TMI Blog2009 (5) TMI 920X X X X Extracts X X X X X X X X Extracts X X X X ..... it is used. We further find lot of substance in the argument of ld. Counsel in this regard with reference to inclusion of Clause (v) in the definition of transfer u/s 2(47) only with reference to immovable property and not with reference to movable property. In the present case when final delivery of shares took place on 1/15-4-2005 and, therefore, in view of the decision in the case of M. Ramaswamy [ 1983 (7) TMI 15 - MADRAS HIGH COURT] and Rajgiri Rubber and Produce Co.[ 1993 (2) TMI 67 - KERALA HIGH COURT] ), in our opinion, transfer of shares took place on 1/15.4.2005. This view is fully supported by the decision of the Hon'ble Supreme Court in the case of Shellate VR v. P.J Thakkar [ 1974 (7) TMI 78 - SUPREME COURT] wherein, it was held that procedure required by law was to be complied with and, accordingly, delivery of share certificate along with transfer deed had to be handed over to purchaser in order to complete the transfer. Regarding extinguishment of rights - We have already held that a case of sale and that of extinguishment of right are mutually exclusive. However, in any view of the matter, we are of the opinion that it could not be said that there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement was 1.4.2005. The directors resigned on the date as per the said Article. Therefore, the contract was completed on fulfillment of conditions contemplated in Article 6 which took place on 1.4.2005. Thus, from the very beginning, the parties had declared the date of contract of sale subject to fulfillment of conditions and, therefore, on the date of fulfillment of above conditions, the date of contract of sale crystallized. We are, therefore, of the opinion that this circular in no way prejudice the assessee's claim. It is pertinent to note that Dabur India Limited, the purchaser has also recognized the purchase of shares in F.Y. 2005-06 and not F.Y. 2004-05. The CIT(A) has observed that the entire sale consideration but the fact is that it was not the entire sale consideration as the assessee had received on completion of sale. In view of the above discussion, we are of the opinion that as the transfer of shares of target companies was completed on 1/15-04-05, the capital gains were to be taxed in AY 2006-07 and there is no merit in including the income from capital gain on sale of shares of target companies in the A.Y 2005-06. Ground Nos. 1, 2 3 stand allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Ambit Corporate finance and Economic Law Practice were enclosed. The bills are in the name of assessee, therefore, the deduction had rightly been claimed by the assessee. This ground is accordingly allowed. In the result, the assessee's appeal is allowed. - S. V. MEHROTRA (ACCOUNTANT MEMBER) AND MS. SUSHMA CHOWLA (JUDICIAL MEMBER) For the Appellant : S. E. Dastur, Nitesh Joshi, For the Respondent : Rajendra, R. S. Srivastava, ORDER S.V. MEHROTRA, ACCOUNTANT MEMBER 1. These appeals filed by the assessee are directed against the separate orders of ld. CIT(A) XII, Mumbai of even date i.e. 17/10/2008 for the assessment year 2005-06. I.T.A. No. 6402/Mum/2008 : Assessment year: 2005-06 The grounds of appeal raised by the assessee in this appeal read as under: 1. The learned Commissioner of Income Tax (Appeals)-XII, Mumbai (hereinafter referred to as CIT(A)) has erred in disposing the appeal without granting proper opportunity of being heard, considering the detailed factual and case-law paper books submitted and contrary to the principles of natural justice. Your appellant prays, that the additions upheld, be deleted. 2. The learned CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come, in the status of an individual, declaring total income at Rs. 7,19,367/- on 29.8,2005 alongwith computation of total income and other annexure thereto. On verification of details submitted by the assessee, the AO noticed a credit entry of Rs. 10,65,06,753/-dated 28.1.2005 in the Hong kong bank account No. 002/538106 of the assessee. The assessee's A.R. informed that assessee alongwith others (sellers) had sold their shares in three companies, viz; Balsara Home Products Limited, Balsara Hygiene Products Ltd. and Besta Cosmetics Ltd., (i.e. Target Companies) to Dabur India Ltd., (i.e. Buyer) and had received the consideration for the same. The A.R. further informed that transfer of shares was effective from 1.4.2005 as per the terms of the share purchase agreement dated 27.1.2005. The AO required the assessee to explain as to why the sale of shares be not considered as completed on 27.1.2005 in A.Y. 2004-05. The assessee in its reply dated 21.11.2007, reproduced from pages 2 to 4 of the assessment order, explained in detail as to why the date of transfer of shares be taken as 1.4.2005 in case of Balsara Home Products Ltd., and 15.4.2005 in case of Balsara Hygiene Products L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of stock could only result in adjustment to purchase price. Further, valuation was to be done before the completion date. He, accordingly, concluded that there was a substantial extinguishment right on the part of the assessee and, therefore, the transfer of shares took place on 27.1.2005 in A.Y. 2005-06 and not in A.Y. 2006-07, as claimed by the assessee. 3. Before Ld. CIT(A), the assessee explained that for the following reasons, sale took place on 1/15.4.2005 in regard to three Target companies and not on 27.1.2005. i) After the initial agreement made on 27.1.2005, a second amendment to the agreement was made on 1.4.2005. ii) The assessee had signed and delivered the custodian share certificate of the target companies with valid blank transfer forms to be kept in safe custody until April, 2005. iii) The special power of attorney was executed in favour of HSBC on 1.4.2005, wherein, it was mentioned that Escrow agent had been appointed who will get the shares dematerialize on or prior to 15.4.2005. The actual transfer of shares in favour of the buyer was to occur once the shares were dematerialize. iv) In case of Balsara Home Products Ltd., the share transfer form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorizing the company to acquire the shares of the target companies. xiii) The acquirer of the target companies i.e. Dabur India Ltd., issued corporate notice to NSE and BSE on 1.4.2005 about the approval from the directors and the shareholders. xiv) The AO incorrectly considered the dates of deposit in bonds under Section 54EC as 31.8.2005 and 18.9.2005. The correct position for the purpose of Section 54EC was 31.8.2005. xv) The deposits in the 54EC bonds were made within six months from the date of transfer of shares. Ld CIT(A) rejected the assessee's contentions for the following reasons: i) As per the terms of Article 5 of the agreement dated 27.1.2005, the sellers were prevented, with respect to target companies, from declaring any dividend; dispose of or alienate or create encumbrance over any assets pertaining to the business of the target companies excluding only those assets that had been identified by the agreement-undertaking or varying any transaction with any related parties; causing any liquidation or winding up of the target companies; issuing of any shares of securities of the target companies; causing any amendment to the Articles of Associatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany % shares held by Mrs. Balsara Balsara Home Products Ltd. (Home) 13.14% Balsara Hygiene Products Ltd. (Hygiene) 7.43% Besta Cosmetics Ltd. (Besta) 2.40% He further pointed out that there is no dispute that the shares held by the assessee in these companies constituted long term capital assets. On 27.1.2005, the Assessee entered into a share purchase agreement contained at page 89 of PB with Dabur India Limited for which, assessee took professional services agreeing to sell the shares held by them in the target companies. Ld. Counsel further referred to page 94 of PB, wherein, definition and interpretation relating to share purchase agreement are contained and referred to following definitions: a) Completion means completion of sale of purchase of the shares by sellers and the buyer and all related activities specified in Article 6. b) 'Completion condition' has the meaning assigned to it in Article 21, which reads as under: The Buyer confirms that by the completion date and in any event as soon as practicable, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued by Dabur India Ltd., on 1.2.2005 is contained in which, notice was given pursuant to Section 192Aof the Companies Act, 1956 r.w. Companies (Passing of Resolution by Postal Ballot) Rules 2001 seeking consent of its Members through Special Resolutions pursuant to Section 372A for acquiring the entire equity shares of Balsara Hygiene Products Ltd., Balsara Home Products and Besta Cosmetic ltd. The Ld. Counsel pointed out that the postal ballot form duly filled in by the Members was to reach the Scrutinizers of Dabur India Ltd. on or before 3rd March, 2005. Ld. Counsel further referred to page 287, wherein, the certified true copy of the Special Resolution passed by the shareholders of the Company through postal ballot and the result of which was declared by the Chairman on 7th March, 2005 at the registered office of the company is contained. With reference to this, he submitted that in any case the legal formalities relating to transfer of shares completed on 7th March, 2005. Ld. Counsel further submitted that Buyer's undertaking was not fulfilled on 27th January, 2005 but on 7th March, 2005 when in terms of Article 2.1, approval of shareholders as required under Section 37 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attorney became incapable of being revoked, modified or altered unilaterally by the sellers with effect from 1.4.2005. Therefore, prior to this date, the sellers had right to revoke the share purchase agreement. If they had done so, they would undoubtedly have had to return the advance received. This shows that transfer of share had not taken place before 1.4.2005. Further, he referred to Article 2.7 of the second amendment agreement and pointed out that on 1.4.2005, the sellers agreed that they shall not do or cause to be done any act which had the effect of sale, transfer, assignment, creation of a pledge, etc, in respect of the shares of Hygiene and Besta (Home was not subject to this clause because physical delivery of those shares had been given on 1.4.2005). Therefore, prior there to, the assessee had the rights to carry out any of these actions with respect to the shares of Target Companies. He further referred to page 144 and pointed out that buyers could enforce specific performance of the contract. Ld. Counsel further referred to Escrow agreement dated 1.4.2005 contained at pages 148 onwards which had been entered into between Dabur India Ltd. and HSBC for dematerializat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March 2005 whereby I am authorizing to take necessary steps to complete the transaction. 2. Cheque No. 279489 dated 31st March, 2005 drawn on standard Chartered Bank, New Delhi (Payable at par at all branches) in favour of Taronish Enterprises for Rs. 3,28,77,193 (Rupees three crores twenty eight lakhs seventy seven thousand one hundred and ninety three only). This is in accordance with the second amendment to the Share purchase agreement entered into between us on 31st March, 2005. 3. Certified True copy of the Board Resolution of the Target Companies accepting the resignation of the following directors: With reference to aforementioned correspondences and informations furnished by both parties to the contract in their respective records, Ld. Counsel submitted that both parties had agreed that the sale took place of the 1st / 15.4.2005 and, therefore, department could not substitute the date to 27.1.2005. In this regard, he relied on the decision of the Hon'ble Calcutta High Court in the case of CIT v. Arun Dua 186 ITR 494 (Cal), wherein, it was, inter alia, held that if the company and the employee had understood the agreement in a certain way, and had acted upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 465) and Mohd. Ali Kan v. CWT 224 ITR 672 (PAGES 675 676) and submitted that an interpretation which renders any part of a statute redundant must be avoided. Thus, the term of extinguishment of any rights must be regarded as referring to an extinguishment of rights not as a result of sale or exchange. Since, the present is a case of sale of shares of Target Companies, the revenue cannot apply the test of extinguishment of any rights. In order to further buttress his argument, Ld. Counsel referred to Clause (v) of Section 2(47) and pointed out that only in case of immovable property, Finance Act, 1987 w.e.f. 1.4.1988 inserted Clause (v) wherein, 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 53A of the Transfer of Property Act, 1982 was regarded as transfer but no such amendment was brought in the Statute with respect to movable property. In this regard, ld. counsel referred on the decision of the Hon'ble Supreme Court in the case of ACIT, Gujarat v. Surat Art Silk Manufacturers Association 121 ITR 1 (Guj) (page 17) wherein, inter alia, it was ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case it was held that when transfer forms had been signed by the transferors and handed over the transferee along with share certificate, and the transferee sought registration in the books of the company and the company had not refused to recognize the transfer, the transaction as between the transferor and transferee is complete. The mere fact that the company had not registered the transferors in its books would not justify the claim for setting of the capital loss against the capital gain being negated. In taking this view, Hon'ble Madras High Court relied on the judgment of Hon'ble Supreme Court in the case of Shellate VR v. P.J Thakkar 45 Company case 43. 6. Ld. Counsel referred to the decision of the Hon'ble Karala High Court in the case of Rajgiri Rubber and Produce Co. v. CIT 203 ITR 663 (Ker) and submitted that in this case it was held that in the case of transfer of shares, for purposes of Section 45 of the I.T. Act , 1961, as between the transferor and the transferee, the transaction is complete when the share certificates are handed over. The mere fact that the company has not registered the transfers in its books would not justify the claim that the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ures Ltd (supra) has not considered the decision of the Hon'ble Kerala High Court in the case of Rajgiri Rubber and Produce Co.(supra) and the decision of the Hon'ble Madras High Court in the case of 151 ITR 122 (Mad). He submitted that the Amritsar Tribunal relied on the decisions in the case of Narayanan K.N. v. ITO 145 ITR 373 and of Narayanan K.N. v. ITO 173 ITR 161. He submitted that the decision in the case of Rajgiri Rubber and Produce Co. (supra) is a later decision and, therefore, in view of decision in the case of Vikaram and other v. Union of India and Ors. 238 ITR 113 later decision is to be followed in the event of conflict. Ld. Counsel also referred to the decision of the Hon'ble Kerala High court in the case of K.N.Narayanan v. ITO (Supra) referred to by Amritsar Tribunal and pointed out that in this case assessee accepted sale in respect of shares which were sold. Therefore, this case is distinguishable on facts. 9. We have considered the rival submissions and perused the record of the case. The facts as noted earlier in detail in the arguments of Ld. Counsel for the assessee are not disputed. Admittedly, it is a case of sale of shares. In this regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/15.4.2005. This view is fully supported by the decision of the Hon'ble Supreme Court in the case of Shellate VR v. P.J Thakkar 45 Company case 43 wherein, it was held that procedure required by law was to be complied with and, accordingly, delivery of share certificate alongwith transfer deed had to be handed over to purchaser in order to complete the transfer. 10. Now coming to the revenue's plea regarding extinguishment of rights. We have already held that a case of sale and that of extinguishment of right are mutually exclusive. However, in any view of the matter, we are of the opinion that it could not be said that there was extinguishment of rights on 27-1-2005 because extinguishment of rights implies that the right cannot be revived. However, till the time the right is revocable, it could not be said that there was extinguishment or rights. At best it can be said to be a case of suspension of rights till all the requirements for completing the sale were over. It was only on execution of second amendment to share amendment to share purchase agreement on 1.4.2005 that the Escrow agreement and the power of attorney became incapable of being revoked,, modified or al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsation for it, to the person from whom he received it. This section makes it very clear that if, for any reason, the terms of contract can not be fulfilled then assessee is bound to restore the benefits she had received including consideration to the purchaser. 12. Now coming to the decision of the Amritsar ITAT in the case of Maxtelecon Ventures (supra). We are of the opinion that the said decision was rendered with reference to K.N. Narayanan (supra) without considering the subsequent decision of the same High Court in the case of 203 ITR 663(supra). Moreover, said decision has not taken into consideration the ratio laid down by the Hon'ble Supreme Court in the case of Shellate VR v. P.J Thakkar, 45 Company case 43(supra). In this case the Supreme Court has clearly laid down that where, as between the transferor and the transferee, all formalities have been gone through, such as the execution of document of transfer and a physical handing over of the shares by the transferors to the transferee, the shares should be taken to have been transferred to the transferee, though until the transfer of share is registered in accordance with the Companies Law, the transfer could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is pertinent to note that Dabur India Limited, the purchaser has also recognized the purchase of shares in F.Y. 2005-06 and not F.Y. 2004-05. The Ld. CIT(A) has observed that the entire sale consideration was Rs. 10,65,06,753/- but the fact is that it was not the entire sale consideration as the assessee had received Rs. 5 lakhs on completion of sale. In view of the above discussion, we are of the opinion that as the transfer of shares of target companies was completed on 1/15-04-05, the capital gains were to be taxed in assessment year 2006-07 and there is no merit in including the income from capital gain on sale of shares of target companies in the A.Y 2005-06. Ground Nos. 1, 2 3 stand allowed. 14. Ground No. 4 . Brief facts apropos this issue are that AO sought information from Dabur India Limited regarding the basis on which the price per share was decided between the buyer and seller in the case of three companies. M/s. Dabur India Ltd. Vide letter dt.19.12.2007 intimated that the price was arrived at between the buyer and the seller, which was paid. The AO observed that the purchase price provided by Dabur India Ltd., for the Target Companies was as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained and pointed out that IPR (Intellectual Property Right) was not reflected in the balance sheet. He submitted that Dabur India had not shown anything in its account towards non-compete fees. He pointed out that the AO was trying to modify the contract. In any case, he submitted that since the business was not carried on by shareholders, therefore, Section 28(va) is not applicable and only Section 55(2)(a) will be applicable. The Ld. counsel referred to page 46 of the paper book, wherein the submission made before ld. CIT(A) dated 10/6/2008 are contained and pointed out that Dabur India Ltd. Purchased equity shares from independent parties, with whom the buyer did not enter into a non-compete agreement. The ld. Counsel further referred to page 295 296 of paper book, wherein the notice regarding issue of shares of Dabur India to the beneficial owners shares to the Balasara Hygiene Products Ltd., Besta Cosmetics Ltd. And Balasara Home Products Ltd. He thus submitted that value of share was reflected in the share price determined between the parties and no consideration was paid towards non-compete fees. The ld. Counsel referred to page 211 wherein the bank statement of HSBC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent discussions. Admittedly, assessee on her own was not carrying on business and it was the company in which she was share holder was carrying on the business. Section 55(2)(a) reads as under: Section 55(2)(a) (a) in relation to a capital asset, being goodwill of a business [or a trade mark or brand name associated with a business] [or a right to manufacture, produce or process any article or thing] [or right to carry on any business], tenancy rights, stage carriage permits or look hours, - Thus, it is evident that where capital asset is in the nature of right to carry on business, then the same will come within the ambit of capital gain tax. Section 28(va) reads as under: Section 28 (va) any sum, whether received or receivable, in cash or kind, under an agreement for: (a) Not carrying out any activity in relation to any business; or (b) Not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services. Provided that Sub-clause (a) shall not apply to: (i) Any sum, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te finance and Economic Law Practice were enclosed. The bills are in the name of assessee, therefore, the deduction had rightly been claimed by the assessee. This ground is accordingly allowed. 20. In the result, the assessee's appeal is allowed. ITA No. 6403/M/2008 21. The grounds of appeal raised by the assessee in this appeal read as under: 1. The learned Commissioner of Income Tax (Appeals)-XII, Mumbai (hereinafter referred to as CIT(A)) has erred in disposing the appeal without granting proper opportunity of being heard, considering the detailed factual and case-law paper books submitted and contrary to the principles of natural justice. Your appellant prays, that the additions upheld, be deleted. 2. The learned CIT(A) has erred in upholding that the sale of the equity shares took place on 27th January, 2005, the date on which the Share Purchase Agreement was signed and not in April 2005, when the actual share transfer took place. You Appellants submit the finding is erroneous, contrary to facts and the records and ought to be set aside. 3. The findings of the learned CIT(A), viz. that: a) The entire sale consideration of Rs. 5,14,43,250/-- has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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