AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (9) TMI 925
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....ital loss of Rs. 1,11,66,165, incurred by the assessee on the sale of shares in a company by the name of VCAM Investment Managers Pvt Ltd, against the long term capital gains of Rs. 95,12,556, earned by the assessee on the sale of a property. 3. The assessee before us is a non-resident Indian now fiscally domiciled in the United States. During the relevant previous year, the assessee sold a property, of which he was 50% co-owner, and reported an earning of long term capital gain of Rs. 95,12,556. The quantification of this gain is not in dispute. The assessee also reported a long term capital loss of Rs. 1,11,87,578 on sale of certain shares in VCAM Investment Managers Pvt Ltd (VCAM, in short). The Assessing Officer was of the view that "the (this) long term capital loss was attributed on account of equity shares of VCAM (Investment Managers Pvt Ltd) which appears to be prima facie fictitious and not entitled to be adjusted against any taxable income". It was in this backdrop that the assessment was reopened, and this round of proceedings started. The Assessing Officer probed this transaction in detail, and the information was requisitioned even from the purchaser of these shares-....
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....chase of shares was motivated for tax benefits to the assessee rather than any material gains to Saldhanas. The Assessing Officer observed that "the transfer of shares by the assessee to Mr Saldhana is preconceived, preordained and fabricated for extra commercial considerations, and a device to generate artificial and incorrect long term capital loss in the hands of the assessee". He thus rejected this long term capital loss by concluding as follows: 9.16 The alleged transaction, the valuation report and the facts and the circumstances as appearing in the case, the legal position of the supporting Acts and Laws and the absence of common prudence expected in the transaction of commercial/business nature only points to the fact that the losses in the company which were in the nature of business losses in the hands of the company had been given the color of capital loss in the hands of the assessee apparently to circumvent the law and to avoid payment of taxed under the Income Tax Act. The said LTC loss se9-mem to be prima facie fictitious and premeditated. It has been created to avoid the tax liability on account of sale of immovable property. 4. Aggrieved, the assessee carried th....
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....d on the ground that "the Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods". It is not the tax planning simplicter, but tax planning through dubious methods or colourable devices which has been deprecated by Their Lordships in the aforesaid observations. Even these oft quoted words were preceded by the observation that "(t)ax planning may be legitimate provided it is within the framework of law". In the case of Vodafone International Holdings BV Vs Union of India [(2012) 341 ITR 1 (SC)], Their Lordships have reiterated the principle that "every tax payer is entitled to arrange his affairs so that his taxes shall be as low as possible and that he is not bound to choose that pattern which will replenish the treasury". Viewed thus, nothing at all turns on the timing of booking the loss on account of the shares having become worthless with the passage of time. The emphasis on timing, as is placed by the authorities below, is not germane in the present context. 8. The loss is real, and going by the stand of the Assessing Officer- actual loss is even mo....
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.... not even necessary that he would do anything immediately. It is incorrect to say that these shares are completely worthless inasmuch as these are majority shares in VCAM Investment Managers Pvt Ltd, and by virtue of holding these shares, a person gets control over that existing and duly incorporated juridical entity- whatever negligible be its worth. As to what use that juridical entity be put to, it is not necessary to have a ready answer thereto but one thing is certain that it can be put to use and it's a common practice to find such companies also changing hands, of course for a consideration, in the real-life situations. In any event, how is the assessee concerned about as to what how will the buyer of shares use the company so acquired by him. As regards the objections of the Assessing Officer to the effect that the assessee was well known to the seller and they had many other transactions as well, the mere fact of these transactions, and resultant association with the assessee, does not mean that this transaction did not take place. The fact that the records of the Registrar of Companies still show address of the company as a premises belonging to the assessee cannot negate....