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TMI Blog2019 (12) TMI 1198X X X X Extracts X X X X X X X X Extracts X X X X ..... ransaction. 3. That the CIT(A) also erred in resorting to cherry picking of the conclusions of the ITAT, which is not permissible and reflects a predetermined mind towards the conclusions drawn in the said order. Long term Vs. Short term capital gains 4. That the CIT(A) grossly erred in not following the decision of the Appellate Tribunal in the Appellant's husband's case where the Tribunal had returned a finding of the said gains to be treated as long term capital gains, the transaction being the same. 5. That the CIT(A) erred on facts and in law in treating the gains arising from sale of unlisted shares of M/s. Scorpio Beverages Pvt. Ltd. as 'short term capital gain', instead of long term capital gain returned by the Appellant. 6. That the CIT(A) erred in law in observing that for unlisted shares to qualify as a 'long term capital asset', the period of holding was 36 months and not 12 months as per the first proviso to section 2(42A) of the Income Tax Act, 1961 (Act) (as applicable during the year under consideration), read with section 2(29A) of the Act. 7. That the CIT(A) grossly erred in law in holding that the shorter period of 12 months to qualify as 'long term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion which empowered the AO to adopt a fair market value was contained in section 52 of the Act which had since been repealed in 1988. 15. That the CIT(A) grossly erred in law in failing to appreciate that the term "accruing" as contained in section 48 of the Act, which is a computational provision, could not be relied upon to impose a tax liability when the charging section itself, being section 45 of the Act, did not impose such charge of tax. 16. That the CIT(A) also failed miserably to appreciate the legal position that the term "received or accruing" in section 48 of the Act was only to cover situations where only part of the sale consideration is received in the assessment year and had to be read in conjunction with the mandate of section 45 which provides that the "income shall be deemed to be the income of the previous year in which the transfer took place". 17. That the CIT(A) also erred in not following the jurisdictional High Court judgments, violating the principal of judicial discipline, where the High Court has categorically held that the AO has no power to substitute the actual sale consideration with any notional consideration, there being no express mandate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntentional and immediately upon realising the error the Appellant brought it to the attention of the AO. 25. That the CIT(A) erred in concluding that the loss pertained to AY 2010-11 and the AO could not have allowed such loss since that year was not before him. 26. That the order of the CIT(A) is also silent about the claim of brought forward long term capital loss of Rs. 1,53,36,932/- for AY 2011-12. Business income 27. Without prejudice, the CIT(A) erred in dismissing the ground of the Appellant agitating the treatment of exempt income earned by the Appellant as partnership profits as "income from business or profession". Allowance of capital loss 28. That the CIT(A) erred in upholding the addition of inclusion of capital gain/losses on sale of capital assets other than shares of Scorpio Beverages Pvt Ltd at Rs. 20,59,509/-as against the claimed loss of Rs. 1,96,38,666/- while allowing minimal relief." Disallowance of TPS and advance tax 29. That the CIT(A) erred on facts in not allowing the credit of tax deducted at source amounting to Rs. 11,06,907/- and advance tax amounting to Rs. 48,16,27,800/-. Brought forward capital loss 30. That the CIT(A) e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted, will be treated as a long-term capital asset, if the period of holding is more than 12 months. She further stated that in case of unlisted equity shares transferred on or after 11/07/2014, the period of holding to qualify it as long-term capital asset was increased to 36 months by the Finance (No. 2) Act, 2014. It was later on reduced to 24 months by The Finance Act, 2016 with effect from assessment year 2017 - 18. Thus, it was claimed that as the above shares were sold by the assessee on 21/03/2014 the period of holding was more than 12 months, shares are ‗ Long term capital assets' and accordingly, the capital gain on transfer of those shares is claimed as long-term capital gain. 6. The learned assessing officer rejected the contentions of the assessee and held that in case of unlisted companies Equity shares, if held for less than 36 months, then it is a short-term capital asset. The learned AO relied heavily on provisions of section 2 (42A) of the act. The AO held that there is no need to go to explanatory statement when the provisions of law are abundantly and absolutely clear. However assessee relied on explanatory statement to Finance Bill 2014 wherein it is men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee at the rate of INR 63.65 per share. The AO noted that above shares have been valued by the valuer on account of valuation of Vodafone India Ltd and one of its subsidiary Indus Towers limited. On the combined valuation of these two companies, valuer arrived at a conclusion of the valuation of Vodafone India Ltd at INR 56448.30 crores. He further challenged that the valuer who originally started its valuation process on the discounted cash free flow method, however, in the end, it adopted the net asset value approach. Thus, AO held that such a valuation was conducted adopting a hybrid method to suit the requirement of the parties concerned. He further noted several discrepancies in the valuation report with respect to the estimate of revenue growth as well as increase in the direct cost. Thus, AO held that the valuation made by the Kotak Mahindra capital private limited is incorrect. Therefore, the AO held that a Scorpio beverage private Ltd is one of the holding companies of Vodafone India Ltd and its only activity is holding the shares of Vodafone India Ltd. Therefore, value of the shares of Scorpio beverages private limited has to be derived from the valuation of Vodafon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The AO further dealt with them which are reproduced by the CIT - A at page number 34 - 43 of his order. The assessee was also given an opportunity to submit rejoinder. Assessee submitted such rejoinder on 10/10/2017, which is reproduced at page number 43 - 53 of his order. The learned CIT - A as per para number 4.9 - 4.11 of his order rejected the application under rule 46A for admission of additional evidences for the reason that assesseee has enough opportunity before lower authorities. 9. Thereafter the learned CIT - A provided a copy of the framework agreement of 2006 dated 1/3/2006 to the authorised representative of the assessee and asked as to why the above document may not be relied upon to determine the actual consideration for the transfer of shares of Scorpio beverages Ltd. Appellant submitted such reply on 23/11/2007 raising several grounds, which are reproduced at page number 56 - 61 of his order. The learned CIT - A rejected the main contention of the assessee that the framework document dated 1/3/2006 was replaced by the framework document dated 5/7/2007 as the framework document dated 5/7/2007 nowhere states that it replaces the earlier framework document. Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, he held that interest cannot be considered as either the cost of acquisition or cost of improvement in those shares and therefore, it cannot be reduced while working out the capital gain in the hands of the assessee on sale of sales of Scorpio beverages Ltd. 12. With respect to the claim of the assessee for brought forward loss of Rs. 24.98 crores he confirmed that it could not be allowed to be brought forward/carried forward as appellant could not justify the above sum. 13. The assessee further claimed that credit of tax Deducted at source of Rs. 1106907/- and advance tax payment of INR 4 86027800/- was also not allowed by him holding that assessee neither describe the details of such tax deduction at source and advance tax paid nor furnished any evidence for the payment of the same. However, he directed the AO to examine the claim of the appellant as per credit shown in form number 26AS or evidences of such tax payments and grant credit to the assessee. Thus, appeal of the assessee was partly allowed by him as per order dated 16/3/2018. 14. Assessee aggrieved with the order of the learned CIT - A preferred this appeal before us raising several grounds of appeal. 15. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determining the fair market value of shares in terms of rule 11 UA of Income Tax Rules along with supporting balance sheets of the respective intermediary Pvt Ltd companies. He further referred to the case of Analjit Singh, where coordinate bench has reached the conclusion, on the issue of long-term capital asset vs short-term capital asset and treatment of the capital gain on transfer thereof. It was decided in favour of assessee holding that the gain was indeed long-term in nature as the assets transferred were ‗long-term capital asset'. On the issue of whether the sale consideration is only relevant factor for determining capital gains, coordinate bench held that as per section 45 read with section 48 of the act , capital gain has to be computed in respect of the ‗full value of the consideration received or accrued'. The coordinate bench accepted that only consideration agreed between the parties and not any hypothetical fair market value would be taken into consideration for computing capital gains. However, tribunal held that on reading of the agreement for transfer of shares, the consideration accrued to assessee on transfer of shares of Scorpio beverages P Ltd, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of the appellant's husband. He submitted that given the computational errors made in the case, it is necessary to submit the present computation for consideration of the coordinate bench. He further stated that in the case of appellant's husband the coordinate bench rejected the verification of the computation merely on the ground that the AR of Mr. Anlajit Singh did not raise any objection to such computation. However, in the present appeal, which is yet to be adjudicated, to avoid irreparable injury to the assessee, these additional evidences are prayed for admission. He referred to rule 29 of the ITAT rules and stated that coordinate bench has an inherent power to require any document to be produced or any witness to be examined for pronouncing its judgment for substantial cause, while adjudicating the issue. He further relied upon the decision of the honourable Supreme Court in case of Arjun Singh vs Kartar Singh AIR 1951 Supreme Court 193 and decision of the honourable Gujarat High Court in Pari Mangaldas Girdhardas V CIT 1977 CTR 0647 (Guj). He further referred to the decision of the coordinate bench in Electra Jaipur Private Limited vs. Inspecting Assistant Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not excluded. He further referred to discrepancies in valuation of AO with respect to each item and tried to substantiate with the balance sheets. 20. The learned departmental representative vehemently opposed the submission of the assessee by letter dated 21/5/2019. Firstly, it referred the facts of the case and then the issue involved therein. It was further stated that in the case of Sri Analjit Singh, issue has been decided that capital gain should be treated as a long-term capital gain' and restricted the sales consideration at fair market value of share at INR 131.86 per share. It was stated that the issue with regard to the computation of fair market value of shares of Scorpio beverages Ltd has been decided by the coordinate bench and the issue with regard to the treatment of capital gain from short-term capital gain to long-term capital gain is a debatable one and pending adjudication before the Honourable Delhi High Court. It was further submitted that revenue has also challenged the above decision of the coordinate bench in ITA number 819/2018 before the Honourable Delhi High Court. It was further submitted that though the assessee has a liberty to file additional e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce it requires a detailed investigation/ examination, keeping in view all the assets and liabilities of each entity separately. The fair market value cannot be vetted or undertaken simply based on certain papers filed by the assessee. The documents and auditor's report filed by the assessee are to be tested on the actual confirmation from the party to whom these details are pertaining and subsequently the same is confronted to the assessee for a submission or justification. Therefore, it was submitted that the coordinate bench firstly should not consider the additional evidence filed by the assessee. 21. It was further contended that Piramal Healthcare Limited was also holding 10.97 percent in shares of Vodafone India Ltd and after undertaking an independent valuation of fair market value of shares of Vodafone India Ltd, stake of that company was transferred to Premi Metals Limited, a Mauritius-based foreign company at INR 8900.44 crores in March 2014. Based on this valuation, 100 % fair market value of shares of Vodafone India Ltd comes to INR 811,343,700,000 whereas the FMV of the shares of Vodafone India Ltd has been valued by the Kotak Mahindra capital company limited at INR 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the honourable Madras High Court [ 4 ITC 226] . She referred to para number 11 and 12 of the order of the honourable Supreme Court. Ld AR stated, without prejudice to above contentions of the revenue, in case the plea of the assessee is accepted, the matter may kindly be restored back to the file of the learned assessing officer for obtaining a fresh valuation report from an independent valuer of international repute, so that the fair market value of the same can be examined for its correctness and in the alternative the price determined by the coordinate bench in case of Sri Analjit Singh should be followed. 24. The assessee submitted rejoinder to the replies of the learned CIT DR. It was submitted that the computation submitted by the revenue was later found to contain several errors in the case of the husband of the assessee and therefore the correct value of assets and liabilities of the intermediary companies had not been properly recorded. This resulted in incorrect valuation of INR 131.86 per share, which was adopted, as it is, by the coordinate bench, without any further verification. The coordinate bench also did not verify/examine the computation; whether it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 018 dated 1/12/2070. Despite this fact, the assessee has filed the additional evidences under rule 29 of the ITAT rules 1963 challenging the valuation of the shares of Scorpio beverages private limited, which was actually the value of transfer of shares of Vodafone India Ltd. The revenue strongly argued that these additional evidences should not at all be entertained. Further, it was submitted that a special Counsel has been appointed in the present case; therefore, he should be heard. The coordinate bench, after considering the request of CIT DR, adjourned matter further as it was informed that Mr. Zoiab Hussain , senior standing counsel has been appointed to argue the case on behalf of the revenue. 26. Subsequently, the learned senior standing counsel Mr. Zoaib Hussain appeared and submitted a compilation of judicial precedents containing six judgments of honourable Supreme Court and high courts. a. He 1st referred to the decision of the learned assessing officer as well as the learned CIT - A for the reason that why the order of coordinate bench in case of the husband of the appellant partially should not be applied. b. He referred to the decision of the honourable Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirmity in the valuation adopted by the ITAT. He submitted that it is the correct income accruing to the assessee. f. To support his contentions he referred to the decision of the honourable Bombay High Court in CIT vs Shakuntala Kantilal 190 ITR 56 to submit that legislature while using the expression full value of consideration as contemplated both additions to as well as deductions from the appellant value. What it means is the real and effective consideration. He further referred to the decision of the honourable Supreme Court in the E D Sassoon and Co Ltd, Bombay vs. The Commissioner of income tax [ AIR 1954 SC 470 ] to further the case of the revenue that income may accrue to an assessee without actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received a letter on its being ascertained. The basic concept is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. According to him, unless and until there is created in favour of the assessee as a debt due by somebody it cannot be said that he has acquired a right to receive the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration for computation of capital gain accrued or received by the assessee determined at INR 131.86 per share in that decision and iii. Not allowing the interest cost deductible item for computation of capital gains. 27. In rejoinder, the learned authorised representative referred to para number 10 of the order of the coordinate bench in miscellaneous application number 742/Del/2017 dated 19/3/2018, wherein the revenue has objected to submission of a fresh paper book containing set of financial statements of intermediary companies and prayer of the assessee that rectification of computation be done including reduction of Preference shares capital of 5 intermediary companies from their net asset value for calculating Equity share value of Scorpio beverages private limited. He then referred to para number 12 of that order wherein the finding of the coordinate bench was given. He further referred to para number 13, wherein the coordinate bench directed the department to file the calculation in accordance with rule 11 UA so that the correct sale value price of unquoted shares could be worked out. Thereafter , he referred to paragraph number 64 - 65 of the order of the coordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up for hearing to correct the above computational error, additional evidences were submitted. 28. With respect to the adjustment of Preference share capital of five step down companies , he referred to a. Audited balance sheet of JK finholding (India) private limited as at 31st of March 2013 and referred to note number 3 wherein non-cumulative redeemable nonconvertible preference shares of INR 100,000 each amounting to INR 8 709, 000, 000/- were outstanding as on 31/03/2013. b. He further referred to the audited accounts of SMMS investments private limited for the year ended on 31st of March 2013 and referred to note number 3 where 1183005,000 Preference shares as of INR 10/- each of 0.0001% cumulative redeemable preference shares of series I,II and III were outstanding amounting to Rs. 11830050, 000/-. c. He further referred to the balance sheet of Telecom Investments India Private Limited for the year ended on 31st of March 2013 and referred note number 3 where 6924 noncumulative, redeemable, nonconvertible preference shares of INR 1,000,000 each were outstanding amounting to INR 6924000, 000/-. d. He further referred to the annual accounts of MV healthcare services pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue, which needs to be verified and corrected, and principally it needs to be held that preference share capital cannot be included in the above valuation. He submitted that even if these additional evidences are not admitted, the revenue must to compute the correct amount of value per share of Scorpio beverages private limited by taking the actual figures from the audited annual accounts of those intermediary companies and apply the provisions of rule 11 UA correctly. For this simple reason, the assessee, without prejudiced of its contention on any other ground of the appeal, submits that such correct valuation should be adopted. 30. On the other issues as per ground number 2 to 20, he submitted that the issue of long-term vs short-term capital gain has already been decided by the coordinate bench in the appellant's husband case holding that the assets transferred by the assessee in the form of shares of Scorpio beverages private limited are long-term capital asset and therefore gain arising therefore is chargeable as long-term capital gain. With respect to share valuation, he submitted that the issue squarely covered against the assessee by the decision of the coordinate benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also if it requires such evidence for any other substantial cause, that is to say, even in cases where the Tribunal finds that it is able to pronounce judgment on the state of the record as it is, it may still allow additional evidence to be brought on record if it considers that in the interest of justice something which remains obscure should be filled up so that it can pronounce its order in a more satisfactory manner (4) Such requirement in either case arise ordinarily unless some inherent lacuna or defect becomes apparent on a examination of the evidence and, therefore, the legitimate occasion for the exercise of discretion under r. 29 is not before the appeal is heard but when on an examination of evidence as it stands, some inherent lacuna or defect becomes apparent; (5) Such defect may be pointed out by a party or a party may move the Tribunal to supply the defect or the Tribunal itself may act suo motu in the matter; (6) if the additional evidence is allowed to be adduced contrary to the principles governing the reception of evidence, it would be a case of improper exercise of discretion and the additional evidence so brought on record will have to be ignored; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conceptually the valuation is to be done as per the dictate of the coordinate bench in case of the assessee's husband according to rule 11 UA of The Income Tax Rules. The rule 11 UA speaks about the ‗book value' of the assets and liabilities for working out the valuation of the unquoted shares, Book values can only be found from the annual audited accounts of those companies, therefore it is mandatory to admit the above evidences so far as the balance sheet of the subsidiary companies are concerned. Hence, we admit the annual accounts/balance sheets of the intermediary companies submitted by the assessee. 36. The next additional evidence submitted by the assessee is the valuation report submitted by the assessee of SEBI registered category 1 merchant banker 3Dimension capital services Ltd dated 09/05/2019. According to such report, the fair valuation per share is INR 9.93. The assessee has also submitted as additional evidence the certificate [valuation report] of the chartered accountant dated 10th may 2019, which has valued the sale price of INR 70.59 per share. Both the above evidences submitted by the assessee are contradictory and does not show the reason how the valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the Annual accounts of the intermediary companies and rejecting the valuation certificate issued by the merchant banker and the chartered accountant. 38. Now we come to the merits of the issue. The first issue is with respect to characterizing the assets being shares of the Scorpio beverages private limited i.e. whether they are long-term capital asset or short-term capital asset. This issue has been considered by the coordinate bench in the case of the husband of the appellant as under :- "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 Rs. 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 purchase Date of sale Period of Holding Capital gain/loss Rs. Vana Hotels Pvt. Ltd. 13.07.2012 16.12.2013 17 months (9,190) Vana Lifestyles Pvt. Ltd. 13.07.2012 16.12,2013 17 months (9,190) Vana Resorts and Hotels Pvt. Ltd. 13.07.2012 16.12.2013 17 months (9,190) Vana Retreats Pvt. Ltd. 13.07.2012 16.12.2013 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod 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 2nd proviso 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 2nd proviso 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 that the shorter period of holding of 12 months is applicable to the shares either listed or unlisted held in a company. There was no such distinction under the Statute for determining period of holding for the listed or unlisted shares. The condition of listing on a recognized stock exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 2nd proviso 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. He again made reference to explanatory notes to the amendments and the CBDT Circular No. 1/2015 dated 21.01.2015, wherein the purpose of bringing the said provisions brought w.e.f. 01.04.2015 has been clearly spelt out. Thus, he submitted that considering the facts that all unlisted shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 other than shares. Such an intention of the lawmakers would necessarily have to be stated in express terms and cannot be inferred more so when the definition of the "Security" stands imported by virtue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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/re-classified 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 the date of its transfer: Provided that in the case of a share held in a company or any other security listed in a recognised stock exchange in India or a unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 assets which are held for a period of up to 36 months. However, the Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions 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 exception for 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 very clear that the unlisted shares of a company or unit of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;long term capital gain' to 'short term capital gain' shown by the assessee. Accordingly, the gain on transfer of SBPL's share would be taxable as 'long term capital gains' and not short term capital gains and resultantly, Ground No. 1 as raised by the assessee is allowed." 39. Therefore, respectfully following the decision of the coordinate bench in the case of Mr. Analjit Singh, we also hold that the gain on transfer of shares of Scorpio beverages P Ltd would be taxable as 'long-term capital gains' and not 'short-term capital gains' as assessee has held those shares for more than 12 months. Thus, ground number 4 - 8 of the appeal of the assessee is allowed to above extent. 40. Now we come to ground number 9 - 20 of the appeal of the assessee with respect to sales consideration received accrued to the assessee. The coordinate bench in case of the husband of the appellant has decided the whole issue as under:- 58. We will now dwell upon the core issue raised by the parties, that is, whether the sale consideration of Rs. 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 he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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 and re-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 Rs. 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 valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration 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 Rs. 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 (a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st February 28, 2014 that would impact the valuation 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 Hold Co 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) x (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; *= book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:- ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel, Mr. G.C. Srivastava admitted that indirect 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. CIT who 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 Rs. 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 Share-holding in the immediate step down subsidiary in the chain Details Value as per Kotak Mahindra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 22,630 Add: Value of Net Assets (Liabilities) excluding in VIL, JKF & SMMS -37,700 302 Assets - Liabilities - Market Value of Investment in JKF, SMMS & VIL + Income Tax -133.63 NBFC Equity value of TII 46,382 130,179 NADAL 23.97% Value of 23.97% equity stake in TII 11,118 31,204 Add: Value of Net Assets (Liabilities) excluding in TII -4,873 -4,881 Assets - Liabilities - Market Value of Investment in TII + Income Tax -23.03 Investment Activities Equity value of NADAL 6,245 26,323 PLUSTECH 100% Value of 100% equity stake in Nadal Add: Value of Net Assets (Liabilities) excluding in Nadal 6,245-3,014 26,32310 Assets - Liabilities - Market Value of Investment in NADAL + Income Tax -17.1 Investment Activities Equity value of Plustech 3,231 26,333 AGM 100% Value of 100% equity stake in Plustech 3,231 26,333 Add: Value of Net Assets (Liabilities) excluding in Plus tech 10 10 Assets - Liabilities - Market Va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usions are drawn on the issues/questions we have framed for the purpose of our adjudication:- Firstly, the sale value of SBPL as shown by the assessee is not in consonance with the contractual obligations entered by the parties under various Framework Agreements wherein it has been repeatedly envisaged that the value of SBPL was linked with the FMV of HEL/VIL and therefore, the share value as determined accordingly would get enhanced accordingly. Secondly, the sale consideration received by the assessee as per the Sale Purchase agreement of 12.03.2014 cannot be reckoned as "accrued" to the assessee in terms of section 48 of the Act, because herein this case it is not a case of simple sale and purchase transaction, albeit rights and obligation of the parties as per the agreements for transfer of shares was in exercise of 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 588213/-. From the above sum the current liabilities shown in the balance sheet of the assessee of INR 6 33416 is further required to be reduced, which gives the net asset value of total shareholding of this company at Rs. 4490954797/-. This value is pertaining to two different types of share capital issued by that company. The assessee has issued equity shares amounting to INR 4389099920/- divided into 438909992 equity shares of face value of INR 10 each and further 1183005000 preference shares of INR 10/- each being cumulative redeemable preference shares of 3 different series amounting to Rs. 11830050000/-. Now the assessing officer is required to value the equity share capital. To value the equity share capital, all other items of the balance sheet other than equity capital and free reserve, are required to be considered in the net asset value of those equity shares. As per valuation methodology of rule 11 UA of the income tax rules 1962, while working out the total liabilities for valuation of unquoted equity shares following mathematical formula is to be applied. book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:- (i) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestments private limited has picked up the figure of share capital from the face of the balance sheet without looking at note no. 3, where the complete description about the equity share capital and preference share capital is provided. Thus, while valuing the shares of SMMS investments private limited, it is a mistake in the computation made by the learned assessing officer by not including the preference shares of Rs. 11830 million in the total liability of the company. This is the mandate of Rule 11 UA of income tax rules 1962 to consider while valuing Equity shares of an unlisted entity, to include preference share capital in total liability of the company and to exclude only Paid up Value of equity share capital issued and free reserve. This sum of liability is required to be reduced from the total assets of the company, then only the net book value assets representing book value of equity shares of that company can be derived. Therefore thus it is apparent that the learned assessing officer has taken the composite figure of share capital erroneously which included the equity share capital and preferential capital both along with the free reserves and surplus of that company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent case before us is the transfer of the underlying business of Vodaphone limited by transfer of multiple shares held by the companies. The issue before honourable Delhi high court was merely an understatement of consideration on the date of transaction compared to the quoted prices of shares of NIIT limited. The coordinate bench in case of Mr. Analjit Singh has also dealt with the issue of accrual of sale consideration as under :- "58. We will now dwell upon the core issue raised by the parties, that is, whether the sale consideration of Rs. 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 herein above, within the expression used in section 48. Section 48 envisages that income must have been received or have accrued under section 48 as result of the transfer of a capital asset. The income may be said to have been ‗accrued' if the assessee acquires the right to receive the income from the contractual obligation or as per any other legal obligation. It is sine-qua-non that the assessee must have acquired the right to receive the income and there is corresponding debt owed to him by som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 Rs. 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 value of issued share capital of HEL exceeds US $ 25 billion and then the SBPL value was again to be re-valued. This illustrative working, proceeds with the fair market value of HEL at that time at US $ 25 billion and with some hypothetical working and assumption of liabilities, a transfer price of US $ 266.25 million was arrived and the same figure has been incorporated in Schedule-1. Though, we have already observed that the amount of US $ 266.25 million may not be bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rival submissions and considered the entire gamut of facts placed before us and the provision of law and 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., in the 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 Rs. 39,95,01,050/-(i.e., Rs. 13,88,26,342 in F.Y. 2012-13 & Rs. 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 borrowing which has been capitalized as part of the cost of acquisition of such 'right shares' for the purpose of computing capital gain arising on transfer of such shares. The Assessing Officer first of all denied the cost of acquisition in view of the provisions contained in section 55(2) and held that meaning of cost of acquisition and cost of improvement as appearing in section 48 & 49 has been restricted by the scope of section 55 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usted", "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 our purpose 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 any payment, then, subject to the provisions of sub-clauses (i) and (ii) of clause (b),- (i) xxxxxxxxxxxx (ii) xxxxxxxxxxxx (iii) in relation to the financial asset, to which the assessee has subscribed on the basis of the said entitlement, means the amount actually paid by him for acquiring such asset ; (iiia) in relation to the financial asset allotted to the assessee without any payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest 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 after referring to the Memorandum explaining the provision of Finance Bill, 1994 through which section 55(2) was proposed to be inserted, had submitted that the intention of the legislature was only to prescribe uniform method for computing the basic cost of acquisition of bonus/right shares and not to restrict to only the actual cost paid. We are unable to agree with such an argument, because the said Memorandum explain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 such cases will be as follows:- (i) in the case of the original financial asset, on the basis of which the assessee becomes entitled to a rights issue, cost of acquisition will be the amount actually paid for acquiring such financial asset; (ii) in the case of right to renounce the entitlement, when such right is actually renounced by the assessee in favour of any other person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed 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." Therefore respectfully following the decision of the coordinate bench we dismiss ground number 21 and 22 of the appeal and confirm the orders of the lower authorities in not allowing the capitalization of interest cost of INR 1 00902358/- as part of the cost of acquisition while calculating capital gain on sale of shares of Scorpio beverages private limited. 46. Ground number 23 - 25 of the appeal of the assessee is with respect to the allowance of brought forward long-term capital loss of INR 24982206/- brought forward from assessment year 2011 - 12. Above loss was inadvertently claimed by the assessee at INR 2 49822064. Even in the grounds of appeal mentioned the assessee in ground number 23 has mentioned an astronomical figure, which is not the correct fact. Despite this asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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