TMI Blog2017 (3) TMI 1312X X X X Extracts X X X X X X X X Extracts X X X X ..... The Section does not provide that each transaction of sale of listed transaction is to be routed through Stock Exchange. Applying the said principle to the facts of the case, where the shares of group entity which was a listed company i.e. GGDL were sold in off market transaction, then no STT is to be paid and the provisions of section 10(38) of the Act are not to be applied and consequently, set off of loss arising on sale of GGDL against the income from long term capital gains arising on sale of unquoted shares cannot be denied. Whether the transaction to be a colourable device adopted by the assessee in order to adjust the loss against the gain arising in its hands during the year, wherein the shares were sold to sister concern? - Held that:- We have already referred to the factual aspects of the issue where the shares of GGDL were sold to sister concern BVHPL in order to settle the loan raised from the said concern, the said concern was not 100% subsidiary of the assessee but the assessee had only 24% shareholding in the said group company. In order to maintain the shares of listed group concern GGDL within group, the decision taken by the assessee to arrest the loss arisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n143(3) of the Income Tax Act 1961 (in short the Act ). 2. The assessee has raised the following grounds of appeal:- 1. The learned CIT(Appeals) erred on facts and in law in not allowing long term capital loss of ₹ 8,39,57,040/- on sale of listed shares to be set off against the taxable long term capital gains from sale of unlisted shares on both of which STT was not paid and transactions were outside the purview of section 10(38). The learned CIT(A) grossly erred in treating the transaction as a colorable devise. He failed to appreciate past history of the assessee and the group companies as also the arguments and contentions advanced by the assessee. The learned CIT(A) further erred in holding that the relevant shares should have been sold at book value as against the market value adopted by the assessee for which necessary evidence and justification was furnished to the CIT(A) and on her record. The learned CIT(A) thus erred in observing that the resultant loss on difference between book value and market value amounting to ₹ 2,75,83,524/- needs to be ignored for set off. 3. The only issue raised in the appeal filed by the assessee is against non- adjustme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm capital loss of ₹ 8.39 crores on sale of shares of listed companies, thereby computing the net long term capital loss at ₹ 3.85 crores. The said loss was carried forward to the succeeding years. The Assessing Officer observed that since GGDL was listed company at the stock exchange and its sale and purchase was to be governed by the Rules of Stock Exchange and liable for the Security Transaction Tax (in short STT), the assessee was asked to clarify how this loss on listed shares which fall under section 10(38) of the Act has been set off against the profit on sale of unlisted shares. In reply, the assessee furnished the details of sales of listed and unlisted securities and pointed out that the long term capital loss in respect of GGDL and ING Vysya Liquid fund, no STT was paid as sale of GGDL was off market sale and ING Vysya Liquid fund units were redeemed on maturity. As such, the said transactions were outside the purview of section 10(38) of the Act and therefore, form part of computation of total income. He pointed out that the transactions which were not entered into in any recognized Stock Exchange were not chargeable to STT and hence, were outside purview of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer also noted that the assessee had sold the shares on 18.03.2009 at loss of (-) ₹ 48/- per share, whereas the book value was ₹ 59.60 and on the same date, the unlisted shares of KSL have been sold @ ₹ 225/- per share, whereas book value was only ₹ 134/- per share, which had resulted in the capital gain. Both the sales were made on the same date and to the same entity i.e. BVHPL which is again the 100% subsidiary of assessee. The Assessing Officer in this regard held that it was well settled principle that it is the substance and actual circumstances of the transactions and not the form which would be relevant to decide the nature of particular transaction as held by the Hon ble Supreme Court in Padamjee R. Kadambande reported in 195 ITR 877 (SC) and other decisions. Further, reliance was placed on series of decisions to look into surrounding circumstances to find out the reality of transaction at hand and it was held that the long term capital loss of ₹ 8.39 crores on sale of shares of listed companies would not be set off in the current year against the long term capital gains of sale of listed shares nor it would be allowed to carry forw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as on 31.03.2009. He referred to Schedule III of unsecured loans, wherein as on 31.03.2008, the loan was ₹ 18.02 crores which was reduced to Nil as on 31.03.2009. The assessee pointed out that the interest paid on short term loans during the financial year 2007-08 was ₹ 1.59 crores and for the financial year 2008-09 was ₹ 1.26 crores. He stressed that the list of shares i.e. long term investment reflects that out of total investment of ₹ 17.70 crores, the investment in GGDL was to the tune of ₹ 17.65 crores as on 31.03.2008. However, this investment was liquidated by the assessee and the total long term investment in equity shares was reduced to ₹ 5 lakhs. Further, the assessee pointed out that it was utilizing its funds for investment in sister concern which are unquoted shares, whereas as on 31.03.2008, investment in Kirloskar group company was ₹ 3.94 crores out of total investment of ₹ 5.38 crores. The said investment was partly liquidated by the assessee during the financial year 2008-09 and the total investment in unquoted shares reduced to ₹ 2.31 crores as against 5.38 crores as on 31.03.2008. The learned Authorized Repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income arising from long term capital gains on sale of unquoted shares. The case of Revenue authorities is that where GGDL was a listed company, the sale of said shares was liable to STT and hence, the transaction is governed by section 10(38) of the Act. However, the assessee by effecting off market sale of said shares to a group company has perpetuated the mischief and the transaction was colourable device. Another related issue raised was since the book value of GGDL was ₹ 59.60 per share and the sales were made @ ₹ 48/- per share, as against purchase of share @ ₹ 74/- per share, further added credence to the case against the assessee that transaction was a colourable devise. On the other hand, the case of the assessee before us is that it was a investment company and was engaged in money lending business. The assessee was Kirloskar group holding company, which in turn, acquired shares of Kirloskar group companies as and when opportunity arose. The assessee had taken loan to the tune of ₹ 18 crores from another group company namely BVHPL. The said loan was carrying an interest @ 8% per annum. However, since for the past three years, there was lull in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le by the purchaser of the securities. 13. The bare reading of said section reflects that a transaction which is entered into in any recognized Stock Exchange, then STT becomes chargeable and payable on such transaction. However, the question before us is that where quoted shares of a company are sold in off market transaction, can the provisions of section 10(38) of the Act govern the said transaction? Admittedly, the transactions could be carried out through two different avenues i.e. by way of sale through the stock market or by way of sale through off market transactions. Both the transactions are recognized transactions and any person is at liberty to undertake any of the transactions. In case the quoted shares of any company are sold through Stock Exchange, then the next step is that STT would become liable to be paid on such transactions. However, in case the shares are sold between two parties in off market transaction, then there is no question of charging of STT. Once no STT is charged, the provisions of section 10(38) of the Act would not be attracted. In case the transaction is routed through Stock Exchange, then undoubtedly, the assessee would be liable to pay STT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not involved strangers by selling the said shares through Stock Exchange, was a business decision taken by the shareholders of the assessee company and no fault could be found with the said decision. There is no merit in the order of Assessing Officer in holding that the transaction was a colourable device. 14. The assessee had claimed the set off of sale of said shares against long term capital gains arising on sale of shares of unlisted group companies declared at ₹ 4,53,98,376/-. The loss arising on sale of shares of GGDL which was a listed company was to the extent of ₹ 8,39,57,040/- and the balance long term capital loss of (-) ₹ 3,85,58,664/- has been carried forward. There is no dispute to the fact that the gain arising on sale of shares of unlisted group companies do not attract STT and the said gain can be adjusted against the loss arising on sale of such shares on which no STT is paid. 15. Even the website of NSDL recognizes the market trades and off market trades and it is observed as under:- 12.2 Market Trades 12.2.1 The participant shall effect a debit or credit to the accounts of its Clients only on receipt of proper authorization f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of the Act i.e. section 10(38) of the Act and section 88 of the Finance (No.2) Act, 2004, it is clear that STT is to be paid on such transaction which are entered into through recognized Stock Exchange. The Section does not provide that each transaction of sale of listed transaction is to be routed through Stock Exchange. Applying the said principle to the facts of the case, where the shares of group entity which was a listed company i.e. GGDL were sold in off market transaction, then no STT is to be paid and the provisions of section 10(38) of the Act are not to be applied and consequently, set off of loss arising on sale of GGDL against the income from long term capital gains arising on sale of unquoted shares cannot be denied. Accordingly, we hold so. 18. Now, coming to the second aspect of the issue wherein the Assessing Officer has held the transaction to be a colourable device adopted by the assessee in order to adjust the loss against the gain arising in its hands during the year, wherein the shares were sold to sister concern. We have already referred to the factual aspects of the issue where the shares of GGDL were sold to sister concern BVHPL in order t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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