TaxTMI 
TaxTMI 
2004 (11) TMI 295
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....f Rs. 4,77,14,279 on account of capital gains ignoring the facts that the assessee had transferred the shares of M/s. Rajendra Lal Shadi Lal Co. (P.) Ltd. to M/s. SRF Ltd. in the previous year relevant to the assessment year 1997-98 as per agreement dated 19-8-1996. As per para 6 of the agreement, the assessee has undertaken to execute transfer deeds and take all necessary steps to get all the shares transferred in the name of the buyer after the receipts of first instalments as per Annexure I of the agreement. The instalments was paid on due date and as per clause 7 the assessee was left with no right, title and interest in the shares of the company and the buyer became the owner of the same. Any deferment in the receipt of sale consideration does not alter the chargeability of capital gains under section 45(1). The Assessing Officer has also discussed this issue in detail in the body of the assessment order. The Assessing Officer was, therefore, justified in making above addition on the facts and circumstances of the case." 2. We have heard the rival submissions and carefully perused the orders of the authorities below and the documents placed on record. 3. Apropos ground N....
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....y, 1995 through which the assessee was appointed as Joint Managing Director of the company against a salary of Rs. 40,000 and a commission which will be allowed subject to the limits of the total remuneration as laid down in sections 198 and 309 read with Schedule 13 of the Companies Act equivalent to his annual salary subject to the maximum of 3 per cent of the net profits as reduced by the remuneration paid to him by way of salary and perquisites. The learned Departmental Representative further contended that once it is held that the commission is a part of the salary and the salary is always to be taxed on due basis, the Assessing Officer was justified in taxing the said commission on due basis. In support of his contention he placed reliance upon clause (a) of section 15 of the Act. The learned Departmental Representative further invited our attention to the fact that the commission was debited to the company's account during the financial year 1996-97 relevant to the assessment year 1997-98, but the assessee has not credited the same to his accounts. The learned Departmental Representative placed reliance upon the judgment of the Delhi High Court in the case of CIT v. Mehar Si....
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....nded that till the accounts are approved, it was in feud state and a quantification of commission cannot be done before the end of the financial year. Whenever it was done after the approval of the accounts it was offered to tax and the assessee had been following the same system of accounting in earlier year, which was accepted by the Revenue. No doubt, every assessment year is an independent assessment year, but rule of consistency must be followed in all circumstances until and unless some new evidence is brought on record, which lead to the Revenue to some contrary decision. Since the commission income was offered to tax in the year in which it was quantified, no loss was caused to the Revenue. In the instant case, the accounts were approved by the AGM held on 30th September, 1997 and this commission income was offered to tax in the financial year 1997-98 relevant to the assessment year 1998-99. The learned counsel for the assessee further placed reliance upon the judgment of the Apex Court in the case of J.P. Shrivastava & Sons (Bhopal) (P.) Ltd. v. CIT [1965] 57 ITR 624 in which Their Lordships have held that the managing agency commission for the accounting period was only d....
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.... account of the assessee and offered to tax. We have also been carried through the judgment of the Madras High Court in the case of CIT v. Seshasayee Bros. (P.) Ltd. [1999] 239 ITR 471 in which the facts are quite similar to the present case. In that case the assessee was a Pvt. Ltd. company and during the previous year relevant to the assessment year 1970-71 the assessee acted as a managing agent for M and also S. The Tribunal, however, allowed the appeal of the assessee. On reference to the High Court and the Hon'ble High Court has held that the additional remuneration became due only after the audited balance sheet and profit and loss account of the company were led before the company's General Body Meeting and approved by the same. We have also carefully perused the judgments on which the Revenue has placed heavy reliance and we find that in the case of E.D. Sassoon & Co. Ltd. v. CIT [1954] 26 ITR 27 it was observed by the Apex Court that accrual of income does not depend on its ascertainment of the accounts cast by the assessee. But in the instant case, we have to find out whether the commission income has been accrued to the assessee before the finalization of the accounts....
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.... of which it is a member. These flats were let out by the company to another company called SRF Ltd. of Delhi at Rs. 20,000 per month for a period of 32 months from 1-8-1994 to 31-3-1997 for which an agreement was also executed on 28-10-1994. On 19-8-1996 the assessee and his wife jointly entered into an agreement to sell the entire share capital of M/s. Rajendra Lal Shadi Lal & Co. Pvt. Ltd. for a sale consideration of Rs. 5,00,00,000 @ Rs. 6,250 per share. As per this agreement the total purchase price of 8,000 fully paid up equity shares of the company shall be Rs. 5,00,00,000 including the earnest money of Rs. 1,25,00,000. The balance amount of Rs. 3,75,00,000 shall be paid in three subsequent instalments, which are as under:- ------------------------------------------------------ Instalment Value Payable on First Rs. 1,25,00,000 31-10-1996 Second &....
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....ithin the stipulated period and on account of default the assessee declined to sign the Transfer Deed and did not take any step to get the shares transferred in the name of the buyer in the records of the company. It was further contended that the shares were neither transferred nor physically handed over either to the buyer or to the solicitors or to any other person for and on behalf of the buyer. These shares were transferred on 8th March, 2000 in favour of M/s. SRF Ltd. and in support of this contention, a copy of certificate was also filed. No doubt the assessee has entered into an agreement with M/s. SRF Ltd., but it was never acted upon or materialized. As such, there was no transfer of shares as per the terms of the agreement and thus, there was no question of capital gain having arisen to the assessee in the impugned assessment year. It was further contended that the final payment was received on 10th March, 2000. As such, the capital gain arose only in March, 2000 and since the assessee intended to invest the entire consideration in the securities permitted under sections 54EA and 54EC, there would be no liability towards capital gains. 10. The Commissioner of Income-t....
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.... Ltd. the assessee intended to sell two flats owned by the company to M/s. SRF Ltd. Since the transfer of shares relates with the transfer of immovable property, the whole transaction should be examined in the light of provisions of section 2(47) of the Act, according to which transfer in relation to a capital asset, includes, any transaction involving the allowing of a possession of any immovable property to be taken or retain in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act. The learned Departmental Representative further invited our attention to the Lease Agreement executed between M/s. Rajendra Lal Shadi Lal & Co. Pvt. Ltd. and M/s. SRF Ltd. in which the possession of two flats in the Olympus Apartments situated at Altamount Road, Cumballa Hill, Mumbai were given to M/s. SRF Ltd. at the nominal monthly rent of Rs. 20,000, because these flats are situated in posh area, and market rent of these flats is in lakhs. Admittedly, the possession of the property was retained by M/s. SRF Ltd., the buyer of the shares, as per the agreement. The learned Departmental Representative further contended that admittedly the shares were fi....
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.... for the assessee, on the other hand, has submitted besides relying upon the order of the Commissioner of Income-tax (Appeals) that the assessee has entered into a contract for sale with M/s. SRF Ltd. and the schedule of payment was given in Annexure I to this agreement, according to which the assessee was required to execute the transfer deeds and take all necessary steps to get transferred all the said 8,000 shares in the name of the buyer in the records of the company. Since the assessee did not act, according to the terms of the agreement, the property in shares was not passed to the buyer. The learned counsel for the assessee further contended that when the buyer did not make the payment within the stipulated period, the assessee declined to sign the transfer deed nor did he take any step to get the same shares transferred in the name of the buyer in the records of the company. Since the shares were neither transferred nor physically handed over either to the buyer or to the solicitors or to any other person for and on behalf of the buyer, the property in shares did not pass to the buyer during the impugned assessment year. The entire sale considerations of shares were finally....
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.... to the schedule of payment the balance amount was to be paid in three instalments and the first instalment was to be paid on 31st of October, 1996. Second and third instalments of Rs. 1,25,00,000 each were to be paid on 1-1-1997 and 30th April, 1997. There was some delay in payment of the remaining second and third instalments. The full consideration was received in March, 2000. In the light of these facts, the assessee treated the sale to be affected only on receipt of the final consideration, but the Assessing Officer while framing the assessment has opined that through an agreement to sell the assessee has transferred his rights in the share in favour of the buyer and, as such, it was a complete sale. He accordingly worked out the capital gain and charged to tax in the impugned assessment year. Now the short question before us is whether the sale of shares were affected during the assessment year 1997-98 when this agreement for sale was executed and the first instalment was received or whether it was on the date when the last instalment of the sale consideration was received. It is also noticed from the agreement to sell and the orders of the lower authorities that the impugned....
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....nder: 1. That the Sellers have agreed to sell and the Buyer has agreed to purchase all the 8,000 fully paid equity shares of Rs. 100 each of the company details of which are as follows: ----------------------------------------------------- Distinctive Nos. No. of Shares Certificate No. ----------------------------------------------------- 1 2 3 ----------------------------------------------------- 1 - 10 10 1 & 2 11 - 4994 4984 3 to 54 4995 - 5000 6  ....
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....do not suffer from any infirmity. If it is proved otherwise, the Sellers shall be personally liable and responsible for all the losses and damages, if any, suffered by the Buyer or its nominee(s) on this account. 6. That the Sellers hereby confirm and undertake that forthwith upon receipt of first instalment as per Annexure-I, they will execute transfer deeds and will take all necessary steps to get all the said 8000 shares transferred in the name of the buyer in the records of the Company representing 100 per cent of voting interest and controlling power in the Company. 7. That the Sellers admit that upon receipt of first instalment, they would be left with no right, title and interest in the said shares of the Company and the Buyer will become the owner of the same. However, the buyer will have no right to deal with or transfer by way of sale, gift, mortgage, pledge or otherwise, these shares of any assets or properties of the Company, till the final instalment is fully paid and the shares are released from the Solicitors in accordance with Annexure-I. 8. That the Sellers specifically assure the Buyer that the Company is the sole and exclusive owner of and is fully entit....
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....he requirements of this Agreement. 13. That the Sellers upon receipt of the total consideration as stated in Annexure-I shall cause their nominees to resign from the Board of Directors unless otherwise requested by the Buyer. 14. That the Sellers specifically assure the Buyer that the Company has distributed dividend upto 31st March, 1994. No dividend was proposed by the Board of Directors nor declared by the shareholders in respect of the year 1994-95 or thereafter. In case any dividend is declared for the current year after the date hereof, the Sellers shall have no claim, right or demand over the said dividend." 15. On a careful perusal of this agreement of sale, we find that it was categorically explained by the assessee that the entire issued and paid up capital of M/s. Rajendra Lal Shadi Lal & Co. Pvt. Ltd. were held by the assessee and his wife and they have full control over this company. Through its clauses 8,9 & 10 it was also made clear that M/s. Rajendra Lal Shadi Lal & Co. Pvt. Ltd. held 10 shares of Olympus Co-operative Housing Society Ltd., Altamount Road, Cumballa Hill, Mumbai, and by virtue of this holding the company owned two flats bearing numbers 407 & ....
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....t to repudiate the agreement. Admittedly, the first instalment of Rs. 1,25,00,000 was paid within this financial year though not on due dates, but for the delay in payment, the assessee is entitled for the recovery of interest @ 18 per cent per annum. As per its chart appearing at page No. 51 of the compilation of the assessee, the second and third instalments were also received by the assessee, but not on due dates. The second instalment of Rs. 1,25,00,000 was due on 1-1-1997 and out of which the assessee has received Rs. 65,00,000 on 6-3-1997 and the balance amount of second instalment and third instalment was finally received by the assessee on 10th March, 2000. 17. As per the terms of the agreement, the deciding factor about the sale of shares is the payment of the first instalment because on receipt of this instalment the sellers were under an obligation to execute the transfer deeds and also to take necessary steps to get all these shares transferred in the name of the buyer. As per clause 7 of this agreement to sale on receipt of the first instalment the sellers would be left with no right, title and interest in the said shares of the company and the buyers will become th....
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....he circumstances of each case. Rules mentioned in sections 20 to 24 of the Sales of Goods Act have been enacted only as an aid for gathering this intention. In the case of State of Madras v. Ramalingam & Co. AIR 1956 Mad. 695, it has been held that a contract of sale is a consensual act, the parties are free to settle any terms they please and sub-section (1) of section 19 gives effect to this basic principle of law of contract. In formulating that intention, the parties may fix any time when the property is to pass. It may be the time of delivery, the time of payment of price, the time of contract or any other point of time. It is for the court to ascertain the intention of the parties where the terms of contract is reduced to writing, section 91 of the Indian Evidence Act comes into play. The primary evidence from which the intention of the parties is to be gathered, then becomes the document itself. 21. In the case of District Board v. F. Hira Singh Jagat Singh AIR 1968 Punj. & Har. 289, it has been again made clear that a contract of sale of goods is a contract whereby the sellers transfers or agrees to transfer the property in goods to the buyer for a price. Whereunder a co....
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....a valid delivery of goods notwithstanding the non-co-operation of the person in physical possession of the goods by refusing to attorn or acknowledge to the buyer that he holds the goods on behalf of the buyer. 24. From the aforesaid judgments, it has been made amply clear that to determine the date of transfer or sale, the delivery of shares and the payment of sale consideration are irrelevant factor. The time of sale or transfer of shares, can only be determined on the basis of the intention of the parties, if it is reduced in writing, the terms of the agreement. We, therefore, of the considered view that the time of transfer or sale of impugned shares can only be determined on the basis of the terms of the agreement executed between the parties. It is not a case here that the shares were not finally transferred to the buyer and this agreement was repudiated. Evidently, this agreement is irrevocable and cannot be repudiated by any act of either of the parties and if the payment is delayed, the seller simply got a right to claim an interest @ 18 per cent per annum. 25. As per clause 6 of this agreement the sellers have undertaken to execute the transfer deeds and will take a....
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.... was not involved in any other business activity except realization of rent, meaning thereby the flats of this company were intended to be sold by the assessee and his wife, who owned and control the entire issue and paid up capital of this company by way of transfer of shares of M/s. Rajendra Lal Shadi Lal & Co. Pvt. Ltd. In the light of these facts it is not a case where the assessee was simply intended to transfer the shares of a particular company, but through this agreement the assessee intended to transfer the immovable property in favour of the buyer, who was in possession of both the flats as a tenant at a nominal rent of Rs. 20,000 per month. Since these two flats were owned by M/s. Rajendra Lal Shadi Lal & Co. Pvt. Ltd., these flats can be sold either by M/s. Rajendra Lal Shadi Lal & Co. Pvt. Ltd. directly by executing the sale deeds or by transfer of the entire shareholdings of M/s. Rajendra Lal Shadi Lal & Co. Pvt. Ltd. by the assessee and his wife in favour of the buyer. Though being the controlling authority of M/s. Rajendra Lal Shadi Lal & Co. Pvt. Ltd., the assessee and his wife can sold these two flats in favour of the buyer i.e., M/s. SRF Limited, but if they do s....