TaxTMI 
TaxTMI 
2013 (7) TMI 646
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....M/s. DLF Universal Ltd. The sale was made for a consideration of Rs. 20,29,08,626 at the rate of Rs.4,490 per share. The assessee-company thereby earned capital gains of Rs. 20,25,49,549. The capital gains were long-term capital gains as the assessee-company was holding the shares for a period of more than one year. The assessee-company claimed exemption from taxation for the above sum of long-term capital gains on the ground that the sales were made through a stock exchange and securities transaction tax (STT) was paid as provided under section 10(38) of the Income-tax Act, 1961. However, the Assessing Officer was not inclined to grant exemption to the long-term capital gains as claimed by the assessee-company for various reasons detailed in the assessment order. The Assessing Officer found that the assessee and BFSL belonged to Shri S. N. Agarwal and his family members known as Bhoruka group. BFSL, whose shares were sold by the assessee-company even though existed for a long period, did not carry on any business other than the business of financial investments of the group. But in the previous year relevant to the assessment year under appeal, BFSL acquired land for Rs. 3.75 c....
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.... as such. In order to overcome the above stated tax and financial liabilities, the assessee group made such a colourable device that instead of BFSL directly selling the landed property to DLF-CDL, the Bhoruka group including the assessee-company sold its shares to DLF-CDL through which the landed property has itself been transferred to DLF-CDL. Having come to a conclusion that the entire transaction was in the nature of a colourable device, the assessing authority applied the ratio laid down by the Supreme Court in McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 and held that as the surplus capital gains arising to the assessee-company should be treated as a surplus arising on account of the sale of short-term capital asset in the nature of landed properties and as such the assessee is liable for short-term capital gains taxation. Accordingly, the assessing authority treated the surplus capital gains of Rs. 20,25,49,549 as short-term capital gains taxable in the hands of the assessee as against the exemption claimed by it. In the first appeal this was confirmed by the Commissioner of Income-tax (Appeals). The assessee is aggrieved and therefore the second appeal before us. T....
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....) ought to have appreciated that BFSL being a limited company which was the owner of the land, even the transaction was held to be transfer of land for consideration the capital gains was required to be assessed only in the hands of the company namely BFSL and even on this ground the impugned addition in the hands of the appellant was opposed to law and liable to be deleted. (vii) Without prejudice, the addition is arbitrary, unreasonable and excessive and ought to be deleted. (viii) The learned Commissioner (Appeals) erred in confirming the interest under sections 234B and 234D of the Act. We heard Shri S. Parthasarathy the learned advocate appearing for the assessee-company. Learned counsel contended that the assessee-company, i.e., BEIL was holding the shares in BFSL since long. BFSL purchased the landed property from another group company M/s. Bhoruka Steels Ltd., only in the previous year relevant to the assessment year under appeal. The purchase of landed property made by BFSL is an entirely different transaction with which the assessee had nothing to do. The assessee is only a shareholder. The property was purchased by BFSL in its own name and under its own authorit....
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....rned Commissioner of Income-tax argued that even though BFSL is a company listed in the Bangalore Stock Exchange, the transaction of the sale of its shares by the assessee-company and its group associates were carried out in the Magadh Stock Exchange and the assessee has not stated any convincing reasons for such a switch over from Bangalore to Bihar. The Magadh Stock Exchange was not permitted at that point of time to deal in share transactions. The assessee wanted an avenue to make way for paying securities transaction tax (STT) so that the assessee could make its claim of exemption under section 10(38) of the Income-tax Act, 1961. The assessee-company has used dubious methods to take the transactions to the Magadh Stock Exchange instead of the Bangalore Stock Exchange and that too only for the purpose of availing of the benefit of exemption provided under section 10(38) for payment of securities transaction tax. It is for this reason the learned Commissioner argued that the Revenue is highly relying on the judgment of the hon'ble Supreme Court rendered in the case of McDowell and Co. Ltd. [1985] 154 ITR 148 for the finding of the assessing authority that the entire transaction w....
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....d property to its associate concern BFSL for a consideration of Rs. 3.75 crores and immediately thereafter the shares in BFSL are sold and transferred to DLF-CDL for a consideration of more than Rs. 89 crores. If the formalities of the transactions and the legal nature of the corporate bodies are ignored for a moment, the stark fact coming to surface is that the assessee's group has sold the property belonging to one of its concerns to DLF-CDL for a consideration of more than Rs. 89 crores through the medium of sale and transfer of shares which property was purchased for Rs. 3.75 crores and thereby made attempt to avoid payment of short-term capital gains tax. If this is not a colourable device, then what would be a colourable device ? The only property held by BFSL was the landed property which was acquired by it for a lesser amount of Rs. 3.75 crores from its own associate concern which has been transferred to DLF-CDL through the medium of sale of shares for a huge sum of Rs. 89,28,36,500. Therefore, we have to see that the series of transactions were well planned scheme so as to transfer valuable landed properties to DLF-CDL without attracting corresponding liability of tax. ....