TMI Blog1999 (8) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... exceptions. One of such exception is that if the asset is a share held in a company it would be a short-term capital asset if the share was held for not more than twelve months immediately preceding the date of transfer. 4. The assessee transferred in February, 1989 forty-seven out of ninety preference shares held in M/s. Somnath Construction (P.) Ltd. acquired and held by her since 10-1-1987. These shares were held for twenty-five months, i.e., more than twelve months, but less than thirty-six months before the date of transfer and the capital gain made on the sale thereof of Rs. 3,50,000 (sale price of Rs. 5,85,000 minus cost of acquisition of Rs. 2,35,000) was claimed to be a capital gain on the sale of a long-term capital asset subject to deductions under section 48(2) and section 54F of the act by virtue of the provisions of section 2(29A), which defines the long-term capital asset to mean a capital asset, which is not a short-term capital asset. 5. The revenue's case, however, is that this transfer of share was not a mere transfer of share, but, in fact, an inherent right to occupation in a flat through the medium of preference shares and, therefore, it was not a transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purposes of section 22 to section 26. If the legislative intent were to bring provisions regarding capital gains also within the purview of section 27(3), it would have been mentioned at the beginning of section 27." 7. We have heard the parties and considered their rival submissions. M/s. Somnath Constructions Pvt. Ltd. was incorporated on 28-11-1984. Clause 6 of the Articles of Association of the Company provides for the terms of issue of preference shares, ninety-seven of which were held by the assessee. This clause reads as under: "6. Terms of issue of preference shares (A) Terms of Issue - General Out of the authorised capital of the company the Preference Shares of Rs. 5,000 each shall be issued on the following terms and conditions: (i) The Preference Shares shall be of Rs. 5,000 each. (ii) The Preference Shares shall carry a right to non-cumulative preferential dividend at the rate of 1% per annum subject to deduction of tax at source. (iii) The Preference Shares shall be non-participating. (iv) The Preference Shares shall be irredeemable. (v) The holding of such number of Preference Shares in the capital of the Company and keeping of such amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed hereto. Annexure 'B' Terms of granting occupancy rights Every Preference Shareholder (and in case where Preference Shares are held by more than one person, the said joint holders) holding the specified number of shares shall have the right to occupy and use the Stipulated Premises upon the following terms and conditions: (1) Every Preference Shareholders shall be entitled to occupy and use and/or to nominate a person/s to occupy and use the Stipulated Premises in the said building subject, however, to the provisions hereof. The Preference Shareholder shall notify the Company immediately in the event of any change in nomination made by him. Provided that the Preference Shareholder or his nominee shall pay or reimburse to the Company any increase in rates, assessments, taxes, dues and fees consequent upon such nomination or change therein. If the Company so decides, the nomination or any change therein shall be of a person/s to be approved by the Board of Directors, which approval shall not be unreasonably withheld. (2) Every Preference Shareholder shall give to the Company such sum at such time or times as may be specified by the Board of Directors by way of securi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the notice given by the Company to the Preference Shareholder that the Stipulated Premises are ready for use and occupation, the Preference Shareholder shall be liable to bear and pay all taxes and charges for electricity, water and other services and the outgoings (hereinafter collectively referred to as "the outgoings") payable in respect of the Stipulated Premises as mentioned below: (i) The expenses of maintaining, repairing, redecorating, etc. of the main structure and in particular the roof, gutters and rain water pipes, gas pipes, electric wires in, upon the building and enjoyed or used by the Preference Shareholder in common with the other occupiers of the other flats and the main entrances, passages, landings and staircase of the building as enjoyed by the Preference Shareholder or used by him in common as aforesaid and the boundary walls of the buildings, compounds, terraces, etc. (ii) The cost of cleaning and lighting the passages, landing, staircases and other parts of the building so enjoyed or used by the Preference Shareholder in common as aforesaid. (iii) The cost of decorating the interior of the building. (iv) The costs of the salaries of clerks, bills, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of Regulations 29 to 34 of Table 'A' shall apply as may be appropriate. From the effective date of the forfeiture, the Preference Shareholder and/or his nominee shall give a vacant possession of the Stipulated Premises to the Company and he shall have no claim against the Company. (6) The Stipulated Premises shall be used by the Preference Shareholder of his nominee only for residential or commercial purposes stipulated while allotting the Stipulated Premises the same shall not be used in any manner which may or is likely to cause nuisance or annoyance to any of the occupants in the said building or neighbouring premises, or for any illegal or immoral purposes. (7) Every Preference Shareholder and his nominee shall have in common with the other occupants of the Company's said property permission to use the common portions thereof, such as entrances, passages, stairways and lifts. (8) A Preference Shareholder and/or his nominee shall from the date of possession maintain the Stipulated Premises at his own cost in a good tenantable repair and shall not do or suffer to be done anything in or to the said building in which the Stipulated Premises are situated or to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f all of which shall be borne and paid in fully by the Preference Shareholder himself Provided that the decision of the Board of Directors or the Managing Committee of the Company shall be conclusive of the applicability or otherwise of the provisions of this sub-article. (11) A Preference Shareholder and/or his nominee shall not do or permit to be done any act, deed, matter or thing which may render void or voidable any insurance of the building in which the Stipulated Premises are situated or cause any increased premium to be payable in respect thereof. (12) A Preference Shareholder and/or his nominee shall not decorate the exterior of the Stipulated Premises otherwise than in the manner agreed to with the Company or in the manner as far as may be in which the same was previously decorated. (13) If at any time any development and/or betterment charges or other charges are levied or sought to be recovered by the Bombay Municipal Corporation, Government or any other public body or authority in respect of the said land or the building in which the Stipulated Premises are situated, all the Preference Shareholders shall contribute towards the said charges in proportion to the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibute towards the cost thereof by taking up additional preference shares or by giving loan to the Company, as may be decided by the Company. (18) The said Building shall be known as "Babuline Complex" and this name shall not be changed. (19) If at the time of giving possession of the Stipulated Premises or any Preference Shareholder, all the Preference Shares in the Company are not subscribed to and as a result certain flats/shops/garages/ parking spaces have not been given for occupation, the Company shall have the over all control and authority in respect of the said premises and in respect of any of the matters concerning the said premises including all amenities to be provided to the same and the Company shall have the absolute authority and control as regards the Preference Shares which have not been subscribed to and the corresponding premises and the manner and consideration for which the same shall be disposed of. (20) The Preference shareholder shall bear and be responsible for paying any liability in respect of payment to tax, duty, etc. that may be imposed by the Central Government or the State Government or any local authority or public body or Competent Authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding them. Though in a case under the Stamps Act, the nature of the shareholding and transaction thereof is stated by the Bombay High Court in the case of Hanuman Vitamins Foods (P.) Ltd. as under: "In the circumstances, we feel that it would be a travesty of the truth to hold that the document being the instrument of transfer under the heading 'Form of Transfer' purports to transfer only the shares and nothing beyond the shares. We find that in substance and effect in addition to the transfer of shares, the documents also conveys the petitioners right to occupy the office premises...." The full Bench of the Gujarat High Court in the case of Mulshankar Kunverji Gor v. Juvanshinhji Shivhha Jadeja AIR 1980 Guj. 62 (FB) held that "When a member of the Co-operative Society transfers his share to another with the approval of the society he not only transfers the shares but also as a necessary incident thereof transfers his interest in the immovable property which has been allotted to him. 9. It is true, as contended by the learned counsel for the assessee, that the shareholding or transfer does not and cannot mean the transfer of immovable property or interest thereof in the ligh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Supreme Court observed in CIT v. Standard Vaccum Oil Co. [1966] 59 ITR 685 that by a share in a company is meant not any sum of money, but an interest measured by a sum of money and or of diverse rights acquired on its holder by the articles of the company, which constitute a contract between him and the company. The share represents the assessee's interest in the company and the right to share the income, if declared. By itself it has no proprietary right. It is not a denominative of one's right in some tangible and existing property, but an interest to participation in the assets of the company on its liquidation and right to share the income if declared as dividend. In that sense the impugned shares held by the assessee are nothing but occupancy right and, therefore, the transfer of shares is also nothing but a transfer of occupancy right. This may, however, be not misunderstood that in that case the Explanation to section 2(42A) of the Act can never apply to any shares held by an assessee. It would apply to the shares as understood in the common parlance. However, as stated above, the preference shares held by the assessee in this case are not the shares as understood in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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