TMI Blog2004 (1) TMI 323X X X X Extracts X X X X X X X X Extracts X X X X ..... and the total capital gains of Rs. 5 crore had been claimed as exempt under s. 54F of the IT Act on purchase of house at 5, Golf Links, New Delhi, for Rs. 10,25,75,000 on 8th Aug., 1998 and as such, the taxable capital gains had been shown at nil. During the course of assessment proceedings, the AO discovered that these shares were, in fact, transferred to M/s Deutsche Bank, 15-17, Tolstoy Marg,New Delhi, as per the details given below: No. of shares Transferee Date of Lodgement Date of transfer 76,000 Deutsche Bank, 15-17, Tolstoy Marg,New Delhi. 22-8-1997 28-8-1997 24,000 -do- 25-9-1997 29-9-1997 These shares were transferred to M/s Deutsche Bank as security for the loan given to M/s Glad Investments (P) Ltd., a family company of the assessee, by the bank and later on, these shares were subsequently transferred by the bank to M/s Glad Investments (P) Ltd., as per the details given below: No. of shares Transferee Date of Transfer 76,000 Glad Investments (P) Ltd. 30-9-1998 24,000 -do- 30-9-1998 The above tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessing capital gains is taken as 5th May, 1998, being the delivery date when the shares were released by M/s Deutsche Bank to Glad Investments (P) Ltd., as per instructions of Mr. Arjun Malhotra, being the earliest date of delivery, consideration and title transfer. As for the "full value of consideration" received/accrued to the assessee as a result of this transfer, the same is not known. The transaction is not a bona fide one as evident from the facts and circumstances discussed above in this order. What has actually been bargained as the price, in kind or in cash between assessee and Glad Investments is not known. Glad Investments being a company under assessee's family control, there is no problem in receiving the consideration in future outside the books of accounts, in cash or in kind and thus evade the capital gains tax. As can be seen from para 5 of this order, Glad Investments has financed assessee's foreign trips without any apparent reason. There may be similar ways, in which Glad Investments has compensated the assessee for the shares of NIIT. There is no alternative but to estimate the consideration, as it is not possible to know as to how the consideration has ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Act according to which any transaction in which the possession of the property is handed over to the transferee and the transferee performs his part of contract, notwithstanding the fact of non-registration, transaction is recorded as transfer. On asking about proof of handing over the possession, the assessee's counsel has filed a copy of possession letter dt.20th July, 1997, in which it has been stated that Mussoorie property is agreed to be sold by the assessee to Mr. Sarabjeet Singh for Rs. 4 lakhs and payment of Rs. 2 lakhs was made in advance and vacant possession of property was handed over to Mr. Sarabjeet Singh. The AO examined the sale deed and noticed that there was no mention of this agreement to sale-cum-possession letter in the final sale deed registered on24th Sept., 1997. The sale deed refers to payment of Rs. 2 lakhs vide cheque dt.20th July, 1997, but there is no mention about the sale-cum-possession letter in any place in the sale deed. The AO further observed from the statement of bank accounts and the extract filed explaining the entry in the bank account with the Mussoorie property that the sale proceeds got credited in the Indian Bank account of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s challenged by the assessee through separate appeals before the CIT(A) and reiterated his contentions raised before the lower authorities but the fortune of the assessee did not fluctuate and the CIT(A) confirmed the assessment order. 6. Now, the assessee has preferred two separate appeals before the Tribunal. 7. The learned counsel for the assessee, Mr. M.S.Syali, senior advocate with Mrs. Preeti Goel, advocate, raised two limbs of arguments during the course of hearing agitating the order of the CIT(A) for the asst. yr. 1998-99. Mr. Syali has submitted that the assessee had sold one lakh NIIT shares to M/s Glad Investments through an agreement to sell on14th Aug., 1997against a sale consideration of Rs. 5 crore at the market price quoted at the stock exchange. In lieu of sale proceeds, M/s Glad Investments has allotted Rs. 5 lakhs, 5 per cent non-cumulative preferential shares to the assessee on the same value of the sale consideration on25th Aug., 1997, which were later on redeemed for Rs. 5 crores in succeeding assessment year. In support of the contention that the sale of shares took place as on 14th Aug., 1997, the learned counsel for the assessee has invited our attenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed property was executed in the month of September, 1997. Since the possession of the residential house has been handed over to the buyer on 20th July, 1997, against certain receipts, the said property is deemed to have been sold as on 20th July, 1997, in view of definition of 'transfer' given in s. 2(47) of the IT Act and s. 53A of Transfer of Property Act. It means that the assessee did not own a residential house on the day when the shares were sold to Glad Investments as on14th Aug., 1997. Since another residential house at Golf Links was purchased within a period of one year, the assessee has rightly claimed the exemption under s. 54F of the IT Act. 9. Learned counsel for the assessee, Mr. Syali, further raised a second limb of arguments with the submission that if the transfer of shares is not considered to be held within financial year 1997-98 relevant to the asst. yr. 1998-99 and is held to be undertaken in the asst. yr. 1999-2000 as done by the Revenue, even then assessee is entitled for the deduction under s. 54F of the IT Act. The main dispute would arise with regard to the sale consideration of 1 lakh shares of NIIT. Since the assessee has agreed to sell these shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction very carefully. Mr. Choube has invited our attention to the agreement of sale of shares dt.14th Aug., 1997, between the assessee and M/s Glad Investments (P) Ltd. through its director Shri M.C. Malhotra who is the father of the assessee. This agreement was not witnessed by any of the third parties. As per this agreement, the vendor shall sell and purchasers shall purchase the shares free from lien and encumbrances and with the benefit of accrued profit and with the right to all dividends and other distribution of whatsoever nature declared and all other rights attaching thereto. The sale consideration was fixed at Rs. 5 crores. It was also agreed that on signing of this agreement, vendor shall deliver to the purchaser the relevant share certificates and deliver to the purchaser duly executed instruments to transfer in favour of the purchaser in respect of the shares and do all acts, matters and things and execute such documents as may be required to enable the purchaser to be registered as absolute owner of the share. It was also agreed that upon signing of this agreement and delivery of shares, the purchasers shall allot 12.5 per cent preferential shares of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has deposited the shares with the bank on20th Aug., 1997. Once these shares were deposited and pledged with the bank on20th Aug., 1997, how the assessee wrote a letter to the bank on14th Aug., 1997, that he had provided 1 lakh shares as collateral security for grant of loan to Glad Investments and the said shares are currently registered in the name of the bank. The learned Departmental Representative further invited our attention to the letter dt.17th March, 2001, written by Deutsche Bank to the Jt. CIT through which it has been stated that the shares were pledged by Shri Arjun Malhotra as security for a loan of Rs. 2 crores extended by the bank to M/s Glad Investments (P) Ltd. on10th Sept., 1997. It means the delivery of the shares to the banks for its pledging was effected on20th Aug., 1997as per this memo and the shares were finally pledged on10th Sept., 1997. If these shares were delivered to the bankers on20th Aug., 1997, how the assessee can write a letter on14th Aug., 1997, stating therein that he had furnished the collateral security of 1 lakh shares of NIIT to the bankers for grant of loan to Glad Investments and shares are currently registered in the name of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bank as collateral security for grant of loan to Glad Investments and the shares are also currently registered in the name of the bank. When the shares were delivered and pledged with the bank on20th Aug., 1997, how this letter was written stating therein that the shares were registered in the name of the bank. These facts clearly show that this letter was prepared again to bring out a case of transfer within the financial year 1997-98. Mr. Choube further contended that if all these facts are viewed collaterally/simultaneously, one would find that the assessee had concocted a story to bring out a case of transfer of shares during the financial year 1997-98 so that he can claim an exemption of capital gains under s. 54F of the Act on account of purchase of residential house at Golf Link Road for a sum of Rs. 10,00,75,000. In fact, the shares were transferred in the financial year 1998-99 relevant to the asst. yr. 1999-2000 as these were delivered and transferred in the name of Glad Investments by the bankers on clearance of the loan on5th May, 1998. Since the shares were transferred on5th May, 1998, the sale consideration of the shares should be worked out at the market rate as o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various trips to different countries were financed by Glad Investments (P) Ltd. Since the assessee has received certain consideration either in cash or in kind in future on account of sale of shares of M/s Glad Investments (P) Ltd. at a rate lesser than the prevailing rate, the Revenue authorities are justified in adopting the sale consideration at the prevailing market rate of shares quoted at the stock exchange and to work out the capital gain after allowing the deduction under s. 54F at Rs. 10,05,09,331 and tax the same in the asst. yr. 1999-2000. 13. Learned Departmental Representative further contended that although there is enormous evidence on record to establish that the sale transaction of shares was performed during the asst. yr. 1999-2000 but he intends to make comments on the point of deduction claimed under s. 54F of the IT Act in asst. yr. 1998-99. Mr. Choubey has invited our attention to the sale agreement-cum-possession letter with the submission that this sale agreement for the sale of residential house known as main building of Harnam Niwas and Swarn Kutir onSardar Harnam Singh Road, Mussoorie, was neither executed on stamp paper nor attested by the marginal wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssession of the property. Had it been a fact that possession had been handed over to the buyer on20th July, 1997, against the receipt of part of sale consideration, there would have been some narration to this effect in the sale deed. The other sale deed with regard to other property-main building of Harman Niwas-was not filed by the assessee. Since the onus is upon the assessee to prove that a sale of immoveable property was completed as per s. 53A of the Transfer of Property Act and buyer becomes the owner of the property, it was for him to bring some cogent material on record in support of his contention. Since the assessee has badly failed to establish that the residential house owned at Mussoorie was sold prior to the sale of shares, he is not entitled for an exemption under s. 54F of the IT Act. The learned Departmental Representative finally concluded that if this case is viewed from any angle, one would find that the assessee is not entitled for exemption under s. 54F of the IT Act in the asst. yr. 1998-99 and the Revenue is justified in determining the capital gain in 1999-2000 and taxing the same in that year. 14. Having considered the rival submissions and from a caref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Glad Investments (P) Ltd. Since the clauses of this agreement are quite relevant to decide the present controversy, whether these shares were, in fact, sold to M/s Glad Investments on14th Aug., 1997, we feel it proper to reproduce this agreement, which helps us in adjudicating the controversy raised: "Agreement This agreement made this 14th day of August, 1997 between Mr. Arjun Malhotra s/o Shri M.C.Malhotra r/o 143, Golf Links, New Delhi (hereinafter called the vendor) on the first part and M/s Glad Investments (P) Ltd. having Registered office at 143, Golf Links, New Delhi-110045 through its Director Shri M.C.Malhotra (hereinafter called the purchaser) on the other part. Whereas: 1. The vendor is the legal and beneficial owner of 1,00,000 equity shares of Rs. 10 each (hereinafter called shares) in NIIT Ltd. 2. The vendor and the purchaser have agreed to sell and purchase the shares, respectively for a total consideration of Rs. 5,00,00,000 (Rupees five crores only) in the manner hereinafter appearing. 3. The parties hereto have agreed that the beneficial interest in the shares, hall pass to the purchaser on the signing thereto. Now it is hereby agreed as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng it with the Deutsche Bank, Tolstoy House as a collateral security for grant of loan of Rs. 2 crores to Glad Investments? A copy of this guarantee and memo of pledge is also filed before us by the learned counsel for the assessee and is appearing at page Nos. 12 to 14 of the compilation according to which the impugned shares were delivered and pledged with the bank on 20th Aug., 1997, besides other documents, which were finally transferred in the name of the bank and loan was advanced to M/s Glad Investments on 10th Sept., 1997. 15. We have also carefully examined the letter dt. 14th Aug., 1997, written by the assessee to the bankers and we find through this letter, the assessee has informed the bankers that he had provided 1 lakh shares of NIIT as collateral security for grant of loan to Glad Investments (P) Ltd. and the shares are currently registered in their name. He further requested the bankers to transfer these shares directly in favour of Glad Investments once the loan secured against the pledge of these shares is settled by Glad Investments. From reading this letter, an impression comes to our mind that as on14th Aug., 1997, the assessee has already delivered the NIIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement was signed on14th Aug., 1997, but the shares were delivered to the purchaser on5th May, 1998, as these were admittedly pledged with the bank on20th Aug., 1997and transferred in the name of bank on10th Sept., 1997. As per this agreement, there was no question of allotment of preferential shares of the company in the name of the assessee till the delivery of shares. Though the assessee has taken a stand that the preferential shares were allotted to the assessee on 25th Aug., 1997, which were later on redeemed against the payment of Rs. 5 crores by Glad Investments to the assessee but the assessee could not place any evidence on record to prove that the allotment of preferential shares was done on 25th Aug., 1997, except the book entries in their own record. According to s. 75 of the Companies Act, 1956 the assessee is required to file a return of allotment of shares stating their numbers, nominal amount of shares comprising the allotment, the names, addresses and occupation of the allottees, to the Registrar of Companies within 30 days but the assessee did not file the return even during the entire financial year. Even the balance sheet of Glad Investments ended on 31st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee when this cheque of Rs. 2,00,000 was honoured, in the light of the facts that the sale proceeds of Mussoorie property got credited in his bank account on 4th Aug., 1997 (Rs. 1,99,490) and on 12th Sept., 1997 (Rs. 99,650). It is very strange to note how the assessee has handed over the possession of his immovable property of Mussoorie house without receiving any part of the sale consideration on20th July, 1997. During the course of the hearing the assessee has filed a copy of the sale deed, which was executed on 24th Sept., 1997, with respect to the house property known as "Swaran Kutir" with garage sold against a sale consideration of Rs. 1,70,000. The sale proceeds of this property was paid to the assessee through a cheque of Rs. 1,00,000 dt.22nd Aug., 1997and Rs. 70,000 in cash at the time of execution of the sale deed. In this entire sale deed, nothing has been stated about this agreement to sell-cum-possession letter nor was there any mention about the handing over of the physical possession of the property to the buyer on20th July, 1997. The second sale deed of other property known as "main building of Harnam Niwas and kitchen" was not filed before us. Since the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted later on nor was there any evidence that the assessee has received any part of sale consideration. We are, therefore, of the considered view that on the date of the alleged sale of shares, the assessee owned a residential house in Mussoorie and he is not entitled for exemption under s. 54F of the IT Act. 18. Once it is held that the shares were transferred in the asst. yr. 1999-2000, the next question comes, "what would be its sale consideration?" Having given a thoughtful consideration to the rival submissions on this issue, we are of the view that to determine the sale consideration of the NIIT shares, we have to revert back to the sale agreement of the shares dt. 14th Aug., 1997, according to which the assesse had agreed to sell 1,00,000 NIIT shares to M/s Glad Investments (P) Ltd. for a sum of Rs. 5 crores and the same was paid to the assessee in the form of allotment of preferential shares to the assessee, which would be redeemed at par at the discretion of the board. This sale agreement has already been examined by us along with the other documents executed by the assessee in the foregoing paras and we finally held that these shares were not sold by the assessee through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has been drawing substantial amount from M/s Glad Investments (P) Ltd., on one reason or the other and he has also undertaken the foreign visits at the cost of the buyer, i.e., Glad Investments (P) Ltd. It means what has been shown as a sale consideration by the assessee is not the real consideration and in these circumstances only one option left with the AO to work out the real sale considerations is to adopt the market rate of shares as on the date of transfer. Since he has adopted the rates quoted at the stock exchange and worked out the capital gain, we find no infirmity in his action, which was later on approved by the CIT(A). Accordingly, these issues are decided against the assessee. 20. Ground No. 3 in appeal No. 1433/Del/2002 relates to the disallowance of Rs. 3,61,159 being the amount of foreign travel expenses incurred by Glad Investments (P) Ltd. We have heard the rival submissions and carefully perused the orders of the authorities below on this issue and documents placed on record, and we find that during the course of the assessment proceedings it was noticed by the AO that the assessee has undertaken certain foreign trips and he was asked to furnish the details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the shares should have been worked out at the rate of shares quoted at the stock exchange on the date of transfer. With respect to receipt of sale considerations we have also observed in the foregoing paras that the assessee had acquired certain benefits either in cash or in kind over and above the declared sale considerations of Rs. 5 crores for which preferential shares were allotted to the assessee. In these circumstances the benefits enjoyed by the assessee, by undertaking the foreign trips at the cost of Glad Investments (P) Ltd. cannot be held to be separate income being a perquisite in the hands of the assessee. We, therefore, are of the opinion that no separate addition on this account is called for. Accordingly, we set aside the order of the CIT(A) and delete the addition. 24. Ground No. 4 relates to the addition of Rs. 50,000 for alleged unexplained expenditure incurred during the foreign trips. For the same reasons as explained in the foregoing paras, we find no justification in this addition. Accordingly, we set aside the order of the CIT(A) and deleted this addition. 25. Ground No. 5 relates to an addition of Rs. 19,801, which was added to the income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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