TaxTMI 
TaxTMI 
2013 (7) TMI 543
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....abilities of Bangalore Wire Road Mill, a division of Transport Corporation of India in 1991. The company became a sick industrial company within the meaning of SICA. The company's case was first heard by BIFR on 9.2.1996 when IDBI was appointed as Operating Agency. A scheme came to be formulated for the rehabilitation of the BSL. The said scheme envisaged, inter alia, closure of the unviable steel division, sale of surplus assets and OTS of institutions/Canara Bank's/debentureholders' existing dues. One of the means by which the finance is to be raised was by way of sale of surplus fixed assets for a sum of Rs.1,560 Lakhs. Accordingly, fixed assets (land, building and machinery) were proposed to be sold for estimated realization of Rs.1,560 Lakhs, 50% of which representing Rs.780 Lakhs each being received during 2000-01 and 2001- 02. The book value of assets to be sold was Rs.1,218 Lakhs as on 31.3.1998. The company had 37 acres of land in Bangalore, out of which 7 acres was proposed to be retained for refractory division and the balance 30 acres along with building and structure therein were proposed to be disposed of. An asset sale committee (ASC) was constituted comprising one r....
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....at the highest offer received and the promoters will have to make up the shortfall from their own sources as provided in the scheme. In the meeting held on 16.12.2002 of the Asset Committee the Chairman informed the committee that the company had received an offer from Bhoruka Financial Services Limited (BFSL), a public limited company and also one of the group Companies offered to purchase 30 acres of land standing in the name of the company at Whitefield Road, Bangalore, for a total consideration of Rs.750 Lakhs, i.e., Rs.25 Lakhs per acre. The offerer deposited an advance of Rs.75 Lakhs being 10% of the total consideration along with the offer. After some discussion, the committee approved the sale of 15 acres of land at Whitefield Road, Bangalore to BFSL/its nominee/s for a total consideration of Rs.375 Lakhs. Accordingly, the said amount was paid and the said land measuring 15 acres was sold in favour of BFSL under two registered sale deeds dated 16.6.2004 and 30.6.2004. 5. The assessee company is a limited company whose shares are quoted in the stock exchange. The assessee is holding shares in BFSL. The assessee and other promoter shareholders are holding 98.73% shares in ....
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....rder, the assessee preferred an appeal to the Tribunal. The Tribunal held that, even though BEIL, BFSL and Bhoruka Steels Limited are all controlled by the same interest group of Agarwal family as common shareholders which is very prominent in the entire course of transaction involved in the present appeal. They had entered into an agreement on 20.7.2005 with DLF-CDL to sell the shares in BFSL to that company, DLF-CDL. The assessee, its group of individuals together held 1,88,850 equity shares representing 98.73% of fully paid-up equity capital of BFSL. Therefore, it follows that the assessee along with its group owned all the assets and properties of BFSL even though those assets and properties are technically held in the name of BFSL as an independent corporate entity, once this corporate veil is pierced, which is within the powers of the revenue authorities they were of the view that the assets of BFSL were held and de facto owned by the assessee company and its group. BFSL, a company since long in existence was engaged only in financial services relating to the investments of assessee group. The property was purchased from another associate concern Bhoruka Steels Limited for a ....
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....Tribunal declined to interfere with the order passed by the Commissioner of Income Tax. It is against the said order, the assessee is in appeal. 9. This appeal was admitted on 15.6.2011 to consider the following substantial questions of law:- 1. Whether the finding of the Tribunal that the transfer of shares by the appellant to another limited company would amount to sale of immovable property held by the company whose shares were sold by the appellant - company and the capital gains arising on such sale of shares will be liable to be assessed as capital gains arising on the sale of the property, is perverse and arbitrary? 2. Whether the finding of the Tribunal that the appellant is not entitled to benefit of exemption under Section 10(38), is contrary to law? 10. The learned senior counsel appearing for the assessee assailing the impugned orders passed by the authorities as well as the Tribunal contended that, the authorities proceeded on the basis that the assessee has sold an immovable property and therefore the assessee is liable to pay capital gain based on such sale of immovable property. The assessee is only a share holder in B....
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....f Azadi Bachao Andolan. In fact it is reiterated in the latest judgment of the Apex Court in Vodafone's case. Once it is demonstrated the purpose of this transaction is to avoid payment of tax then it constitutes a colourable scheme and the authorities have lifted the veil and moreover appreciated the series of transactions wherein the property which is worth Rs.89 crores is sought to be transferred for a consideration of Rs.7 crores by the medium of transferring of shares to claim exemption under Section 10(38) of the Act and therefore he submits the order passed by the authorities are valid and legal and does not call for any interference. 12. From the material on record, it is clear the 30 acres of land in White Field belong to Bhoruka Steel Limited (BSL). It became a sick industrial company. Before BIFR, a scheme was formulated. The IDBI was appointed as Operating Agency. In terms of the scheme formulated, Assets Sale Committee was constituted. They took steps to bring the property for sale. The minimum price was fixed for Rs.25 Lakhs per acre. Most of its shares which were held by Sri.S.N.Agarwal and his family members, either in their individual capacity or as partners of ....
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....shares of M/s.BFSL at a substantial rate of Rs.4,490/- per share. The area where the land is situated has huge commercial value. It shows M/s.DLFCDL purchased the shares of M/s.BFSL keeping in views the value of the underlying asset being land at Whitefield. The transaction was structured in such a way that the Promoters and Directors, holding the shares of the Company, M/s.BFSL, sold their shareholdings to M/s.DLFCDL and receive the consideration. The assessee-company has sold 45,350 shares during the month of August 2005 for a consideration of Rs.20,29,08,626/-. The cost of these shares is Rs.3,59,077/-. The net consideration is Rs.20,25,49,549/-. It is in the background of undisputed facts according to the Assessing Authority, if one were to lift the corporate veil and understand the true nature of the transaction in commercial sense, M/s.DLFCDL has made the payment not to just buy the shares of M/s.BFSL but to acquire the underlying asset. The shares of the Company are listed in the Bangalore Stock Exchange. Without making full and complete efforts to transact through Bangalore Stock Exchange, it has chosen to carry out the transaction from Magadh Stock Exchange. The unusual at....
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....eded public revenue, particularly in a welfare State like ours. Next there is the serious disturbance caused to the economy of the Country by the piling up of mountains of black money, directly causing inflation. Then there is "the large hidden loss" to the community (as pointed out by Master Wheatcraft in 18 Modern Law Review 2009) by some of he best brains in the Country being involved in the perpetual war waged between the tax-avoider and his expert team of advisers, lawyers and accountants on one side and the tax-gatherer and his perhaps not so skilful, advisers on the other side. Then again there is the "sense of injustice and inequality which tax avoidance arouses in the breasts of those who are unwilling or unable to profit by it". Last but not the least is the ethics (to be precise, the lack of it) of transferring the burden of tax liability to the shoulders of the guideless, good citizens from those of the "artful godgers". It may, indeed, be difficult for lesser mortals to attain the state of mind of Mr.Justice Holmes, who said: "Taxes are what we pay for civilized society. I like to pay taxes. With them I buy civilization". But, surely, it is high time for the judiciary ....
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.... law can be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interests, as perceived by the respondents". Though the words : "sham" and "device" were loosely used in connection with the incorporation under the Mauritius law, we deem it fit to enter a caveat here. These words are not intended to be used as magic mantras or catch-all phrases to defeat or nullify the effect of a legal situation." 16. This Court had an occasion to consider the aforesaid judgments in the case of State of Karnataka -vs- M/s. Videocon International Limited in STRP No.4/2000 in its judgment dated 14.07.2010, wherein it has observed as under: "33. From the aforesaid discussion, it is clear that there is no inconsistency or deviation in the approach to the interpretation of the taxation law in England, America as well as in India. It is now well settled that a Citizen is entitled to arrange his affairs as not to attract taxes imposed by the State, so far as he can do so within the law. Every man is entitled to order his affairs in such a manner that the tax attaching under the appro....
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.... than what is stated in the plain language". 17. Recently, these judgments fell for consideration before the Apex Court in the case of Vodafone International Holdings B.V. -vs- Union of India and another reported in (2012) 341 ITR Page 01 = (2012-TII-01-SC-INTL). After referring to the aforesaid two judgments of the Apex Court at Paragraph No.64, it has been held as under: "64. The majority judgment in Mc. Dowell held that "Tax planning may be legitimate provided it is within the framework of law" (paragraph 45). In the latter part of paragraph 45, it held that "colourable devices cannot be a part of tax planning and it is wrong to encourage or entrain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods". It is the obligation of every citizen to pay the taxes without resorting to subterfuges. The above observations should be read with paragraph 46 where the majority holds "on this aspect, one of us, Chinnappa Reddy J. has proposed a separate and detailed opinion with which we agree". The words "this respect" express the majority's agreement with the judgment of Reddy J. only in relation to tax evasion through the use of co....
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....r in taxing statutes. His legal right so to dispose of his capital and income as to attract upon himself the least amount of tax is fully recognized. The legal right of tax payer to decrease the amount of what otherwise would be his taxes, or altogether to avoid them by means which the law permits, cannot be doubted. If the tax payer is in a position to carry through a transaction in two alternative ways, one of which will result in liability to tax and the other of which will not, is at liberty to choose the latter and to do so effectively in the absence of any specific tax avoidance provision. The fact that the motive for a transaction may be to avoid tax does not invalidate it unless a particular enactment so provides. A tax-saving motivation does not justify the taxing authorities or the Courts in nullifying or disregarding a taxpayer's otherwise proper and bona fide choice among courses of action. Tax planning may be legitimate provided it is within the framework of law. The intention of the legislature in a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. In a taxing Act, it is not possible to ass....
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....ange was not fulfilled. But they were able to trade the said shares through Magadh Stock Exchange was fulfilled though the trading license of Magadh Stock Exchange had been suspended earlier, subsequently it was revoked and after such revocation, the assessee traded the shares through Magadh Stock Exchange and therefore, the requirements of selling has been complied with. For each share, the assessee wanted permission from SEBI without being made available to the open public at a price of Rs.2,250/-. When it is traded through Magadh Stock Exchange, each share has fetched a sum of Rs.4,290/- and BFSL admittedly has paid Rs.89,28,36,500/- for the entire extent of 15 acres of land for which, a sum of Rs.20,29,08,626/- being the share value of the assessee. In the light of these undisputed facts, it cannot be said that the transfer of share by the assessee to BFSL was a colourable device to avoid payment of tax. If BFSL has sold the shares by executing a registered sale deed and received the sale consideration, then, BFSL ought to have paid capital gains on the said consideration. That is one mode through which BFSL could have sold the property belonging to it. The law also provides fo....
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....er would not form part of the total income of the assessee. In other words, it is exempted from payment of tax. The condition to be satisfied are as under: (a) It should be a transfer of long term capital asset, being a equity share in a company. (b) Sale of such equity share should be on or after chapter 7 of the Finance Act 2/2007 came into force. It is with effect from 29.08.2004 (c) the said transaction is chargeable to Securities Transaction tax under the chapter. 24. In the instant case, the assessee is holding the shares in BFSL from 01.10.1984. Therefore, it is a long term Capital asset. The transaction has taken place subsequent to 28.09.2004 as such the second condition is fulfilled. They have paid the security transaction tax to Magadha Stock Exchange. Where all these three conditions stipulated under Section 10(38) of the Act are fulfilled, the assessee is entitled to the benefit flowing there from i.e., the income from such transfer shall not be included in the total income of the assessee for the previous year. Merely because if a registered sale deed has been executed by BFSL selling the land in favour of DFL-CDL in ....