9911796707
TMI Blog2024 (4) TMI 581X X X X Extracts X X X X X X X X Extracts X X X X ..... dering the fact that the said shares were held by the assessee for more than 12 months preceding the date of transfer. 4. The brief facts are that the assessee company incorporated under the laws of the state of Delaware, USA is a tax resident of the Unites States of America. The assessee company is engaged in maintaining foreign direct investment (FDI) account and has its main source of income in India from income from capital gains. The assessee filed its return of income dated 29.10.2007, declaring total income at Rs. 428,96,85,892/- and the same was processed u/s. 143(1) of the Act. The assessee's case was then selected for scrutiny and notice u/s. 143(2) and 142(1) of the Act were issued and served upon the assessee. The assessee, pursuant to share purchase agreement dated 14.06.2002 with Progeon Ltd. was holding 87,50,000 equity shares of Progeon ltd. It was original subscription of CCPS converted later on into equity shares. On 20.04.2006, assessee entered into an agreement to sale above shares to Infosys Technologies Ltd. for a consideration of rupee equivalent to USD 115,131,000/-. This consideration was subject to terms and conditions of that agreement which are mentione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... took place on 30.06.2006 where the sale was completed on 20.04.2006 as only procedural requirement were to be completed after 20.04.2006 to 30.06.2006. It was also observed that the shares were dematerialized in the account of assessee on 20.06.2006 where shares were held in demat account from 20.06.2006 to 30.06.2006 which also corroborates the fact that the shares are short term capital assets. 8. Aggrieved, the assessee is in appeal before us, challenging the order of the ld. CIT(A) in upholding the order of the ld. A.O. 9. The learned Authorised Representative ('ld. AR' for short) for the assessee contended that the sale of shares in dispute by the assessee would be covered under the provision of section 2(29B) of the Act and that the assessee had entered into an agreement for sale of shares with Infosys Technology Ltd. on 20.04.2006 but the date of transfer of shares was only on 30.06.2006. The ld. AR further stated that the lower authorities have relied on the CBDT Circular No. 704 dated 28.04.1995 for determining the date of transfer which the ld. AR contends that will not be binding on the assessee. The ld. AR further stated that even otherwise the CBDT Circular s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en relied on the decision of the Tribunal in Max Telecom Ventures Ltd. vs. Asst. CIT [2008] 114 ITD 46 (Amritsar). 11. We have heard the rival submissions and perused the materials available on record. It is observed that the assessee had entered into a share purchase agreement with Infosys Technologies Ltd. on 20.04.2006 for a consideration equivalent to USD 115,131,000 (US Dollar) convertible at the Bombay Stock Trade which was prevailing on the closing date. The assessee's preposition before us is that the period of holding of equity shares to be taken from original allotment of CCPS, through which it was converted into equity shares that were sold by assessee. Reliance was placed on Circular No. 20D dated 07.07.1964 and decision of co-ordinate bench of Periar Trading Company Private Ltd.(supra). Further on 20.04.2006, the assessee entered into the agreement to sale which was subjected to fulfillment on certain condition which was fulfilled and shares were transferred on 30.06.2006. The assessee contended that 30.06.2006 is the date of transfer of shares which were held for more than 12 months making it a long term capital assets. Reliance is placed on the decision of the co-or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Approvals. Complete and correct copies of such Required Governmental Approvals and any applications made in this regard, shall have been provided to the Purchaser. 4.1.2 The Vendor shall exercise its best endeavors to fulfill the Conditions Precedent mentioned in Section 4.1.1 above. The Vendor shall on fulfillment of its Conditions Precedent certify such fulfillment to the Purchaser together with evidence thereof. 4.2 Conditions to be Fulfilled by the Purchaser 4.2.1 The obligations of the Vendor hereunder shall be subject to the purchaser, and/or the Company (as applicable) complying with or fulfilling the following conditions precedent ("Conditions Precedent'"). 4.2.1.1 Corporate Proceedings: The performance and fulfillment in all material respects of all corporate and shareholder proceedings of the Purchaser necessary to authorize and approve the purchase of the Shares, such as, if applicable, resolutions by the Board of Directors of the Purchaser approving and authorizing purchase of the Shares as contemplated herein from the vendor and the purchase thereof by the Purchaser. Certified true copies of the abovementioned. resolutions ór other similarly effectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and all enclosures thereto (prepared as per Sections 4.1 and 4.2 above) are in order and that, subject to the same being executed, they shall on Closing, confirm the same and remit the Purchase Price to the Vendor. 4.3.3 Consummation of the transactions contemplated herein shall not have been and shall not have been threatened to be) restrained, enjoined or otherwise prohibited or made illegal by any applicable law. 4.3.4 All actions required under the terms of the Articles of Association for the transfer of the Shares under the terms hereof shall have been taken. 4.3.5 The Shares shall have been dematerialized for which purpose each of the Company and the Vendor shall render its reasonable assistance. 4.3.6 The Purchaser and the Vendor shall have entered into an escrow agreement (the "Escrow Agreement") in a mutually agreed form, with a mutually agreed escrow agent (the "Escrow Agent"). Upon the Company notifying the Vendor that it is possible to dematerialize the Shares, the Vendor shall, pursuant to Section 3.1 (a) of the Escrow Agreement, notify Citi Bank N.A., Hong Kong to instruct the Vendor DP (as defined therein) to proceed to arrange for the completion of the dema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Shares in accordance with the Escrow Agreements so that the Shares are transferred to the account maintained by the Purchaser's DP. 12. The assessee's contention was that the sale was affected only on 30.06.2006 which is when the shares were transferred by the assessee to Infosys Technologies Ltd. It is pertinent to point out that the date of purchase agreement of the shares was on 20.04.2006. The departments arguments was that the transaction would amount to a STCG wherein the assessee had not held the shares in Progeon ltd. for a period beyond 12 months as per the provisions of section 2(42A) of the Act when considering the date of transfer to be the same date when the share purchase agreement was executed on 20.04.2006. The case of the assessee is that the date of transfer was on 30.06.2006 when the shares were actually transferred by the assessee. The Revenue relied on the CBDT Circular No. 704 dated 28.04.1995 which is cited hereunder for ease of reference: Circular: No. 704, dated 28-4-1995. 22. Instructions regarding determination of the 'date of transfer' and holding period for purposes of capital gains qua transactions in securities 1. Under the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning with the assessee while assets acquired first will be treated as sold. Indexation, wherever applicable, for long-term assets will be regulated on the basis of the holding period determined in this manner. 13. The above Circular specifies that when the transaction takes place directly between the parties and not through stock exchanges, the date of contract of sale as declared by the parties shall be treated as the date of transfer, provided the same is followed by the actual delivery of shares and the transfer deeds. 14. On the factual matrix of the case, the moot question here would be what would be the effective date of transfer of shares whether the date of agreement or the date when the transfer was effected. The answer to the same would determine whether the assessee would be liable to long term capital gain or short term capital gain on the impugned transaction. 15. On perusal of the share purchase agreement, it is observed that there exists a clause for condition precedent to the sale which has to be fulfilled by both the vendor and the purchaser as specified in clause (4) of the said agreement. It is also evident that clause 4.3.7 of the said agreement either the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares was over and all the covenants contemplated in the share purchase agreement became irrevocable on 1-4-2005 then only transfer was complete and, accordingly, the investment made by the assessee in the specified securities within six months reckoned from 1-4-2005 entitled the assessee for exemption under section 54EC. In the first place, we are in agreement with the contention of ld. counsel for the assessee that sale as contemplated under section 2(47)(i) and extinguishment of rights as contemplated under section 2(47)(ii) are not mutually interchangeable. If a particular transaction is the transaction of sale then unless the sale is complete, no transfer can be said to have taken place because, as rightly pointed out by ld. counsel for the assessee, there will always be extinguishment of rights in case of sale and if a single right out of the entire bundle of property in capital asset is extinguished, then, the transfer would be taken as complete. This will lead to absurd situation. Had it been the intention of Legislature to treat the transfer on the basis of extinguishment of any right in capital asset then there was no necessity of including sale and exchange in the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said that shares of assessee were acquired by Dabur India Limited. The share is a movable property and is governed by Sale of Goods Act. Section 4 of the Sales of Goods Act reads as under:- "Sale and agreement to sell.-1. A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one pat-owner and another. 2. A contract of sale may be absolute or conditional. 3. Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. 4. An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred." From the above definition, it is evident that agreement to sell becomes complete when the conditions contemplated in the agreement are fulfilled. The definition of sale as per Sale of Goods Act assumes significance because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lace directly between the parties and not through stock exchange. We are concerned with the second situation. In this regard, it is mentioned in the circular as under : "In case the transactions take place directly between the parties and not through stock exchanges the date of contract of sale as declared by the parties shall be treated as the date of transfer provided it is followed up by the actual delivery of shares and the transfer deeds." This clearly shows that the date of contract of sale will be the date which the parties have agreed to. No other date can substitute the date as declared by the parties. In the present case, the date of contract of sale as understood by the parties is 1-4-2005 and the same cannot be substituted by the date of share purchase agreement because completion date was specified in Article 6 of the share purchase agreement, which was not later than 4-4-2005 or such other later date that was mutually agreed in writing. As per article 6, on the completion date the attorney was to receive letters of discharge from the lenders recording the unconditional and irrevocable discharge of the guarantees and cancelled the original guarantees. This occurred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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