TaxTMI 
TaxTMI 
2011 (2) TMI 1436
X X X X Extracts X X X X
X X X X Extracts X X X X
....taken up first. ITA No. 771/Kol/2010 AY 2006-07 [by the revenue] 3. Initially the revenue had taken following three ground of appeal:- 1. That the Ld. CIT(A) erred on facts and in law, that Controlling interest has a separate existence from the shares and is separately tradable. 2. That the 1.4. CIT(A) erred in holding that for the purposes of capital gains only the portion of ₹ 74.20 should be considered as sale value and the balance was non taxable ignoring the judgment of Madras High Court in the case of Venkatesh Minor vs CIT 243 ITR 367 where the facts were absolutely identical. 3. That the Ld. CIT(A) was not justified in upholding the contention of the assessee that consideration amounting to ₹ 4,69,50,288/- was received for parting with Controlling interest and thus was not taxable. 4. However, subsequently vide AO's letter dated 24th May, 2010 following seven grounds have been taken by the revenue. 1. That the ld. CIT(A) erred on facts and in law, that Controlling interest has a separate existence from the shares and is separately tradable. 2. That the Ld. CIT(A) erred in holding that for the purposes of capital gains only the portion of ₹....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns and Sells was also submitted. It was contended by the assessee that only ₹ 74.20 could be taken as sale consideration received for transfer of shares and the balance amount of ₹ 30.80 could not be taxed as the same was on account of transfer of capital asset which had no cost of acquisition. Reliance was placed on the following:- CIT vs. B.C Srinivas Shetty 128 ITR 294 (SC) 5.1 The AO held that managerial control is not a separately tradable entity. It forms an inalienable part of the whole share. Share and managerial control could not be traded separately. Reliance was placed by him on the following cases:- a. Maharani Ushadevi vs. CIT 131 ITR 445(MP) b. Venkatesh (Minor) vs. CIT 243 ITR 367(Mad) c. C.R Rajendra vs. CIT 125 Taxman 55 d. CIT vs. Mahadeo Ram Kumar 166 ITR 477(Cal) 5.2 The AO in terms of section 48 of the Act took the full value of consideration for transfer of impugned shares at ₹ 105/- per share and calculated the short term capital gain at ₹ 5,33,52,600/- and long term capital gain at ₹ 10,40,35,050/-. 6. Aggrieved the assessee filed appeal before the ld.CIT(A). 7. Before the ld. CIT(A) the submissions of the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the Group shareholding as a whole and controlling the affairs of the said company. Hence control ling interest rights were always held, enjoyed and exercised by the promoter Group. All the various holders of the 24% of the promoter's shares all along acted in concert. (3) Immediately prior to 28th January 2006 and 30th January 2006 the dates involved in the issues involved herein negotiations took place between the Promoter Group namely, Neotias and Sekhsari as on the on hand and Holcim Group, a Swiss Group, on the other hand, for takeover of the Promoter Group share holding and acquisition of the control and affairs of the said company. This understanding was given formal shape and put down in writing and implemented by two different Agreements namely: (i) Share Purchase Agreement dated 28th January 2006 between the Promoter Share Holders and Holcim Group for sale and transfer on the said date 14.8%of the shares of the company namely, 200000000 Equity Shares of the company by the promoters to Holcim Group at a price of ₹ 105.00 per share. (ii) Having regard to the statutory requirements under the share listing agreement of the 'company with the Stock Exchange....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the General Meeting. It does not in any other manner deal with the quest ion of control of a company by the share-holders. (6) Therefore the Companies Act, itself has been deficient in relation to the matter of control of a Company. Control of a company therefore more or less had always been a quest ion of the fact of control than de-jure control. In fact and in law it has not been the requirement in the matter of 'management and control of the affairs of a company, particularly a Public Limited Company, that the persons in control thereof must own or hold individually or as a block majority shares or more than 50% shares of the company. There has been as in the instant case and in various other cases of leading Public Companies that the persons in control of affairs of the company and/or promoters held less than 51% shares but have been in control or held the control ling interest and are enjoying controlling interest of the company. It is also a fact, which is easily demonstrated from public information, that in cases of most of the prominent public limited companies, persons or groups owning majority shares or substantial block of shares individually or as a block did not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bout the purchase of shares from the promoters by Holderind Investment Ltd and also about the resignations of the promoter Directors 101-102 4. Copy of letter of offer issued by Holderind Investments Ltd in connection with the proposal to acquire further 20% of the equity in the company as per SEBI (Takeover Regulations) 1997 123-162 5. Copy of first quarter interim report for the year 2006 by Holeim Ltd informing in shareholders that they have management control of Gujarat Ambuja Cements Ltd. 168-189 (8) The public offer was duly made and completed where Holcim was able to acquire additional shares of the company in the open offer. Having regard to the aforesaid facts, the relevant Stock Exchanges SEBI and FIPB sanctioned the aforesaid transaction between the Promoter and Holcim and allowed Holcim to takeover the control and management of the company. (9) The aforesaid facts are duly noted in Holcim's report for the 1st quarter of 2006 at PB-1(186) which reads as follows:- "On January 27, 2006, Holcim acquired a 14.8 percent stake in Gujarat Ambuja Cements Ltd. from the founder families, which has been accounted for as an associated company since that date....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es at ₹ 74.20 per equity share only (Paper Book I - Page 121). The value of controlling interest transferred therefore amounted to ₹ 30.80 per share. The per share value is merely a method of calculation and is not a value of the share so far as the value of control ling interest is concerned. It is the contention of the assessee that the value of controlling interest namely ₹ 30.80 per share is not taxable as it had and has no cost of acquisition and as per well settled principles of law under the Income Tax Act, 1961. Issue: The question for decision before the Hon'ble Commissioner of Income Tax (Appeals) therefore are: (1) Whether the transaction in question involved in addition to and apart from the transfer of shares a transaction of transfer of controlling interest by the assessee namely the promoter group to Holcim and there was transfer of control of the company. (2) If the answer to the first is in the affirmative, on the principles of apportionment what value out of the composite consideration received to be apportioned as value received for the transfer of controlling interest? (3) Whether the value of controlling interest is liable to cap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....shall be computed by deducting from the full value of consideration received or accruing as a result of the transfer of the capital asset...:.". There is only one material asset, and that is the shares of GACL, this asset may contain within it many subsidiary rights, profits and privileges which would follow to the buyer as an inseparable content along with the transfer of the material asset. Whatever consideration is received or accrues, is by virtue of the transfer of shares and not by differentiated subsidiary rights which are neither fungible nor separately tradable. Thus it is abundantly clear that the action of the assessee of artificially splitting the value of consideration received i not tenable or logical grounds and also in the light of the judgments quoted above, and the whole exercise has been undertaken with sheer motive to evade taxes on the ensuing capital gains. Hence the whole amount of consideration received is being considered for the purpose of Capital Gains. The views of the Assessing Officer may be summarized as follows: (1) Managerial control is not a separately tradable entity, it forms an in-alienable part of the whole shares. Whatever control ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essary and it is not a pre-condition that those who have control of affairs of an organization or the person having controlling interest or desire to acquire control must have a de-jure authority for the same. Over the history as shown in relation to the affairs of a company that persons have acquired first de-facto control and acquire de-jure either not at all or later. It is not to say and it is not being suggested that dejure control is not a fact but what is being emphasized is that shares based control is not a condition precedent or an essential condition to acquire or retain control of an organization. A promoter of a company or a person or a group who establishes business organization or any other organizations may continue to be in control of the affairs of the company or organization without having majority or near majority holding in the share capital of the company, as normally has been the fact, as in the case of the instant company and various other companies as demonstrated by a list of shareholding pattern of companies in Paper Book 11. The list annexed and the facts of the company herein also demonstrates that persons other than promoter or controlling person in sp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ent of them to give control, (iii) he may do a deal with the existing board whereby they sell their shares to him and resign their offices, filling the casual vacancies, thus created, by his nominees or (iv) he may seek to acquires, by purchase on the stock exchange or otherwise, sufficient shares to enable him to wage a successful battle of proxies with the existing management so that they are dismissed and replaced by his nominees. In all except the fourth case it will be necessary, or atleast desirable, to have the concurrence of the existing directors. If they receive some special benefits in return for their support will this be a secret profit for which they must account?" From the aforesaid observations of Gower it is clear that in order to takeover control of a company acquisition of any requisite number of shares is not an essential condition. Control, necessarily do not follow acquisition of shares. A person may acquire control of a company even without acquiring any requisite number of shares therein. By mere acquisition of any particular number of shares a person does not necessarily or automatically, as a natural outcome of acquisition of shares, acquire control....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hether or not, there has been any acquisition of shares or voting right in a company, no acquirer shall acquire control over the target company unless such person makes a public announcement to acquire shares and acquire such shares in accordance with the Regulations." Explanation to Regulation - 12 states that for the purpose of this regulation, acquisition shall include direct or indirect acquisition of control of a target company by virtue of acquisition of companies whether listed or unlisted, whether in India or abroad. "Control" is defined in Regulation 2(c) - to include - "control" shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner, [Explanation:- (i) Where there are two or more persons in control over the target company, the cesser of any one of such persons from such control shall not be deemed to be a change in control of management nor shall any change in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....utual Funds/UTI (b) Financial Institutions/Banks (c) Central Government/ State Government(s) (d) Venture Capital Funds (e) Insurance Companies (f) Foreign Institutional Investors (g) Foreign Venture Capital Investors (h) Any Other (specify) Sub-Total (B)(1) B-2 Non-Institutions (a) Bodies Corporate (b) Individuals I Individuals-I.individual shareholders holding normal share capital upto ₹ 1 lakh II II- individual shareholders holding nominal share capital in excess of ₹ 1 lakh (C) Any Other (specify) Sub-Total (B)(2) (B) Total Public Shareholding (B)=(B)(1)+(B)(2) TOTAL (A)+(B) (C) Shares held by Custodians and against which Depository Receipts have been issued GRAND TOTAL(A)+(B)+(C) (I)(b) Statement showing Shareholding of person belonging to the category Promoter and Promoter Group Sr.No. Name of the Shareholder Number of Shares Shares as a percentage of total number of shares(i.e Grand Total (A)+(B)+(C) indicates in statement at para(1) Above 1 2 Total (I)(c) Statement showing Shareholding of person belonging to the category "Public" and Holding more than 1% of the total number of share Sr. No. Name of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Ushadevi vs CIT : 131- ITR-445 (MP) - Page 449 It was a question of determination of cost of acquisition of shares - acquired at a price higher than the market price. The ITO and the Tribunal held that the difference was payment for controlling interest. This was not approved by the court. The court held that was a transaction of shares simplicitor. Hence the consideration was wholly for shares (ii) Venkatesh (Minor) vs CIT: 243- ITR-367, 370 (Mad) The facts are nearly the same as above. The court merely followed the above decision. The principle laid down in the aforesaid decision are not based on any statutory provision or any earlier judicial authority. (iii) CIT vs Mahadeo Ramicumar: 166-ITR-477 (Cal) On facts the case is entirely different. The 66 sellers never had control of the Jessop company and did not transfer any controlling interest as pointed by the court at page 493. The court held at page 493 further that the Government purchased merely the block of shares - which although majority holding - did not have control attached/implied in it. (E) It is now necessary that we should open up our mind to the law and facts as relevant today. We should not al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ry Commissioners (1948) (2) All England Reports Page 509 = 1948 AC 534 question relating to separate value of controlling interest practically arose before the House of Lords. In March 1947 the Ministry of Air Production under the Defence Regulations appointed a Controller of the Undertaking of Short Brothers (R and B Ltd) and there after in March directed its shareholders to transfer all shares to the nominee appointed by the Controller. Under the Regulations a shareholder for the transfer of shares was required to be paid a price for the shares at the prevailing Stock Exchange price on the appointed date. In the background of the said facts the shareholder of Short Brothers contended that the Stock Exchange value was not appropriate. They suggested various different methods for the payment of value of shares acquired and claimed inter alia that the value to be paid and included the value of the complete control of the undertaking. The House of Lords negatived the said contention of the shareholders primarily on the ground that the regulations require the value to be paid for "any share" which referred to those embraced in an individual holding and not to the value of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....0 per cent of the class of shares bid for before the offer was made, the transferee company may pay a higher price for shares held by a controlling shareholder or group of shareholders than it offers to the other shareholders; the difference in price does not indicate that the offer to the non-controlling shareholders is unfair, but merely reflects the additional value of control of the compairv enjoyed by the holders of the controlling block of shares". (H) In this connection it is very much relevant to refer to a recent dispute which has arisen between a foreign assessee and the Income Tax Department in India, i.e. in the case of Vodafone in relation to acquisition by Vodafone International Holding the shares of a foreign company outside India which through its holding company held shares in Hutchison Essar Ltd. (HEL) [an Indian company]. The Income Tax Department contended and issued notice to the Vodafone international to subject them to tax deduction requirement under Section 195 read with Section 9 of the income Tax Act in relation to its failure to deduct tax on consideration paid for acquisition of a capital asset in India, namely controlling interest in HEL. The cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....come Tax Department and held that "Shares in themselves may be an asset, but in some case like the present one, shares may be merely a mode or vehicle to transfer some other assets. In the instant case the subject mater of transfer as contracted between the parties are not actually the shares of Cayman island Company but the assets situated in India. The choice of the petitioner in selecting a particular mode of transfer of these rights enumerated above will not alter or determine the nature or the character of the asset". The Department's own contention before the Court in the Vodafone case (upheld by the Court) is a complete answer to the department stand in the instant case and completely supports the contention of the appellant herein. The said decision clearly establishes that shares and controlling interest are two separate and distinct transferable assets, which can be subjected to tax in India. (I) Further case laws- in the following cases the courts noted that control of a company can be separate and distinct from the shares: (I) New Era Agencies Pvt. Ltd 68 ITR 585 (SC) Page 587 - The court noted that in the year 1942 Mulraj Karsondas obtained contr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pon the managing agent to relinquish its office. All this was possible for Mulraj Karsondas. ......................................... Therefore the court held that what was received by the assessee in that case was price of shares alone and court held that no part of the amount received by the appellant can be regarded as consideration for any other valuable rights. The deficiency found by the Court in the above case is filled in the present case. Facts of the appellant in the present case are entirely different and completely support and lead to the conclusion that it was not a transaction for shares as such simplicitor but a compact transaction for shares and transfer of controlling interest. The appellants all along acted in concert as a group in relation to the transaction in question as well. Therefore the consideration received has to be apportioned as consideration for the valuable right of controlling interest transferred apart from the value of shares. (ii) Mrs. A. Ghosh 139 ITR 119 (Calcutta) Page 126 - Dr. and Mrs. Ghosh (assessee) were founders of the company therein. Dr. and Mrs. Ghosh had advanced in age and the company required huge funds due to advancemen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpany to a person even shares are not required as a vehicle and control can be transferred without shares. One does not follow the other necessarily and therefore if a transaction involves transfer of both the shares and controlling interest it cannot be considered to be a transaction for one single asset namely shares only. Shares and controlling interest are two different distinct rights. Share is not a tangible asset. It is a chose-in-action. Shares are a bundle of rights. Similarly controlling interest is a distinct right which all shareholders do not have. The controlling interest right is enjoyed and exercised by an individual or a group of persons who may be in de facto control of the company or who may have as by way of support control over a block of shares. The block which may be a majority block or may not be a majority block. Any other person other than those who are having a controlling interest, even if he has substantial number of shares even as a block, he does not enjoy merely by holding of such stock, the benefit of the controlling interest rights. The aforesaid facts and legal position cannot be ignored. The Assessing Officer has acted unlawfully in brushing asid....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is well established in law for income Tax that a capital asset for which there is no cost of acquisition is not subjected to taxation uls.45 of the Act. This principle has been well established by the Supreme Court in the case of B.C. Srinivasa case [128 ITR 294]. Controlling interest in the instant case was not acquired at a cost. So far as the appellants are concerned, appellants were the promoters and persons who had established and managed and controlled the company although out since its inception; irrespective of and apart from their shareholding. Therefore controlling interest was a right which naturally inherred in the appellants all along. There was no cost of acquisition for the purposes of computation of capital gain of the controlling interest. In the premises the whole amount of ₹ 30.80 apportionable to controlling interest is a pure capital receipt, which is not taxable. The aforesaid submissions are without prejudice to the rights and content ions made earlier before you and we reiterate the same herein. We crave your leave to add, amend and supplement the aforesaid submissions, if so necessary, at the time of hearing." 8. The ld. CIT(A) forwarded the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ake on this. Fifth is the copy of letter to the Stock Exchanges. I have no comments on the same. 5. Sixth is the valuation report by Deloitte Haskins and Sells. In my opinion this valuation does not have any consequence on the provisions of Income Tax. 7. No comments on document number 7 8. No comments on document number 8 9. No Comments. This is mere intimation to the exchange and perhaps does not advance the claim of assessee in any way regarding the position of controlling interest being partible from shares. 10. No Comments. 11. No Comments 13. Twelth is the report of the Disinvestment Ministry for the case of Maruti Udyog Ltd. Under par 5(11) on page number 193 it is mentioned that "In the earlier transaction with SUZUKI in 1982 and 1992, when SUZUKI 's shareholding was allowed to be increased (Vis a Vis GOI), first from 26% to 40% and then from 40% to 50 %, no control premium had been paid by SUZUKI, though control had passed to them. "This also makes It clear that control is something which passes on automatically by way of increase in the shareholding and it does not have to separately traded or exchanged. On page number 192 of the said report th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... an agent to vote for him in respect of shares so held by him, the agent acquires no interest, legal or beneficial,. in the shares. The title in the shares remain vested in the share holder. The share holder may revoke the authority of the agent at any time. Therefore the shares being always subject to his will and ordering, the controlling interest which the holder of the majority shares has, never passes to the agent". This judgment, along with others, once again fortifies the claim of the assessing officer that managerial control is not a separate entity capable of being traded. Even otherwise, the comparison with the case of Vodafone is not proper for the reasons that there it was not the case of mere controlling interest, but also a bundle of other tangible and intangible rights. 15. No Comments." 9. The ld. CIT(A) sought counter comments of the assessee on the comments made by the AO and counter comments of the assessee were as under:- COUNTER COMMENTS OF THE APPELLANT "With reference to the Remand report of the Assessing Officer dated 24.11.09 in the instant appeals, the Appellant beg to reiterate and rely upon the submissions already made before you ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....trol and for passing the majority control a separate consideration, i.e. control premium was paid by Suzuki to GO! Premium was paid by Suzuki to GO! for the control of Maruti it got from GO! It had already got the share nd paid for the shares separately to GO!. The facts of Maruti case establish that the two could be and are being dealt with and paid for separately. Para 13 On the correct legal principles various judicial decisions and authors on Company jurisprudence have been relied upon by the appellant. The cases relied upon by the AO are distinguishable on facts and could not be said to be legally sound and at least are not of applicable in view of the changed legal requirements, applicable and applied in the instant case. Hence the instant case could not be decided on the basis of principles in cases relied or by the AO. J Para - 14 Reliance, by AO, upon Jeewanlal case in AIR 1953 SC 473, referred to in Vodafone case is wholly misplaced. Jeewanlal was a case of Principal and agent - posit ion of an agent who votes on behalf of his principal shareholder. The Bombay High court view in Vodafone case is ftlly supported by the Supreme Court decision in Technib case in 200....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s and Sells was required to be accepted. He, therefore, directed the AO to take the full value of consideration for transfer of impugned shares at ₹ 74.2 per shares and work out the capital gains accordingly. 14. It was held by the ld. CIT(A) that the balance consideration was for transfer of controlling interest. As controlling interest does not have any cost of acquisition, no capital gain could be computed. Reliance was placed by him on the Hon'ble Apex Court's decision in the case of B.C. Srinivas Shetty (supra). It was held by him that the capital asset being 'controlling interest' is not covered by section 55(2) (a). 15. Aggrieved the revenue has filed appeal before the Tribunal. 16. Before us the ld.DR relied on three written submissions dated 18- 06-2010, 29-06-2010 and 15-09-2010. The main contentions of the ld.DR could be summarized as under:- I. As per Article 2.1 of share purchase agreement dated 28-01-06 shares alone were not sold, but the same was sold together with all rights and advantages. This would show that controlling interest which was inseparable part of shares were also transfer red. II. As per Article 2.2 of the said agreement t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ely. The judgment in the case of Vodpahone and Technip are not applicable in the present case. VII. The judgment in the case of CIT vs. Jeewanlal [24 ITR 475(SC)] also supports the proposition that shares and controlling interest are inseparable and inalienable. The principles of apportionment do not apply to the facts of the case of the assessee. Thus, the ld. CIT(A) has wrongly relied on the following case laws for the proposition that apportionment of consideration is required to be made between transfer of shares sans controlling interest and controlling interest:- a. Best and Co. Pvt. Ltd. 60 ITR 11 b. Ahmed Bhai Umar Bhai and Co. 18 ITR 472 VIII. The valuation report of M/s. Deolitte Haskins and Sells cannot be relied upon in the Income-tax proceedings as has been mentioned in the said valuation report. Without prejudice to the above what has been determined by valuer is the market price of shares sans controlling interest. For the purpose of computation of capital gain fair market value is not relevant. What is relevant is the full value of consideration. This view is supported by the following decisions:- a. CIT vs. Smt. Nilofer I Singh 309 ITR 233(Del) b. Dev K....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of GACL as the close of the open offer. If control of the company was not handed over to Holcim, there was no need to comply with Regulations-12 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997. Even the shareholders' agreement dated 30-01-06 abundantly makes it clear that by agreement dated 28-01-06 controlling interest was transferred to Holcim. III. The department has contended that the view expressed by the Hon'ble Jurisdictional High Court in the case of Mahadeo Ram Kumar (supra) and that of Maharani Usha Devi and Venkatesh (Minor) of Hon'ble Madras High Court are applicable in the facts of the case. SEBI Regulations 1997 has not changed the applicability of the above decisions in the present case. This view is not sustainable in law. Where specific provisions do not exist in the income-tax Act, in order to understand and interpret a transaction and legal rights flowing therefrom, it has to be interpreted and understood with reference to the other laws as applicable to the transaction. It has been so held by the Hon'ble Apex Court in the case of CIT vs. Bhagyalakshmi and Co. [55 ITR 660, at page 664]. IV. Regulations 12 of SEBI (S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ransfer of control by respondent assessee to Holicim along with the shares. VII. As it is contended that controlling interest and shares sans controlling interest are distinct and separate capital asset, the apportionment of composite consideration is required to be done between the above two capital assets. In such case apportionment is required to be done is supported by following case laws:- a. CIT vs. Best and Co. Pvt. Ltd. 60 ITR 11(SC) b. CIT vs. Ahmed Bhai Ummar Bhai and Co. 18 ITR 472(SC) c. Tata Iron and Steel Co. Ltd vs. State of Bihar 48 ITR 123(SC) VIII. Even Hon'ble Bombay High Court's decision in the case of Vodaphone International (supra) supports such apportionment. IX. The valuer's report can be used for the purpose of determining tax liability under the Income-tax Act. It has considered all relevant factors and arrived at price of shares sans controlling interest at ₹ 74.80 per share. X. The revenue has contended that market price of shares on the date of agreement was ₹ 90/- per share and therefore, the same should be accepted. However, considering the abnormal circumstances due to which the share price was influenced, the un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....taken various grounds of appeal, the subject matter of appeal before the tribunal is the transactions entered into by the parties as per share purchase agreement dated 28-01-06. It is very unusual that neither the AO nor the ld.CIT(A) has taken note of article 5 of the said agreement, where it has been clearly stated that ₹ 15/- per share is being paid per sale share towards Non- Compete Undertaking, which is included in the sale consideration payable to the sellers in terms of article 2.2 of the agreement. In such peculiar circumstances, we will give our factual findings on the issue of capital gains or any other income arising out of the transactions entered into by the concerned parties as per share purchase agreement dated 28-01-06. Thus, the contention of the assessee that there is no dispute that Controlling Interest was transferred together with shares is not accepted by us. We will give our findings on this basis.. 22.2 It is to be noted that the assessee is not a signatory to the share purchase agreement dated 28-01-06. It has been claimed that Power of Attorney was being given by the assessee to Mr. Narattom S. Sekhsaria, who signed the said agreement on his behalf....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 22.7 In definition and interpretation article 1.9 reads as under: "Reference to agreements shall include a reference to the amendments thereto which have been executed in writing by the Parties thereto." 22.8 'Object of sale' and 'sale consideration' has been elaborated in articles 2.1 and 2.2 which are as under:- "2.1: Object of Sale Subject to the terms and conditions of this Agreement, the Sellers shall sell and transfer to Holcim Mauritius and Holcim Mauritius shall purchase the Sale Shares from the Sellers for the Sale Consideration, free from all Liens or other restrictions whatsoever and together with all rights and advantages now and hereafter attaching or accruing there to at the Shares Sale Closing, so that Holcim Mauritius will upon transfer of the Sale Shares in its name receive full legal and beneficial ownership and all shareholder rights relating thereto." "2.2: Sale Consideration The consideration for the purchase of the Sale Shares shall be an amount of ₹ 105/- (Rupees One Hundred and Five) per Sale Share aggregating to ₹ 2100,00,00,000 (Rupees Two Thousand One Hundred Crores) (the Sale Consideration)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oncrete products, aggregates, mortar and asphalt or related activities and services (each, a Rs. stricted Business) without the prior written consent of Holcim Mauritius acting reasonably, Holcim Mauritius shall pay to RMIL and the Other Sellers an amount of ₹ 15/-(Rupees Fifteen) per Sale Share, aggregating to ₹ 300,00,000(Rupees Three Hundred Crores) which amount constitutes part of the State Consideration payable to the sellers in terms of Article 2.2(the Non-Compete Component) For purposes this art.5, RMIL and/or the Other Sellers shall not be deemed to engage in the Restricted Business only by virtue of the fact that (a) any of them invests, directly or indirectly, up to(but no more than)10% of its net worth in, or that RMIL and/or the Other Sellers collectively acquire, directly or indirectly, up to (but no more than) 10% or the shares of ownership interests in any company of entity or other business association engaged in whole or in part in a Restricted Business other than GACL. (b) any of the Other Sellers (except for those Other Sellers who are currently serving or have in the past been serving on the GACL board of directors or executive management assu....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the ld.AR for the assessee did not address the bench on the issue. We have also noted that the agreement dt. 28.01.2006 have not been amended in any way as stipulated in the said agreement. In the facts and circumstances of the case, we are of the considered opinion that the amount received by the assessee for the said non-compete undertaking is squarely covered by section 28(va) of the Act.. It has nothing to do with transfer of controlling interest. We, therefore, hold that in terms of said agreement ₹ 15/- per share is assessable as income under the head 'business' as per provision of section 28(va) of the Act. 22.13 We have noted that copy of disclosure dated 25-05-06 issued to the Stock Exchange showing the movement of share holdings of the promoters post acquisition by Holderind Investment Ltd, which is available at page 167-168 of APB, shows that Holderind Investment Ltd is one of the party of so-called promoters group, holding 14.75% of the share of M/s.GACL as on 5-5-2006. This would show that Holderind Investment Ltd. was included in promoters' group. As per Articles of Association of M/s. GACL, copy of which has been furnished by the ld. AR for the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... controlling interest right from the inception of M/s.GACL and the capital asset being 'controlling interest' was a self-generated asset. According to him controlling interest did not arise on a/c of holding of shares and was, thus, an independent capital asset. This being the case of the assessee, controlling interest as understood by the assessee was not part of the capital asset being share. This would further fortify our finding of fact that full value of consideration for transfer of impugned share was ₹ 90/- per share. 22.18 As we have given our finding of fact on the issues involved in the present case as enumerated hereinabove, we do not find it necessary to go into hypothetical legal issues and arguments raised by either of the parties. According to us they are not germane to the issues involved in the present case. We, therefore, hold that:- a. The full value of consideration for transfer of impugned shares is ₹ 90/- per share for the purpose of calculation of capital gains; b. ₹ 15/- per share is to be assessed as income under the head' business' as per section 28(va) 23. In the result, the appeal [ITA No. 771/Kol/2010 AY 2006-07] ....