2003 (11) TMI 25 - HC - Income Tax

Sale of shares valuation additional consideration - we hold that in the present case the Revenue has established that the fair market value of the shares sold by the assessee was more than Rs. 20 per share as against the full value of Re. 1 declared by the assessee and the Revenue has established that apart from the declared value of Re. 1 the assessee has received additional consideration and therefore the valuation of shares under section 52(2) of the Income-tax Act is justified.

Summary

Issues Involved:
1. Determination of capital gains chargeable to tax.
2. Consideration of incidental or remote benefits in determining chargeability to tax of capital gains.
3. Justification of the Tribunal's determination of the full value of the consideration.
4. Tribunal's determination of consideration despite lack of evidence of excess monetary consideration.

Issue-wise Detailed Analysis:

1. Determination of Capital Gains Chargeable to Tax:
The primary issue was whether the Assessing Officer (A.O.) could consider a notional benefit in determining the full value of the consideration for capital gains tax. The court emphasized that under Section 45 of the Income-tax Act, 1961, any profits or gains arising from the transfer of capital assets are chargeable to income tax under the head "Capital gains". Section 48 specifies that the income chargeable under "Capital gains" should be computed based on the full value of the consideration received or accrued to the assessee.

2. Consideration of Incidental or Remote Benefits:
The court examined whether capital gains should be charged only on the full value of the monetary consideration accruing to an assessee, excluding incidental or remote benefits. The court noted that the sale agreement included additional benefits beyond the cash consideration of Re. 1 per shareholder. These benefits included repayment of loans, release of personal guarantees, and surrender of tenancy. The court concluded that these additional benefits constituted consideration and should be included in the computation of capital gains.

3. Justification of the Tribunal's Determination of Full Value:
The Tribunal had determined the full value of the consideration accruing to the appellant on the transfer of shares at Rs. 16,23,000 instead of the declared Re. 1. The court upheld this determination, stating that the additional benefits received by the assessee (repayment of loans, release of guarantees, and surrender of tenancy) constituted consideration. The court referenced the Supreme Court's decision in K. P. Varghese v. ITO, which held that Section 52(2) applies only where the consideration for the transfer is understated. The court found that the market value of the shares was more than Rs. 20 per share, and the assessee received additional consideration beyond the declared Re. 1.

4. Tribunal's Determination Despite Lack of Evidence of Excess Monetary Consideration:
The appellant argued that the Tribunal could not determine the full value of the consideration at Rs. 16,23,000 without evidence of excess monetary consideration. The court disagreed, stating that once it is established that the assessee received additional consideration in kind, it is not necessary for the Revenue to establish the exact monetary value of the additional consideration. The court concluded that the Revenue had established that the fair market value of the shares exceeded the declared value and that additional consideration was received, justifying the invocation of Section 52(2).

Conclusion:
The court held that the Revenue had established that the fair market value of the shares sold by the assessee was more than Rs. 20 per share, and the assessee received additional consideration beyond the declared value of Re. 1. Therefore, the valuation of shares under Section 52(2) of the Income-tax Act was justified. The appeal was disposed of with no order as to costs.