Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2021 (9) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (9) TMI 925 - AT - Income TaxSet off of long term capital loss incurred on the sale of shares against the long term capital gains earned on the sale of a property - Tax planning versus Tax evasion - AO denied the claim of assessee assuming it to be fake/paper transaction - assessee is a non-resident Indian now fiscally domiciled in the United States - HELD THAT:- 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. 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 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 ownership of the shares is with the buyer of these shares, and that the seller is not associated with, or is even beneficial owner of, this company- particularly when the company in question has no business activities at present. Nothing is on record to substantiate that implicit allegation that the assessee continued to be owner of the company. As also Saldhana, were shareholders in this company, and, as the assessee was no longer living in India and was not in any way associated with this company, and as investment in the said company turned out to be a dud investment, he sold entire shareholdings in this company to Saldhana, one of the directors of the company. There is nothing unusual about it. It was a commercial decision of Saldhana to buy these shares on a token consideration of ₹ 3 lakhs which was almost the same amount as its net effective worth and book value. There is nothing wrong, or even unusual, in this transaction either. As regards the transaction of sale of shares having been rendered illegal under section 23 and 24 of the Indian Contract Act, 1872 benefit of this long term capital loss could not be declined to the assessee, as long as transaction has been actually effected, only on the ground that if the assessee had not taken these proactive measures, even if that the sale of shares can be described as a proactive measure, he would have paid more taxes. The assessee may so end up saving taxes but then that is perfectly legitimate. The Assessing Officer cannot disregard a transaction just because it results in a tax advantage to the assessee. Just as much as we cannot legitimize and glorify tax evasion through colourable devices and tax shelters, we cannot also deprecate and disapprove genuine tax planning within the framework of law. The line of demarcation between what is permissible tax planning and what turns into impermissible tax avoidance may be somewhat thin, but that cannot be excuse enough for the tax authorities to err on the side of excessive caution. We deem it fit and proper to vacate the stand of the authorities below on this point. The Assessing Officer is directed to allow set-off of this long term capital loss on the sale of shares in VCAM Investment Managers Pvt Ltd, against the long term capital gains on the sale of the property. The assessee gets the relief accordingly.
|