TaxTMI 
TaxTMI 
2010 (12) TMI 862
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....the assessment year under appeal, the assessee had made investments in shares of certain companies in India. The assessee had acquired 15,03,100 equity shares of M/s. Vasantha Mills Ltd. (hereinafter referred to as "VML"). The shares were acquired at the face value of Rs. 10 per share. The assessee had also acquired 2,50,500 equity shares of Rs. 10 each at par, in the company M/s. Cheran Properties Ltd. ("CPL" for short). These shares were purchased by the assessee on November 21, 2003. The assessee being a non-resident of Indian origin, the investments were made in the shares of Indian companies after complying with the statutory formalities including obtaining the required approval of the Reserve Bank of India. Necessary funds were remitted to India in convertible foreign currency, as required under the guidelines issued by the Reserve Bank of India. All the above shares were acquired at par. Thereafter, in the same previous year period, on February 24, 2004 the assessee acquired 10 per cent. shareholding in M/s. Cheran Enterprises P. Ltd. (referred to as "CEPL"). The 10 per cent. shareholding consisted of 2,75,871 shares of Rs. 100 each. These shares were also acquired....
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...., that ORE got the share at a premium of Rs. 504.15 per share. Accordingly, ORE paid Rs. 604.15 per share including the face value of Rs. 100 and a premium of Rs. 504.15 per share. After comparing these two purchase prices, the Assessing Officer came to a conclusion that the assessee had made gains of Rs. 504.15 per share while acquiring 2,75,871 shares in the capital of CEPL. The Assessing Officer calculated the gross benefits accrued to the assessee on acquisition of shares in capital of CEPL at Rs. 16,66,67,465. This amount was worked out by multiplying the number of shares acquired by the assessee of 2,75,871 shares by Rs. 604.15 per share being the value paid by ORE. As according to the assessing authority, the assessee had acquired the shares in CEPL in exchange for his shares in the capital of VML and CPL, the assessing authority deducted the acquisition cost of the latter shares from the gross gains already computed. The cost of acquisition of shares in VML was worked out at Rs. 25,34,100 and the cost of CPL shares was worked out at Rs. 2,50,53,000, both totalling to Rs. 2,75,87,100. This amount was deducted it from the gross gains of Rs. 16,66,67,465 to arrive at the net g....
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....the hands of the assessee. (vii) That as laid down by the hon'ble Supreme Court in the case of K. P. Varghese v. ITO [1981] 131 ITR 597 (SC), capital gains have to be computed on the actual consideration received by an assessee and not on any consideration that would have been received and that apparent consideration reflected in the records is the actual consideration otherwise proved by the Revenue. (viii) That, in the present case absolutely there is no case on record that there is any difference in the price actually paid or received by the assessee in acquiring and disposing of shares in VML, CPL and CEPL. The assessing authority rejected the objections raised by the assessee stating that the assessee has acquired the shares of CEPL with full knowledge of the impending acquisition of shares by ORE at the rate of Rs. 604.15 per share. Therefore, the difference between the above amount and Rs. 100 paid by the assessee to acquire the shares in CEPL were in the nature of gains earned by the assessee on exchange of the shares held by him in VML and CPL. He, therefore, concluded that it is a clear case of transfer of shares giving rise to short-term cap....
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....0,80,365 as short-term capital gains is erroneous on facts and in law. (2) The Commissioner of Income-tax (Appeals) erred in holding that the reopening of the assessment is valid in law. The assessment under section 147 ought to have been cancelled as being without jurisdiction. (3) The Commissioner of Income-tax (Appeals) erred in holding that the purchase and sales of shares are not independent transactions, there is a nexus between the two transactions and the two transactions constitute an exchange of shares in VML and CPL. (4) The Commissioner of Income-tax (Appeals) erred in not dealing with the various arguments advanced by the appellant and restricting the same to a summary at page 3 of his order which does not take into account the detailed submissions made. (5) The Commissioner of Income-tax (Appeals) erred in erroneously holding that the joint venture agreement dated January 30, 2004 mentions the exchange of shares and the allotment of CEPL shares to ORE. He ought to have noted that this does not establish the nexus between the two transactions and does not detract from the fact that the two are independent transactions unrelated t....
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....nised by the Reserve Bank of India and have been approved as genuine independent transactions. In fact even the correspondence which was received by the Commissioner of Income-tax (Appeals) behind the appellant's back but was subsequently put to the appellant for his observation clearly establishes that the transactions have been approved by the Reserve Bank of India. The total consideration received by the appellant for the sale of the shares and the consideration paid by the appellant for the purchase of the shares have been fully identified, approved and accepted by the Reserve Bank of India. (12) The Commissioner of Income-tax (Appeals) ought to have seen that even in the light of the subsequent letter of the Reserve Bank of India there is no dispute with regard to the consideration in question. The fact that the Reserve Bank of India has reduced the number of shares but has not altered the consideration would itself establish that the consideration received by the appellant has not been challenged or questioned. (13) The Commissioner of Income-tax (Appeals) ought to have seen that the stand taken by the Reserve Bank of India in the subsequent letter which w....
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....ponsible for capital gains, the assessing authority has adopted a strange ground of comparing the transaction price of the assessee with the transaction price of M/s. ORE in the context of that company acquiring shares in CEPL. (vi) M/s. ORE, Mauritius company had brought in funds of Rs. 75 crores in convertible foreign exchange with the approval of the Reserve Bank of India, for acquiring shares in M/s. CEPL. The rate for which M/s. ORE acquired 45 per cent. of shareholding in M/s. CEPL was very much approved by the Reserve Bank of India. (vii) Therefore, it is clear that the Reserve Bank of India, which is the approving authority has treated the acquisition of shares by the assessee and by M/s. ORE in M/s. CEPL as different and distinct transactions concluded under different circumstances. Therefore, there is no justification on the part of the Assessing Officer to connect these two transactions together and make out a case that the assessee had availed of the benefit of shares worth Rs. 604.15 per share at the rate of Rs. 100 per share. There is no provocation or evidence or details to make such an erroneous comparison. This arbitrary comparison was made by t....
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.... relied on the judgment of the hon'ble Supreme Court in the case of K P. Varghese v. ITO [1981] 131 ITR 597 (SC) to highlight the basic principles of determining consideration for the purpose of computing the capital gains under the provisions of the Income-tax Act, 1961. The court held that sub-section (2) of section 52 of the Act can be invoked only where the consideration for the transfer of a capital asset has been understated by the assessee, or, in other words, the full value of the consideration in respect of the transfer is shown at a lesser figure than that actually received by the assessee. The court further held that the burden of proving such understatement or concealment is on the Revenue. So long as the Revenue does not discharge that onus, the apparent consideration stated in the document is the consideration to be adopted for the purpose of computing capital gains. Learned counsel further relied on the judgment of the hon'ble Supreme Court rendered in the case of Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC) wherein the court has considered words and phrases like "sham", "device" etc. The court has held that it is not permissible for the c....
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....he assessing authority and confirmed by the Commissioner of Income-tax (Appeals) may be deleted. Shri Shaji P. Jacob, the learned Commissioner appearing for the Revenue contended that the successive transactions carried out by the assessee established beyond doubt that the assessee had acquired shares in CEPL at the rate of Rs. 100 per share with full knowledge that the shares would be allotted to ORE at market value of Rs. 604.15 per share. He contended that the approval of the Reserve Bank of India, to invest in the shares of Indian companies by remitting convertible foreign exchange, etc. are necessary procedures to be followed by the assessee being a non-resident Indian origin. Those formalities do not have any decisive bearing on the question whether the assessee had acquired shares in CEPL at a much lesser price compared to the market price reflected in the price paid by ORE. There is no force in the argument of the assessee that all of his transactions are at face value only for the reason that the assessee had complied with the regulations and stipulations prescribed by the Reserve Bank of India, in matters of foreign exchange transactions. The learned C....
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....ntended that all these facts and propositions are well explained by the Commissioner of Income-tax (Appeals) in his speaking order and the lower authorities have rightfully come to the conclusion that the assessee has earned capital gains to the extent computed by the assessing authority. The learned Commissioner, therefore submitted that the appeal filed by the assessee is liable to be dismissed. We heard both sides in detail and considered the rival arguments in the light of the records of the case. We have also gone through the copies of the documents relied on by the assessee to support his case, presented before us in a paper book containing 194 pages. In fact, there are no disputes on the facts of the case narrated above. The assessee is a non-resident of Indian origin. The assessee was permitted to make investments in India on specified assets including in the shares of the companies subject to the compliance with rules and regulations formulated under different statutes, more particularly under the Reserve Bank of India Act. The assessee has brought money into India and invested in the shares of VML and CPL after complying with such statutory a....
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.... An apprehension has been felt only for the reason that all these transactions were carried out within a short span of time. But for the above proximity of time, there is nothing on record to show that the assessee had transferred his shares in VML and CPL with shares in CEPL, for a hidden price value of Rs. 604.15 per share. When the transactions of the assessee were completed, ORE had not entered the picture and there was no question of the value of shares of CEPL being held at Rs. 604.15. The amount of Rs. 604.15 comes into the picture when all these things are read together as done by the assessing authority. The subsequent event of ORE acquiring shares in CEPL at the rate of Rs. 604.15 when kept aside for a moment, the transactions of the assessee are transparent and speak for themselves on the platform of par value consideration. The assessing authority has in fact, relied on a subsequent event to fasten the liability of short-term capital gains on the shoulders of the assessee. The assessing authority presumed the value of the shares of CEPL at Rs. 604.15 per share solely on the ground that subsequent purchase of shares by ORE was made at that rate. While comparing....