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TMI Blog2014 (12) TMI 678X X X X Extracts X X X X X X X X Extracts X X X X ..... in coming to the conclusion that shares were sold in Assessment Year 2005-06 when there was no evidence of their sale at that point of time. In fact if at all the shares can be considered as sold- it is in 2002. The Ld. CIT (Appeal) ought to have verified the actual date of sale before deciding the issue especially when the part sale proceeds of Rs. 60.32 lacs were allegedly received by the assessee as early as in May, 2002. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) erred in coming to the conclusion that the amount of Rs. 33.38 lacs mentioned in the 'Settlement' is out of the sale proceeds of the said shares. No evidence exists to prove that these proceeds were relatable to the sale of shares. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) erred in directing the Assessing Officer to assess the sum of Rs. 1 0 1.97 lacs (out of the total of Rs. 1.20 crores received by the assessee) as 'Capital Gains'. It is not proved that these shares were sold at all hence the question of the amounts being treated as 'Capital Gains' cannot arise in the absence of such proof. 5. On the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res is considered in the A Y. 2005-06. Being a resident of France, the assessee claims total exemption in respect of the capital gains that arose on the alienation of the shares referred to in paragraph (2) above. The claim for exemption is based on the provisions of Article 14(6) of the Indo-French Tax Treaty, which are reproduced below for ready reference:- x x x x x 4. Without prejudice to the above, and only for the sake of completeness of the information, the assessee has worked out the capital gains, if any, on the alienation of the said shares as under; through as stated above, the same are not taxable in India under the Indo-French Tax Treaty:- Consideration received on alienation of shares (Note 2 above) Rs. 1,62,29,000 Less: Deductions u/s 48 (1) Expenses incurred in connection with the alienation (Note 5 below) Rs. 22,64,115 (2) Cost of acquisition / FMV as on 1.4.1981 of the shares alienated Rs. 16,07,571 Long term capital gain (without indexation) Rs. 1,23,57,314 5. The assessee has incurred the following expenses in connection with the aforesaid dispute and its settlement, which are deductible u/s 48 of the Act, bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tlement agreement dated 31st Mary 2004, wherein she paid a sum of Rs. 1,20,00,000. It was agreed in the terms of settlement that the assessee will withdraw all the complaints filed against Ms. Rashmi Agarwal and others. Regarding the transfer of shares, the records suggest that Ms. Rashmi Agarwal, had sold these shares for sum of Rs. 93,70,135, out of which she had deposited sum of Rs. 60,32,000, in the bank account of the assessee on 14th May 2002, without intimating to the assessee. The balance amount of Rs. 33,38,135, was not paid. When the assessee realised about the fraud committed by Ms. Rashmi Agarwal, and the same was confronted through criminal complaint, then she, vide her letter dated 16th April 2004, had offered to pay the assessee the balance sum of Rs. 33,38,135. Thus, when this entire matter of fraud and appropriation was investigated by police and adverse finding was given then in order to save herself, Ms. Rashmi Agarwal, was force to settlement which was arrived for a lump sum payment of Rs. 1.20 crores, which also included the sum of Rs. 33,38,135. The balance sum of Rs. 86,61,865 [Rs 1.20 crores (-) Rs. 33,38,135] was stated to be attribution of settlement of ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iving the consideration of Rs. 1.20 crores, which cannot be attributed to transfer of shares, but should be taxed as income from other sources, which is characterized as "other income" under Article-23 fo DTAA between India and France. Since the income of Rs. 1.20 crores has arisen in India, therefore, the same is taxable in India as per said the Article. In the nut shell, the conclusion of the Assessing Officer is two fold; (i) the amount received by the assessee in lieu of transfer of shares is taxable as capital gain in the assessment year 2003-04, as the shares were transferred / sold in the financial year 2002-03; and (ii) the amount of compensation of Rs. 1.20 crores received by the assessee in terms of settlement agreement dated 31st May 2004, is to be taxed as income from other sources and not on account of shares as claimed by the assessee. 5. Before the learned Commissioner (Appeals), the assessee submitted that she had attributed major portion of the settlement amount to the shares (which were fraudulently sold / appropriated by Ms. Rashmi Agarwal), because it was on account of shares only that such a compensation was received, looking to the market value of the shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wal, has deposited earlier was only a sum of Rs. 60.32 lakhs. Therefore, more than sum of Rs. 1.00 crore was on account of higher value of shares at the time of settlement agreement. Thus, the said compensation should be treated as part and parcel of transfer of shares only, hence taxable as long term capital gain. 6. The learned Commissioner (Appeals), after reiterating the entire facts, observed that mainly there are two issues involved, one, whether the amount received by the assessee in terms of settlement agreement is towards the dispute of shares or was it paid to avoid legal complications and other disputes, i.e., whether it is to be taxed under the head "capital gain" if it is an amount of sale of shares or "income from other sources". The second issue involved is in which year transfer of shares took place i.e., whether the long term capital gain on transfer of shares should be taxed in the assessment year 2003-04 or in the assessment year 2005-06. After analysing the entire facts in an elaborate manner, the learned Commissioner (Appeals) came to the conclusion that Ms. Rashmi Agarwal, did not sell those shares on behalf of the assessee, but the same were sold without her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te, as short term capital gain and the balance was held to be long term capital gain on sale of shares which admittedly is exempt under Article-14(6) of the DTAA. The relevant conclusion drawn by the learned Commissioner (Appeals), reads as under:- "9. In the light of above facts and circumstances. I am of the considered view that the amount received from "out of court settlement" indeed pertained to misappropriation of shares by fraud and unfair means, hence I am inclined to accept the appellant's claim that the sum ofs.101.97 lakhs i.e. (Rs.120 lakhs minus 15 lakhs for Alibag land+2.40 for cash withdrawal and 0.63 for stamp duty on shares transfer = 101.97) is received as consideration. The sum of Rs. 15 lakhs can be attributed to Alibag land dispute, and balance Rs. 2.40 lakhs for cash withdrawals and Rs. 0.63 lakhs for share transfer stamps. The other items do not have tax implication as the same are merely refunded; but the slim attributable to shares and Alibag land will have to be considered under the head capital gains. As regards capital gains on shares in this case, the same is not taxable in India in view of Article 14(6) of the DTAA between India and France. 10. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3-04). The dispute and the compliant by the assessee was against her brother and when there was misappropriation of properties and enquiries about shares were undertaken, the assessee then filed criminal complaint against Ms. Rashmi Agarwal, that she had fraudulently sold the shares. The assessee has duly acknowledged that she has received sum of Rs. 60.32 lakhs paid earlier in the year 2002 and the balance amount of Rs. 33.88 lakhs was paid later on. In the paper book filed by the Department, she pointed out that the power of attorney in the favour of Ms. Rashmi Agarwal, will go to show that it was given to recover or enforce the payment on behalf of the assessee; to pay deposit, operate bank, to appear in legal matters, etc. The power of attorney for is silent with regard to the authority for transfer of shares and also number of shares owned by the assessee. Thus, when the shares were sold and money was received, the assessee was very much in knowledge, as there is no FIR on record against Ms. Rashmi Agarwal, for fraudulent sale of shares, because the Police compliant was against the assessee's brother. Secondly the amount of Rs. 60.32 lakhs was received through cheque from Ms. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled by the learned Departmental Representative wherein he has rebutted all the points raised by the learned Departmental Representative, based on material on record and also the relevant findings and observations of the learned Commissioner (Appeals). The sum and substance of his argument is that the amount received in 2002 was not in the knowledge of the assessee and only when she had come to know about the fraud done by Ms. Rashmi Agarwal, she had sent a legal notice and later on included her name for committing fraud. Had the assessee given any consent or known about the transfer of shares, then there would have been action on Ms. Rashmi Agarwal, and she would not have agreed to pay the assessee such a compensation amount. Except for the amount of Rs. 15 lakhs, for dispute of Alibaug land and some other items as pointed out by the learned Commissioner (Appeals), the rest is on account of shares only because there was no other dispute on which the settlement was agreed upon, therefore, the same has rightly been treated as long term capital gain, which is not taxable in the case of the assessee. 10. We have heard the rival contentions, perused the relevant findings of the author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares. The settlement agreement specifically mentions that the cheque amount of Rs. 33,38,135, was given to the assessee towards balance consideration of shares. The balance lump sum amount of Rs. 86,61,865, which was inclusive of Rs. 15 lakhs in respect of Aligaug land dispute was mainly on account of settlement of other disputes and differences; vii) The entire amount of Rs. 1.20 crores, as received by the assessee in terms of settlement agreement dated 31st May 2004, has been assessed as "income from other sources" by the Assessing Officer, whereas the learned Commissioner (Appeals) has held that major amount of approximately Rs. 102 lakhs is towards consideration of transfer of shares, hence, taxable as capital gains. 11. Here, one other issue which is emanating from the impugned order, is the year of taxability. The Assessing Officer has held that capital gain on alleged sale of shares arose in the A.Y. 2003-04 and what the assessee has received in this year is taxable as income from other sources in this year i.e., A.Y. 2005-06. The learned Commissioner (Appeals) on the other hand has held that the capital gain has arisen in A.Y. 2005-06 only for the reasons stated in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in this case, no dispute other than the dispute relating to shares and land was involved. Thus, for the purpose of taxability / assessability of sum of Rs. 1.20 crores, the amount of Rs. 33,38,135, and Rs. 15 lakhs has to be segregated, because, the sum of Rs. 33,38,135, pertains to transaction of shares which is to be assessed and taxed under the head capital gains, which in the present case is admittedly not taxable by virtue of Article-14(6). 14. Regarding balance sum of Rs. 71,61,865, whether it can be held to be assessable under the head "income from other sources" or "capital gains" or not taxable at all. In our opinion, the said amount firstly, cannot be taxed under the head "capital gain", because the terms of settlement agreement is very clear that transaction of shares was for sum of Rs. 93,70,135, out of which only Rs. 33,38,135, was due to the assessee and there cannot be any inference that the balance amount was also in lieu of shares, for the reason that at the time of settlement of agreement, the market value of these shares was very high. Nothing has been brought on record, either in the settlement agreement or any communication between the assessee and Ms. Rash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Here the payment is towards compensation on account of personal injury caused by fraud and breach of personal trust. The amount has been paid to withdrAw the criminal complaint and suit. The nature and character of such kind of receipt cannot be brought under charging section and hence cannot be taxed under any other provision. 17. Thus, in our conclusion, firstly, out of sum of Rs. 1.20 crores, sum of Rs. 33,38,135, is assessable under the head "capital gain" which cannot be taxed in case of the assessee due to benefit under Article-14(6) of Indo-French DTAA, Secondly, sum of Rs. 15 lakhs towards sale of Alibaugh land has already been directed by the learned Commissioner (Appeals) to be taxed as short term capital gain; and lastly, the sum of Rs Rs. 71,61,865, cannot be taxed under the charging provision of the Act, as the same is compensation in the form of capital receipt. Accordingly, the ground raised by the Department stands dismissed and the order of the learned Commissioner (Appeals) is only partly affirmed in the manner indicated above. In the result, ground no.1 to 4, are dismissed. 18. In Ground no.5, as admitted by both the parties, this issue is squarely covered by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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