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TMI Blog2014 (12) TMI 857X X X X Extracts X X X X X X X X Extracts X X X X ..... n fee by executing deed of covenant." (*correcting the typographical error, may be read as "CDBL") 2. The respondent-assessee, an individual, was the Chairman-cum-Managing Director of M/s Central Distillery and Breweries Ltd. (CDBL, for short), a public company listed on the Delhi Stock Exchange and the Bombay Stock Exchange. During the period relevant to the assessment year and earlier, CDBL was engaged in the business of manufacturing and sale of Indian Made Foreign Liquor (IMFL, for short) and beer. The respondent-assessee along with his family members, i.e. wife, son, daughter in law and two daughters held 1,86,019 shares, constituting 57.29% of the paid-up equity share capital of CDBL. 3. M/s Shaw Wallace Company Group (SWC Group, for short), a giant in liquor business in comparison to CDBL, offered and purchased through their subsidiaries, shares held by the respondent assessee and his family members in CDBL at the rate of Rs. 30/- per share for Rs. 55,83,270/-. The deal for the sale of 1,86,019 shares was formalized by a Memorandum of Understanding (MOU, for short) dated 13th April, 1994. The respondent assessee who individually held 12% of the paid-up equity share capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of benefit or perquisite, whether convertible in money or not, and not the monetary amount itself, which has been received. It is highly debateable whether the assessed was carrying on a profession. 8. Section 28(ii) of the Act, however, requires interpretation and examination, and the same is accordingly reproduced below:- "28. The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession",- xxx (ii) any compensation or other payment due to or received by (a) any person, by whatever name called, managing the whole or substantially the whole of the affairs of an Indian company, at or in connection with the termination of his management or the modification of the terms and conditions relating thereto; (b) any person, by whatever name called, managing the whole or substantially the whole of the affairs in India of any other company, at or in connection with the termination of his office or the modification of the terms and conditions relating thereto; (c) any person, by whatever name called, holding an agency in India for any part of the activities relating to the business of any other person, at or in connection with the te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be categorized and taxed under these clauses. We need not dilate on the said aspect in view of the authoritative pronouncement of the Supreme Court in Guffic Chem P. Ltd. versus Commissioner of Income Tax, Belgaum and Anr., [2011] 332 ITR 602. In the said case, the assessee had received consideration of Rs. 50 lacs as non-compete fee, under an agreement dated 31st March, 1997, i.e. assessment year 1997-98, consequent to transfer of a trademark. The seminal factual assertion that Rs. 50 lacs were received by the assessee towards non-compete fee was not disputed by the Assessing Officer. There was no lis on the nature and character of the consideration paid. The Supreme Court observed that there was a dichotomy between receipt of compensation by the assessee for loss of agency and receipt of compensation attributable to the negative/restrictive covenant. The former was treated as a revenue receipt, whereas the latter was a capital receipt. This dichotomy flowed from the earlier decision of the Supreme Court in Gillanders Arbuthnot and Co. Ltd. versus The Commissioner of Income Tax, Calcutta [1964] 53 ITR 283. Reversing the judgment of the Calcutta High Court in the aforesaid factua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 13-4-1994 - one for transfer of shares of assessee and his family members and other in respect of restrictive covenant. These two deeds, if read together, will go to show that amount in question was nothing but price paid by SWC group to assessee for handing over the management and control over CDBL that is why different clauses in the transfer deed of shares were mentioned by which the assessee and his family members agreed to hand over the management smoothly and to help in such smooth handing over. xxx 25. The assessee and his family members have shown in their returns of income for the year under consideration the amount of capital gain so earned on transfer of shares and AO has accepted the capital gain so shown by the assessee. It is not the case of the AO or the CIT(A) that there had been undervaluation of cost of shares. Had it been the case as argued by the learned D.R. for the first time before the Bench the AO would have been justified to bring material on record to show that actual price of the shares was more than Rs. 30/- per share and assesssee in collusion with SWC group had under valued the price of shares and payment of actual price of the shares routed thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relates to compensation or other payment received in connection with termination of agency or modification of the terms and conditions. Thus, sub-clause (a) of clause (ii) to Section 28 of the Act would be applicable if we hold that the payment of Rs. 6.60 crores was towards the termination of management or modification of terms and conditions relating thereto. 15. The reasoning given by the third member of the Tribunal records that it was an undisputed position that respondent assessee was the Chairman cum Managing Director of CDBL since 1960 and had 35 years of experience. In paragraph 23, the third member has recorded that the first MOU dated 13th April, 1994 states that the respondent assessee and his family members had sold 1,66,102 (sic, 1,86,019) equity shares of Rs. 10/- each, @ 30/- per share, and in this manner Rs. 50 lacs was paid by the SWC group on 12th February, 1994 and the remainder Rs. 5,83,270/- was paid subsequently, but before execution of the MOU. Thereafter, clause 4 of the said MOU recorded as under:- "4. In consideration of the above payments made by SWC as enumerated in Clause 3 of this MOU, Mr. Gupta have irrevocably handed over the physical possession, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for loss of office is to be recorded as a capital receipt. The legislation in its wisdom brought section 10(5A) w.e.f. 1-4-1955 wherein it was provided that payment received for termination of office would be the income from business and profession. It is undisputed fact that provision of Section 28(ii)(a) of the present Act are the same which were U/s 10(5A) of the Income-tax Act, 1922." 17. The aforesaid paragraph would indicate that this was not the real and quintessential controversy. Statements and wordings of the two MOUs were known but the central issue in controversy was whether description of Rs. 6.60 crores as non compete fee was binding and unalterable, even if the description was in fact an adroit attempt at artificiality or to transmogrify a taxable event. Thereafter, the third member has referred to the case law on the subject i.e. non-compete fee was not taxable which, as already been held above, is the correct position of law before 1st April, 2003. To elucidate and opine in favour of the respondent assessee on the nature and character payment of Rs. 6.60 crores, the third member of the Tribunal in paragraph 33 onwards has observed:- "33. ... Here we are having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o show that there had been any collusion in between assessee and SWC group. All these facts completely go in favour of assessee and law also is towards the side of assessee. The above deal was completely a restrictive covenant executed by assessee for a consideration and that consideration is to be treated as capital receipt as laid down by Apex Court and other High Courts as well as by different benches of the tribunal. 35. It was also argued by the learned D.R. that there is no penalty clause in the alleged restrictive covenant as in case assessee indulges in the said business, .what was the remedy available to SWC, group and learned J.M. has also dealt this point in detail. In this connection, the learned counsel for the assessee has already pointed out that out of the amount received by assessee, Rs. 2 crores were to be deposited and in case there was any loss to SWC group, the loss so suffered shall stand adjusted and this was sufficient to be treated as penalty clause. Further, there is no substance in the argument of the learned D.R. that the alleged restrictive covenant is in violation of Article 16(g) [sic, Article 19(1)(g)] of the Constitution of India or the said agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the wordings of the documents would in many a case be a decrepit and tutored finding. It would be a credulous and simplistic determination. This question has been again dealt with and examined below, but first we deem it appropriate to notice and record the findings of the assessing officer who disbelieved the taxable event as declared, i.e. non compete fee, recording the following reasons:- (1) The respondent assessee in his letter dated 26th March, 1998, had stated that the SWC Group had gained substantial commercial advantage by sale of CDBL as their turnover increased from Rs. 9.7 crores in accounting period ending 30th September, 1995 to Rs. 45.17 crores for the accounting period ending 31st March, 1997. (2) The first MOU mentions that CDBL had a factory with about 350 employees including 339 permanent workers, staff and officers. (3) There was no rationale behind payment of Rs. 6.60 crores, as it was neither linked with the earlier remuneration received by the respondent assessee from CDBL which was merely Rs. 1,45,200/- and Rs. 1,33,100/- annually for the financial years 1994 and 1993 respectively. (4) The respondent assessee, an individual, consequent to the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no scope to ignore the legal character of the transaction. The right of the assessed to choose a legitimate taxable event must be respected. However, in the present case, there are two MOUs which were executed on the same day and deception and maladroit trickery is alleged. The facts mandated a more comprehensive and thorough examination. The first MOU was for transfer of 57.29% of paid-up equity share capital in CDBL which was considerably large company having about 350 employees and manufacturing IMFL and beer. No doubt, market price of each share was only Rs. 3/- per share and the purchase price under the MOU was Rs. 30/-, but the total consideration received was merely about Rs. 56 lacs. What was allegedly paid as non-compete fee was ten times more, i.e. Rs. 6.60 crores. The figure per se does not appear to be a realistic payment made on account of non-compete fee, dehors and without reference to sale of shares, loss of management and control of CDBL. The assessee had attributed an astronomical sum as payment toward non-compete fee, unconnected with the sale of shares and hence not taxable. Noticeably, the price received for sale of shares, it is accepted was taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents." 24. The reasoning given by the Tribunal lays emphasis that there were two separate MOUs and the respondents being two competing businessmen were entitled to value the transactions on the principle of commercial expediency. However, reasoning or ratio overlooks the legal position that when there are several documents which form a part of one transaction and are contemporaneously executed, they have similar effect for similar purposes and as such are relevant to the case as if they are a one deed (See Chitty on Contract, 27th Edition at page 588). Similarly Kim Lewison Q.C., in Interpretation of Contracts, 2nd Edition at pages 25-29, has observed that a document executed contemporaneously or shortly after the primary document, has to be construed and may be relied upon as aid of construction as if the same forms part of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the substance of things, which in such a case is the whole transaction, and not with unrealities such as the hypothetical operation of one of the deeds by itself without the others." 25. On the question of interpretation of documents, the opinion of Lord Hoffmann in Investors Compensation Scheme Ltd. versus West Bromwich Building Society [1998] 1 All ER 98 (HL), records the following five principles as the guiding rules:- "(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. (2) The background was famously referred to by Lord Wilberforce as the "matrix of fact", but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the documents would have been understood by a reasonable man. (3) The law excludes from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement, the context and the surrounding circumstances as a whole. Common sense cannot be given a go by. The meaning and intent of the transaction cannot be at variance with the actual intent. 27. In Sundram Finance Ltd. versus State of Kerala & Anr., AIR 1966 SC 1178, it was held:- "24. The true effect of a transaction may be determined from the terms of the agreement considered in the light of the surrounding circumstances. In each case, the Court has, unless prohibited by statute, power to go behind the documents and to determine the nature of the transaction, whatever may be the form of the documents. An owner of goods who purports absolutely to convey or acknowledges to have conveyed goods and subsequently purports to hire them under a hire-purchase agreement is not estopped from proving that the real bargain was a loan on the security of the goods. If there is a bona fide and completed sale of goods, evidenced by documents, anterior to and independent of a subsequent and distinct hiring to the vendor, the transaction may not be regarded as a loan transaction, even though the reason for which it was entered into was to raise money. If the real transaction is a loan of money se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reveal the true nature and character. 28. In Lachminarain Madan Lal versus CIT, West Bengal (1972) 86 ITR 439 (SC), a matter relating to income tax, it was held that mere existence of an agreement between assessee and its agents and receipt of commission etc., would not bind the Assessing Officer to hold that the payment was exclusively and wholly for assessee"s business for it is open to the Assessing Officer to consider relevant facts and determine whether the commission said to have been paid was deductible under the Act. The relevant facts can be taken into consideration. Similarly, in Sunil Sidhharthbhai versus CIT Ahmedabad, Gujarat (1985) 156 ITR 509 (SC), the Supreme Court while rejecting the contention of the Revenue that capital contribution distributed at the time of dissolution gives rise to capital gains tax as the expression "transfer of property" connotes passing of rights in a property from one person to other, cautioned that the aforesaid dictum proceeds on the assumption that the partnership firm is genuine and not a result of sham or unreal transaction. If the transfer of the personal assets by the assessee to the partnership firm in which he is or becomes a pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Judges speaking through Misra, J. agreed with the observations of Chinnappa Reddy, J. as to how in certain circumstances tax avoidance should be brought within the tax net. (iii) That, subsequent to McDowell [(1985) 3 SCC 230], another matter came before the Constitution Bench of five Judges in Mathuram Agrawal v. State of M.P. [(1999) 8 SCC 667], in which Westminster [1935 All ER Rep 259 (HL)] principle was quoted which has not been noticed by Azadi Bachao [(2004) 10 SCC 1]. Our analysis 61. Before coming to Indo-Mauritius Double Taxation Avoidance Agreement (DTAA), we need to clear the doubts raised on behalf of the Revenue regarding the correctness of Azadi Bachao [(2004) 10 SCC 1] for the simple reason that certain tests laid down in the judgments of the English Courts subsequent to IRC v. Duke of Westminster [1936 AC 1(HL)] and Ramsay (W.T.) Ltd. v. IRC [1982 AC 300 (HL)] help us to understand the scope of Indo-Mauritius DTAA. 62. It needs to be clarified that McDowell [(1985) 3 SCC 230] dealt with two aspects. First, regarding validity of the circular(s) issued by CBDT concerning Indo-Mauritius DTAA. Second, on the concept of tax avoidance/evasion. Before us, arguments w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (HL)] is an extension of Ramsay [(1981) 1 All ER 865 (HL)] principle. 67. After Dawson [(1984) 1 All ER 530 (HL)] , which empowered the Revenue to restructure the transaction in certain circumstances, the Revenue started rejecting every case of strategic investment/tax planning undertaken years before the event saying that the insertion of the entity was effected with the sole intention of tax avoidance. In Craven v. White (Stephen)[(1988) 3 All ER 495 (HL)] it was held that the Revenue cannot start with the question as to whether the transaction was a tax deferment/saving device but that the Revenue should apply the look at test to ascertain its true legal nature. It observed that genuine strategic planning had not been abandoned. 68. The majority judgment in McDowell [(1985) 3 SCC 230] held that: (p. 254, para 45) "45. Tax planning may be legitimate provided it is within the framework of law." In the latter part of para 45, it held that: (pp. 254-55) "45. ... Colourable devices cannot be [a] part of tax planning and it is wrong to encourage the belief that it is honourable to avoid payment of tax by resorting to dubious methods." It is the obligation of every citizen to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferment or saving device but can apply the look at test to ascertain its true nature. Genuine strategic planning is acceptable and not abandoned. Thus, the judgment elucidates and explains the English judgments and their ratio. The majority judgment in McDowell's case (supra) was referred to hold that tax planning may be legitimate, provided it is within the framework of law, but colourable devices cannot be a part of tax planning and it was wrong to encourage and entertain the belief that it is honourable to avoid payment of tax by resorting to dubious methods. Further, the majority decision agreed with the view expressed by Reddy, J. only in relation to tax evasion through colourable device by resorting to dubious methods and subterfuges. It did not hold that tax planning is illegitimate, illegal and impermissible. The opinion and view expressed by Reddy J. was only in the context of artificial and colourable devices. Thereafter, under the heading "international tax aspects of holding structures" reference was made to Ramsay principle and it was reiterated that look at principle as enunciated requires the Revenue or the Court to look at the document or transaction in the context ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayers may be of his ingenuity, he cannot be compelled to pay an increased tax. This so-called doctrine of "the substance" seems to me to be nothing more than an attempt to make a man pay notwithstanding that he has so ordered his affairs that the amount of tax sought from him is not legally claimable." 33. Lord Atkin dissented stating "that the substance of the transaction was that what was being paid was remuneration." Thereafter, the principles which emerged from Westminster's case (supra) were stated as:- "(1) A legislation is to receive a strict or literal interpretation; (2) An arrangement is to be looked at not in by its economic or commercial substance but by its legal form; and (3) An arrangement is effective for tax purposes even if it has no business purpose and has been entered into to avoid tax." 34. Referring to the Ramsay's case (supra), it was observed that during 1980"s emphasis was attached to "purposive interpretation approach" and gradually to "economic substance doctrine". Reference was made to Lord Wilberforce"s observations in Ramsay's case (supra) that documents and transactions should not be looked at with blinkers, isolated from any context to which it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to emerge in England and in the absence of any legislative guidelines, there is bound to be uncertainty, but to say that the principle of Duke of Westminster has been exorcised in England is too tall a statement and not seen accepted even in England. The House of Lords in McGuckian and MacNiven, it may be noted, has emphasised that the Ramsay approach is a principle of statutory interpretation rather than an overarching anti-avoidance doctrine imposed upon tax laws. The Ramsay approach is ultimately concerned with the statutory interpretation of a tax avoidance scheme and the principles laid down in Duke of Westminster, it cannot be said, have been given a complete go-by in Ramsay, Dawson or other judgments of the House of Lords." 36. With regard to the position in India with reference to the two decisions in McDowell (supra) and Azadi Bachao Andolan (supra), it was held that Reddy J. had agreed with Mishra, J. in McDowell (supra) with whom other three Judges had concurred. Thus, what transpired in England is not the ratio of McDowell (supra) and cannot be and remains merely an opinion or view. It was further held by K.S. Radhakrishnan, J. as under:- "Confusion arose (see para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r existence in South Africa, China, Japan etc. 38. Thus, in Vodafone's case (supra) earlier decisions in McDowell (supra) and Azadi Bachao Andolan (supra) stand explained and elucidated. Demanding and complicated question of tax avoidance and tax evasion, form over substance and what are the powers of the Revenue/income tax authorities stand explicated and unravelled. The issue is vexed but to our benefit examined and answered in Vodafone's case (supra) and we have applied the said tests. Vodafone tests 39. Expressions "tax avoidance, tax evasion and tax mitigation" are often spoken about, but differently understood. Rule of law mandates and requires a measure of certainty in understanding the said terms. Juristic explications on the subject are indicative of equivocating and divergent stand points. The distinction between the expressions; tax avoidance, tax evasion and tax mitigation has been a subject matter of several erudite articles with different perspectives like Morality on Tax Avoidance by Zoë Prebble and John Prebble; Interpretation of Tax Statutes: tax avoidance and the intention of the Parliament by Judith Freedman; Tax Avoidance, Tax Evasion and Tax Mitigation b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly attractive option afforded to him by the tax legislation and genuinely suffers the economic consequences that Parliament intended to be suffered by those taking advantage of the option" The aforesaid quote uses the expression "economic consequences that Parliament intended" which as per some, causes confusion and is self contradictory. However, the said criticism overlooks that if the intention of the Parliament is clear and unambiguous; taking advantage or benefit as envisaged by the provision is a case of tax mitigation. Even in case of debate, when the intention of the Parliament is favourable and adjudication decides the question in favour of the assessee, it would be a case of tax mitigation. Courts are trusted and given the power to determine as to what was the intent of the Parliament while enacting a particular provision. When the court decision interpreting the legislative intent is in favour of the assessee, there is no avoidance of tax because the conduct is consistent with the taxing provision. If there is no tax avoidance, the question of abusive tax avoidance does not arise, for the latter refers to a particular category of transactions that are unacceptable being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in CIT versus Raman (A.) & Co. [1968] 67 ITR 11, at p.17 had observed:- "Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Income-tax Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented." 47. In clear and categorical terms the aforesaid ratio was resonated and approved by the Supreme Court in the Vodafone's case (supra). Thus, the test of "devoid of business purpose" or "lack of economic substance" is not accepted and applied in India as it is too broad and unsatisfactory. The said test, if ardently applied, would contradict and would be irreconcilable with taxpayers" right to arrange once affairs within the confines of law, which is not prohibited or barred. 48. Naturally, the dividing line between acceptable and abusive tax avoidance cannot be deduced or inferred from lowering or elimination of the tax liability. Latter is the consequence a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessed may have several legally permissible alternatives to effect and divide the assets on partition. Such examples are numerous. The choice might result in mitigation of tax liability, but the tax effect would not classify or help us differentiate between tax avoidance and abusive tax avoidance. Any attempt to minimize or eliminate tax liability would not make the choice of the tax payer abusive tax avoidance. The foundation of the said principle is that the tax code by its nature differentiates between different types of actions, transactions, arrangements and activities and then identifies and stipulates the consequences. The tax code, i.e. the Income Tax Act, 1961 is rule based and complex. The Act is not entirely principle based. The provisions are read and applied. Principle of purposive interpretation both in favour of Revenue or assessed can be applied but within four corners of law. In fact, in some cases, the assessed may find themselves taxed at a higher liability for failure to choose a more tax friendly event. But the right of choice is hedged with one significant condition. The event selected, as noticed above and subsequently, should be real and not a colourable dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cholls in MacNiven (Inspector of Taxes) versus Wesmoreland Investments Ltd. (2002) 225 ITR 612; the decision in Ramsay's case (supra) had not enunciated a new legal principle but reiterated the courts" duty to determine the legal nature of the transaction and then relate the finding to the fiscal legislation. Thus, when there is one or a series or combination of transactions intended to operate as such, the courts are entitled to look the real scheme as such or as a whole, even when a particular stage is only an expectation without any contractual force. This does not mean that the transaction or any step in the transaction is treated as sham or given a legal effect different from the legal effect intended by the parties. Nor does it imply going behind the transaction or the series of transactions for some supposed underlying substance. It means looking at the document(s) or the act(s) in the context to which it properly belongs. Ramsay's approach promises ascertaining the legal nature of the transaction(s) and is a principle of interpretation applicable to taxing statutes. 56. In view of the aforesaid discussion and our findings on the true and real nature of the transaction camo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 [See IRC versus Crossman (1936) 1 All ER 762 (HL)]. 59. 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. Such transaction, it was observed by S.H. Kapadia, CJI: "As a general rule, in a case where a transaction involves transfer of shares lock, stock and barrel, such a transaction cannot be broken up into separate individual components, assets or rights such as right to vote, right to participate in company meetings, management rights, controlling rights, control premium, brand licences and so on as shares constitute a bundle of rights. [See Charanjit Lal Chowdhury v. Union of India, AIR 1951 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el Tax Convention on Income and Capital dated January 28, 2003, as also the judgment of this Court in the case of CIT (Central), Calcutta v. Mugneeram Bangur and Company (Land Deptt.), (1965) 57 ITR 299 (SC)]. Thus, we need to "look at" the entire Ownership Structure set up by Hutchison as a single consolidated bargain and interpret the transactional documents, while examining the Offshore Transaction of the nature involved in this case, in that light." 60. Going back, the aforesaid paragraph reiterates and affirms the contention of the Revenue and is against the reasoning given by the Tribunal and the arguments raised by the assessee. It will be unintelligible, if not being gullible, if we accept that bundle of rights including non-compete right acquired on the sale of shares of a thriving and running company would be and should be accepted at Rs. 56 lacs approximately but Rs. 6.60 crores was not the consideration paid for the said transaction or not solely relatable to the purchase of shares. The respondent assessee, an individual did not even have a licence to manufacture alcohol. Thus, to hold the two agreements were independent, one related to sale of shares of CBDL and the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances. Controlling interest is inherently contractual right and not property right and cannot be considered as transfer of property and hence a capital asset unless the statute stipulates otherwise. Acquisition of shares may carry the acquisition of controlling interest, which is purely a commercial concept; and tax is levied on the transaction, not on its effect." 62. The aforesaid observations are relevant when we deal with the question of capital gain under Section 48 of the Act, which states that capital gain shall be computed after deducting "full value" of the consideration received or accruing as a result of the transfer of the capital asset and expenditure incurred wholly and exclusively in connection with the said transfer on cost of acquisition of the said transfer and the cost of improvement thereto. Clearly, therefore, 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. 63. In view of the aforesaid discussion, we deem it appropriate and proper to treat Rs. 6.60 crores as consideration paid for sale of shares, r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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