1990 (3) TMI 143 - AT - Income Tax

Appellate Tribunal allows deductions for share transfer expenses, upholds market value for shares. Penalty canceled.

The Appellate Tribunal in this case held that the capital gains arising from the transfer of shares of M/s Carborundum Universal Limited should include ... - Issues:1. Computation of capital gains arising from the transfer of shares of M/s Carborundum Universal Limited.2. Computation of the cost of acquisition of shares.3. Validity of the return filed by the non-resident company and imposition of penalty under s. 271(1)(a) and levy of interest under s. 139(8).Analysis:Issue 1: Computation of Capital GainsThe main issue in this case pertained to the computation of capital gains arising from the transfer of shares of M/s Carborundum Universal Limited. The appellant, a non-resident company, claimed that the entire expenses incurred in connection with the transfer of shares should be allowed as a deduction in computing the capital gains. The Revenue, on the other hand, contended that only the transfer to Carborundum Co. Inc. gave rise to capital gains, and the subsequent transfers should be considered separate transactions. The Appellate Tribunal held that the entire transaction was an integrated one, with the transfer to Carborundum Co. Inc. being a nominal transfer for organizational reasons. The real capital gains arose from the subsequent transfers to Indian shareholders and the public. The Tribunal accepted the appellant's claim after verifying the expenses allocated by Standard Oil Co. and directed the ITO to recompute the capital gains after deducting the expenditure.Issue 2: Computation of Cost of AcquisitionThe second issue involved the computation of the cost of acquisition of shares. The appellant had both original shares and bonus shares, and the dispute arose regarding the valuation of the bonus shares. The ITO took the market value of the original shares as the value of the total shareholding, disallowing the appellant's claim for a further deduction. The Tribunal upheld the ITO's decision, citing a previous judgment of the Madras High Court. The Tribunal rejected the appellant's argument that some value should be attributed to the bonus shares independent of the original shares, as it ran counter to the established legal precedent.Issue 3: Validity of Return and Imposition of PenaltyThe final issue revolved around the validity of the return filed by the appellant and the imposition of penalty under s. 271(1)(a) and levy of interest under s. 139(8). The appellant had initially filed a provisional return signed by an advocate, followed by a return signed by the Principal Officer of the company. The ITO considered the first return invalid and imposed interest under s. 139(8) for the balance tax due. The Tribunal, however, found the imposition of penalty and interest untenable. It noted that the provisional return had been accepted for processing and payment, demonstrating the appellant's bona fide compliance. The Tribunal held that the delay in filing the return was due to the need to gather particulars for claiming deductions, and the appellant's belief that the subsequent return was a revised one was reasonable. Consequently, the Tribunal canceled the levy of interest and penalty, finding no justifiable cause for such actions.In conclusion, the Tribunal partly allowed one appeal and fully allowed another, dismissing the appeal of the Revenue.