AI Drafter 
TaxTMI 
TaxTMI 
2003 (11) TMI 25
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....lity to tax of the capital gains? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the full value of the consideration accruing to the appellant on the transfer of the shares of Piramal Rasayan Limited would be Rs. 16,23,000 and not rupee 1 which was the amount that the appellant received as a result of the transfer? 4. Whether the Tribunal having found that there was no evidence brought on record to justify that the appellant had received any monetary consideration in excess of rupee one was yet justified in determining the full value of the consideration at Rs. 16,23,000?" The assessee is an individual belonging to the Piramal family ("Piramal group" for short). The said Piramal group consisted of six family members including the petitioner. The Piramal group had controlling interest in the company, M/s. Piramal Rasayan Limited, as they were holding 2,70,600 equity shares out of 7,40,000 equity shares of the company. Out of 2,70,600 equity shares held by the Piramal group, 81,150 shares belonged to the assessee. By an agreement dated November 1,1985, Dr. Mohanlal Piramal (father of the assessee), head of the Pirama....
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....submitted that under the Income-tax Act, the capital gains are to be computed by taking full value of consideration actually received or accrued to the assessee on transfer of the capital asset. He submitted that there is no provision under the Income-tax Act to make additions to the full value on account of the incidental or ancillary benefits, if any received, to the full value of consideration received c by the assessee. He submitted that capital gains can be taxed only with reference to the amount actually received on transfer of shares. He submitted that the only provision under which the full value received by the assessee can be disturbed is under section 52(2) of the Income-tax Act if the Revenue establishes that something more than what is declared is actually received by the D assessee. In the present case, section 52(2) of the Income-tax Act has been invoked by the Revenue on the ground that in addition to the cash consideration of Re. 1 the assessee has received consideration in the form of three additional benefits as per clauses 2, 3 and 4 of the sale agreement dated November 1, 1985, which reads as under: "2. The purchasers agree to arrange for repayment of the sa....
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.... held that no substantial benefit is received by the assessee on account of the above clauses 2 and 3 of the sale agreement, the Tribunal could not have inferred that the consideration declared by the assessee was understated so as to invoke section 52(2) of the Income-tax Act. As regards surrender of tenancy, Mr. Mistry submitted that, firstly, the surrender of tenancy was not a consideration for the sale of shares, secondly, the surrender of tenancy was to the landlord, namely, Piramal Spinning and Weaving Mills Limited and not to the assessee, and thirdly, even assuming that the Piramal group had substantial interest in Piramal Spinning and Weaving Mills Limited who were the landlords, even then no benefit accrued to the Piramal group, because under the Rent Act on surrender of tenancy no consideration was payable and in fact, consideration for surrender of tenancy was punishable under the Rent Act. He submitted that even assuming that there was any benefit to the landlords, i.e., to Piramal Spinning and Weaving Mills Limited, or to the Piramal group, no benefit accrued to the assessee from surrender of tenancy rights. Mr. Mistry referred to para. 25 of the order of the Tribunal....
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....ld not be invoked. He submitted that the Tribunal could not have arbitrarily fixed the fair market value of the shares at Rs. 20 per share. Accordingly, it was submitted that the order of the Tribunal being totally perverse, the same be quashed and set aside. Mr. Desai, learned senior advocate appearing on behalf of the respondents, on the other hand, submitted that in view of the concurrent findings of facts given by the authorities below that apart from cash consideration of Re. 1, the assessee has received consideration in the form of benefits, it was evident that there was understatement regarding the full value received on sale of shares and, therefore, the Revenue was justified in adopting the market value in respect of the sale of the shares. He submitted that at the relevant time the value of the shares of Piramal Rasayan Limited quoted at the stock exchange was more than Rs. 20 per share and, therefore, it is inconceivable that the shares held by the assessee worth more than Rs. 16 lakhs were sold for just Re. 1. Mr. Desai submitted that once it is established that the assessee has received more than what is declared, it was not necessary for the Revenue to establish as....
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....consideration for the transfer than what is declared in the instrument of transfer and it would have no application in the case of a bona fide transaction where the full value of the consideration for the transfer is correctly declared by the assessee." Thus, to invoke section 52(2) it is not only necessary for the Revenue to establish that the fair market value of the capital asset transferred by the assessee exceeds the full value of the consideration declared in respect of the transfer by not less than 15 per cent, of the value so declared, but it is also necessary for the Revenue to establish that the full value of the consideration declared by the assessee is less than the amount actually received by the assessee. In other words, even if the market value of the capital asset on the date of its transfer is 15 per cent, more than the value declared by the assessee, the fair market value of the shares as on the date of transfer cannot be taken into account for computing the capital gains unless it is established by the Revenue that the assessee has actually received consideration more than what is declared. Thus, without establishing that the consideration actually received or ac....
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....tablish as to how much consideration is actually received by the assessee in kind. Once the conditions set out in the sale deed are complied with by the purchasers, then the consideration flowing therefrom stand received by the assessee. In such circumstances, it will not be open to the assessee to contend that no consideration flows on performance of clauses 2, 3 and 4 of the sale agreement. The contention of the assessee that because Piramal Rasayan Limited was consistently making losses for 10-12 years, the shares have been sold for a nominal price of Rs. 6 cannot be accepted. Mr. Mohanlal Piramal, chairman of the company in the "directors' report" as recorded in the eleventh annual report of the company has stated that the turnover of the company for the year ended March 31, 1985, stood at Rs. 5.13 crores as compared to Rs. 3.85 crores of the previous year and for the first time since inception, the company has made an operating profit before depreciation of Rs. 14.84 lakhs. The fact that at the relevant time the share value of Piramal Rasayan Limited at the stock exchange was more than Rs. 20 per share cannot be ignored. Therefore, it is clear that in the year in which the sha....