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2013 (9) TMI 276 - BOMBAY HIGH COURTCapital gain or business income - Sale of Shares - Whether the subscription to 20% of the issued equity shares of M/s. MABL and subsequent sale thereof resulting in gain was in the nature of capital gains or in the nature of business income - Held that:- The fact that the Managing agency could be utilized for earning profit could not lead to the conclusion that shares so purchased were on revenue account in the absence of any intent to trade in in those shares. - Decided in favor of assessee. The assessee by purchasing the shares also acquired the right to manage M/s. MABL and in the absence of any other evidence to indicate that there was an intent on the part of the appellant to deal in the shares the only conclusion would be that the entire transaction of purchase and sale by the appellant was on capital account. Moreover, the subscription of 20% shares in M/s. MABL subscribed to by the appellant were not freely transferable but regulated and restricted by the shareholders agreement dated 16 May 2002. In view of the above agreement dated 16 May 2002 there was a three years lockin period in respect of the subscribed share capital and the appellant could not sell the same during that period. In case the appellant had to sell during three years lock in period the sale was restricted only to the other two parties to the shareholders agreement. Moreover, even after the three year lock in period was over, the other two parties to the agreement continue to have right of preemption in respect of the appellant's shareholding. The shares had been purchased out of borrowed funds and yet the Apex Court held that the same would not by itself indicate/evidence an intent to deal in shares. Taking all the cumulative factors including the decision of the Supreme Court in Ramnarain Sons (P) Ltd. [1960 (12) TMI 3 - SUPREME Court] the impugned order was incorrect in holding that 20% shares of M/s. MABL subscribed to by the appellant was stock in trade of the appellant and not its capital asset, as contended by the revenue. - Decided in favor of assessee. Though the appellant had right to appoint its nominee as a Manager of M/s. MABL yet the nominee could not exercise authority as a Manager on his own but had to do so in consultation with others and therefore was not the Manager. Consequently, the conclusion by the Tribunal that no amount was paid while subscribing for the shares to enjoy the rights of Manager of M/s. MABL. Merely because the appellant's nominee acts as Managing Director of M/s. MABL and such function of Managing Director as a Manager has to be discharged in consultation with others does not denude the Manager of its authority and function as a Manager. It is axiomatic that no Manager in any field of business activity enjoys on absolute and unfettered rights to manage his business without having to consult others. Therefore, the finding in the impugned order that because the appellant nominee has no absolute right to manage M/s. MABL as it desires, it must follow that the appellant has no right as a Manager of M/s. MABL, is perverse. - Decided in favour of assessee.
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