TaxTMI 
TaxTMI 
2018 (3) TMI 427
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....ing the assessee appeared and furnished requisite details and explanation in support of its claim. The AO determined the total income of the assessee at Rs. 29,99,30,657/- as against the Rs. 88,79,544/- vide his order dt:30-03-2013 u/s 143(3) of the Act. 4. During the A.Y under consideration the assessee claimed long term capital loss on account of sale of 286329 equity shares of Zandu Realty Ltd as under:- (2) Long term capital gain on sale of 286329 equity shares of M/s. Zandu Realty Ltd., on which STT has not been paid:- Sale consideration Rs. 60,12,90,900/- Less; Cost of acquisition Rs. 85,05,20,775/- Long term capital loss (-) Rs.25,05,20,775/- 5. On an examination of above, the AO was of the opinion that the said sale transaction was off market transaction, accordingly, the assessee was asked to furnish the explanation in respect of difference between at which rate shares were sold to its sister concern and its related party i.e. rate on sale transactions were made through stock exchange. In response to which, the assessee submitted its explanation through letter dt. 21-11-2012 by stating that the said 2,86,329 shares were sold to M/s. Emami Rainbow....
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....ercentage of traded quantity to total number of shares everyday (f) Percentage change in rise from share of last close price (g) Number of time change in price for 1% change of traded quantity The said calculation has been made for the period from 21.1209 to 31.03.10. As per the basis of the said calculation of the assessee, the off-market sale price per share of Zandu Reality Ltd. has been computed at Rs. 1418/-. It is noticed that the valuer M/s. SSKM Corporate Advisory Pvt. Ltd. has determined the price of Rs. 2100/- as share value of Zandu shares. Therefore, there is a huge difference in the aforesaid two valuations/computations. Further, the assessee company has also submitted the following explanation vide letter dated 20.03.2013 :- "The provisions of Income tax act, as applicable during the assessment year under review, did not contain any provision for taxability of deemed capital gain in the hands of seller on sale of property except in case of an immovable property. Therefore to understand the applicability of provisions of deemed capital gains, if any, it will be worthwhile here to make a reference to provisions of erstwhile s....
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.... price received therefore of any portion of such difference might be assessed to tax depending upon the facts and circumstances of the case. c. The above decision of the Apex Court was followed by High Court of Delhi in case of Commissioner of income Tax vs I.P.Chaudhari in [2010] 328 ITR 7 dated 16th August 2010; wherein the High Court held that in the given case the Assessing Officer could not estimate the sale consideration of transferred shares at a higher price because the Assessing Officer did not record any finding that consideration has been understated and the assessee had actually received more than what had been declared by him in the tax return. In this case the assessee had sold equity shares of the face value of Rs. 800 each to his family members at Rs. 110 per share and the ITO estimated the sale consideration of those shares @ Rs. 230 per share by applying the provisions of sec 52. It may be noted that the sale of shares in this case was to the related parties of the assessee. The facts of this case are squarely similar to those in our case. d. Similar views were also held in the following cases; all of which referred the principl....
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....rol over the management of the company which is very important consideration. It is reiterated that as per the income tax law as applicable for the year under assessment there is no provision of taxability of deemed capital gain on sale of capital asset being shares and that too when there is no case for consideration not recorded in the books." The assessee company also relied upon the provisions of Section 45(2A) of the Act in respect of cost of acquisition of the said shares. The relevant portion of the submission dated 20.03.2013 of the assessee is as under ;- "Sec 45(2A) of the Act deals with mechanism of computing profits or gains arising from transfer of shares held in dematerialized form. The said section clearly specifies that it will be applicable for computation of capital gains under sec 48 of the Act. Therefore profits and gains arising to the assessee i.e. Emami Infrastructure Ltd. from sale of shores of Zandu Realty Ltd. shall be computed as per provisions of sec 45(2A) read with section 48. Sec 45(2A) states that in case of shares held in demat form; the cost of acquisition and period of holding shall be determined on FIFO basis a....
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....though date of acquisition of 13,711 shares is later than date of acquisition of 4,30,791 shares; 13,711 shares will be considered first because had there been a sale of shares in between the two credit entries on the same date; shares entered first before that sale would have been considered on FIFO basis for computing profit or loss. Thus profit/ loss arising on sale of shares of Zandu by the assessee has been calculated by applying FIFO method to each of the three demat accounts i.e Account 1, Account 2 and Account 3 and accordingly cost of acquisition of shares and period of holding of such shares has been determined." 7. The AO found the explanation offered by the assessee to the said show cause notice cannot be accepted and further opined, that there is a huge price variance between the quoted price in NSE and the off-market selling price shown by the assessee and held when the shares are traded in its stock exchange the best way to determine the selling price of a share is the price quoted in the stock-exchange. Accordingly, long term capital gain is determined at Rs. 29,05,83,769/- as against the claim of loss of Rs. 25,05,20,775/- shown by the assessee in the return of ....
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....e. In this case, there is a huge between the quoted price in NSE and the selling price off-market. Considering the above, the selling price of the shares M/s. Zandu Reality Ltd. as on 31.03.10 is taken at Rs. 3989.80 which is the fair market value of the aforesaid shares. vii) As regards applicability of provisions of Sec 45 (2A) in the case of the assessee, it is seen the that shares of Zandu Realty Ltd. have been received by the assessee on demerger from the demerged company MI5 Emami Ltd. in terms of Sec 2(19AA) of the I.T.Act,1961. AS per sec 2(19AA) (iii), the property i.e. shares of Zandu Realty Ltd. has to be transferred at values appearing in the books of account of the demerged company immediately before the demerger. In this case, the shares were valued at Rs, 2975/ per share in the books of account of M/s Emami Ltd, immediately before the demerger. Hence, the cost of acquisition of the shares of M/s Zandu Realy Ltd. has to be Rs. 2975/- per share for the assessee company. In its computation of income submitted along with return of income, the cost of acquisition of the shares of Zandu Realy Ltd. has been shown at Rs. 2975/ cost of acquisition of the shares of Za....
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....omputed by AO is against the provisions of the Income Tax Act in as much as the Act does not contemplate taxation of deemed capital gains on sale of shares. Further submitted the AO not accepted the provisions of sec 47(iv) only on the ground that the shares were sold to a step down subsidiary. The AO has taken the cost of acquisition of Zandu shares at an average price of Rs. 2975/ share instead of the actual date wise purchase cost. The finding of the AO is wrong in concluding that provisions of sec 45(2A) are not applicable to the case of assessee and denying the claim for computation of capital gains in accordance with provisions of sec 45(2A) of the Act. 9. The CIT-A considering the submissions of assessee confirmed the action of the AO by observing as under:- I have considered the facts of the case, the material placed on record, the submissions of the AR and also have gone through the case laws relied by him. I have also considered the observation of the AO in the impugned assessment order and further submission of the AO. After going through the entire facts of the case and for the following reasons these grounds of appeal are decided against the appellant:- ....
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....e case reported in 328 ITR 7 and 257 ITR 703 relied upon by the appellant company relates to sale of shares of a private limited company and in these cases shares were not sold tit less than purchase price on last day of accounting veer to claim the loss. These companies were also not listed on stock exchange. Furthermore, the decisions in the cases of CIT Vs. I.P. Choudhari 328 ITR 7(Delhi) and CIT Vs Late Gulshan Kumar through LR (2002 25T ITR 703(Del) dealt with the action of the Assessing Officer under sec. 52(2) of the Act as it stood then. The provisions of sec. 52 stand omitted w.e.f. 1.4.1988 by the Finance Act, 1987. In the appellant's case, the valuation of fair market value is supported by valuation report, whereas the Assessing Officer has adopted the value applying the market value quoted on the stock exchange as on the date of transfer, which on the facts and circumstances of the case is appropriate. iii) The appellant has acquired the shares of Zandu Reality Ltd. on demerger of Emami Ltd. As per the AR, Emami Ltd. has acquired the shares of Zandu Reality Ltd at different rates on different dates. But it is not in dispute that average price per shares of ....
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....The Legislative has taken case to provide in section 47 of the Income-tax Act, 1961, that certain transfers shall not be considered as transfers for the purpose of levy of capital gains. Section 47 of the Income -tax Act provides that transfer of a capital asset by a holding company to its Indian subsidiary company or by a subsidiary company to its Indian holding company is not be treated as a transfer for the purposes of capital gains. The "words" any transfer of a capital asset by a company to its subsidiary company" would according to the ordinary grammatical construction, contemplate only the immediate subsidiary company of the holding company as the holding company holds the share capital only of its immediate subsidiary company. The companies for the purpose of section 47(9v) and (v). The wider definition of a holding company with emphasis on "control" as the guiding factor is not adopted in clauses(iv) and (v) of section 47. It is specifically provided that the parent company or its nominees must hold the whole of the share capital of the company. The Legislature while enacting the Income-tax Act therefore made a clear departure from the definition of holding company as cont....
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....ny by adopting the Zandu Reality Ltd share value at Rs. 3989.80 being average market value of the share on stock exchange on the date of sale of share by the appellant to Emami Rainbow Niketan Pvt. Ltd. The action of the Assessing Officer is, therefore, confirmed. The ground nos. 2 to 9 of appeal are accordingly decided against the appellant. " 10. Heard rival submissions and perused material on record. We find that the case of the assessee was that it sold equity shares of M/s. Zandu Realty to M/s. Emami Rainbow Niketan Pvt. Ltd, based on the price of the shares determined by SSKM Corporate Advisory P.Ltd. M/s. Emami Rainbow Niketan is a 100% subsidiary of M/s. Emami Realty Ltd. M/s. Emami Realt Ltd is a 100% subsidiary of M/s. Emami Infrastructure Ltd, the assessee herein. Therefore, two issues arise for our adjudication. These are:- a) The first issue is, whether there is a transfer of share in view of provisions of section 47(iv) of the Act. 11. Section 47 of the Act provides certain category of transactions, which are not regarded as transfer for the purpose of section 45 of the Act. Transactions not regarded as transfer Section 47(iv)(a), (b):....
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....condition laid down under section 108(b) must also be fulfilled. Thus, a sub-subsidiary would be a subsidiary under section 108(b) if the whole of its share capital has been held by the parent company or its nominees throughout the previous year. 84. If that meaning is incorporated then it is very clear that the assessee is a subsidiary within the meaning of section 108(b) of the Income-tax Act. This is so because, admittedly, the U.S. company is a company in which the public are substantially interested and falls within section 108(a). A 100 per cent. owned sub-subsidiary of a 100 per cent. owned subsidiary would be a subsidiary within the meaning of section 4(1)(c) of the Companies Act and also within the meaning of section 108(b) of the Income-tax Act. The assessee fulfils the condition of section 108(b) inasmuch as throughout the previous year 100 per cent. of its share capital was held by the U.K. company. Throughout the previous year 100 per cent. of the share capital of the U.K. company was held by the U.S. company. The U.K. company is thus a nominee of the U.S. company. The assessee would thus be a subsidiary within the meaning of section 108(b). In this view of the matter,....
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.... assessee but its parent company/companies should be domestic company/companies, then the Legislature would have had to specifically so provide. In that case the Legislature could not/would not have, by virtue of section 2(6) (a) imported section 108 of the Income-tax Act. In that case, the Legislature would have in clause I(1) of paragraph F provided words to the effect "where the company and its parent company/companies is/are domestic company/companies in which the public are substantially interested". The Legislature has purposely omitted to do so and the court cannot add words. 87. If it is held that the words "domestic company" in the opening part to clause I of Paragraph F govern the entire clause I, then there would be conflict between clause I and section 108 of the Income-tax Act. To avoid that conflict one would have to add words to section 108(b) of the Income tax Act to restrict a subsidiary to be a subsidiary of a domestic company. Where the Legislature intentionally omits to do so, the court cannot add words. This is particularly so when it is possible to harmonise both, without addition of any words to either, if it is held that the parent company/companies need not....