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2015 (9) TMI 613 - DELHI HIGH COURT

2015 (9) TMI 613 - DELHI HIGH COURT - [2016] 381 ITR 351 - Sale of shares - whether constitute long term capital gain? - Held that:- After analysing the documentary evidence produced by the Assessee, the CIT (A) fairly concluded that the actual transfer of the shares took place only on 8th November 2006 and that therefore, the Assessee had held shares for more than one year. The further consequential finding that long term capital gains resulted cannot be said to be perverse. Question is answere .....

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he possession was handed over. The conclusion that the house was in fact purchased on 10th April 2007 within the time allowed under Section 54F of the Act stands supported by the documents placed on record by the Assessee. The Court is satisfied that the prior to 10th April 2007 the Assessee was not the owner of another residential house and therefore the exemption under Section 54 read with Section 54F of the Act could not be denied to him. - Decided in favour of the Assessee. - ITA 609/2014 - .....

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/Del/2011 for the Assessment Year ( AY ) 2007-08. Background Facts 2. The background facts are that the Respondent-Assessee filed his return of income for the AY 2007-08 declaring his income of ₹ 2,78,53,090. The case of the Assessee was selected for scrutiny and notice under Section 143 (2) of the Act was issued. In the assessment order passed under Section 143 (3) of the Act on 30th December 2009 the Assessing Officer ( AO ) noted that in the computation of income for the AY 2006-07 the .....

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; 60,000. The Assessee showed that he was earning less income from the said property. 3. For the AY 2007-08 the Respondent-Assessee again claimed deduction under Section 54F amounting to ₹ 2,21,69,090 against the long term capital gains of ₹ 3,74,47,787 on sale of shares of Valleyview Probuild Private Limited ( VPPL ). Copies of the agreement to sell dated 22nd July 2006 in respect of residential building at Village Fatehpur Beri and an unregistered sale deed (agreement to sell dated .....

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November 2009 in which Question No. 9 pointed out that the Assessee had sold 5,000 shares of VPPL on 8th November 2006 for a consideration of ₹ 3.75 crores; that the Assessee had claimed exemption under Section 54F of the Act in respect of purchase of residential house property at Gadaipur for ₹ 2.20 crores on 10th April 2007 from Mr. Prem Nath Nagpal; from the examination of the balance sheet it appeared that the Respondent-Assessee had already two house properties (i) at Gadaipur, .....

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ause why exemption claimed under Section 54F amounting to ₹ 2,21,69,090 should not be disallowed and why penalty under Section 271 (1) (c) should not be imposed. 5. The explanation offered by the Assessee was that on the date of the transfer of the shares of VPPL, i.e., 8th November 2006 the Assessee had one house at Village Fatehpur Beri which he had purchased on 22nd July 2006 and only 15% share in the house property at Gadaipur. It was clear that the Assessee had purchased 85% share in .....

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as he had only one residential house at Village Fatehpur Beri. The Assessee filed the Abhibhog Certificate which had been issued in the joint name of the Assessee and his father Mr. Prem Nath Nagpal by the Municipal Corporation of Delhi ( MCD ) which showed that the house was built on Khasra No. 75, 76 and 90 in Gadaipur on the lands jointly owned by the Assessee and his father although for the sake of convenience, two separate purchase deeds were executed. It was stated that the mere fact that .....

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Court in CIT v. T.N. Aravinda Reddy (1979) 120 ITR 46, Banarasi Dass Gupta v. CIT (1987) 166 ITR 783 (SC), the decision of the Allahabad High Court in Shiv Narain Chaudhary v. CWT 108 ITR 204 and two decisions of the Tribunal. The order of the AO 6. The AO did not accept the above explanation. The AO observed that 5000 equity shares of VPPL were originally allotted to one Mr. Shyam Kumar Bagga on 25th October 2005 at the rate of ₹ 10 per share. VPPL itself was incorporated only four days e .....

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te the plea that the date of acquisition of shares was 25th October 2005, was not perfectly legible but also no date found was mentioned against the entry in respect of the further sale of shares by the Assessee to one Mrs. Falguni Nayar. Further the document purporting to be a copy of share transfer deed (for the purchase of share by the Assessee from Mr. Shyam Kumar Bagga) did not contain the proper share transfer stamp. The stamp duty was found to have been paid by using revenue stamp. It app .....

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the account held by the Respondent-Assessee, Vijaya Bank, showed that the Assessee had already received advance sale consideration of ₹ 50 lakhs on 22nd August 2006 and ₹ 1.75 crores on 27th September 2006 for the sale of the shares to Mrs. Falguni Nayar. Therefore, 60% of the sale consideration received by the Respondent-Assessee by 27th September 2006. It is only the balance 40% consideration that exchanged hands on 8th November 2006. The AO observed that no person would part with .....

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er, between them held by the entire shareholding in VPPL and used their position to concoct the above evidence. 8. The AO further concluded that no evidence had been produced by the Respondent-Assessee to show that he was only 15% co-owner of Gadaipur house. A copy of the building sanctioned plan/drawing had not been produced despite requests. It was not ascertainable whether the construction was on the parcel of land belonging to the Assessee or whether the land belonging to father remained vac .....

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Section 54F of the Act and also directed penalty proceedings under Section 271 (1) (c) of the Act. Additional evidence before the CIT (A) 9. The Assessee appealed to the Commissioner of Income Tax (Appeals) and sought to rely upon the following additional evidence in support of his contentions: (a) The copy of the sale deed dated 13th March 1996 in favour of the Appellant to prove the fact that the portion of the property purchased by the Appellant was only a piece of agricultural land bearing K .....

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portion of land bearing Khasra Nos. 75, 76 and 90 were purchased by his father and the constructed portion existed on such land. (d) The copies of Khasra Girdawri to prove the fact that the land bearing Khasra Nos. 75 and 90 was merely used for agricultural operation and further to prove that the constructed house was exclusively situated on the land bearing Khasra No. 76 which was wholly purchased by the father of the Appellant. (e) The copy of the agreement dated 21st April 1999 between the Ap .....

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e land and constructed property was let out to Zerox Modi Corporation Ltd. against rent of Rs. l,00,000 per month which was to be apportioned between the Appellant and his father in the ratio of 15% and 85% respectively. 10. The CIT (A) sent the evidence at Serial Nos. (d), (e) and (f) as furnished by the Assessee by way of additional evidence under Rule 46A of the Income Tax Rules, 1963 ( Rules ) to the AO for his comments. By a remand report dated 19th July 2010 the AO objected to the admissio .....

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es to Sh. Kapil Nagpal by Shyam Kumar Bagga. (iii) Complete Audited Balance Sheets as on 31st March 2006 and 31st March 2007 of Valley View Probuild Pvt. Ltd. (iv) Complete details of computation of Income of the appellant for the A.Y. 2007-08 and 2006-07 and his complete Balance Sheets as on 31st March 2006 and 31st March 2007. (v) Computation of Income of Prem Nath Nagpal and his balance sheets as on 31st March 2006 and 31st March 2007. (vi) Affidavit from Sh. Prem Nath Nagpal to prove that th .....

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the Assessee was dated 25th October 2005, there could be no doubt that it was the date of acquisition notwithstanding that the duty was paid by using revenue stamps. While this may be a non-compliance with the requirements of the Companies Act, 1956, it was the relevant date of delivery in terms of the Sale of Goods Act, 1930. (c) Considering that the transfer deed was executed by both the parties on 25th October 2005 and the shares were registered in the name of the Appellant on that date, it .....

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d therefore, the nature of capital gain was long term capital gain. (e) As regards the ownership of Gadaipur house in terms of the sale deed dated 13th March 1996 the property under transfer was only a small piece of agricultural land (1 bigha) in Khasra Nos. 75 and 90. There was nothing in the sale deed which suggested that any structure existed on the said land. (f) The sale deed in favour of Mr. Prem Nath Nagpal, father of the Assessee showed that he had purchased land in Khasra Nos. 75, 76 a .....

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ouse) existed on the portion of land Khasra No. 76 exclusively owned by Mr. Prem Nath Nagpal, father of the Assessee. (h) Consequently, the claim of the Assessee under Section 54F could not be rejected on the ground that he was an owner of more than one residential house as on 8th November 2006. (i) In view of the decision of the Supreme Court in CIT v. Podar Cements (P) Limited [1997] 226 ITR 625 (SC), the Assessee could claim exemption on the basis of the agreement to sell only without it bein .....

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re were two independent units meant for use by the Appellant and his father. It did not prove the Appellant to be owner of any of these units. The impugned order of the ITAT 13. The Revenue filed an appeal before the ITAT being ITA No. 5077/Del/2011. The ITAT has in its impugned order dated 29th January 2014 concurred with the decision of the CIT (A) that the transfer of shares resulted in long term capital gain and that CIT (A) was right in upholding that the Assessee was not a fractional owner .....

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circumstance of the case Income Tax Appellate Tribunal was correct in holding that sale of shares constitute long term capital gain? 15. This Court has heard the submissions of Mr. N.P. Sahni, learned Senior standing counsel for the Revenue and Dr. Rakesh Gupta, learned counsel for the Assessee. Question (ii) 16. The facts concerning the transfer of shares have been set out in considerable detail. It has been factually found by the CIT (A) and concurred with by the ITAT that the shares were hel .....

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Thakar (supra) it was emphasized that there was a distinction between the title to get on the register and the full property in the shares in a company. The first was acquired by mere delivery, with the required intention of the share certificate and a blank form signed by the transferor. The second was only obtained when the transferee, in exercise of his right to become a shareholder, gets his name on the register in place of the transferor. 17. In the present case, there was no actual transf .....

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Green Park Extension, New Delhi on this day of 8th November 2006. 18. After analysing the documentary evidence produced by the Assessee, the CIT (A) concluded that the actual transfer of the shares took place only on 8th November 2006 and that therefore, the Assessee had held shares for more than one year. The further consequential finding that long term capital gains resulted cannot be said to be perverse. Question (ii) is answered in favour of the Assessee and against the Revenue. Question (i) .....

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noticed the decisions in Mysore Minerals Ltd. v. CIT (1999) 239 ITR 775 (SC) and CIT v. R.L. Sood (2000) 245 ITR 727 (Del) and held that for the purpose of attracting the provisions of Section 54 of the IT Act, it is not necessary that the Assessee should become the owner of the property. Section 54 of the said Act speaks of purchase. Moreover, the ownership of the property may have different connotation in different statutes. It was concluded that the Tribunal in that case went wrong in holding .....

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pplied unless and until there are materials to show that the Assessee is the exclusive owner of the residential property. 20. In the present case, as pointed out by the CIT (A), the sale deed dated 13th March 1996 does show that what was purchased by the Appellant (Assessee herein) is an agricultural land bearing Khasra Nos. 75 and 90. Khasra Girdawri also clarifies that while there is a kothi, i.e., house on Khasra No. 76 (purchased by the Assessee's father), the land in Khasra Nos. 75 and .....

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