TMI Blog2018 (4) TMI 1138X X X X Extracts X X X X X X X X Extracts X X X X ..... back dated for the first paragraph of the letter states that “I had provided the 100,000 shares of NIIT as collateral security for grant of loan to Glad Investments. Shares are currently registered in your name”. The shares were pledged with the bank on 10th September, 1997 and this fact was acknowledged and accepted in the letter dated 17th March, 2001. Therefore, it should be accepted that the letter though dated 14th August, 1997 was in fact issued after the shares pledged were registered in the name of M/s GIPL, sometimes after 10th September, 1997. The findings recorded by the tribunal as to the date of transfer are primarily based on facts. Decided against the assessee and in favour of the Revenue. Entitled to exemption u/s 54F - Held that:- The appellant-assessee has not placed on record any document or material referred to in the impugned order or the orders of the authorities to establish and show that the conclusion drawn was wrong and contrary to material on record. In fact, had the Assessing Officer not treated the shares as transferred in the AY 1999-2000, the appellant-assessee would not have been entitled to benefit under Section 54F of the Act on sale of 100000 N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... house in Mussoorie and, therefore, was not entitled to exemption u/s 54F of the Income Tax Act, 1961? ITA No. 405/2005 (3) Whether the Income Tax Appellate Tribunal was correct in taking the market value of the shares quoted at the stock exchange on 05.05.1998 as the basis for computing the capital gains under Section 48 of the Income Tax Act? 2. ITA No.389/2007 filed by the Director of Income Tax, i.e. the Revenue, relates to AY 1999-2000 and impugns order dated 23rd June, 2006 passed by the tribunal in Appeal No.1167/Del/2005 deleting/cancelling penalty for concealment of income under Section 271(1)(c) of the Income Tax Act, 1961 (for short the Act ). This appeal, vide order dated 16th July, 2008, was directed to be listed along with ITA Nos.405/2005 and 406/2005 without a substantial question of law being framed. 3. The assessee for the AY 1998-99 had filed his return of income of ₹ 2,33,89,820/- on 15th September, 1998. The income was revised to ₹ 2,33,49,680/- vide revised return filed on 29th June, 1999. 4. For the AY 1999-2000, the assessee had filed its return of income on 29th June, 1999 declaring income of ₹ 24,24,010/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugust, 1997. These preference shares were redeemed on 31st July, 1998 for ₹ 5 Crores. M/s GIPL had failed to file annual accounts and balance sheets for the year ending 31st March, 1998 with Registrar of Companies till the passing of the assessment order. Explanation given by the assessee for the delay in actual issue of preference shares etc. was rejected by the Assessing Officer. On the other hand, the Assessing Officer held that the assessee had backdated the transaction of transfer of shares as the market price of NIIT shares in September, 1998 had arisen and increased to around ₹ 1300/- to ₹ 1400/- per share as against ₹ 450/- per share on 14th August, 1997. In case, one lakh NIIT shares had been sold at the market price in September, 1998, they would have exceeded the purchase value of the immovable property 5, Golf Links, New Delhi of ₹ 10.75 Crores. During the AY 1999-2000, the assessee had sold 65,552 equity shares of NIIT to M/s GIPL on 2nd April, 1998 for ₹ 5,89,96,800/- resulting in capital gains of ₹ 5,87,09,331/-. Further, M/s GIPL had a book loss of ₹ 1,63,10,300/- as per return for the AY 1998-99 and any profit in futu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act had accepted that they had not filed Form 2 with the Registrar of Companies which was required to be filed within 30 days of allotment of shares under the provisions of the Companies Act, 1956. M/s GIPL could not answer, whether any dividend was paid on the preference shares allotted to the assessee. 9. Upon exhaustive and detailed examination, the Assessing Officer concluded that non-cumulative preference shares were not allotted and was a sham and a cover up to show that the transfer was on 14th August, 1997 to justify sale price of ₹ 450/-, when the fair market value of each share of NIIT prevailing on the date of transfer, i.e. 30th September, 1998 was ₹ 1300/- to ₹ 1400/-. The Assessing Officer observed that the shares were pledged vide Guarantee and Memorandum of Pledge dated 20th August, 1997 with Deutsche Bank AG by the assessee and not by M/s GIPL. If the shares were the property of M/s GIPL, these shares could not have been pledged by the assessee as his own property. Accordingly, transfer deeds for 24,000 shares on 10th September, 1997 and for 76,000 shares 14th August, 1997, in favour M/s GIPL were sham documents. Similarly, there was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake place at a future time or was subject to some condition to be fulfilled, the contract would not be a contract for sale, but an agreement for sale. As per Section 2(47) of the Act, the word transfer includes any transaction whether by way of becoming a member or acquiring shares in a cooperative society, a company or other association of member or by way of agreement or arrangement or any other manner whatsoever which had the effect of transferring or enabling enjoyment of any immovable property. Movable goods could be transferred from the seller to the buyer, irrespective of the fact whether transfer documents were executed or not, when sale consideration was paid. Specific reference was made to the agreement dated 14th August, 1997 between the assessee and M/s GIPL to the effect that the purchaser was to acquire the shares free from all lien and encumbrances with benefit of accumulated profits and right to all dividends etc., for consideration of ₹ 5 Crores. The agreement had also stated that upon signing of the agreement, the assessee as seller would deliver to the purchaser, i.e. M/s GIPL, share certificates with duly executed instruments and that, M/s GIPL shall all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecuted on stamp paper applicable to the State of Uttar Pradesh and was not attested by marginal witnesses. The assessee had received ₹ 2 Lakhs as advance money and professed that he had delivered the possession but there was no evidence that the cheque of ₹ 2 Lakhs was honoured. Sale proceeds of ₹ 1,99,490/- and ₹ 99,650/- were credited in the account of the assessee on 4th August, 1997 and 12th September, 1997, respectively, which was after 20th July, 1997, i.e. the date on which the assessee had statedly handed over vacant possession. The assessee, during the course of the proceedings, had also produced copy of sale deed executed on 24th September, 1997 in respect of property known as Swaran Kutir with garage for ₹ 1,70,000/-. The sale proceeds were paid through cheque of ₹ 1 Lakh on 2nd August, 1997 and ₹ 70,000/- in cash at the time of execution of sale deed. This it was stated would not indicate handing over of physical possession of the property to the buyer on 20th July, 1997. The second deed with regard to the main building of Harnam Niwas and kitchen was not filed. It was observed that in view of the fact that the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that these shares were not sold by the assessee through the aforesaid agreement dated 14.8.97 and all these documents were prepared by the assessee with the intention to bring this sale transaction within the financial year 1997-98 relevant to the assessment year 1998-99. Once it has been held that this agreement is not a valid agreement, sale consideration of the shares cannot be determined on the basis of this agreement. In these circumstances the sale consideration can only be determined on the basis or its market value when these shares were in fact sold and transferred in favour of Glad Investment (P) Ltd. It has already been held in the fore-going paras that the actual transfer of shares in favour of Glad Investment (P) Ltd. was effected only on 5.5.1998 when the shares were transferred by the bankers in favour or Glad Investment (P) Ltd. As such, we have to determine the value of the sale consideration of 1,00,000 NIIT shares as on 5.5.98. Since, the shares are quoted at the exchange, the rates of shares as on 05.05.98 should be adopted to work out the value of shares and its sale consideration. On perusal of the orders of the lower authorities, we find that the assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first question, it was submitted that the tribunal has ignored two crucial facts, which were also noticed by the Assessing Officer. Firstly, Deutsche Bank AG had vide letter dated 17th March, 2001 confirmed having received the letter dated 14th August, 1997 written by the assessee for release of the shares directly to M/s GIPL. Copy of the said letter has been enclosed with the written submissions. Reference was made to the contents of the letter dated 14th August, 1997, which was addressed to the Manager, Deutsche Bank, AG. Submissions state that the letter was duly received and could not have been ignored even if the receipt stamp of the bank was missing. Secondly, the Assessing Officer had called for transfer deeds, which were dated 14th August, 1997 and were received by NIIT on 22nd August, 1997. 18. We would deprecate and would not accept written submissions raising grounds and issues, which were not pressed at the time of oral hearing. Further, documents and papers cannot be filed with the written submissions. These documents are not part of the appeal record. In case fresh documents or papers were to be filed, recourse by filing an application under Order XLI Rule 27 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion No. 2 in ITA No. 406/2005 is answered against the appellant-assessee and in favour of the Revenue. 21. This brings us to the last issue and the substantial question of law in ITA No. 405/2005, which was the only issue argued by the counsel for the appellant-assessee. The question raised relates to substitution of the sale consideration with the market value of the shares quoted at the stock exchange on 5th May, 1998 as the fair market value of the shares. In other words, the issue raised is whether the Assessing Officer could have changed the actual sale consideration of ₹ 500/- per share of NIIT, with the market price of ₹ 1,493/- per share of NIIT as on 5th May, 1998. The Assessing Officer had on the basis of the fair market value increased the total sale consideration from ₹ 5,00,00,000/- to ₹ 14,93,00,000/-. 22. Section 48 of the Act deals with computation of income chargeable under the head capital gains . The relevant portion of Section 48 reads as under:- 48. Mode of computation.- The income chargeable under the head ''Capital gains shall be computed, by deducting from the full value of the consideration received or accrui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds, when deductions are made as specified in sub-clauses (i) and (ii), then that amount does not represent the full value. The expression full value means the whole price without any deduction whatsoever and it cannot refer to the adequacy or inadequacy of the price bargained for. Nor has it any necessary reference to the market value of the capital asset which is the subject-matter of the transfer. The ratio was followed in Commissioner of Income Tax, Calcutta versus Gillanders Arbuthnot and Company, [1973] 87 ITR 407 (SC). 23. The aforesaid two decisions did not examine the proviso to Section 12B(2) of the Income Tax Act, 1922, which was incorporated as Section 52 of the Act, i.e. Income Tax Act, 1961. Subsequently, the first proviso was numbered as sub-section (1) with insertion of sub-section (2) with effect from 1st April, 1964. However, Section 52 was deleted/omitted by Finance Act, 1987 with effect from 1st April, 1988 in view of the judgment of the Supreme Court explaining both sub-sections 1 and 2, in the case of K.P. Varghese (supra), Section 52 of the Act before its omission was as under:- 52. (1) Where the person who acquires a capital asset f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ablished and then the Assessing Officer could take the fair market value of the share capital asset as the full value of consideration. The exact words used by the Supreme Court read as under:- 7. The first consideration to which we must refer is the object and purpose of the enactment of Section 52 sub-section (2). Prior to the introduction of sub-section (2), Section 52 consisted only of what is now sub-section (1). This sub-section provides that where an assessee transfers a capital asset and in respect of the transfer two conditions are satisfied, namely, (i) the transferee is a person directly or indirectly connected with the assessee and (ii) the Income Tax Officer has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee to tax on capital gains, the fair market value of the capital asset on the date of the transfer shall be taken to be the full value of consideration for the transfer and the assessee shall be taxed on capital gains on that basis. The second condition obviously involves understatement of the consideration in respect of the transfer because it is only by showing the consideration for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee and to cases where there was actual under-statement, in the sense that the income/consideration paid was in fact higher and more than declared. Interpreting sub-section (2) and not accepting the strict literal construction, it was held that sub-section (2) would apply only when the consideration in respect of transfer was understated by the assessee by 15% and in that event the Assessing Officer could take the market value instead of the consideration declared or disclosed by the assessee as the full value of consideration received or accrued. Sub-Section (2) would not apply where the consideration declared or disclosed by the assessee was the actual consideration received by it, but this actual consideration was less than the fair market value. Where the assessee had declared truly and correctly the consideration received by him, sub-section (2) would not apply and cannot be invoked to substitute the actual consideration received with the fair market value of the consideration. 24. In view of the aforesaid discussion and pronouncement of law in K.P. Varghese (supra), we fail to fathom how the tribunal had distinguished the said decision solely and entirely on the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 52 of the Act itself was not applicable, the Assessing Officer could not have substituted the actual sale consideration received by the Assessee with another figure stating that this was the fair market value. The aforesaid discussion would also take care of the argument that M/s GIPL had paid for foreign travel of the assessee. The fact that M/s GIPL had incurred any such expenditure would not be a ground and reason to substitute the actual consideration received with the figure relying upon the market quotation of the share as the fair market value. 26. It is not that the Revenue was remediless in the present case. The difference between the fair market value and the actual consideration declared could have been taxed as gift under the Gift Tax Act, 1958 which was applicable till 1st August, 1998. However, for some reason which Revenue is unable to explain, provisions of the Gift Tax Act, 1958 were not invoked and applied. Thus, what was apparent and simple to adopt and tax the under-statement of fair market value, was strangely ignored and allowed to lapse. Addition was made, indirectly invoking Section 52, which provision was not in the Statute, and which provision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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