TaxTMI 
TaxTMI 
2007 (3) TMI 661
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.... prejudice to ground No. 1 above : (A) Not pressed (B) The learned Commissioner of Income-tax (Appeals) has erred in holding that share purchase agreement dated March 17, 1998, is a contract of sale and not agreement to sell ; (C) The learned Commissioner of Income-tax (Appeals) has erred in holding that the appellant itself made a declaration that the date of transfer is March 17, 1998. (D) The learned Commissioner of Income-tax (Appeals) has erred in holding that the verification signed by the appellant in the return of income filed and its submissions before the learned Commissioner of Income-tax (Appeals), Jalandhar, are binding and the appellant is estopped from the plea that the agreement of March 17, 1998, did not complete the sale ; (E) The learned Commissioner of Income-tax (Appeals) has erred in ignoring the provisions of the Sale of Goods Act, 1930, and in the interpretation of the provisions of the Securities Contracts (Regulation) Act, 1956 ; (F) The learned Commissioner of Income-tax (Appeals) has erred in not treating Board' s Circular No. 704 as a benevolent circular, which cannot be thrust upon an assessee so as to include an item of income in a par....
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.... conditions were complied with in April, 1998. The share certificates along with transfer deeds were delivered on April 23, 1998, along with the receipt of consideration. Thus, it was contended that the long-term capital gain on sale of shares accrued to the assessee in the accounting period relevant to the assessment year 1999-2000. It was further argued that the assessee being infrastructure company, the long-term capital gain on sale of shares qualified for exemption under section 10(23G) of the Act. 6. The Assessing Officer considered these submissions and observed that the sale of shares was made through an agreement executed among four parties. It was not followed by any other agreement. The offer not (sic) to sell and acceptance of the parties to purchase became final as soon as the same was signed by all the parties. The Assessing Officer particularly referred to clause 10 of the agreement which spelt out the binding effect of the agreement. It was mentioned that the provisions of the agreement shall so far as they are capable of being performed continue in full force and effect notwithstanding completion except in respect of those matters already performed. It also provid....
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....ich confers specific rights in favour of the purchaser and seller. He also observed that the intention of the parties for sale of shares on March 17, 1998, was clear from the fact that the assessee had claimed exemption in respect of capital gains on sale of shares under section 10(23G) of the Act for the assessment year under consideration. He also observed that the verification signed by the appellant in the return of income filed on November 30, 1998, was binding on the assessee, unless it can be shown that events subsequent to that date made the declaration incorrect. Thus, the learned Commissioner of Income-tax (Appeals) rejected the claim of the assessee that capital gains on sale of shares accrued/arose in the subsequent assessment year 1999-2000. The relevant findings recorded by the Commissioner of Income-tax (Appeals) on page 26 of the impugned order are as under : "I have considered the rival submissions, but I am afraid, I am unable to acquiesce in the contentions of the learned authorised representatives. I do not agree with the contentions of the authorised representative that the Board' s circular (supra) does not apply to sale of shares of private companies. T....
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....9. Learned counsel for the assessee, Sh. Ajay Bahl, reiterated the submissions which were made before the authorities below. He submitted that in the original return filed on November 30, 1998, (a copy placed at pages 1 to 20 of the paper book), the assessee had shown sale of 40 lakhs equity shares of Rs. 10 each of HMTL as income of the previous year ended on March 31, 1998, based on the interpretation of Central Board of Direct Taxes Circular No. 704 according to which the date of agreement was to be treated as effective date of transfer of sale of shares. The assessee had also claimed exemption of long-term capital gains under section 10(23G) of the Act. Subsequently, however, the assessee filed a revised return during the course of assessment proceedings (a copy placed at pages 25 to 36 of the paper book) along with a covering letter (a copy placed at page 37 of the paper book) stating therein that agreement to sell the shares was subject to certain conditions to be fulfilled and, therefore, the same was conditional agreement. As a result, the consideration for the shares became due and payable after March 31, 1998. The share certificates along with transfer deeds were handed o....
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....al owner the said shares that it owns and the purchaser shall purchase the said shares free from encumbrances and together with all rights now or hereafter attaching thereto. Such sale shall be completed on a spot delivery basis. He then drew our attention to pages 76 to 79 of the paper book which spells out the condition precedent to completion. He submitted that the conditions mentioned therein also involve written consent of certain parties, a legal opinion from learned counsel of the assessee and the resolutions to be passed by the boards, approvals and consents of suppliers, bankers, creditors or financiers of the company. He then referred to clause 3.02 on page 79 of the paper book which stipulated that if any of the conditions precedent has not been fulfilled in form and substance to the satisfaction of the purchaser on or before the completion date, the purchaser may in its discretion elect to extend the completion but to a later date, waive such condition and proceed to completion or rescind this agreement, in which case the vendors shall have no claim against the purchaser for costs, damages, compensation or otherwise. It was only after complying with the conditions stipu....
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....r 1999-2000. Thus, he submitted that the authorities below were not justified in holding that the long-term capital gain arising on sale of shares was liable to capital gains in the assessment year under consideration. 10. The learned Commissioner of Income-tax (Departmental representative), Sh. Kuldip Singh, on the other hand, heavily relied on the orders of the authorities below. He submitted that the agreement was made on March 17, 1998, and was signed by all parties. This was followed by delivery and transfer of shares and, therefore, for the purpose of computing capital gain, the date of transfer was March 17, 1998. He submitted that in the present case, the assessee had itself disclosed long-term capital gain in the original return filed for the assessment year under consideration. He relied on the findings given by the Assessing Officer on page 14 of the assessment order and the findings of the learned Commissioner of Income-tax (Appeals) on page 26 of the impugned order. Thus, he contended that the order of the Commissioner of Income-tax (Appeals) does not merit any interference. 11. We have heard both the parties at some length and given our thoughtful consideration to t....
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....ose of capital gain under the Act. Clause (47) of section 2 of the Act defines the expression " transfer" in relation to a capital asset which is extracted as under : "2.(47) ' Transfer', in relation to a capital asset, includes,- (i) the sale, exchange or relinquishment of the asset ; or (ii) the extinguishments of any rights therein ; or (iii) the compulsory acquisition thereof under any law ; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as stock-in-trade of a business carried on by him, such conversion or treatment ; or (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of any immovable property. Explanation.-For the purposes of s....
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....he seller is entitled to receive the consideration agreed to as on the date of contract. In such cases, it was clarified that the date of transfer of shares should be the date of the broker' s note provided such transactions were followed up by delivery of shares and also the transfer deeds. The Board further clarified that in respect of transactions in shares directly between the parties and not through the stock exchange, the date of contract of sale as declared by the parties shall be treated as the date of transfer provided it is followed up by actual delivery of shares and the transfer deeds. Nowhere, the said circular says that the same would not be applicable in a case where the agreement was for conditional sale. Even if, certain conditions are stipulated in the agreement, the circular takes care of the same because it qualifies that the date of contract for sale shall be treated as the date of transfer provided it is followed up by actual delivery of shares and the transfer deeds. In a case where the transaction is not followed by delivery of shares and transfer deeds due to non-fulfilment of the conditions, it will not be regarded as transfer for the purpose of capita....
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.... Court held that in the event of the totality of 1,19,760 shares not being transferred by reason of the failure to get the necessary sanction of the authorities, even the shares transferred are to be retransferred and the amount paid was to be returned. The hon' ble Kerala High Court held that what had been sold, had to be resold and the money paid had to be repaid in the event of even one share out of the totality of shares covered by the agreement remaining unsold. The High Court further observed that this was how the parties understood transaction at all material times and this was the reason for the filing of the returns showing capital gains. Thus, it was held that the Assessing Officer was justified in bringing to tax the resultant capital gain on transfer of shares on the date of execution of the contract. While taking such view, the hon' ble High Court also referred to their earlier judgment in the case of K.N. Narayanan v. ITO [1984] 145 ITR 373 (Ker) ; [1983] 33 CTR 69. 15. Now, when we apply the facts of the abovementioned case to the present case, we find that the entire agreement executed on March 17, 1998, among the parties was acted upon. It was conceded bef....