TMI Blog2012 (10) TMI 328X X X X Extracts X X X X X X X X Extracts X X X X ..... perties were transferred with the agreement of sale of shares, which were actually an agreement of sale of immovable properties. - in favour of the assessee. - Income Tax Appeal No.6 of 2005 - - - Dated:- 4-10-2012 - Sunil Ambwani, And Aditya Nath Mittal, JJ. 1. This income tax appeal under Section 260A of the Income Tax Act, 1961 (for short, the Act) filed by the assessee appellant arise out of the order dated 30.11.2004 passed by the Income Tax Appellate Tribunal (in short, the Tribunal) relating to assessment year 1997-98 by which the appeal filed by the Joint Commissioner of Income Tax, Special Range, Muzaffarnagar was partly allowed and while setting aside the order of the CIT (A), Muzaffarnagar dated 20.5.2000 deleting the capital gain of Rs.4,77,14,279/- from the total income of the assessee-appellant, as computed by the A.O. The A.O. was made free to tax it, in the order in which the transfer of shares took place in accordance with law. 2. This appeal was admitted by the Court on 17.1.2005 on the questions of law as follows:- "A. Whether on the facts and in the circumstances of the case, the Tribunal erred in law in holding that capital gains on transfer of shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . for a sale consideration of Rs.5,00,00,000/- @ Rs.6,250/- per share. As per this agreement the total purchase price of 8,000 fully paid up equity shares of the company was agreed to be Rs.5,00,00,000/-, including the earnest money of Rs.1,25,00,000/-. The balance amount of Rs.3,75,00,000/- was paid in three subsequent installments, as under:- "Installment Value Payable on First Rs.1,25,00,000/- 31/10/1996 Second Rs.1,25,00,000/- 01/01/1997 Third Rs.1,25,00,000/- 30/04/1997" 6. As per the agreement, on payment of the first installment, the seller was to execute transfer deed and to take all the necessary steps to get the said 8,000 shares transferred in the name of the buyer in the records of the company. After the transfer of shares in the name of SRF Ltd. the said shares were kept in the custody of solicitor till the remaining installments is paid by the buyer. The shares were to be released by the solicitors only after being furnished the evidence of payment by the buyer to the seller to the complete satisfaction of the solicitors. Since the transfer of the shares in the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls Ltd., 138 ITR 195 (Del) in which it was held that capital gain arising from transfer of a capital asset is chargeable to tax during the previous year in which the transfer took place even though the consideration was not ascertained and was in dispute. He also relied upon Fort Properties (P) Ltd. v. CIT, (1994) 208 ITR 232 (Bom) in which it was held that year of agreement is the year of changeability of capital gains. For section 145 it is sufficient, if in the relevant accounting year profits have arisen out of sale of capital asset i.e. to say if the assessee had a right to receive the profit. It is not necessary that the assessee should have received the same, when once profits have arisen in the accounting year out of sale of capital assets, what the parties did subsequent to that year will not have any bearing on their liability to tax in respect of past year. The assessee was thus assessed on the total income of Rs.5,27,72,840/-. The A.O. directed penal interest to be charged under Section 234B and 234C and to draw penalty proceedings under Section 271 (i) (c) for concealment and furnishing inaccurate particulars and directed issuance of demand notice and challan. 9. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame of the buyer in the records of the Company whose shares are the subject matter of transfer. Admittedly, the shares continued to remain with the appellant till the end of the previous year i.e. 31.3.97. The shares in question were thus not transferred to M/s SRF Ltd. during the asstt. year under appeal. Thus looked at from any angle, there was no transfer of the shares of M/s Rajendra Lal Shadi Lal Co. Pvt. Ltd. by the appellant to SRF Ltd. during the relevant period. Consequently, there was also no transfer of any flat situated in Bombay from the appellant or from Rajendra Lal Shadi Lal Co. Pvt. Ltd. to the buyer. Once this fact is accepted, there is no question of any capital gain having arisen to the appellant during the year under appeal. I, therefore, delete the capital gain of Rs.4,77,14,279/- from the total income of the appellant as computed by the A.O. The A.O. is of course free to tax it in the year in which such transfer takes place, in accordance with law." 10. The Joint Commissioner of Income Tax, Special Range, Muzaffarnagar filed I.T. Appeal No.3548 (Del) of 2000 in the Income Tax Appellate Tribunal. The appeal was partly allowed with the findings that from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited, but if they do so, the company would be left with no assets. To keep the company alive, the assessee might have adopted this mode of transfer of entire shareholding in Rajendra Lal Shadi Lal Co. Pvt. Ltd. in favour of M/s. SRF Limited so that M/s. SRF Limited would have full control of Rajendra Lal Shadi Lal Co. Pvt. Ltd. and can comfortably enjoy the possession of these two flats. If this agreement is viewed in the light of these facts, one would certainly find that it is not a simple agreement of sale of shares, but is also an agreement of sale of immovable property. If that be the case, provisions of section 2(47) of the Act would certainly come into play and according to section 2(47) of the Act the transfer in relation to a capital asset includes any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53-A of the Transfer of Property Act. Section 53-A of the Transfer of Property Act provides for a shield of protection to the proposed transferee to remain in possession against the original owner, who has agreed to sale to the transferee if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, we set aside the order of the CIT (Appeals) and restore that of the assessing officer. 28. In the result, the appeal filed by the Revenue, is partly allowed." 11. Shri V.B. Upadhyay, learned counsel for the appellant assessee submits that the Tribunal erred in law in holding that in terms of agreement dated 19.8.1996 between the parties capital gain on transfer of shares accrued on the receipt of the first installment of sale consideration. The shares were not transferred in the assessment year in question as provided for and contemplated under the Companies Act. In the absence of delivery of share certificates and transfer deed for effecting transfer of shares still was not complete and the right of the appellant did not extinguish in the shares. The Tribunal misinterpreted the deed of agreement and erroneously took the view that the proprietary right in the shares vested in the buyer on the payment of the first installment. The Tribunal failed to take into consideration that no transfer deed transferring the share certificates was ever issued by the appellant in the relevant assessment year 1997-98, nor was he recorded as a shareholder in the records of the company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions. 15. In CIT, Delhi (Central) v. Bharat Nidhi Ltd. (Supra) the Delhi High Court held that shares are movable property in terms of Sale of Goods Act. When and at what time a property can pass on to the buyer is laid down in Chapter-III. Section 19 provides that where there is contract for the sale or specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred; and for the purpose of ascertaining the intention oft he parties to the contract, regard shall be had to the conduct of the parties. Sub-section (2) of Section 19 elaborates that the rules in ss.20 to 24 are to be looked at for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. Section 21 provides that where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state the property does not pass unless such thing is done and the buyer has notice thereof. The Delhi High Court relied upon Maneckji Pestonji Bharucha v. Wadilal Sarabhai Co., AIR 1926 PC 38, 40 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany s books in accordance with the company law, the transfer could not enable the transferee to exercise rights of a shareholder vis- -vis the company, the shares should be taken to have been transferred to the transferee, where after completing all the formalities the doner dies, it was held that requirement of both Section 122 and 123 of the Transfer of Property Act were completely satisfied in a case of gift so as to vest the right in the donee to obtain share certificate in accordance with the provisions of the company law as the right to get the share certificate made out in the name of the donee became irrevocable and complete by registration of the deed as well as by delivery. The actual transfers in the register of the company concerned, which were necessary to enable the donee to exercise the rights of a shareholder, were mere enforcement of that right, and the mere fact that such transfers had to be recorded in accordance with the company law did not detract from the completeness of what was donated. The Madras High Court thus held that it is not necessary for actual registration of shares by the company in the name of the transferee to deny the rights to the transfere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reading of agreement more particularly paragraphs 6 and 7 would demonstrate that what was agreed was to execute transfer deeds and take all necessary steps to get all the 8000 shares transferred in the name of the buyer in the records of the company representing 100% of the voting interest and controlling power on the receipt of the first installment. The seller was not left with any right, title or interest in the shares and the buyer would become owner of the same on the receipt of the first installment, however, there was condition to such transfer namely that the buyer would have no right to deal with, or transfer by way of sale, gift, mortgage, pledge or otherwise these shares or any assets or properties of the company till the final installment was fully paid and the shares are released from the solicitors in accordance with the agreement. The earnest money was paid in the relevant year on 20.8.1996 by cheque, which are returned back encashed. It was re-presented on 23.8.1996. The first installment agreed to be paid on 31.10.1996 was actually paid on 15.11.1996. The second installment agreed to be paid on 1.1.1997 was paid on 6.3.1997 and the third installment to be paid on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty to oversee the development work or to ensure performance of the terms of the agreement does not introduce incompatibility. The concurrent purpose of the owner who can exercise possessory rights to a limited extent can very well be reconciled. Clause (v) will have its full play even in such a situation. Possession given to the developer need not ripen into exclusive possession on payment of the installments in entirety for the purpose of determining the date of transfer. In this judgment reliance was placed upon Chaturbhuj Dwarkadas Kapadia (Supra) in which building not occupied by tenants was agreed to be sold by the assessee (individual) in August 1994 to developer to develop the property in accordance with the Rules and Regulations, framed under the Maharashtra Housing and Area Development Act. A limited power of attorney was executed and permissions were obtained and irrevocable license was given to enter upon the assessee s share of property and to demolish the building. The developer obtained the permissions in the financial year ending 31st march, 1996 and paid almost the entire sale price except very small amount to the assessee. The permission to construct upto plinth l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt of the first installment of Rs.1,25,00,000/- payable on 31.10.1996, the seller will execute transfer deed and will take all necessary steps to get all the 8000 shares transferred in the name of buyer in the records of the company represented 100% voting interest and controlling power in the company. This stipulation in Clause-6 was controlled and continued by Clause 7 of the agreement, which provided that upon receipt of first installment the sellers will not have left with any right, title or interest in the shares and the buyer will become owner of the same; however, the buyer will have no right to deal with or transfer by way of sale, gift, mortgage, pledge or otherwise these shares or any assets or properties of the company till the final installment is fully paid and the shares are released from the solicitors in accordance with Annexure 1. The terms in Annexure-1 to the agreement provided that after transfer of shares in the name of M/s SRF Ltd. (on payment of first installment), the said share scripts will be kept in the custody of the solicitor till the final installment is paid by the buyer. The solicitors were to be appointed as per mutual consent of the buyer and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ownership of the property. The ownership in the property was sought to be transferred with the ownership of the shares, which would give the controlling power to the buyer company. Since these shares were to be physically transferred to the buyer company only after payment of the full price, it cannot be said that there was any transfer in the property as contemplated under Section 2 (47) (vi) of the Act. The enjoyment of the immovable property even after the date of payment of first installment was not in pursuance to the transfer of the shares and controlling interest in the company but as a tenant, under the agreement of tenancy. It is not denied that the tenant continued to pay the rent till the entire amount of sale consideration was paid, and did not claim any ownership rights in the properties. The permission obtained under Section 269 UC also did not amount to any transfer as no transfer deed was executed transferring the property to the buyer company. No objection certificate under Section 269UC of the Act, may be one of the circumstances to prove the transfers, it could not be relied on to be a document in evidence of the transfer. 27. We do not find that the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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