the consideration for the sale is to be taken into account for determining the turnover. Where a bill of sale is issued (and obviously the bill has to state the total amount charged as consideration) the total amount set out therein is to be taken into account. In every transaction of sale, there is bound to be a seller at one end and a buyer at the other, and transfer of title in the goods takes place for a consideration." Considering the relevant provisions of the statutes, the Supreme Court, as aforesaid, dismissed the appeal of the writ petitioner. The Supreme Court in this connection recalled the observations of Viscount Simon in Latilla vs. IRC (1943) 25 Tax Cas 107, 171 (HL) : "'Of recent years much ingenuity has been expended in certain quarters in attempting to devise methods of disposition of income by which those who were prepared to adopt them might enjoy the benefits of residence in this country while receiving the equivalent of such income, without sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e unusual procedure of routing the money through Wood. The letters of Wood produced by the assessee, confirming the transactions, though written on official note-paper of the bank, gave no reference number of the bank and there were no office copies of the letters with the bank. The Rana never attended any general meeting of the shareholders nor appointed any proxy in his behalf, and did not take any steps till April, 1955, to have the shares registered in his name or to collect the dividends amounting to Rs. 2 lakhs. It was only in April, 1955, when the price of those shares went up in the market and they had to be sold, that the Rana opened an account with the Allahabad Bank and in that account were credited sums amounting to Rs. 38 lakhs got by the sale of those shares. Practically the entire sum of Rs. 38 lakhs was encashed by nine bearer cheques for large amounts by Das, a peon of Ashoka Marketing Co., a company controlled by the assessee, and Das was said to have handed over the cash to the Rana at the premises of Sahu Jain and Co., a company with which the assessee was closely associated. The Rana had been introduced to Dujari (accountant of Ashoka Marketing Co.) by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endor companies to Durga Prasad of Tumsur was in fact advanced by the assessee. Both are inter-linked and unless the connection of the assessee with the loan is established, the assessment in respect of that amount as income from undisclosed sources cannot be sustained. The Supreme Court further observed, inter alia, at p 380 of the said report as follows : "The two primary questions that arise for a decision in these appeals are : 1. Whether the findings of fact reached by the Tribunal are liable to be interfered with on any of the grounds recognised by law ? and 2. Whether the Department has been able to establish that the shares alleged to have been purchased by the Rana were actually purchased by the assessee and that the Rana was a mere benamidar for the assessee ? The findings reached by the Tribunal are, prima facie, findings of fact. Before rejecting those findings, we must be satisfied that there are grounds in this case recognised by law which empower us to interfere with those findings. If the Department succeeds in crossing this hurdle, it has to further establish not merely that the Rana was not the real purchaser of those shares but that he was the benamidar of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered by the High Court. In this case before the Supreme Court the specific question raised on behalf of the Revenue for reference was as follows : "Whether, on the facts and in the circumstances of the case, the findings of the Tribunal that a sum of Rs. 10,80,000 paid for the purpose of the shares was not the assessee's own income was a perverse finding having regard to the evidence on the record ?" The Supreme Court held that the two questions on which reference has been made impugn the findings and the validity of the Tribunal's conclusion that Rs. 10,80,000 was not an income from undisclosed sources, but was the product of a genuine sale by the vendor-companies. Dealing with the questions, the Supreme Court further held and observed as follows : "In our view, the High Court and this Court have always the jurisdiction to intervene if it appears that either the Tribunal has misunderstood the statutory language, because the proper construction of the statutory language as a matter of law, or it has arrived at a finding based on no evidence or where the finding is inconsistent with the evidence or contradictory of it, or it has acted on material partly relevant and part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also failed to take into consideration that there is absolutely no aspect of commercial prudence involved in selling the unquoted shares to Shri Kanoria at a loss. The Tribunal followed the effect that the said sale was effected solely with the object of benefiting the chairman, Sri Kanoria, to gain control over the other two companies. Accordingly, there is no scope for considering the said items of loss of Rs. 67,458 and Rs. 1,23,482 as genuine business loss. (iv) The Tribunal failed to take note of the fact that the main purpose of the sale of shares at Rs. 20.50 per share on 10th July, 1981, to Sri Kanoria and the subsequent repurchase of the same from him on 14th Sept., 1981 at Rs. 17.50 per share appears to be to enable Sri Kanoria to claim short-term loss under the head "Capital gain" in respect of the purchase and sale of shares by him respectively on 10th July, 1981, and 14th Sept., 1981. In this process, the appellant also had tried to claim the benefit of the loss of Rs. 1,41,561 for the asst. yr. 1982-83. This arrangement has the character of a well planned scheme of tax avoidance. (v) Further consideration should have been with regard to the fact that no actual move ..... X X X X Extracts X X X X X X X X Extracts X X X X
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