TMI Blog2004 (3) TMI 787X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and in law in not taking cognisance of findings of the fact by the assessing officer at para 3 of the assessment order that M/s Sameta Exports (P) Ltd., a closely held company, was fully controlled by the assessee and therefore the shares of Maharana Mills Ltd., a company in liquidation, all the more was not eligible for transfer of shares as the transaction was devoid of any commercial content and Mahendra N. Mehta was having the only object of cutting down the tax liability accruing from long-term capital gain. In substance, thus, solitary grievance of the revenue is that, since the transaction of sale of 911 shares in Maharana Mills Ltd., was devoid of any genuine commercial motive, and was entered into solely to reduce the tax liability, the Commissioner (Appeals) ought to have held that the loss incurred in this contrived transaction was not eligible for set off against the long-term capital gains accruing to the assessee in other genuine transaction(s). 3. In order to properly adjudicate on the controversy requiring our adjudication, it is necessary to take a careful look at factual matrix of this case and at the applicable legal position. 4. Briefly, the material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarding sale of shares and observed that, since the purpose of this sale transaction was to 'defeat the provisions of law', and that the transaction was intended to be 'a conspiracy between the seller and purchaser to defraud the revenue and therefore the maxim 'in pari delicto was applicable. It was in the background of these facts that the assessing officer questioned commercial motives of this sale transaction and, not satisfied with the answers by the assessee- concluded as follows .. 'Since the assessee and Sameta Exports (P) Ltd. have entered into an agreement with a view to transfer the non-transferable shares against the liquidation rules framed, and is therefore void. The said transaction is entered into mainly to avoid the payment of taxes and therefore defraud the income-tax. If the assessee is allowed to take the benefits of the above transaction, then it will defeat the purpose of liquidation rules as well as the Income Tax Act. In view of the above the share transaction between the assessee and Sameta Exports (P) Ltd. is being held as null and void.' The assessing officer thus held that the assessee is not eligible to claim that the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss against the capital gain, as made in the return. The carrying forward etc. would consequentially follow. This ground succeeds. ' Aggrieved by the relief so given by the Commissioner (Appeals), the revenue is in appeal before us. 6. We have heard Shri Sabnis, learned Departmental Representative, and Shri Hegde, learned counsel for the assessee. We have carefully perused the material before us and duly considered the applicable legal position as also factual matrix of the case. 7. First question before is whether it is open to revenue to hold that the impugned transaction, i.e., the transaction whereby the assessee has sold the MML shares to Samta Exports (P) Ltd., is 'null and void'. A lot of emphasis is laid by the Departmental Representative on the plea that since, on account of the Maharana Mills Ltd., being under liquidation, the shares in question could not have been transferred to the transferee, the sale of shares is non-existent in the eyes of the law. This plea does not, however, impress us because it is not the legal position that there is any prohibition on sale of shares of companies under liquidation but the law at best prohibits the registratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion on transfer of shares and for alteration in the status of members, the law which makes transfer of shares and alteration in the status of members void, operates for the benefit of the company and its creditors and not for the benefit of any third party. In any event, Hon'ble Courts have full discretion to direct registration of transfer of shares-a discretion which would be controlled only by the general principles of justice and fairness. What is 'void' under the Companies Act is, upon commencement of winding up proceedings, the transfer of shares and alteration in the status of members, and not the sale of shares itself. In view of these discussions, we are of the considered view that the Commissioner (Appeals) was quite justified in vacating assessing officer's findings about the sale transaction itself being 'null and void'. 8. The second, and perhaps more fundamental, question is whether the impugned transaction of sale of shares can be viewed as a colourable device solely for avoiding taxes, and if so, what is the impact of such a finding. In the case of McDowell Co. Ltd. v. CTO : [1985]154ITR148(SC) , Chinnappa Reddy J's views, which wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CWT v. Arvind Narottam : [1988]173ITR479(SC) , Hon'ble Justice Mukerjee has observed 'where the true effect on the construction of deed is clear, as in this case, the appeal to discourage tax avoidance is not a relevant consideration. But it was made, it has to be noted and rejected'. Hon'ble Supreme Court has, in the case of Azadi Bachao Andolan v. (2003) 263 ITR 706, approved the above views of the Hon'ble Gujarat High Court in Banyan Berry's case (supra). Their Lordships then, inter alia, further observed that : 'If the court finds that notwithstanding a series of legal steps taken by an assessee, the intended legal result has not been achieved, the court might be justified in overlooking the intermediate steps, but it would not be possible for the court to treat the intervening steps as non est based upon some hypothetical assessment of the 'real motive' of the assessee. In our view, the court must deal with what is tangible in an objective manner and cannot afford to chase a will-o' the wisp.' In view of this discussion what is to be examined by us is whether the said sale transaction can be ignored on the ground that the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention and the intention as discernible from the documents. However, as observed by a Special Bench of this Tribunal in the case of Mideast Portfolio Management v. Dy. CIT , if the real intentions of the parties are discovered to be something different from the intentions professed in the documents, the Income Tax Authorities are at liberty to brand the same as subterfuge or a dubious device or a colourable transaction. However, in our view, there is no material before us to indicate that the shares were not intended to be sold to the transferee-company. In fact, even apart from the share transfer deed, there is an indemnity bond which demonstrates that benefits of the shares, despite restrictions on transfer due to company being under liquidation, were, in substance, transferred to the transferee-company. The only reason of revenue's objection to this transaction is that by giving recognition to this transaction, the assessee's tax liability will have to be substantially reduced. That is almost the same thing as appeal to discourage tax avoidance but then Honble Supreme Court itself, in Arvind Narottam's case (supra), does not consider it reason enough for invoking t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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