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2014 (12) TMI 857 - HC - Income TaxNature of payment of ₹ 6.60 crores Business income or consideration paid for transfer of shares - Whether the payment of ₹ 6.60 crores, ostensibly stated to be non-compete fee under the MOU dated 13th April, 1994, can be treated and regarded as payment covered under sub-clause (a) to clause (ii) of Section 28 of the Act, or consideration paid for transfer of shares Held that:- Assessee had indulged in abusive tax avoidance - The real and true nature of the transaction or event was the sale of shares and transfer of control and management of CDBL in favour of the SWC Group - The consideration of ₹ 6.60 crores was not a fee paid towards non-compete - It would not be exempt - transfer of majority shares holding would include consideration receivable towards the controlling interest - The price paid by the SWC Group and received by the respondent-assessee was for purchase of shares, including the controlling interest - The price paid would include the right to control and manage CBDL - Any division or bifurcation would result in the court or Revenue stepping into the arm chair of the assessee and the SWC Group for splitting the amounts between capital gains and Section 28(ii)(a) in 2012 (1) TMI 52 - SUPREME COURT OF INDIA [2012 (1) TMI 52 - SUPREME COURT OF INDIA] the position has been crystallized, when a majority shareholder transfers the said shareholding to another party - intrinsic to transaction of transfer of shares in a given case would include rights and entitlements which constitute and were themselves capital assets within the meaning of Section 2(14). The transaction was structured as a case of sale of shares and not an asset sale - Ownership of shares in such situations constitutes and partake character of a controlling interest - The controlling incident is an incident of controlling shares which flows out from the said holding - controlling interest, is not identifiable as a distinct asset independent of holding of shares - The control of the company resides in the voting power of the shareholders as the shares represent an interest of the shareholder and are made of various rights - Shares and the rights which emanate include the right of a shareholder in the character of controlling interest and cannot be dissected - Control and management is a facet of controlling shares - Thus, the SWC Group had acquired by entering into an agreement for purchase of shares, also the controlling interest - It would, therefore, include the price paid for the same - More importantly, it also included the price paid for acquiring control of a competitor, who henceforth would not be a competitor but a part of the SWC Group - the capital gains tax on sale of shares where controlling interest has resulted in transfer of control of management would form part of the consideration received. It should not be segregated or bifurcated - ₹ 6.60 crores to be treated as consideration paid for sale of shares, rather than a payment under Section 28(ii) of the Act - the sale consideration for transfer of shares was artificially and deceitfully bifurcated under a sham agreement/ documentation, which was unreal and not a true record of the intention. Whether ₹ 6.60 crores should be taxed in the hands of the assessee as an individual or should be bifurcated as per the shareholding between the assessee and his family members, i.e. wife, son, daughter-in-law and two daughters Held that:- The assessee, having chosen the taxable event, i.e. to receive the entire sale consideration in his name, must therefore bear and face the tax consequence - Thus, the entire amount would be taxed in the hands of the assessee, and would be treated as part of the sale consideration received on transfer of the shares in CDBL, held by him - ₹ 6.60 crores was taxable as capital gains in the hands of the assessee being a part of the full value sale consideration paid for transfer of shares Decided in favour of revenue.
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