TMI Blog2012 (7) TMI 530X X X X Extracts X X X X X X X X Extracts X X X X ..... ce. This is what is stated in Section 45(1). Merely because the agreement provides for payment of the balance of consideration upon the happening of certain events, it cannot be said that the income has not accrued in the year of transfer - against assessee. - ITA 423/2012 - - - Dated:- 16-7-2012 - MR. JUSTICE S. RAVINDRA BHAT, MR. JUSTICE R.V. EASWAR, JJ. For Appellant: Mr. Gagan Kumar and Mr. Amish Tandon, Advs. For Respondent: Mr. Sanjeev Sabharwal and Mr. Kiran Babu, sr. standing counsels S. RAVINDRA BHAT,J: (ORAL) The appellant is aggrieved by an order dated 17.2.2012 of the ITAT by which the revenue‟s appeal, against the order of the CIT(A) was allowed. 2. The assessee claims in this appeal the following substantial question of law arises for consideration i.e. whether the Tribunal fell into error in holding that the amount of Rs.26,25,000/-, which was yet to be received by the assessee, was subject to tax under the head "capital gains‟ under Section 45 of the Income Tax Act ("Act‟, for short) . 3. The brief facts of the case necessary to decide the appeal are that the appellant is a shareholder of one Orion Dialog Pvt. Ltd. It d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions in the impugned order in paras 6.6 and 6.9. It held in favour of the revenue reasoning as follows : 6.1 We may at the first instance examine the statutory provisions contained in sections 45 and 48 in so far as they concern us. Section 45(1) provides that the profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income tax under the head capital gains , and shall be deemed to be the income of the year in which transfer takes place. There is no doubt that the transfer of shares has taken place in this year. The agreement has been signed in this year and the shares have been delivered in this year. On prima facie reading of this provision, which is in the nature of charging section, it will be clear that the capital gains are chargeable in the year of transfer as they are deemed to be the income of the previous year in which the transfer takes place. Section 48 regarding mode of computation is the machinery provision and the computation under it starts with ascertainment of the full value of consideration received or accruing as a result of the transfer. This provision does not speak of the year of accrual or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis. The said sum cannot be treated as assessee s income because during the relevant year the assessee had not acquired any legal right to receive the same. The amount can accrue or arise to the assessee if it acquires a legal right to receive the amount or conversely said amount has become legally due to the assessee from the debtor. Mere raising of a claim or bill does not create any legal enforceable right to receive the same. 6.4 The ld. counsel drew our attention towards the head notes in the case of Anurag Jain (supra). The Authority ruled that (i) the contingent payments were in substance and reality payments for ensuring performance under the employment agreement to achieve the desired object in exceeding threshold earnings before interest, tax and depreciation allowance, and had no real nexus with the consideration for sale of shares; (ii) the entire capital gain had to be assessed in assessment year 2004-05 as the sum of US$ 2.30 million was received on 01.07.2003; and (ii) the contingent payment had nexus with performance of the assessee for achieving defined target and had connection with not carrying on any activity in relation to any business. The consequence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tingent payment 31.3.2006 (iii) If the gains arising from transfer of shares aforesaid are not to be charged as capital gains, either wholly or in part, under what head of Income the contingent payments made to/received by the applicant towards the transfer of shares covered by the aforesaid share purchase agreement dated April 15, 2003, read with exhibit attached thereto are taxable and in which of assessment ? 6.6 The Hon ble Court dismissed the writ petition by mentioning that the two documents, namely, associated employment agreement and share purchase agreement cannot be said to be totally different as one document is inter-linked with the other. This becomes clear from question no. 3. Therefore, the AAR was competent to take into consideration the share purchase agreement and other exhibits connected thereto. Since the associated employment agreement is exhibit B, which forms part of the agreement, therefore, it cannot be said that the Authority has acted beyond its power while deciding the reference. 6.7 We may now consider the facts of the case in the light of these decisions. In the case of Ashokbhai Chimanbahi (supra), the Hon ble Court has disti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this year. Therefore, we agree with the AO that the whole consideration of Rs. 86.25 lakh is chargeable to tax as capital gains in this year. The assessee has also claimed the whole cost. Therefore, the order of the ld. CIT(Appeals) is set aside and that of the AO is restored. 5. The appellant‟s counsel relied upon the judgments cited before the Tribunal. He submits that decision of the Supreme Court in CIT Vs. B C Srinivasa Shetty, AIR 1981 SC 972 = (1981) 128 ITR 294 (SC) lays down that the provisions of Section 45 are not to be read in isolation but have to be read along with Section 48 which have to be considered by the Court in order to arrive at the true nature of the transactions. Particular emphasis was given to the following observations : Section 45 charges the profits or gains arising from the transfer of a capital asset to income-tax. The asset must be one which falls within the contemplation of the section. It must bear that quality which brings section 45 into play. To determine whether the goodwill of a new business is such an asset, it is permissible, as we shall presently show, to refer to certain other sections of the head, "Capital gains". Section 45 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company which were the subject matter of sale. Therefore, the balance amount of Rs.1750/- per share (Rs.5750 Rs.4000) depended on the performance of the company and fulfillment of the aggravated parameters and that it could never be said to have arisen or accrued during the relevant assessment year as the assessee became entitled to the same only upon fulfillment of these conditions. In other words, ld. counsel emphasizes that the transferor/assessee could not claim the balance amount unless the essential pre-requisites had been fulfilled. Counsel also relied upon the newly added provisions of Section 50D and contended that having regard to the complexities of modern day transactions in capital assets, the rules have to be restated. In the extract reproduced above it has been clarified by the Supreme Court that Section 45 charges the profits or gains arising from the transfer of a capital asset to income-tax. The Court was clear that Section 45 is the charging section and ordinarily acquires primacy whereas Section 48 is merely computing mechanism. However, the Court at the same time said that in order to arrive at chargeability of taxation both the sections have to be looked ..... X X X X Extracts X X X X X X X X Extracts X X X X
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