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2019 (12) TMI 1198
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....017 dated 1.12.2017) case, in respect of the same transaction. 3. That the CIT(A) also erred in resorting to cherry picking of the conclusions of the ITAT, which is not permissible and reflects a predetermined mind towards the conclusions drawn in the said order. Long term Vs. Short term capital gains 4. That the CIT(A) grossly erred in not following the decision of the Appellate Tribunal in the Appellant's husband's case where the Tribunal had returned a finding of the said gains to be treated as long term capital gains, the transaction being the same. 5. That the CIT(A) erred on facts and in law in treating the gains arising from sale of unlisted shares of M/s. Scorpio Beverages Pvt. Ltd. as 'short term capital gain', instead of long term capital gain returned by the Appellant. 6. That the CIT(A) erred in law in observing that for unlisted shares to qualify as a 'long term capital asset', the period of holding was 36 months and not 12 months as per the first proviso to section 2(42A) of the Income Tax Act, 1961 (Act) (as applicable during the year under consideration), read with section 2(29A) of the Act. 7. That the CIT(A) grossly err....
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....e actual sale consideration with any notional consideration. 14. That the CIT(A) failed to appreciate that the only provision which empowered the AO to adopt a fair market value was contained in section 52 of the Act which had since been repealed in 1988. 15. That the CIT(A) grossly erred in law in failing to appreciate that the term "accruing" as contained in section 48 of the Act, which is a computational provision, could not be relied upon to impose a tax liability when the charging section itself, being section 45 of the Act, did not impose such charge of tax. 16. That the CIT(A) also failed miserably to appreciate the legal position that the term "received or accruing" in section 48 of the Act was only to cover situations where only part of the sale consideration is received in the assessment year and had to be read in conjunction with the mandate of section 45 which provides that the "income shall be deemed to be the income of the previous year in which the transfer took place". 17. That the CIT(A) also erred in not following the jurisdictional High Court judgments, violating the principal of judicial discipline, where the High Court has ca....
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.... Boom Investments had on account of an inadvertent/clerical error added an extra 'O‟ in both the purchase and sale considerations and which had the effect of enhancing the capital loss which was unintentional and immediately upon realising the error the Appellant brought it to the attention of the AO. 25. That the CIT(A) erred in concluding that the loss pertained to AY 2010-11 and the AO could not have allowed such loss since that year was not before him. 26. That the order of the CIT(A) is also silent about the claim of brought forward long term capital loss of Rs. 1,53,36,932/- for AY 2011-12. Business income 27. Without prejudice, the CIT(A) erred in dismissing the ground of the Appellant agitating the treatment of exempt income earned by the Appellant as partnership profits as "income from business or profession". Allowance of capital loss 28. That the CIT(A) erred in upholding the addition of inclusion of capital gain/losses on sale of capital assets other than shares of Scorpio Beverages Pvt Ltd at Rs. 20,59,509/-as against the claimed loss of Rs. 1,96,38,666/- while allowing minimal relief." Disallowance o....
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.... 5. The assessee submitted her reply on 22/12/2016. She stated that provisions of section 2 (29A) read with provisions of section 2 (42A) of The Income Tax Act as applicable for assessment year 2014 - 15, provides that the shares of the company , whether listed or unlisted, will be treated as a long-term capital asset, if the period of holding is more than 12 months. She further stated that in case of unlisted equity shares transferred on or after 11/07/2014, the period of holding to qualify it as long-term capital asset was increased to 36 months by the Finance (No. 2) Act, 2014. It was later on reduced to 24 months by The Finance Act, 2016 with effect from assessment year 2017 - 18. Thus, it was claimed that as the above shares were sold by the assessee on 21/03/2014 the period of holding was more than 12 months, shares are ‗ Long term capital assets' and accordingly, the capital gain on transfer of those shares is claimed as long-term capital gain. 6. The learned assessing officer rejected the contentions of the assessee and held that in case of unlisted companies Equity shares, if held for less than 36 months, then it is a short-term capital asset. The learned AO rel....
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.... 2014 the shares of this company has undergone extreme movements. He noted that the shares were originally issued at a face value of INR 10 per share in 2006. The rights shares were also issued in financial year 2012 - 13 at INR 10/- per share. These shares are sold by the assessee at the rate of INR 63.65 per share. The AO noted that above shares have been valued by the valuer on account of valuation of Vodafone India Ltd and one of its subsidiary Indus Towers limited. On the combined valuation of these two companies, valuer arrived at a conclusion of the valuation of Vodafone India Ltd at INR 56448.30 crores. He further challenged that the valuer who originally started its valuation process on the discounted cash free flow method, however, in the end, it adopted the net asset value approach. Thus, AO held that such a valuation was conducted adopting a hybrid method to suit the requirement of the parties concerned. He further noted several discrepancies in the valuation report with respect to the estimate of revenue growth as well as increase in the direct cost. Thus, AO held that the valuation made by the Kotak Mahindra capital private limited is incorrect. Therefore, the AO held....
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.... response to above mail. 8. As per para number 4.2 of the order of the learned CIT - A, as per letter dated 3/10/2017, he sent the application under rule 46A to the assessing officer for his comments. The AO sent his letter dated 26/9/2017 submitting his comments objecting to the admission of those evidences. The AO further dealt with them which are reproduced by the CIT - A at page number 34 - 43 of his order. The assessee was also given an opportunity to submit rejoinder. Assessee submitted such rejoinder on 10/10/2017, which is reproduced at page number 43 - 53 of his order. The learned CIT - A as per para number 4.9 - 4.11 of his order rejected the application under rule 46A for admission of additional evidences for the reason that assesseee has enough opportunity before lower authorities. 9. Thereafter the learned CIT - A provided a copy of the framework agreement of 2006 dated 1/3/2006 to the authorised representative of the assessee and asked as to why the above document may not be relied upon to determine the actual consideration for the transfer of shares of Scorpio beverages Ltd. Appellant submitted such reply on 23/11/2007 raising several grounds, which are reprodu....
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....sessee of granting payment of interest as cost of acquisition on the funds borrowed used for acquisition of the above transferred shares, he referred to para number 77 - 82 of the order of the coordinate bench in case of husband of the assessee and upheld the action of the assessing officer in disallowing the claim. Thus, he held that interest cannot be considered as either the cost of acquisition or cost of improvement in those shares and therefore, it cannot be reduced while working out the capital gain in the hands of the assessee on sale of sales of Scorpio beverages Ltd. 12. With respect to the claim of the assessee for brought forward loss of Rs. 24.98 crores he confirmed that it could not be allowed to be brought forward/carried forward as appellant could not justify the above sum. 13. The assessee further claimed that credit of tax Deducted at source of Rs. 1106907/- and advance tax payment of INR 4 86027800/- was also not allowed by him holding that assessee neither describe the details of such tax deduction at source and advance tax paid nor furnished any evidence for the payment of the same. However, he directed the AO to examine the claim of the appellant as per c....
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.... under rule 29 of The Income Tax Appellate Tribunal Rules, 1962 in connection with ground number 8 - 18 relating to the calculation of the fair market value of the shares, which may be considered. He referred to application stating that appellant seeks, without prejudice to its other grounds of appeal, to file the computation determining the fair market value of shares in terms of rule 11 UA of Income Tax Rules along with supporting balance sheets of the respective intermediary Pvt Ltd companies. He further referred to the case of Analjit Singh, where coordinate bench has reached the conclusion, on the issue of long-term capital asset vs short-term capital asset and treatment of the capital gain on transfer thereof. It was decided in favour of assessee holding that the gain was indeed long-term in nature as the assets transferred were ‗long-term capital asset'. On the issue of whether the sale consideration is only relevant factor for determining capital gains, coordinate bench held that as per section 45 read with section 48 of the act , capital gain has to be computed in respect of the ‗full value of the consideration received or accrued'. The coordinate bench accepte....
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....s of the audited balance sheet of the intermediary companies as on 31/3/2013 marked as annexure B. He submitted that there also did not arise any occasion prior to this proceedings, for the appellant to submit such computation, and such necessity has arisen only because of the order of the coordinate bench of the tribunal in the case of the appellant's husband. He submitted that given the computational errors made in the case, it is necessary to submit the present computation for consideration of the coordinate bench. He further stated that in the case of appellant's husband the coordinate bench rejected the verification of the computation merely on the ground that the AR of Mr. Anlajit Singh did not raise any objection to such computation. However, in the present appeal, which is yet to be adjudicated, to avoid irreparable injury to the assessee, these additional evidences are prayed for admission. He referred to rule 29 of the ITAT rules and stated that coordinate bench has an inherent power to require any document to be produced or any witness to be examined for pronouncing its judgment for substantial cause, while adjudicating the issue. He further relied upon the decision of t....
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....ench shows the correct valuation of those shares. He extensively referred to the rule 11 UA of The Income Tax Rules 1962 and submitted that when the equity shares are to be valued of a particular company, the preference share capital is to be considered as a liability, otherwise the valuation of equity shares cannot be made, if they are not excluded. He further referred to discrepancies in valuation of AO with respect to each item and tried to substantiate with the balance sheets. 20. The learned departmental representative vehemently opposed the submission of the assessee by letter dated 21/5/2019. Firstly, it referred the facts of the case and then the issue involved therein. It was further stated that in the case of Sri Analjit Singh, issue has been decided that capital gain should be treated as a long-term capital gain' and restricted the sales consideration at fair market value of share at INR 131.86 per share. It was stated that the issue with regard to the computation of fair market value of shares of Scorpio beverages Ltd has been decided by the coordinate bench and the issue with regard to the treatment of capital gain from short-term capital gain to long-term capital g....
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....y to the assessing officer and accordingly the opportunity for examination of the valuation by the Department must be provided to the assessing officer. It was further stated that the issue regarding calculation of fair market value is not a legal issue and being a factual issue, it must be dealt with by the assessing officer only since it requires a detailed investigation/ examination, keeping in view all the assets and liabilities of each entity separately. The fair market value cannot be vetted or undertaken simply based on certain papers filed by the assessee. The documents and auditor's report filed by the assessee are to be tested on the actual confirmation from the party to whom these details are pertaining and subsequently the same is confronted to the assessee for a submission or justification. Therefore, it was submitted that the coordinate bench firstly should not consider the additional evidence filed by the assessee. 21. It was further contended that Piramal Healthcare Limited was also holding 10.97 percent in shares of Vodafone India Ltd and after undertaking an independent valuation of fair market value of shares of Vodafone India Ltd, stake of that company was tr....
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....on the decision of the honourable Supreme Court in case of Radhasamoi Satsang vs Commissioner of income tax [1992] 60 Taxman 248 (SC)/[1992] 193 ITR 321 (SC)/[1991] 100 CTR 267 (SC) submitting that parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case by relying on the full bench decision of the honourable Madras High Court [ 4 ITC 226] . She referred to para number 11 and 12 of the order of the honourable Supreme Court. Ld AR stated, without prejudice to above contentions of the revenue, in case the plea of the assessee is accepted, the matter may kindly be restored back to the file of the learned assessing officer for obtaining a fresh valuation report from an independent valuer of international repute, so that the fair market value of the same can be examined for its correctness and in the alternative the price determined by the coordinate bench in case of Sri Analjit Singh should be followed. 24. The assessee submitted rejoinder to the replies of the learned CIT DR. It was submitted that the computation submitted by the revenue was later found to contain several errors in the case of the husband of the assessee an....
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....ted by way of this application, complies with the law and therefore should be admitted. 25. Subsequently during the course of hearing, the learned CIT DR submitted a letter dated 4/6/2019, stating that the facts of the case is squarely covered by the findings of the coordinate bench in case of husband of the assessee in ITA number 4737/Del/2018 dated 1/12/2070. Despite this fact, the assessee has filed the additional evidences under rule 29 of the ITAT rules 1963 challenging the valuation of the shares of Scorpio beverages private limited, which was actually the value of transfer of shares of Vodafone India Ltd. The revenue strongly argued that these additional evidences should not at all be entertained. Further, it was submitted that a special Counsel has been appointed in the present case; therefore, he should be heard. The coordinate bench, after considering the request of CIT DR, adjourned matter further as it was informed that Mr. Zoiab Hussain , senior standing counsel has been appointed to argue the case on behalf of the revenue. 26. Subsequently, the learned senior standing counsel Mr. Zoaib Hussain appeared and submitted a compilation of judicial precedents containin....
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....hout the act they seem to did not the same idea or ideas very similar and the difference only lies in this that one is more appropriate when applied to a particular case. e. He therefore submitted that what has accrued to the assessee is on sale of the shares of Scorpio beverages limited is the value derived from Vodaphone India Limited. Therefore, there is no infirmity in the valuation adopted by the ITAT. He submitted that it is the correct income accruing to the assessee. f. To support his contentions he referred to the decision of the honourable Bombay High Court in CIT vs Shakuntala Kantilal 190 ITR 56 to submit that legislature while using the expression full value of consideration as contemplated both additions to as well as deductions from the appellant value. What it means is the real and effective consideration. He further referred to the decision of the honourable Supreme Court in the E D Sassoon and Co Ltd, Bombay vs. The Commissioner of income tax [ AIR 1954 SC 470 ] to further the case of the revenue that income may accrue to an assessee without actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said....
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....ore, the valuation adopted in the order of the coordinate bench now cannot be disturbed. j. In the end, he submitted that additional evidences submitted by the assessee cannot be admitted and the decision rendered by the coordinate bench binds us, i. with respect to the characterization of the asset i.e. whether it is a long-term capital asset or a short-term capital asset, ii. full value of consideration for computation of capital gain accrued or received by the assessee determined at INR 131.86 per share in that decision and iii. Not allowing the interest cost deductible item for computation of capital gains. 27. In rejoinder, the learned authorised representative referred to para number 10 of the order of the coordinate bench in miscellaneous application number 742/Del/2017 dated 19/3/2018, wherein the revenue has objected to submission of a fresh paper book containing set of financial statements of intermediary companies and prayer of the assessee that rectification of computation be done including reduction of Preference shares capital of 5 intermediary companies from their net asset value for calculating Equity share value of Scorpio bev....
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....l capital is also excluded then it gives the value of equity shares plus preference shares. He submitted that for the purpose of valuation of equity shares only specified items mentioned in rule 11 UA (1) (c) (b) is to be seen. He further took us to that rule to state that there is an apparent error in the valuation made by the revenue. He therefore submitted that as assessee is contending since the date the appeal, first taken up for hearing to correct the above computational error, additional evidences were submitted. 28. With respect to the adjustment of Preference share capital of five step down companies , he referred to a. Audited balance sheet of JK finholding (India) private limited as at 31st of March 2013 and referred to note number 3 wherein non-cumulative redeemable nonconvertible preference shares of INR 100,000 each amounting to INR 8 709, 000, 000/- were outstanding as on 31/03/2013. b. He further referred to the audited accounts of SMMS investments private limited for the year ended on 31st of March 2013 and referred to note number 3 where 1183005,000 Preference shares as of INR 10/- each of 0.0001% cumulative redeemable preference shares of ser....
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....nts and rule 11 UA is applied by reducing the preference share capital for purpose of valuation of equity share capital of those companies, then the price per share of Scorpio beverages private limited comes to INR 70.59 per share. He thus submitted that even if the valuation is taken as per Rule 11 UA of the IT rules 1962, the correct FMV comes to Rs. 70.59 per share only. He therefore submitted that these are only the factual errors in the computation given by the revenue, which needs to be verified and corrected, and principally it needs to be held that preference share capital cannot be included in the above valuation. He submitted that even if these additional evidences are not admitted, the revenue must to compute the correct amount of value per share of Scorpio beverages private limited by taking the actual figures from the audited annual accounts of those intermediary companies and apply the provisions of rule 11 UA correctly. For this simple reason, the assessee, without prejudiced of its contention on any other ground of the appeal, submits that such correct valuation should be adopted. 30. On the other issues as per ground number 2 to 20, he submitted that the issue o....
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....rne in mind : (1) The discretion given to the Tribunal to receive and admit additional evidence is not an arbitrary one but is a judicial one circumscribed by the limitations specified in r. 29; (2) The Tribunal has the power to allow additional evidence if it requires such evidence to enable it to pass orders, that is to say, when it finds that there is any lacuna or defect which needs to be filed up so that it could pronounce an order; (3) The Tribunal has the power to allow additional evidence also if it requires such evidence for any other substantial cause, that is to say, even in cases where the Tribunal finds that it is able to pronounce judgment on the state of the record as it is, it may still allow additional evidence to be brought on record if it considers that in the interest of justice something which remains obscure should be filled up so that it can pronounce its order in a more satisfactory manner (4) Such requirement in either case arise ordinarily unless some inherent lacuna or defect becomes apparent on a examination of the evidence and, therefore, the legitimate occasion for the exercise of discretion under r. 29 is not before....
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....panies are concerned they are admitted because without admitting them and examining them it is not possible for anyone to work out the valuation of the shares transferred by the assessee. It is not the claim of the revenue that AO provided these balance sheets to the ITAT in case of Mr. Analjit Singh. It is the claim of the AR that nobody verified the computation submitted by ld AO, without these balance sheets on record even now nobody would be able to say anything about correctness of the valuation of those shares u/r 11UA of The IT Rules. Further, conceptually the valuation is to be done as per the dictate of the coordinate bench in case of the assessee's husband according to rule 11 UA of The Income Tax Rules. The rule 11 UA speaks about the ‗book value' of the assets and liabilities for working out the valuation of the unquoted shares, Book values can only be found from the annual audited accounts of those companies, therefore it is mandatory to admit the above evidences so far as the balance sheet of the subsidiary companies are concerned. Hence, we admit the annual accounts/balance sheets of the intermediary companies submitted by the assessee. 36. The next addition....
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....at different places, therefore these certificates have lost their evidentiary values as all those certificates of experts have been obtained by the assessee without proper supporting. Thus, only the balance sheets, which have been found from the website of MCA, uploaded by those companies, are only the reliable evidences, which are required to be admitted. Hence, both the certificates of valuation are rejected as additional evidence. 37. In view of this, the application of the assessee for admission of the additional evidences is partly allowed admitting the Annual accounts of the intermediary companies and rejecting the valuation certificate issued by the merchant banker and the chartered accountant. 38. Now we come to the merits of the issue. The first issue is with respect to characterizing the assets being shares of the Scorpio beverages private limited i.e. whether they are long-term capital asset or short-term capital asset. This issue has been considered by the coordinate bench in the case of the husband of the appellant as under :- "E. Issue relating to gain arising from sale of unlisted shares to be taxed as long-term capital gain or short term capital gain ....
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....clause 23D of section 10; and (iv) Zero coupon Bond. In no other cases, the period of holding is 12 months. The 2nd proviso to section 2(42A) makes it very clear that for treating the assets as short term period, holding must be less than 36 months and not 12 months; and only period of holding for listed companies can be considered as 12 months instead of 36 months, if the particular share is transferred during the period beginning on 01.04.2014 and ending on 10.07.2014. After referring to these provisions, he re-characterized the long term capital gain and short term capital gain. 84. Ld.CIT (A) too upheld the action of the AO, observing that shorter period of holding of 12 months qua the unlisted shares instead of 36 months was applicable only in respect of shares transferred during the period beginning on 01.04.2014 and ending on 10.07.2014 in terms of newly inserted 2nd proviso to section 2(42A) brought in the Statute by Finance (No. 2) Act, 2014, w.e.f 01.04.2015, i.e., AY 2015-16. Ld.CIT (A) held that since the impugned transaction of the transfer of unlisted shares of SBPL took place before 01.04.2014 and not between 01.04.2014 to 10.07.2014, therefore, the be....
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....f listed in a recognized stock exchange was applicable only to the new category and not to the earlier category to the share held in a company. To clarify the purpose in the legislature he again drew our attention to Memorandum explaining the amendments made by the Finance Bill, 1994 and notes on clauses thereto. From the extracts of memorandum and notes on clauses, he submitted that it clarifies that the purport of the amendment in proviso to section 2(42A) was to extent to the benefit of shorter period of holding of 12 months to all other financial instruments/securities which are listed on stock exchange in order to provide level playing field in investment in shares of a company whether listed or unlisted. Coming to the amendment brought by the Finance (No. 2) Act, 2014, whereby the provisions of section 2(42A) were further amended and the words "shares held in a company" were removed from first proviso w.e.f. 01.04.2015, thereby taking away the benefit of shorter period of holding of 12 months available to unlisted shares to qualify as long term capital assets. Simultaneously, 2nd proviso was inserted to provide that unlisted shares sold during the period 01.04.2014 to 10.07.2....
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....so to section 2(42A), when read in the above backdrop, leaves no room for any doubt that the 'shares' or 'any other security' have got to be listed in a recognized stock exchange to become entitled to the exception (in effect a lower holding period) contained in the proviso. The use of the expression 'or any other security' necessarily puts the shares and other securities as a class and these have got to be listed to enjoy the benefit of the proviso. The words 'any other' put the two-shares and other securities-in the same basket. One cannot be read independent of the other. The contention put forth by the assessee cannot flow from the language employed in the proviso. If the legislative intent were to treat the shares as a different class from other securities, the only way such an intent could be expressed was either to add a second proviso carving out an exception to the first proviso or to use the expression "securities (other than shares)" in the proviso itself as has been done in the proviso while carving out similar exception for units by the subsequent amendment made by the Finance Act of 2014. The law as amended reads 'a security (other ....
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...., it is a well-accepted rule of interpretation that the use of a comma or the absence of it cannot alter an otherwise clear and unambiguous meaning flowing from the provision. He further submitted that both kinds of securities, shares of a company and securities other than shares of a company have to be listed in a recognized Stock exchange to fall within the exception contained in the proviso. The use of the expressions "any" and "other" leave no room for doubt in this regard. Subsequent amendments to the provision only support the case of Revenue. Thus, he submitted that the AO was fully justified in treating the right shares as short term capital asset and applying the prescribed rate of tax accordingly. DECISION 89. We have heard the rival submissions, perused the relevant finding given in the impugned order as well as the relevant provisions as referred to by the parties. From the facts as narrated above, it is not in dispute that the period of holding of unlisted shares, i.e., 'rights shares' of SBPL is more than 12 months and less than 36 months (23 months). The assessee had offered the gains arising from sale of such shares as 'long term capita....
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....dia is only used for the category of 'any other security' and not for the category of 'share held in a company'. When for the first time, the condition for the period of holding was curtailed from 36 months to 12 months by the Finance Act, 1987 it was only for 'share held in a company'. This is clear from the following provision as then existed post amendment w.e.f. 01.04.1988:- '(42A) "short-term capital asset" means a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer: Provided that in the case of a share held in a company, the provisions of this clause shall have effect as if for the words "thirty-six months", the words "twelve months" had been substituted.' Here no such condition was placed in the aforesaid proviso for shares to be listed on a recognized stock exchange for taking the benefit of the reduced period of holding. When amendment by the Finance Act, 1994 was brought in the statute, so far as the category "share held in a company", was concerned, the same was not disturbed, albeit, new category was included like 'any other security listed in ....
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....h which the investor are entering the capital market. In order to provide such units and all the securities traded in recognized stock exchange; a level playing field with the company's share is proposed to be amended. Thus, the said memorandum clearly makes a distinction between the company shares and other than company shares. 90. Now coming to the amendment by Finance (No. 2) Act, 2014, 1^st & 2nd proviso as amended reads as under:- 'Short-term capital asset" means a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer: Provided that in the case of a security (other than a unit) listed in a recognized stock exchange in India or a unit of the Unit Trust of India established under the Unit Trust' of India Act, 1963 (52 of1963) or a unit of an-equity oriented fund or a zero coupon bond], the provisions of this clause shall have effect as if for the words "thirty-six months", the words "twelve months" had been substituted: Provided further that in case of a share of a company (not being a share listed in a recognised stock exchange) or a unit of a Mutual Fund specified und....
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....enefit of shorter period of holding of 12 months to qualify as long term capital asset to unlisted shares has been removed prospectively from A.Y. 2015-16 and not for the earlier years; and secondly, the benefit of short period for holding of unlisted shares would be available only when such shares are transferred during the period beginning on 01.04.2014 and ending on 10.07.2014. Post 11.07.2014 the benefits of shorter period of unlisted shares could not be applicable. 91. Here in this case, the shares have been transferred prior to 31.03.2014, therefore, the newly amended Act would not be applicable at all and the assessee will get the benefit of shorter period, i.e., period of less than 36 months as given in section 2(42A) read with proviso thereto as per the relevant provision existed for the A.Y. 2014-15. Thus, we hold that the AO as well as Ld.CIT (A) are not justified in law in re-characterizing/re-classifying the 'long term capital gain' to 'short term capital gain' shown by the assessee. Accordingly, the gain on transfer of SBPL's share would be taxable as 'long term capital gains' and not short term capital gains and resultantly, Groun....
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....nditions of the contracting parties and the contractual obligation qua the transactions for which income can be said to be accrued to one party with the corresponding liability to pay on the other. 59. Here in this case, as discussed in detail, it is not a simple case of sale and purchase of shares emanating from Sale and Purchase Agreement dated 12.03.2014.The rights and obligations of the parties for this particular transaction goes way back to the year 2006 and more particularly the year 2007,when the parties have entered into the Framework Agreement on 05.07.2007. The AS had held the shares of the Indian company HEL and then later on in VIL for the benefit of Hutch/Vodafone solely with the aim to beat the foreign equity cap for which the assessee was paid 'call option fee' for holding the shares with stipulation that shares would be ultimately transferred to Hutch/Vodafone through their step down subsidiaries and "put option" would be exercised as when the cap is lifted at a pre-agreed price. The Framework Agreement of 2006 which is the precursor to the framework agreement of 2007, the stipulation for the value of consideration/transfer price was based on fair ....
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....ch a binding contractual obligation amongst the parties has simply withered away without any agreed clause of rescinding or abrogating the earlier obligation. In fact there is unanimity permeating through all the agreements on such transfer price which is to be determined on the basis of fair market value of VIL and, therefore, it is binding on the parties. Thus, as per the binding agreement, the accrued price consideration for the transfer of the SBPL shares has to be determined on the basis of fair market value of VIL which here in this case has been pegged at Rs. 56,448 crores as determined by the Kotak Mahindra by adopting DCF method and also accepted by the AO. Accordingly, we hold that in terms of section 48, what is accrued to the assessee on the transfer of the unquoted shares of SBPL, is that, which is determinable on the basis of the fair market value of VIL. On this reasoning, the arguments put forth by the Ld. Sr. Counsel that the consideration accrued to the assessee is only as per the share purchase agreement dated 12.03.2014 is not acceptable. 60. Once we have held that the accrued sale consideration of SBPL shares is linked with the fair market value of VIL....
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....have assumed and relied upon, without independent verification, the accuracy and completeness of the information/projections/ forecasts provided to us, whether in oral or written form, or used by us and we assume no responsibility and make no representations with respect to the accuracy or completeness of any such information provided by VIL or CGP. We have assumed that VIL and CGP have furnished all information concerning the financial statement and assets and liabilities of VIL group, Indus, till earnings before interest and taxes, and all other cash flow items relevant for valuation. We clarify that in respect of VIL and Indus, we have not been provided with financial projections below earnings before interest and taxes or the balance sheet. Further, we have not been provided with financial projections for the companies in the Holdco chain and SBP. We have assumed that there is no material information or material change in the business and operations of VIL group, Indus, companies in the Hold Co chain and SBP post February 28, 2014 that would impact the valuation in this Report, and we assume no risk of any material adverse change having any impact on the businesses of VIL group....
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....od, i.e., DCF but here the valuer seems to have adopted NAV method and he has reduced even those liabilities which are not permissible under 11UA. Accordingly, we hold that the valuation done by the Kotak Mahindra Capital and the value of SBPL's shares is not in accordance with Rules as given in Rule 11UA which is specific for valuing the unquoted shares. The reason for not following the value of Kotak for SBPL shares is that, the Valuer has adopted NAV for valuing the intermediary companies; and if NAV method is to be adopted, then he can reduced liabilities as envisaged under Rule 11UA and not any other liabilities suggested by the companies without being authenticated by the companies or independently examined by the Valuer. Only liability which can be excluded while examining the book value is the liability shown in the balance sheet. 63. When at the time of hearing, Ld. Sr. Counsel, Mr. Ajay Vohra pointed out that while taking the percentage of shares of the holding of VIL with the SBPL, has wrongly been taken at 9.65 % which in fact should be 8.90%. On this factual clarification, Ld. Special Counsel, Mr. G.C. Srivastava admitted that indirect stake of SBPL in VIL....
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....Add: Value of Net Assets (Liabilities) excluding in VIL -3,725 -3,265 Assets - Liabilities - Market Value of Investment in VIL + Income Tax + Provisions -166.53 Investment Activities Equity value of UMT 30,523 30,983 UMTI 100% Value of 100% equity stake in UMT 30,523 30,983 Add: Value of Net Assets (Liabilities) excluding in UMT -4,470 -4,463 Assets - Liabilities -Market Value of Investment in UMT + Income Tax -32.16 NBFC Equity value of UMTI 26,053 26,520 JKF 0.51% Value of 0.5126% equity stake in VIL 2,894 2,894 100% Add: Value of 100% equity stake in UMTI 26,053 26,520 Add: Value of Net Assets (Liabilities) excluding in VIL & UMTI -18,012 4,687 Assets - Liabilities - Market Value of Investment in UMTI & VIL + Income Tax 0.91 NBFC Equity value of JKF 10,935 34,101 TII 12.....
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.... Add: Value of Net Assets (Liabilities) excluding in NDC -3,634 847 Assets - Liabilities - Market Value of Investment in NDC -12.99 Investment Activities Equity value of MVH 2,062 52,289 SBP 100% Value of 100% equity stake in MVH 2,062 52,289 Add: Value of Net Assets (Liabilities) excluding in MVH 3 4 Assets - Liabilities - Market Value of Investment in MVH -1.45 Investment Activities Equity value of SBP 2,065 52,293 Total SBP shares 382,362,900 SBP valuation per share 5.4 131.86 AO had taken the value at Rs. 142.7 per share in the assessment order. But after taking the correct share of the assessee on SBPL as directed by us, the value will come to Rs. 131.86 per share by taking the 3.6512% share of assessee in VIL. 64. Based on this calculation, the SBPL value has been arrived at Rs. 131.86. So far calculation for arriving at....
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....ful consideration of the facts before us, which are identical to the facts in the case of the husband of the assessee, we fully agree with 1st three findings given by the coordinate bench. Thus in the case of assessee also we respectfully following the same , hold so. 42. In case of last finding where bench has held that, the value of the shares of Scorpio beverages private limited as per FMV of Vodafone India Ltd would be INR 131.86 per share and accordingly AO was directed to compute the capital gain taking the above price as actual sale consideration accrued to the assessee, we do not find any reason to differentiate from that finding also, however so far as the value of INR 131.86 per share is determined by the learned assessing officer by adopting rule 11 UA of the income tax rules 1962 suffers from at least one basic fallacy. The learned assessing officer while valuing the shares of SMMS investments private limited has considered the value of net assets less liabilities excluding investment in OMEGA Pvt Ltd at INR 4 559 millions. To this the learned assessing officer made an addition of 61.60 percentage of holding of this company into Omega Pvt Ltd amounting to INR 1807 mi....
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....tion at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto; (v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares; If the above formulae is applied, it is apparent that ld AO has not adjusted preference share capital also where he is required to only not include in total liabilities, the paid up equity share capital. Therefore, it is apparent that only sum of the paid-up Equity share capital is not required to be included in the book value of the liabilities shown in the balance sheet. Therefore, natural corollary is that paid-up capital in respect of preference shares issued by the company is required to be taken in the total liability of that company. The commonsense also says that if we want to value the equity shares then all other items of the balance-sheet excluding the paid-up share capi....
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....included in the liability. This is also incorrect for the another reason that in the net asset value working of Telecom Investments India Private Limited from non-current investment, the investment in preference shares in MV healthcare services private limited and Plustech private limited of INR 1 374 million and INR 8 61 million has been included in the total assets. Therefore, on one side, preference share capital invested has been considered in the investment in total asset of that company whereas preferential capital issued by the company has not been included in the liability. This resulted in to including that value twice in the valuation of equity shares of that company. Therefore, there is an apparent misinterpretation of the financial statements of the subsidiaries. Therefore, the learned assessing officer is directed to correct the valuation of above five companies by including the value of preference share capital issued by these companies in the total liabilities. Such total liability is to be reduced from total assets of those companies to derive at the value of equity shares. Further, the Assessing Officer is also directed to verify all other figures from the audited ....
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....ra) as relied upon by Mr. Ajay Vohra. There cannot be any iota of doubt that the word :accrued: in section 48 means there has to be a right to receive the income arising from contractual obligation between the parties and such a right has to be with a corresponding liability of the other party from whom the income becomes due to pay that amount. Thus, one party has the right and the other party has liability to pay, but such right and liability has to originate from the understanding of all the terms and conditions of the contracting parties and the contractual obligation qua the transactions for which income can be said to be accrued to one party with the corresponding liability to pay on the other. 59. Here in this case, as discussed in detail, it is not a simple case of sale and purchase of shares emanating from Sale and Purchase Agreement dated 12.03.2014. The rights and obligations of the parties for this particular transaction goes way back to the year 2006 and more particularly the year 2007, when the parties have entered into the Framework Agreement on 05.07.2007. The AS had held the shares of the Indian company HEL and then later on in VIL for the benefit of Hutch....
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....ce with the Framework Agreement and that to be of 05.07.2007. Nowhere the parties have rescinded or given go-by to said framework agreement. Albeit the parties have time and again have reiterated that the transfer price for SBPL's shares is to be determined in accordance with the Framework Agreement of 2007, which in turn was based on the working of fair market value of HEL/VIL. Once there is binding contractual obligation as acquiesced by the parties' agreement after agreement, then it cannot be held that such a binding contractual obligation amongst the parties has simply withered away without any agreed clause of rescinding or abrogating the earlier obligation. In fact there is unanimity permeating through all the agreements on such transfer price which is to be determined on the basis of fair market value of VIL and, therefore, it is binding on the parties. Thus, as per the binding agreement, the accrued price consideration for the transfer of the SBPL shares has to be determined on the basis of fair market value of VIL which here in this case has been pegged at Rs. 56,448 crores as determined by the Kotak Mahindra by adopting DCF method and also accepted by the AO. Acc....
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....cost of acquisition of asset or allowbility of interest has been recognized under the various provisions of the Act, like for stock-in-trade; assets used for the purpose of business; and capital assets held as investment and not used for the purpose of business. Here in this case, it cannot be doubted that interest expenditure incurred in respect of the funds borrowed were directly utilized and had a proximate nexus to the acquisition of right shares and also the principal loan amount is liable to be included as part of cost of acquisition of such assets. The submissions made by the parties in this regard and reliance placed on catena of decisions has already been discussed in detail herein above. Before us, Mr. Srivastava, Ld. Special Counsel for the Revenue has vehemently contended that in view of the specific provision contained in section 55(2)(aa) read with sub-clause (iii) thereto, only the amount actually paid for acquiring of such asset could be allowed, i.e., the amount paid for acquiring of 'right shares' and not the interest thereupon. Thus, all the decisions relied upon by the Mr. Vohra will have no bearing on the facts of the present case and in the light of th....
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....see becomes entitled to subscribe any such additional financial assets; or secondly, is allotted any additional financial asset without any payment; then, in the first case, the cost of acquisition of such financial assets (herein this case right shares) would be the amount actually paid for acquiring such asset; and in second case, the cost of acquisition would be nil. Since, here the assessee had subscribed the right shares on the basis of said entitlement (i.e., by virtue of holding the capital asset in the form of shares in SBPL), therefore, the assessee's case fall in first category, that is, the amount actually paid by him for acquiring such assets. In other words the actual amount paid for acquiring the right shares. In case the financial assets is allotted to the assessee without any payment then it has to be reckoned as NIL. Here as stated above, the assessee was entitled to subscribe to right shares for a payment of Rs. 300 crores and such an amount has actually been paid by the assessee. In the present case, ostensibly, sub-clause (iii) would be applicable, because the financial assets has not been allotted to the assessee without any payment in which case the cost o....
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....e head "Capital gains". Specific methods of computing the cost of the asset have been provided only in respect of certain types of assets. There is no specific provision dealing with determination of the cost of financial instruments such as right shares, right entitlement, etc. In the absence of any such provisions, courts have laid down certain methods for determining the cost which are not strictly in accordance with commercial principles. For the purpose of avoiding complicated calculations, the Finance Bill proposes to introduce a simple and unambiguous set of provisions for computation of the cost of acquisition of financial assets, including shares, where there is an entitlement to subscribe to additional financial assets on rights shares. The Bill proposes to deem the cost o f rights entitlement in the hands o f the original shareholders as nil. Of course, the cost of the rights share acquired by the original shareholder is the price actually paid by him to the company for acquiring the rights share: But where the rights renounce acquires the rights share, the-cost of the rights share is equal to the cost incurred by him for purchasing the rights entitlement plus t....
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....asset ; (iv) in the case of additional financial asset purchased by the person in whose favour the right to subscribe to such additional financial asset has been renounced, the cost of acquisition shall be the aggregate of the amount of the purchase, price paid by such person for purchasing such right and the amount paid by him to the company, or institution, as the case may be, for acquiring such financial assets . . . . . . This amendment will take effect from 1st April, 1995, and will, accordingly, apply in relation to assessment year 1995-96 and subsequent years." The aforesaid notes and clauses spells out the purpose of intention of the legislature for defining the cost of acquisition in the case of additional financial assets like right issues etc. Thus, the reliance placed by the Sr. Counsel on the aforesaid memorandum and notes and clauses are of no avail and does not support the case of assessee. 80. Thus, in our opinion in case of the assessee who has subscribed to 'right shares' by paying the actual amount of Rs. 300 crores, then by virtue of specific provision contained in section 55(2), only amount to be allowed as cost of acquisition....