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TMI Blog2021 (9) TMI 925X X X X Extracts X X X X X X X X Extracts X X X X ..... would do anything immediately. It is incorrect to say that these shares are completely worthless inasmuch as these are majority shares in VCAM Investment Managers Pvt Ltd, and by virtue of holding these shares, a person gets control over that existing and duly incorporated juridical entity- whatever negligible be its worth. As to what use that juridical entity be put to, it is not necessary to have a ready answer thereto but one thing is certain that it can be put to use and it s a common practice to find such companies also changing hands, of course for a consideration, in the real-life situations. In any event, how is the assessee concerned about as to what how will the buyer of shares use the company so acquired by him As regards the objections of the Assessing Officer to the effect that the assessee was well known to the seller and they had many other transactions as well, the mere fact of these transactions, and resultant association with the assessee, does not mean that this transaction did not take place. The fact that the records of the Registrar of Companies still show address of the company as a premises belonging to the assessee cannot negate the fact that the ownersh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9-2021 - Pramod Kumar (Vice President) And Ravish Sood (Judicial Member)] B N Rao for the appellant T Oommen for the respondent ORDER Per Pramod Kumar, VP: 1. This appeal is directed against the order dated 15th February 2017, passed by the learned CIT(A) in the matter of assessment under section 143(3) r.w.s. 147 of the Income Tax Act, 1961, for the assessment year 2010-11. The appeal is time-barred by two days, but the assessee has moved a condonation petition praying that the delay, which had arisen on account of delay in delivery of papers by the courier agency, be condoned. Having perused the petition and material on record, and having rival contentions on this condonation petition, we are inclined to condone the delay and proceed to take up the matter on merits. 2. The short issue that we are required to adjudicate in this appeal, as learned representatives fairly agree, is whether or not the authorities below were justified in declining set off of long term capital loss of ₹ 1,11,66,165, incurred by the assessee on the sale of shares in a company by the name of VCAM Investment Managers Pvt Ltd, against the long term capital gains of ₹ 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e observations in the valuation report had been ignored. It was further noted that no business is carried on by VCAM after the sale of shares which showed that Saldhana did not purchase the shares with an intention to continue to carry on the business of the company or any other business activity of the company . The Assessing Officer noted that the assessee knew Saldhana for over 10 years and had close business connections with him. It was then noted that under sections 23 and 24 of the Indian Contract Act, 1872, when the object is to defeat any provisions of law, and when consideration is of such nature that, if permitted, it would defeat the provisions of any law, the contract will be void. It was noted that the transaction is only to nullify the levy of long term capital gains. It was thus observed that the sale contract for the sale of shares is vitiated in law. He also noted that Saldhana was one of the directors of the company, and he had every reason to know that the company is worthless, and, in these circumstances, the purchase of shares was motivated for tax benefits to the assessee rather than any material gains to Saldhanas. The Assessing Officer observed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares in question, and the said transaction is given factual and legal effect, the loss will crystallize. That is what probably leaves a window for planning the affairs, as long as the assessee can actually dispose of these shares, so as to minimise the tax liability in respect of long term capital gains, if any, since such a loss can only be set off against the long term capital gains. 7. Ironically, however, the Assessing Officer has primarily questioned the timing of booking the loss and selling these shares, which, even according to the Assessing Officer, are worthless . It is not for the Assessing Officer to take a call on how should an assessee organise his fiscal affairs so as to serve the interests of the revenue authorities. This transaction may be tax-motivated, but that factor does not, by itself, render the transaction a sham transaction or a colourable device so as to be, to use the inimitable words of Justice Ranganath Mishra in the case of Hon ble Supreme Court in the case of McDowell Co Ltd Vs CTO [(1985) 154 ITR 148 (SC)], ignored on the ground that the Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the transaction was only on paper, and not in reality, one can ignore the transaction. That is not the case here. The fact remains that the buyer of the shares, and his wife, are now only shareholders in the company and they own the company. As documents filed before us evidence, post this transaction, not only the sale has been effected in records but there has also been a change in the composition of the board of directors, and buyer s wife also joined the company as a director. The ownership is transferred, the consideration is paid and the transaction is complete. The buyer was a director of the company in question and this is a sale of shares in a private limited company which is made only on private basis and not by way of, for example, a stock exchange. The next issue raised by the Assessing Officer is that why should someone buy these dud shares and what he does after buying these shares. Those commercial decisions must be best left to the persons concerned. What the buyer of these shares does to the company is business of the buyer of the shares, and it is not even necessary that he would do anything immediately. It is incorrect to say that these shares are complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , is illegal. Undoubtedly, when the object of a contract is illegality or something which would frustrate the law, such a contract will be void, but then minimisation of tax liability, as long as it is through legitimate tax planning and without using colourable devices, is not at all illegal; it is not even immoral as it is everybody s duty to himself to manage his affairs properly within the framework of the law. Let us see the whole transaction from a different perspective. As the assessee is looking at his long term capital gains, he realises, or his consultant points out to him, that he has already incurred a long term capital loss by making an investment in the shares of VCAM and that he can book this loss in case he can find a buyer for these shares even at zero value. He then looks around and narrows down to Saldhana, a director in the same company and his associate, who is ready to buy these shares at a token consideration at 3% of the face value of these shares, and the assessee then sells the shares to book the loss incurred by him in these shares. His long term capital loss is thus crystallised, and the corollaries are to follow. The benefit of this long term capital lo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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