TaxTMI 
TaxTMI 
2011 (1) TMI 92
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....hin the meaning of section 2(47) of the Act. 2. The CIT(A) erred in not adjudicating the following ground of appeal - "The Assessing Officer erred in not allowing credit of a sum of Rs.2,50,000 being tax paid on regular assessment. The appellants contend that this is a mistake apparent from record and a suitable direction may be given to the Assessing Officer in this behalf." 3. The CIT(A) erred in not adjudicating the following ground of appeal - "The Assessing Officer erred in charging interest of Rs. 88,93,733 under section 234B of the Act. The appellants contend that the Assessing Officer ought not to have charged interest under section 234B inasmuch as - (a) no interest has been charged on framing of order under section 143(3) dated 16.08.2004 and hence, the provisions of section 234B(4) are not applicable. (b) the Assessing Officer has not given an opportunity to the appellants before charging the said interest as requir....
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.... accordance with the law by way of speaking order after giving due and fair opportunity of hearing to the assessee. Consequent to the above the A.O. examined the issue and held that the lending of shares is a colourable transaction and assessee has sold the shares to a third party and accordingly the sale value was taken at Rs. 20.76 crores and cost of Rs. 4.70 crores (wrongly shown as 4.07 crores in the order) computing capital gain at 16.06 crores. The matter was carried to the CIT(A), who has confirmed the addition so made. Assessee is aggrieved in ground No. 1 4. The learned counsel referred to the facts of the case and submitted the following: - (a) The assessee purchased for the purpose of investment 20.50 lakhs shares of GTB in earlier years. (b) The said shares have been shown as investment in Balance Sheet. (c) On request of M/s. Classic Credit Ltd. (CCL) by their letter dated 24.11.2000 and 27.11.2000 the assessee lent and CCL borrowed 20 lakhs shares of GTB. M/s. CCL after borrowing, sold the shares in open market. (d) The beneficial interest of the shares lent remains with the assessee and the right of o....
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....redited the same to the demat account of the broker directly which were also examined by the A.O. and CIT(A). The learned counsel referred to the correspondence in the matter and submitted that M/s. Classic Credit Ltd. has sold the shares first in the market and for delivery of the shares they borrowed the bulk shares from assessee by letter dated 24.11.2000, i.e. after the sale of shares of 21,00,000 in the market and before the delivery it requested assessee for lending of shares for the purpose of delivery. Assessee in good faith allowed the lending and the shares were delivered in the market by CCL and for the purpose of delivery on the request of the said CCL credited directly to its broker. Then the learned counsel referred to the Balance Sheet as on 31.03.2001 and the return filed in this regard to submit that the assessee has treated the transactions only as lending of shares and the said value of the shares was shown in the Balance Sheet. The learned counsel further on an enquiry conducted by the A.O. both with reference to CCL and Triumph International Finance (I) Ltd. and after due examination has accepted the transaction as one of lending only. It is also further submit....
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....s the submission that the assessee company is in no way connected with KP group. Assessee company is in the business for the last 30 years and have no connection at all with the KP group or KP group concerns except that they are all dealing with/in the stock market. As an arms length loan transaction, the CCL requested for delivery of shares to the extent of 20,00,000 which were available with the assessee (to the extent of 20.50 lakhs) Since the shares were to be returned in a short period assessee did not undertake any agreement or assurance but unfortunately the KP group was involved in the scam and subsequently after the Joint Parliamentary Committee the group concerns were prohibited by the SEBI in transacting in the market which resulted in assessee not getting back the shares. However, the shares were sold in the stock market again by the Classic Group in July 2002 for which only an amount of Rs. 3.15 crores was received and the balance amount was still due. It was his submission that the assessee has genuinely undertaken the lending of share transaction in 2000-01 but due to unforeseen circumstances the said Classic group could not return the shares immediately and subseque....
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....ale by CCL and the corporate benefits (dividend) received by the assessee company for which clarifications were filed in writing as under: - "1. Photo copy of the ledger account of Triumph International Finance India Limited (TIFIL) in the books of account of Classic Credit Limited (CCL) (since in liquidation) for the year ended 31st March 2001 which includes the two bills of Triumph International Finance India Limited for sale of 21 lakhs shares of Global Trust Bank. This shows that Classic Credit Limited has considered the sale of 20 lacs shares of Global Trust Bank in their accounts which have been borrowed form our clients. 2. Corporate Benefits (Dividend) - Dividend history of Global Trust Bank for the years 2000 to 2002 is as tabled below - For the financial year Date of declaration of dividend % of dividend declared Remarks 1999-00 20.04.2000 22% Duly reflected in annual accounts for the year ended 31/03/00 -Rs.24,10,000 2000-01 21.05.2001 15% Entitled to receive from Classic Credit Limited the dividend declared by Global Trust Bank. However, Classic Credit Limited f....
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....n of the assessee, even though the assessee does not own 1,00,000 shares at all which was also brought to tax. This shows that the transactions of Classic Credit Ltd. which was recorded in that company's books of account had been comply treated as transaction of the assessee without establishing that the said transaction was that of the assessee. 10. All these transactions were undertaken much before the securities scam has come out and the assessee was caught unaware vis-a-vis the Classic Credit Ltd. whose transactions were prohibited subsequently. Eventhough at the time of lending the assessee, in good faith, has not entered into any agreement and has not taken any commission or security other than Rs. 15,00,000/- received on account through the bank the transactions cannot be disbelieved, as it happened much before the securities scam came out. It is not the allegation that the assessee company is also part of the scam as the assessee company had no relationship either by way of shareholding or otherwise with the KP group except that it has undertaken the lending transaction as they were owning substantial shares of Global Trust Bank when they were required for delivery in th....
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.... 28.11.2001 which have been directly transferred to the demat account of their broker, Triumph International Finance (I) Ltd. and the same have been subsequently been sold through them. They also enclosed bills evidencing sale of shares aggregating to 21,00,000. It was also confirmed that the aforesaid loan of shares has been utilised to give delivery of the said sale of shares. The Triumph International Finance (I) Ltd. also confirmed that they have received 20,00,000 shares of Global Trust Bank from the assessee on 28.11.2000 which have been sold through NEAT system of the National Stock Exchange and also categorically confirmed that the shares have not been sold in an off market. Further the company in the course of enquiry on 19.01.2004 has also explained to the CIT as under: - "(a) the shares have been lent to CCL (b) the right of ownership and the title of the said shares still vest with our abovementioned clients and hence, shown in their Balance Sheet of 31st March, 2001 that is, post lending of shares (c) as the shares are "capital asset" within the meaning of 2(14) of the Act and there is, on facts of the case, no "transfer" within the m....
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.... will amount to 'transfer' under section 2(47) of the Income-tax Act in the hands of the lender?' 4. As far as the stock market is concerned, shares are fungible assets. "Fungible" has been defined in the Shorter Oxford English Dictionary on Historical Principles as "said of a thing which is the subject of an obligation when another thing of the same or another class may be delivered in lieu of it". One share of a company is good replacement for another share of the same company. The market does not lay any emphasis on the distinctive numbers. It is only for the purpose of reckoning the holding period of any particular share or to distinguish between an original share and a bonus share, that the Income-tax Department relies on the distinctive numbers. The Board are advised that when the lender gets back equivalent number of shares of the company with different distinctive numbers, it is not a case of exchange of assets. This is so because once the asset is fungible, when the lender receives back the same number of shares of the same company of the same face value and carrying the same rights, it is immaterial whether they have different distinctive numbers. He will be in a ready....