TaxTMI 
TaxTMI 
2013 (9) TMI 45
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....xed for hearing on 6.2.2012 on which date the ld. counsel for the assessee was directed to file the paper book. The case was adjourned to 15.3.2012 at the request of the ld AR for the assessee. The assessee filed written submissions along with compilation of papers which are taken on record. None was present on behalf of the assessee except for the written submissions filed by the assessee. In the said written submissions, the learned A.R. for the assessee has also addressed the case laws cited by the learned D.R. for the Revenue on the last date of hearing. We proceed to dispose off the present appeal after hearing the ld. DR for the revenue and the written submissions filed by the assessee. 4. The issue raised in the present appeal is in relation to the computation of income on account of sale of equity shares which was declared under the head "capital gain by the assessee" and was assessed as business income by the AO. The facts of both the parties are identical, however, reference is made in ITA No. 1101/Chd/2009 for adjudicating the issue. 5. Brief facts of the case are that during the year under consideration the assessee had declared income from short term and long term ca....
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....) The transaction of shares is not limited to transfer of share of a company but would in effect mean transfer of management of the company to the purchaser with a rider of no interference by the sellers who were also Directors of the company. (2) This transaction of shares would also translate into renunciation of the management by the seller Directors in favor of purchaser. This is clear from Article 2.1 of the agreement. This is further strengthened by Article 5.1.1. of the Agreement which clearly enunciates that the delivery of effective resignation in writing by the Directors (in this case Shri Sumit Taneja) as a part of the activities of completion. (3) The transaction would entail handing over responsibilities to the purchasers including employee and product data base, customers support contracts, verbal commitments as well as new clients' proposals. (4) Article 8 - Non Compete covenants is extremely pertinent. Article 8.4 very clearly states that the transfer of shares would also entail renunciation of rights in not only the company M/s Excel Callnet Pvt Ltd but also a blanket ban on engaging in any call centre activity by the sellers within a....
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....y relating to the business of call centre founded and promoted by him in the year 2001. Accordingly the said consideration of Rs. 48,18,000/-was charged to tax as income from the profession and business. 7. The CIT(A) upheld the order of the AO observing that the assessee - as Director is carrying on the business activity of M/s Excel Callnet Pvt Ltd. He is a promoter of the company, has major share holding and is exercising control over the supervision and management of the company. That is why there is a clause of non-interference (Article -2) of the appellant in the day-to-day management of M/s Excel Callnet Pvt Ltd. The second plea of the assessee that the shares of the company were capital asset and not business asset was also rejected by the CIT(A) observing that - it was not a case of simple transfer of shares. Here the transfer of shares from the appellant to M/s Pugmarks Interweb Pvt Ltd is under an agreement with the stipulation that the assessee would not carry out any activity in relation to any business of call centre nor would he interference in any matter nor he would do similar business within 100 Kms from Chandigarh nor he would use the brand name of M/s Excel Cal....
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....e said agreement was in the nature of income assessable u/s 28(va) of the Act. The ld. DR for the revenue placed reliance on Guffic Chem (P.) Ltd v. CIT [2011] 332 ITR 602 (SC). The ld. 'DR', for the revenue clarified that the said provision was applicable from Assessment Year 2003-04. 10. On the perusal of the record and after considering the written submissions filed by the learned A.R. for the assessee and the submissions made by the learned D.R. for the Revenue, we proceed to dispose off the present appeal. The only issue arising in the present appeal is in respect of the treatment of the amount received on sale of equity shares of the private limited company held by the assessee, which were transferred during the year under consideration. The plea of the assessee in respect of the said transaction is that it is a mere sale and purchase of investment held by the assessee and consequently gain arising on the said transaction is to be assessed under the head income from capital gains. The authorities below, however have assessed the said gain as income from business and profession under section 28(va) of the Act. The assessee held 47000 equity shares of Rs. 10/- each of ....
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.... the Company. 2.3 The handover process is expected to be completed within 30 days from the date of this Agreement. However, if any process requires signatures of the Sellers like banking, the same shall continue with mutual cooperation. For signing bank Cheques post the date of this Agreement, and until the new board is able to communicate new signatories to the bank, any cheque signed by the continuing Directors shall be counter-signed by either of exiting Directors as an obligatory duty during this period. 11. As per Article-3 of the said agreement, consideration per share for sale of shares by the seller to the purchaser was fixed to Rs. 94/- which included non-compete premium per equity share of the company. As per clause 3.4 the purchaser i.e. M/s Pugmarks Interweb Pvt. Ltd. released token advance money of Rs. 5 lacs and the additional Rs. 8 lacs was to be paid by 18.4.2005. The balance would be paid within a period of eight weeks from the date of the Agreement. Under Article-4 the effective date would be from the date provided however the obligation of the parties was to complete the transaction of sale and purchase subject to and conditionally upon the other party fulfilli....
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....-compete are enumerated under which the seller agreed not to engage in any call centre, B.P.O. and IT Enabled services business in State of Chandigarh, Punjab, Haryana or Himachal Pradesh within a radius of 100 km from Chandigarh for a period of two years from the date of agreement. The seller also agreed not to solicit business of the company done since its inception without prior written permission of M/s Pugmarks Interweb Pvt. Ltd. Various other non-covenant clauses were agreed between the parties as per Articles 8.1 to 8.6 under which the sellers were stopped from soliciting the business carried by them. Certain misc. business items were covered thereafter as part of the agreement i.e. for the handing and taking over of the business by the shareholders to M/s Pugmarks Interweb Pvt. Ltd. Further statement of Shri Kulwinder Singh Suri, Managing Director of M/s Pugmarks Interweb Pvt. Ltd. was recorded on 28.11.2008 in which he admitted that he had 45% shares in M/s Pugmarks Interweb Pvt. Ltd. In respect of the transaction with M/s Excel Callnet Private Limited the deponent stated that the transactions to buy shares in M/s Excel Callnet Private Limited was completed in May, 2005 an....
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....er with a rider of non-interference by the sellers who were the Directors of the company. Reference is made to the Article 2.1 of the agreement dated 26.3.2005 wherein the seller i.e. the assessee before us was refrained from day-today management of the business from the date of the agreement. In addition, the sellers i.e. the shareholders of the company were to hand over the Employee Database, Products Database, Customer Support, New Client proposals in pipeline, Other prospects and customer's database, Payment Recovery and Customer. Management cases, Contract, Verbal Commitments, Banking Information, software/licenses and any other property that was acquired under the tenure of the Sellers working with the Company. Because of the complexity of the handing over operation by the sellers i.e. the shareholders of the company to the Managing Director of the new company, the parties entered in to agreement on 26.3.2005 and had completed the process on 24.7.2005. If it was a mere sale of the investment by way of shareholding by the assessee then the said exercise was not required. Even the sale consideration agreed upon between the parties including the consideration on account of n....