TaxTMI 
TaxTMI 
2016 (4) TMI 1082
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....06-07 declaring total income of Rs. 11,68,470/-. The respondent-assessee had also shown the long term capital gain of Rs. 42,38,674/- arising out of the sale of 75,000 shares of M/s. Unisol Infraservices Ltd. (M/s. Unisol) to one M/s.Radha Krishna Hospitality Services (P) Ltd. ("RKHS") in terms of agreement dated 25th January, 2006. The Assessing Officer on perusal of the agreement dated 25th January, 2006 was of the view that under the agreement, the respondent-assessee as well as other co-owners (Shete family) of M/s. Unisol were to receive in aggregate a sum of Rs. 20 crores and proceeded to tax entire amount of Rs. 20 crores in the subject assessment year in the hands of all co-owners of shares. This resulted in the respondent-assessee being taxed on her share of capital gains at Rs. 4.48 crores after availing exemption under Section54EC of the Act. In the result the Assessing Officer by order dated 30th December, 2008 assessed the respondent to an income of Rs. 4.60 crores. 4. Being aggrieved, the respondent-assessee preferred an appeal to the Commissioner of Income-Tax (Appeals). By order dated 24th December, 2009 the Commissioner of Income-Tax (Appeals) deleted the additi....
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....5th January, 2006 is not tenable. The Tribunal further held that what amount has to be brought to tax is the amount which has been received and/or accrued to the respondent-assessee and not any notional or hypothetical income as the revenue is seeking to tax the respondent-assessee in the subject assessment year 2006-07. 6. Before considering the rival submissions it would be appropriate to extract the relevant clauses of agreement dated 20th January, 2006 : "7.6 Initial consideration is the initial sum of Rs. 2,70,00,000/- (India Rupees Twenty Seven million) less debt as on completion date plus cash as an completion date to be paid to Shete Group by RKHS in consideration for the shares in accordance with the provisions of clause 3.3. 7.7 Purchase price (for the transferee sale consideration for the transferor) the aggregate of initial consideration and deferred consideration under clause 3. Clause 2 Agreement to sell and purchase "Shete Group shall on the completion date sell and transfer as legal and benefical owner, the shares together with all rights attaching thereto to RKHS and RKHS shall purchase the shares free from all claims, charges....
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....n to Shete Group for review. The parties shall agree with 30 days the amount of the first deferred consideration which shall then be made and payable on June 30, 2007." Clause 3.4.3 The amount payable in respect of B shall be capped at Rs. 20,00,00,00 (Indian rupee two hundred million) minus initial consideration payment of such sum shall be in full settlement of any sum due in respect of B notwithstanding the circumstances where the calculation of B would otherwise result in a figure in excess of Rs. 17,30,00,000/-(i.e India Rupees One hundred and seventy three million) Clause 3.4.4 In the event only that the amount payable in respect of B did not exceed Rs. 20,00,00,000 minus initial consideration the second deferred shall subject to clause 3.4.5 be calculated as follows: E=(D X 5.5) - Debt + Cash - (A+B) D = Unisols net profit for the year ended 31st March 2008 and for the year ended 31st March 2009 divided by two B = the first deferred consideration under clause 3.4.2 (if any) A = Initial consideration Cash = Cash as at March 31, 2009 Debt = Debt as at March 31, 2009 On 31th May, 2009, RKHS shall s....
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....eived. In the above view, it is his submission that the Assessing Officer was justified in bringing to tax entire amount of the respondentassessee's share in Rs. 20 crores referred to in the agreement dated 25th January, 2006 as maximum amount that could be received on the sale of shares in M/s. Unisol by its co-owners from M/s. RKHS. 8. In the present case, from the reading of the above clauses of the agreement the deferred consideration is payable over a period of four years i.e. 2006-07, 2007-08, 2008-09 and 2009-10. Further the formula prescribed in the agreement itself makes it clear that the deferred consideration to be received by the respondent-assessee in the four years would be dependent upon the profits made by M/s. Unisol in each of the years. Thus in case M/s. Unisol does not make net profit in terms of the formula for the year under consideration for payment of deferred consideration then no amount would be payable to the respondent-assessee as deferred consideration. The consideration of Rs. 20 crores is not an assured consideration to be received by the Shete family. It is only the maximum that could be received. Therefore it is not a case where any considera....
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....ual of its income or its receipt; but the substance of the matter is income, if income does not result, there cannot be a tax, even though in book-keeping an entry is made about a hypothetical income, which does not materialize." In this case Rs. 20 crores cap in the agreement is not income in the subject assessment year. It has been observed by the Apex Court in the case of K.P. Varghese vs. Income-Tax Officer, Ernakulam & Anr. 181 ITR Page 597 that one has to read capital gain provision along with computation provision and the starting point of the computation is "the full value of the consideration received or accruing". In this case the amount of Rs. 20 crores is neither received nor it has accrued to the respondent-assessee during the subject assessment year. We are informed that for the subsequent assessment year (save Assessment Year 2007-08 for which there is no deferred consideration on application of formula), the Assessee has offered to tax the amounts which have been received on the application of formula provided in the agreement dated 25th January, 2006 pertaining to the transfer of shares. 9. The contention of the Revenue that the impugned order is seeking to tax ....