TMI Blog2015 (12) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... ly named the full value of the thing received by the transferor in exchange for the capital asset transferred by him. S.12(B)(2) of the Indian Income Tax Act, 1922 is analogous to S.48 of the Income Tax Act,1961. Thus we direct the Assessing Officer to adopt the full value of consideration as received by the assessee on sale of shares of M/s. Silicon Builders at cost to be the full consideration for computation of capital gains on such sale. - Decided in favour of assessee - ITA No. 582/Hyd/2015 - - - Dated:- 20-11-2015 - Smt P. Madhavi Devi, Judicial Member And Shri B. Ramakotaiah, Accountant Member For the Appellant : Shri K. A. Sai Prasad For the Respondent : Shri E. Sunil Babu ORDER Per P. Madhavi Devi, Judicial Member This is assessee s appeal for the assessment year 2010-11. In this appeal, assessee is aggrieved by the order of the CIT(A) in confirming the order of the Assessing Officer in substituting the full value of the consideration with fair value of consideration, for computing the capital gains under S.48 of the I.T. Act on transfer of equity shares. 2. Brief facts of the case are that the assessee company filed its return of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied the receipt of the sale consideration at cost by the assessee. He submitted that the authorities below have only arrived at a nominal sale consideration, as against the actual sale consideration received by the assessee, which is not permissible. In support of these contentions of the assessee, the learned counsel for the assessee has placed reliance on the following decisions (a) CIT V/s. George Henderson (66 ITR 622)-SC (b) CIT Vs. Gillanders Arbuthnot Co.(1973 AIR 989 ) SC (c) Reliance Communications Infrastructures V/s.CIT(34 SOT 245)- Mum (d) Morarjee Textiles Ltd. V/s. ACIT (ITA 1979/Mum/2009 for assessment year 2005-06) dated 10.5.2013) (e) Nariman Point Building Services Trading P. Ltd. V/s. CIT(ITA No.798/M/2011 for assessment year 2006-07) dated 25.7.2012) (f) Venus Financial Services Ltd. V/s. ACIT (ITA No.5335/Del/2012) for assessment year 2009-10 dated 28.9.2015 Thus, according to him, the orders of both the authorities below have to be set aside. 5. The Learned Departmental Representative, on the other hand, supported the orders of the authorities below. 6. Having regard to the rival submissions and the material on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the shares of 50 crores, the capital gain worked out to be nil under S.48 of the Act. For the reasons given above, it cannot be said that short-term capital gains as held by the learned CIT in the order passed under S.263 has escaped assessment . Moreover, the case of the assessee is supported by the interpretation given by the Hon'ble Supreme Court to the expression full value of consideration in the case of George Henderson Co. Ltd. (supra). Similar view has also been expressed by another bench of this Tribunal at Mumbai in the case of Morarjee Textiles Ltd. and Another V/s. ACIT (ITA No.1979/Mum/2009 for assessment year 2005-06) dated 10.5.2013, to which one of us, viz. Accountant Member, is a signatory, wherein, vide paras 15 to 21, it was held as under- 15. We have considered the issue and examined the record. As far as the price adopted by the AO, we cannot approve the value as taken by the demat authorities as there seems to be an error in mentioning the value as the said company is a private limited company and there cannot be any market value as it is not quoted in the Stock Exchange. Therefore, part of AO's finding about the value of demat stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2B)(i), which is as under: the fair market value, in relation to a capital assets, means - (i) the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date . This fair market value substitution is applicable only to the situation where the AO is empowered to determine the fair market value under the Act. As far as computation of capital gains on sale of shares are concerned under section 48 it does not empower the AO to substitute the fair market value for the full value of consideration. 16. The Hon'ble Supreme Court in CIT vs. George Henderson and Co. Ltd. (1967) 66 ITR 622 (SC) on the issue that the market value of the shares which were allotted at ₹ 136/- per share was ₹ 620/- per share considered the expression full value of consideration as occurring in section 12B(2) of the Indian Income Tax Act and , 1922, which is analogous to section 48 of the Act has held as under:- ............ It is manifest that the consideration for the transfer of capital asset is what the transferor receives in lieu of the asset he parts with, namely, money or money's worth and, therefore, the very asset transferred or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are(1) that the transferor was directly or indirectly connected with the transferee , and(2) that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under section 12B. If the conditions of this proviso are not satisfied the main part of section 12B(2) applies and the Income-tax Officer must take into account the full value of the consideration for the transfer. 17. In CIT vs. Gillanders Arbuthnot Co. (1973) 87 ITR 407 (SC) Their Lordships after applying the principles enunciated in George Henderson and Co. Ltd. supra has observed and held as under ( page 419):- Now let us see what is the impact of section 12B(2) on the transaction? Under that provision, the amount of capital gains has to be computed after making certain deductions from the full value of the consideration for which the sale is made. What exactly is the meaning of the expression full value of the consideration for which sale is made ? It is the consideration agreed to be paid or is it the market value of the consideration ? In the case of sale for a price, there is no question of any market value unlike in the case of an exchange. Therefore, in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) applies and the Income-tax Officer must take into account the full value of the consideration for the transfer. Applying the principles enunciated in that decision we think that the full value of the sale price received by the assessee was only rupees seventy- five lackhs. That being so, the capital gains made by the company were ₹ 27,04,772 as held by the High Court. 18 In K.P.Varghese vs. ITO (1981) 7 Taxman 13(SC); (1981) 131 ITR 597 (SC) it has been held vide para 15 and 18 as under:- 15. It is, therefore, clear that sub-section (2) cannot be invoked by the revenue unless there is understatement of the consideration in respect of the transfer and the burden of showing that there is such understatement is on the revenue. Once it is established by the revenue that the consideration for the transfer has been understated or, to put it differently, the consideration actually received by the assessee is more that what is declared or disclosed by him, sub-section (2) is immediately attracted, subject, of course, to the fulfillment of the condition of 15 per cent or more difference, and the revenue is then not required to show what is the precise extent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lment is on the revenue. This burden may be discharged by the revenue by establishing facts and circumstances from which a reasonable inference can be drawn that the assessee has not correctly declared or disclosed the consideration received by him and there is understatement or concealment of consideration in respect of the transfer. Subsection (2) has no application in case of an honest and bona fide transaction where the consideration received by the assessee has been correctly declared or disclosed by him, and there is no concealment or suppression of the consideration........... 19. . In Rupee Finance Management (P) Ltd. (2008) 22 SOT 174 (Mum); (2009) 120 ITD 539 (Mum) it has been held in penultimate para of the order that: As already held in the order of Rupee Finance Management Pvt. Ltd. there is no allegation much less, any evidence to show that these assesses before us have received monies in excess of amounts of sale consideration recorded and disclosed in the transaction for the sale of shares. The first appellate authority has rightly noted that under section 48 the starting point for computation of capital gains is the amount of full value of consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tution of the values and the said provisions for substitution provided under the Act is not applicable to the facts of the case, we cannot approve the action of the AO in revaluing the sale price. Similar view was taken by the Coordinate Bench in the case of MGM Shareholders Benefit Trust (supra) wherein the ITAT ultimately did not approve the substitution of sale price on the facts of that case. The final finding in para 41 is as under: - 41. There is no quarrel on the principle of law laid down in the other decisions relied on by ld. D.R. However, in view of the principles enunciated by the Hon'ble Supreme Court, in the above decisions referred in para 31 to 36 and the Tribunal decision in para 37 of this order we are of the view that the full value of the sale price received by the assessee was only ₹ 0.10p Per share and, hence, the short term capital loss shown by the assessee at ₹ 5,21,28,059/- is accepted and the order passed by the Assessing Officer and the ld. CIT(A) in this regard are set aside. The grounds taken by the assessee are, therefore, allowed and the grounds taken by the revenue are rejected. 21. In view of the above, we have no hesi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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