TMI Blog2000 (1) TMI 994X X X X Extracts X X X X X X X X Extracts X X X X ..... Mrs. Alka M. Shah 78,150 Mrs. Archana Bhawnani 11,150 Mrs. Alpana M. Piramal 81,150 M/s. Piramal Spg. Wvg. Mills Ltd. 73,000 Total 2,70,000 The father of the assessee viz. Dr. Mohanlal Piramal, acting on his behalf and on behalf of the other shareholders, entered into an agreement with M/s. Akshar Investments Private Limited and M/s. Anusandhan Investments Private Limited for sale of 2,70,600 shares owned by the family members and associate concerns on 1st November, 1985 and the consideration for transfer of shares was fixed at Re. 1 to the six shareholders described above irrespective of number of shares held by them. The further consideration for transfer of shares was described in clause 2 and clause 3 of the agreement. A company named as M/s. Piramal Spinning Weaving Mills Limited (hereinafter referred to as PSWML) which is the family concern of Piramal family had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty Commissioner should be rectified and assessment completed thereafter. 6. The Assessing Officer made fresh assessment after obtaining the approval of the Deputy Commissioner. The only difference in quantification was relating to the value adopted for sale shares. In the first assessment the Assessing Officer had adopted the value at ₹ 23 per share being the maximum rate on the date of transfer. However, while making the fresh assessment on the directions of the CIT(A) the Assessing Officer adopted the average rate of the day, which was between ₹ 23 and ₹ 21.50 as on 1-11-1985. The long-term gain was determined at ₹ 9,94,087 as under :- Value of shares of PRL @ ₹ 22.25 each...81150 22.25 = 18,05,587 Less : Face value of shares @ ₹ 10 each...8,11,500 Long-term capital gain..9,94,087 7. The total income of the assessee was computed at ₹ 6,21,194. The CIT(A) confirmed the decision of the Assessing Officer by holding that the decision of the Supreme Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597 and the decision of the Bombay High Court in the case of Babubhai M. Sanghvi v. CIT [1974] 97 ITR 213 were distinguisha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therwise bad in law. 9. The only other ground that survives for consideration is as to whether the Assessing Officer was justified in assessing the capital gains on the sale of shares as against the claim of loss made by the assessee. 10. The learned counsel for the assessee contended that the provisions of section 52(2) are not attracted in this case. The Assessing Officer has wrongly invoked the said section as the consideration received by the assessee has been disclosed in the agreement. It was further contended that the Assessing Officer has considered various factors, which in his opinion constituted benefits derived by the shareholders as a result of transfer of shares. It was contended that the factors considered by the Assessing Officer could in no way be considered as an additional consideration for the transfer of shares. According to the learned counsel there was a simple case of transfer of shares for the apparent consideration of Re. 1. The learned counsel pointed out that the purchasers had admittedly agreed to repay the loans to the concerns of Piramal family. That was an obligation of the debtor towards the creditor. That obligation being discharged may not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is an undeclared amount received by the assessee. Merely because there is a difference of opinion about the actual consideration received, provisions of section 52 do not get attracted. Relying upon the decision of the Supreme Court in the case of K.P. Varghese (supra ), it was contended that the assessee should have actually received the consideration in excess of what has been disclosed. It was further reiterated that the three items, which have been taken into consideration by the revenue, have no relevance to the actual consideration received. The AO has not valued the benefit of the three factors referred to by him in the assessment order but has adopted the value of shares as prevailing in the stock market on the date of transfer. According to the learned counsel the assessee had not received the consideration as per the market quotations on the day of transfer and therefore, section 52(2) has no application. It was further contended that the value of shares varies from time to time. It was pointed out that the rate of shares was around ₹ 13 per share on several occasions. Therefore, the Assessing Officer was not justified in adopting the rate of ₹ 22.25 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crued to them. It was further contended that the benefit in regard to the tenancy rights had also accrued to the shareholders as PSWML are the owners of the premises, which was under the tenancy of PRL. The learned DR further placed reliance on the findings of the CIT(A) at page 6 of his order in support of the contention that it was for the assessee to discharge the burden to establish that no benefit had been derived from the factors described in the agreement and that the assessee had suffered a loss on account of sale of shares. It was further contended that the Assessing Officer had no means to assess the value of the benefits received by the assessee and other shareholders. In such circumstances he was justified in adopting the value as per the Stock Exchange quotations which the market value of the shares on the date of transfer. The learned DR contended that the assessee having received four benefits which are clearly described in the purchase agreement of shares the Assessing Officer was justified in invoking section 52 of the Act. 17. We have given our careful consideration to the rival contentions. The issue in this case is as to whether the Assessing Officer was just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of acquisition of the asset and the cost of any improvement thereto; Provided....................... 19. Section 48 reproduced above provides for deduction of any expendi- ture incurred wholly and exclusively in connection with the transfer and cost of acquisition of the assets and cost of any improvement thereto from the full value of consideration received or accruing as a result of transfer of the capital asset. In other words, in computing the capital gains it is not only the full value of consideration received which is to be taken into account but also the full value of consideration accruing as a result of the transfer of capital asset. This view is also supported by the decision of the Supreme Court in the case of George Henderson Co. Ltd. (supra). In this case it was held that full value of consideration for which transfer of capital asset is made does not mean the market value of assets transferred but the price bargained for by the parties to the sale. However in this very case it was further held that the consideration for the transfer of a capital asset is what the transferor receives in lieu of assets he parts with, i.e., money or monies worth. It has fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Banks to the Company within 4 months from the date hereof. In the meantime and until the Vendor is freed and discharged from all liabilities and undertakings from the said personal guarantees and undertakings, the purchasers agree to indemnify and keep indemnified the Vendor from all obligations, liabilities, claims, actions and demand made under or arising out of or in connection with each and every one of the aforesaid personal guarantees and undertakings. 4.The Registered Office of the Company is at present situated at Piramal Bhavan, Ganpatrao Kadam Marg, Bombay-400 013, the Purchasers shall forthwith cause to remove the said registered office in other place of the choice of the purchasers and also further cause the Company to surrender the tenancy in respect of the said premises and given vacant possession of the premises. 21. A perusal of clause 1 of the agreement reproduced above reveals that the consideration for transfer of shares is token consideration of Re. 1 for the entire lot of each shareholder and further consideration described in clause 2 and clause 3. Clause 2 makes it obligatory upon the purchasers to liquidate the loans together with interest ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purchasers had undertaken to release the vendor from all the personal guarantees in respect of the loans of financial institutions and banks. It was argued before us that in law a surety is entitled to recover the money from the debtor and therefore the release as a guarantor would not constitute any benefit to the vendors. Again the contention advanced on behalf of the assessee seems attractive but not well founded. The hazards of litigation involved in recovering the amount from the debtor for whom the guarantee has been given are involved. Therefore a benefit has accrued to the vendors (considered as a group) in terms of money to the extent of the value of such hazards of litigation. 24. Though we have held that as per Clauses 2 and 3 of the agreement valuable benefits have accrued to the assessee in lieu of the transfer of shares, yet it appears that the value of such benefits may not be substantial. However, the substantial benefit derived by the assessee, in our view, is as per Clause 4 of the agreement. As per Clause 4 of the agreement reproduced elsewhere in this order, the vendors got vacant possession of the premises at Piramal Bhavan, Ganpatrao Kadam Marg, Bombay. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion that arises for our consideration is as to what is the value of the benefits accrued to the vendors as per Clauses 2, 3 and 4 of the agreement. One of the methods for determining the value of benefits is to make an enquiry or refer the same to valuers but that method may be cumbersome. Another method is to find out the market rate of the shares and adopt the same as value of benefits accrued to the vendors. As already pointed out, the shares are quoted in the Stock Exchange. The market value of the shares is known as on the date of transfer. A prudent person would always enter into a bargain, which is most beneficial to him. Keeping in view the market value of shares on the date of sale it will not, in our view, be unreasonable to presume that the value of the benefits that accrued to the shareholders as per clauses 2, 3 and 4 of the agreement was at least to the extent of the market value of the shares. If the vendors had sold the shares in the market they would have realised near about the value as per the quotations in the Stock Exchange. The contention of the assessee that the benefits as per Clauses 2, 3 and 4 are Nil is not well founded. The explanation of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the..2,70,000 20 Group as per Clauses 2, 3 and 4 of the=54,00,000 Agreement Total consideration per share .. 54,00,006 2,70,000 = 20.000022 Value for 81,150 = 81,150 20.03 .. = 16,23,00,170 Say .. 16,23,000 28. Before we wind up, we may clarify that the decision of the Supreme Court in the case of K.P. Varghese (supra) and that of the Bombay High Court in the case of Babubhai M. Sanghvi (supra) are inapplicable to the facts of this case. It has been established from the records that apart from monetary consideration described in the agreement certain other benefits have accrued to the assessee group which forms part of full consideration for purposes of determination of capital gains. As such the decisions referre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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