TaxTMI 
TaxTMI 
2017 (6) TMI 833
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.... in law the Tribunal was right in not accepting the fact that the transfer of shares by the assessee company being only incidental and in consequence of allotment and control of management of companies in pursuance of family arrangement, took the transaction out of purview of Section 2 (47) of I.T. Act, 1961 ? c) Whether in the facts and circumstances of the case and in law merely because the assessee/company has a corporate veil, will it make the transfer of shares by it assessable to capital gains tax even though such transaction is in pursuance of family arrangement ? 3. It is agreed between the parties that Question (a) above brings out the real controversy between the parties, Questions (b) and (c) are mere facets of Question (a). 4. This appeal relates to A.Y. 1995-96. 5. The brief facts leading to this appeal are as under : (a) The appellant is a Private Limited Company. Over 80 % of it's share capital is held by the family members of Mr.Girdhardas Mohota, Mr.Gwaldas Mohota and Mr.Ranchhoddas Mohota referred to by the Tribunal as Groups 'A', 'B' and 'C' respectively. The Mohota family, besides holding a majority stake in the a....
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....bers of the family of Group 'A' and Group 'C'. (f). On 30.11.1995, the appellant/assessee filed return of income for the Assessment Year 1995-96 declaring an income of Rs. 58.35 Lakhs. During the Assessment proceedings, the appellant/assessee contended that transfer of shares in M/s.Rekhchand Mohota Spinning and Weaving Mills Ltd. and M/s. Vaibhav Textiles Pvt. Ltd. to members of Group 'A' and 'C' was done in pursuance of family arrangement/settlement as reflected in the Arbitration Award dt.30.4.1995. Therefore, it was contended that no Capital gains would be attracted as there was no transfer as it was working out of family settlement/arrangement. However, the Assessing Officer, by order dt.7.4.1997, negatived the same and inter alia held that the Company being a separate legal entity distinct from it's share holders, cannot be as part of family settlement/arrangement. Thus, transfer of shares done by independent entity such as the Appellant/assessee would not be covered by the 'Family Settlement' and consequently, brought the transfer of 25,650 shares for consideration of Rs. 225/- per share of M/s.Rekhchand Mohota Spinning and Weav....
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....eing aggrieved with the impugned order, the Appellant/assessee is in appeal before us on the substantial questions of law as reproduced above. 7. Mr.S.C.Thakkar, learned Counsel for the appellant/assessee in support of the appeal submits as under : (a) It is undisputed position as settled by the Apex Court that a family settlement/arrangement would not give rise to any transfer. The transfer of shares by the Appellant/assessee was in pursuance of and to give effect to the family arrangement as reflected in the Award dt.30.4.1994. There was no choice with the Appellant/assessee not to transfer the shares and such transfer of shares cannot be seen de hors the family arrangement. Thus, it is submitted that the entire transaction has to be looked at wholistically. (b) The corporate veil can be lifted to ascertain the real nature of the transaction and the person behind the transfer. In support, reliance is placed upon the decision of the Calcutta High Court in the case of Shaw Wallace and Company Ltd. vs. Commissioner of Income Tax reported in 119 ITR 399. (c) The transfer of shares was mere adjustment of rights between the parties and no consideration has been received by ....
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..... Ltd., 1897 AC 22. Our Court in T.R. Pratt (Bombay) Ltd. vs. E.D. Sassoon and Co. Ltd., AIR 1936 (Bombay) 62 has observed as under : " As held in 1897 A.C. 22 (23), under the law, an incorporated Company is a distinct entity and although shares may be practically controlled by one person, in law a Company is a distinct entity and it is not relevant to enquire whether the directiors belonged to the same family or whether it is compendiously described 'a one-man Company'. 10. However, the Courts have permitted the lifting of corporate veil to prevent injustice. One such class of cases, where the Court has disregarded the corporate entity is where it is used for tax evasion. A classic illustration of this is found In Re. Dinshaw Maneckjee Petit, AIR 1927 (Bombay) 371, where the Court lifted the corporate veil as it found that "the Company in this case was formed by the assessee purely and simply as a means of avoiding super tax and that the Company was nothing more than the Assessee himself. It did no business but was created purely and simply as a legal entity to ostensibly receive dividends and interest and handed them over to the assessee as pretended loan". In....
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.... have certain advantages and disadvantages attached to it. But once a Company comes into existence under the provisions of the Companies Act and it is considered to be an independent entity, then it's obligation under the law as a separate legal entity has to be complied with and settlement arrived at between it's members cannot discharge the appellant/assessee from complying with it's obligations under the Law. It was also contended that the Appellant/assessee had no volition in transferring the shares. This submission overlooks the fact that an artificial entity such as a Company only acts through it's Directors and in no case, does the Company has a mind of it's own to decide the course of action to be adopted. 12. It was also submitted that no consideration was received by the Appellant/assessee for the transfer of shares. It is submitted that the fair market value of M/s.R.S.Rekhchand Mohota Spinning and Weaving Mills Ltd. arrived at Rs. 225/- per share and that of M/s. Vaibhav Textiles Pvt. Ltd. arrived at Rs. 10/- per share by the Arbitrator was only for the purposes of adjustment of rights amongst the parties. This submission overlooks the fact that t....