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2022 (1) TMI 1197
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....1 and thus ignoring that amended provisions of Explanation 2 to section 2(47) of the I.T. Act 1961 was applicable w.e.f. 01/04/1962. 2. That Ld. CIT(A) has erred in law and on facts in deleting the addition made on account of short term capital gain on transfer of shares by ignoring the actual transfer of capital asset during the previous year relevant to the assessment year 2009-10, without appreciating the fact that assessee has admitted the fact of transaction in respect of registration of the equity shares on transfer in the books of the company ATS Estate (P) Ltd. in compliance to the terms of MOU between assessee and other co-promoters. 3. That Ld. CIT(A) has erred in law and on facts in considering the short term gain to be a long term gain, without appreciating the fact that the transfer of shares is complete between transferor and the transferee in terms of amended provisions of section 2(47) of the I.T. Act 1961. 4. That Ld. CIT(A) has erred in law and on facts in holding that there was only a transfer of "Controlling Interest", ignoring the admitted fact that there was a transfer of 99,66,183 shares of ATS Estate (P) Ltd. to M/s. IL&FS Realty F....
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....ed by the assessee from M/s. ATS Infrastructure Ltd. as per the terms of agreements between promoters dated 03.03.2008. Further, it was stated that the assessee had received money under a conditional agreement and therefore, the shares were not absolutely and forever transferred to M/s. IL&FS Trust Company Ltd. and IIRF Holdings Ltd. Accordingly, no calculation on account of capital gain had been made for this transaction. However, under the abundant precaution and to avoid penal interest, the assessee had paid a sum of Rs. 5.75 crores as income tax and that was claimed as refund. Thereafter, the Assessing Officer after perusing the agreement called for further information from the assessee. The information so called was supplied to the Assessing Officer. The Assessing Officer after having received the reply, issued another notice dated 30.11.2011, thereby sought further information and cautioned the assessee that in the event of not furnishing convincing and satisfactory reply to the queries, he would compute the capital gain at Rs. 39,99,00,000/- on transfer of shares after adopting sale consideration of Rs. 40 crores less cost of acquisition of Rs. 1 lac. In response to the noti....
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....such a price to fetch net realizable value of Rs. 150 crores. * MOU also specifies (refer clause 4 pg. 3) that if transfer of THREE crore shares of ATS Estates Pvt. Ltd. are not sufficient to fetch net realizable value of Rs. 150 crore for Mr. AKS (The assessee), then GA & AT would transfer further shares of ATS Estate Pvt. Ltd. to AKS. * Clause 7 of MOU deals with payment by AKS to ATS infrastructure Ltd. at decided price of Rs. 18.30 per share in respect of transfer of shares which in turn were sold by AKS. ......................... Clause 8 deals with next step of transfer of shareholding in ATS infrastructure Ltd. & other companies to GA&AT. .......................... Further, MOU dated 03.03.2008 contain following terms;- * Transfer of 3 Crore shares to be completed by 07.03.2008 (as per MOU) * Realize exit amount of Rs. 150 Crore by 31.05.2008 (Refer MOU Clause 3- pg 3) * If failed (till 31.05.2008)- 12% per annum increase on the balance left till 31.08.2008.(refer MOU clause 5) * If failed till 31.08.2008- 24% per annum (post 31.08.2008) (refer MOU clause 5) * If failed till 31....
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.... 5. As per information received from M/s. ATS Estate (Private) Limited and also as per Registrar of Members and Share Ledger, 9000000 equity shares of M/s. ATS Estate Private Limited were registered in the name of Anil Saha (the assessee) as on 01.04.2008 which were as a result of transfer from M/s. ATS Infrastructure Ltd. to Anil Saha. Thereafter, Mr. Anil Saha transferred 1191949 equity shares to IL&FS Trust Co. Ltd. and 7874234 equity shares to IIRF Holding XV Ltd. This fact has been confirmed by M/s. ATS Estate (P) Ltd. in response to notice under section 133(6) of the act. 6. The facts above clearly highlight that there is no dispute on the transfer of 90 lakh odd shares and the entire sale consideration was also received by the seller. Thus, it is a case well covered by section 2(14) and 2(47) of the act. CIT(A) order has laid emphasis on the aspect of real commercial object to achieve transfer of controlling interest and considered transfer of controlling interest as capital asset. Since the controlling interest of ATS was not transferred, therefore, Ld. CIT(A) held it to be a case of non-chargeability of capital gain. 7. It is prayed that order of Ld. CIT....
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....ttee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand; or (b) in any area within the distance, measured aerially,- (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than then thousand but not exceeding one lakh; or (II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh. Explanation.-For the purposes of this sub-clause, "population" means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year; (iv) 6 per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National Defence Gold Bonds, 1980, issued by the Central G....
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....m the transfer of a share or shares of a company registered or incorporated outside India; 10. It is prayed that the above submission may be duly considered in addition to the order of the AO." 7. Per contra, Ld. Counsel for the assessee supported the order of Ld. CIT(A) and he submitted that the MOU dated 05.03.2008 which was the basis of the transfer of shares was subjected to litigation and the matter reached to the Hon'ble Delhi High Court in O.M.P.(COMM) 258/2017 & ITA Nos. 7520/2017 & 8780/2017 in the case of Getamber Anand & Anr. vs Anil Kumar Saha vide judgement dated 06.04.2018 against the arbitration award. Therefore, it was submitted when the transaction itself was in dispute and subjected to arbitration proceedings, any transfer of shares can not be construed to find and could not be subjected to capital gain tax in the year under consideration. He submitted that the Ld. CIT(A) was justified in deleting the addition. He submitted that transfer of shares by the assessee cannot be construed as part performance of the contract. Under the facts and circumstances of the present case, the entire terms and condition ought to be read as a whole. He submitted tha....
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....whether the shares which came to be registered in the names of IL&FS Reality Fund and IIRF Holdings XIV Ltd. in statutory records of ATS Estates Pvt. Ltd. represented transfer of shares by the assessee in terms of Sec. 2(47) of the I.T. Act resulting in accrual of income by way of capital gains chargeable in A.Y. 2009-10. The moot question is whether registration of the shares in the names of the 2 purchasing funds amounted to transfer of a capital asset within the meaning of See 2(47) of the Act and thereby transfer of a capital asset took effect in law and by which charge of tax stood crystallized against the assessee in A.Y. 2009-10. In AO's opinion there was no doubt or ambiguity about the fact that transfer of the capital asset indeed took place in F.Y. 2008-09 because all the statutory ingredients for assessment of income arising from transfer of capital asset were fully present in the assessee's case. In AO's opinion shares of ATS Estates Pvt. Ltd. constituted capital asset within the meaning of See 2(14). In the statutory records of ATS Estates Pvt. Ltd. entries were present by which it was established that shares of that company were first transferred ....
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....f from the management and control of ATS Group he would be paid lump sum consideration of Rs. 150 crores. In other words the MoU dated 03.03.2008 provided that the assessee would relinquish his 1/3rd controlling interest in favour of the remaining 2 promoters for the agreed consideration. Since the continuing promoters did not have ready funds for making payment of the agreed consideration they devised a scheme or an arrangement for raising requisite funds to pay off their personal obligations under the MoU dated 03.03.2008. It appeared from the MoU dated 03.03.2008 that the continuing promoters devised a scheme of securitizing assets of A TS Group companies for the purpose of raising required funds. In terms of the scheme proposed by the continuing promoters it was agreed that 300 lacs shares held by ATS Infrastructure Ltd. in A TS Estates Pvt. Ltd. would be first transferred to the assessee for a price @ Rs. 18.30 per share. After the shares were so transferred all 3 promoters were to take steps to procure appropriate investor or investors who would pay higher price for these 300 lacs shares to the assessee so as to enable him to realize the agreed consideration provided in the M....
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....evelopment projects or companies carrying on infrastructure business in India. These two funds in July 2007 had entered into an agreement with 3 promoters of the ATS Group and also the A TS group of companies in terms of which the 2 funds provided finance enabling the promoters of ATS Group to undertake and execute housing and infrastructure development projects in Northern India for which land parcels were being acquired by the ATS Group of companies. Instead of providing funds in the form of dept or loans the 2 real estate funds subscribed to the equity shares of ATS group of companies which inter alia included ATS Estates Pvt. Ltd. The terms and conditions of the agreement dated 23.07.2007 contained various milestone events and prescribed performance parameters which were agreed to be achieved and/or performed by the Promoters and companies of ATS Group so as to enable the real estate funds to earn pre agreed rate of return on the capital subscribed by them. The said agreement further provided that promoters of ATS group as also the companies belonging to the group would be under obligation to reacquire or repurchase the shares subscribed by the said 2 funds at a price which was....
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....ng of agreements executed by the parties as a whole therefore clearly indicated that 2 real estate funds though ostensibly subscribed to the equity capital of a company or purchased shares of ATS Estates Pvt., Ltd. yet there was no intention on their part to undertake or bear any risk which was legally associated with acquisition of equity shares of a limited company and the only intention of the transferee of shares was to provide finance to promoters and/or to ATS group of companies. It is a settled legal proposition that equity capital is a risk capital and therefore the share subscriber carries entire risk associated with the business carried on by the company. There is no guarantee as to the return on investment as also return of investment when a person subscribes to the equity capital of a company. It is for this reason the equity share holder enjoys right to vote; right to receive dividend and right to participate in the surplus of the company. An equity share holder cannot expect to earn predetermined or predefined return on his investment nor is he entitled to the return of capital. In the present case however the terms & conditions explicitly spelt out that 3 pr....
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.... funds, required for paying consideration of Rs. 150 crores in terms of the MoU dated 03.03.2008. Transfer of 90 lacs shares by ATS Infrastructure Pvt. Ltd. to the assessee and thereafter by the assessee to 2 real estate funds was just an intermediate step of the preordained chain of transactions devised by the continuing promoters for achieving the main objective which was acquisition of assessee's controlling interest. It is true that while giving effect to the preordained scheme 90 lacs shares of ATS Estate Pvt. Ltd. were first acquired by the assessee and in turn these were transferred to 2 real estate funds and thereby the assessee received Rs. 40 lacs in part satisfaction of the amount to which he was entitled under the MoU dated 03.03.2008. However it cannot be lost sight of the fact that 2 real estate funds acquired shares of ATS Estates Pvt. Ltd. subject to various covenants contained in the Agreement dated 08.04.2008 as also in the earlier agreement dated 23.07.2007. The said agreement provided several covenants which were to be fulfilled by the promoters including the assessee at future specified dates. It therefore appeared that the shares of A TS Estates Pvt. Ltd. ....
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....that should be taken into consideration. In the present case the transactional documents showed that the real commercial object which the parties sought to achieve was transfer of assessee's controlling interest in ATS group of companies to the remaining promoters at and for price of Rs. 150 crores. In law "controlling interest" was a valuable right and constituted a distinct "capital asset". The said "capital asset" was agreed to be transferred for Rs. 150 crores. The transactional documents showed that in order to give effect to this principal commercial objective a preordained scheme was devised by the promoters jointly with ATS Infrastructure Ltd., flagship Company of ATS group controlled by the same promoters. In terms of the said preordained scheme shares of ATS Estate Pvt. Ltd. were transferred by ATS Infrastructure Pvt. Ltd. to the assessee who in turn transferred the same to 2 real estate funds who provided finance to the promoters to enable them to discharge their obligation arising under the MoU dated 03.03.2008. The terms of the agreements dated 03.03.2008 and 08.04.2008 clearly showed that an interim arrangement of raising funds for the promoters was put in place w....
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.... liable to tax accrued in India. On these fats the High Court observed that "the shares in themselves may be an asset but in some cases like the present one, the same may be a mere a mode or a vehicle to transfer some other assets. Choice of the petitioner in selecting a particular mode of transfer of these rights will not alter or determine the nature or character of the asset." Applying principle laid down in these decisions to the present case I find that the true commercial transaction which the parties intended to carry out was transfer of assessee's controlling interest in ATS Group in favour of remaining 2 promoters. There is no dispute about the basic fact that assessee along with Getambar Anand and Ashwini Talwar was the principal promoter of ATS group having equal proportional controlling interest. It was assessee's controlling interest in the ATS group which was the real subject matter of transfer by the assessee in favour of remaining 2 promoters at and or a consideration of Rs. 150 crores. The controlling interest was a valuable right and constituted capital asset within the meaning of Sec 2(14) of the Act. Since the promoters did not have ready funds ....
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....isaged by the MoU dated 03.03.2008. See 2(47) of the I T Act and therefore the capital gain as not chargeable to tax in A.Y. 2009-10. The AO shall however be free to assess such income in the year in which he finds that assessee's controlling interest in ATS group of companies was actually transferred. While assessing such income the AO will not only take into account the cash consideration but also the value of movable and immovable assets that will be received by the assessee in terms of MoU dated 03.03.2008. In terms of the above directions the AO shall revise the assessment of the A.Y. 2009-10. Grounds 1 to 3 are allowed." 10. There is no dispute with regard to the fact that the transaction relating to the transfer of shares was in pursuance to the Memorandum of Understanding ("MOU") dated 03.03.2008. The serious disputes as arising between the parties in connection with the Memorandum of Understanding dated 03.03.2008 which contended into invocation of the arbitration clause and thus the issue of MOU was subjected to the arbitral proceedings by the parties and an arbitral award dated 04.03.2017 was delivered by the Hon'ble Arbitral Tribunal constituted by a Sole Arb....
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....ndicates the agreement between the parties as to the mutual obligations for the respondent's exit from the jointly held businesses. 10. Some of the relevant clauses of the MOU are set out below:- 1. That GA and T shall procure that ATS Infrastructure Limited transfers 3,00,00,000 (three crores) shares held by it in ATS Estates Private Limited to AKS with clear title and free of any charge or encumbrance for an aggregate consideration of Rs. 54,90,00,000 (Rupees Fifty Four Crores Ninety Lacs only) (hereinafter referred to as "Consideration") determined on the basis of a value of Rs. 18.30 per share, on or before 7th March 2008; 2. That upon transfer of shares of ATS Estates Private Limited from ATS Infrastructure Limited to AKS, GA and T shall procure that appropriate investor(s) purchases such shares of ATS Estates Private Limited from AKS, either in a single transaction or in tranche, at such value(s) that AKS shall be able to realize a minimum net amount equivalent to his complete Exit Amount of Rs. 1,50,00,00,000 after deducting the amount of Consideration from the amounts realized by sale of such shares of ATS Estate Private Limited to such invest....
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....and thereupon all the provisions of this MOU shall apply mutatis mutandis in respect of such further increased amount of the Exit Amount or any such balance thereof as the case may be. In both the above cases of delays the Exit Amount payable to AKS shall be deemed to have been increased in the above manner. 6. That without prejudice to the provisions contained in clause 5 above, GA and T agree and acknowledge that in case they fail in procuring the realization of the minimum net amount equivalent to the complete Exit Amount of Rs. 1,50,00,00,000 or the increased amount after applying the provisions of Clause 5, as the case may be, to AKS after deducting the amount of Consideration from the amounts realized by sale of shares of ATS Este Private Limited by AKS to the investor(s) on or before March 31, 2009, AKS shall have option, at his sole discretion, to sell the shares of ATS Estate Private Limited to any investors(s) of his choice and GA and T shall have no objection to such sale of shares and GA ad T shall provide full assistance and cooperation to AKS in this regard; provided however that AKS shall provide a first right of refusal to GA and T or their nominee(s) to pu....
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.... shares. It was also contended that the parties had agreed that the further shares would be transferred only when the appropriate investors were located. 12. It is apparent from the above that the balance 2.1 crore shares of ATS Estate Pvt. Ltd. were not transferred to the respondent. It can hardly be disputed that transfer of such shares was within their control; thus, plainly, the petitioners had breached their agreement, which obliged them to procure the transfer of three crore shares of ATS Estate Pvt. Ltd. held by ATS Infrastructure Ltd. 13. In terms of Clause 2 of the MOU, the petitioners were also obliged to locate appropriate investors to purchase the shares of ATS Estate Pvt. Ltd. from the respondent. Admittedly, the petitioners were unable to find any such investors. In terms of Clause 6 of the MOU, in the event the petitioners failed to procure realization of the minimum net amount equivalent to the exit amount of Rs. 150 crores, the respondent would be at liberty to sell the shares of ATS Estate Pvt. Ltd. to the investors of his choice. Since the petitioners had failed to procure the transfer of the balance 2.1 crore shares, the respondent was also pre....
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.... to the petitioner is unqualified. Clause 4 of the MOU further provided that in the event the respondent is unable to realize the minimum amount of Rs. 150 crores as further enhanced, the petitioners would also ensure that additional shares of ATS Estate Pvt. Ltd. are transferred to the petitioners. Further, in terms of Clause 6 of the MOU, in the event the petitioners were unable to locate investors before the specified date, the respondent would be entitled to sell the shares of ATS Estate Pvt. Ltd. Thus, the MOU also provided for the eventuality, where despite best efforts, the petitioners were unable to ensure realization of the exit amount on or before 31.05.2008. 16. In view of the above, this Court finds no infirmity with the Arbitral Tribunal's finding that the petitioners had breached the MOU." 12. The Hon'ble High Court after considering the material available on record, dismissed the petition filed against the award. Thus, it can be inferred that the Agreement between the parties did not attain finality during the year under consideration hence, the impugned transaction in part ought not to have been taxed in the year under consideration. In our consi....
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....filed for rectification of the impugned order. 17. On the contrary, Ld. Counsel for the assessee reiterated the submissions as made before Ld. CIT(A). The submissions of the assessee are reproduced here under:- "The appellant Sh. Anil Kumar Saha S/o Sh. A.K. Saha R/o G-22, Sector 27, Noida was co-promoters of ATS Group wherein 'A' stand for Anand, 'T' stand for Talwar, 'S' stand for Saha and they equally hold the promoter holdings rights from the beginning. These three directors started business of Real Estate and constructed various multi-storied Group Housing Projects namely ATS-I, ATS-II and ATS Village etc. in Noida. Gradually business activities expanded and they started working in Greater Noida, Ghaziabad, Chandigarh, Gurgaon and Uttaranchal also. The main companies of above mentioned promoters (directors) were as follows: a. M/s. A TS Infrastructure Ltd. b. M/s. ATS Promoters & Builders Pvt. Ltd. c. M/s. ATS Estates Pvt. Ltd. (Subsidiary of ATS Infrastructure Ltd.) In the year 2008 the appellant Sh. Anil Kumar Saha with the consent of other two promoters i.e. Sh. Getamber Anand and Sh Ashwani Ta....
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....compliance to this agreement 90 Lacs shares of A TS Estate Pvt. Ltd. were transferred and physically handed over to the appellant by A TS Infrastructure Ltd. Copy of agreement is placed on record. Another agreement was executed between appellant and M/s. IL&FS Trust Co. Ltd. and IIRF Holdings XV Ltd. on dated 08.04.2008. In this agreement M/s. IL&FS Trust Co. Ltd. and IIRF Holdings XV Ltd. agreed to purchase 90,66,183 equity shares of M/s. ATS Estates Pvt. Ltd. for a consideration of Rs. 40 Crores at a price of Rs. 44.12 per equity share subject to certain terms and conditions. It is important to mention that this agreement was signed by the appellant and by other two Co-promoters Sh. Getamber Anand & Sh. Ashwani Talwar, M/s. ATS Infrastructure Ltd., A TS Promoters & Builders Pvt. Ltd. and M/s. A TS Estates Pvt. Ltd. Copy of Agreement is placed on record. The Brief terms and conditions on the basis of which M/s. IL&FS Trust Co. Ltd. and IIRF Holdings XV Ltd. has purchased the shares from the appellant are as follows: I. This agreement of share purchase is the part of earlier agreement dated 23rd July, 2007 between the Co-promoters Sh. Getamber Anand, Sh. ....
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....Limited. Accordingly no calculation on account of capital gain has been made for this transaction at the time of filing of Income-tax return. And the following foot note was given in the return filed on 28th July, 2009: "1. During the year assessee has received a sum of Rs. 40 crores from ILFS on account of shares of ATS Estates Pvt. Ltd. taken by M/s. IL&FS Trust Company Limited and IIRF Holdings XV Limited, conditionally as per the terms of Share Purchase and Shareholder Agreement dated 8th -April, 2008 and Shares Subscription and Shareholders Agreement dated 23rd July, 2007. (Copy of both the agreements are enclosed) 2. The shares which were taken by M/s. IL&FS Trust Company Limited and IIRF Holdings XV Limited from the assessee has been acquired by the assessee from ATS Infrastructure Limited. As per the terms of agreement between promoters dated 3rd March, 2008. (Copy of the agreement is enclosed)." The similar foot note was also given in the computation sheet attached with the revised return filed by the assessee on 31st March, 2011 by additionally mentioning the following: "However, under abundant precaution and to avoid penal interest (if....
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....d written submission, filed time to time and discussion held during the course of hearings, disregarded all such material & submissions and passed the impugned order by simply calculating Short Term Capital Gain on conditional transfer of shares of ATS Estates Pvt. Ltd. by Sh. Anil Kumar Saha to IL&FS Trust Co. Ltd. & IIRF Holdings XV Ltd. without even giving any benefit in respect of cost of acquisition for the shares purchased by the appellant and calculated tax accordingly. Whereas in the light of facts and circumstances mentioned above, it is a case of getting funds from IL&FS Trust Co. Ltd. and IIRF Holdings XV Ltd. on certain terms and conditions as mentioned in the Share Purchase & Share Subscription Agreement dated 8th April, 2008 and 23rd July, 2007 respectively, wherein shares are given as a security to lending company. Such transactions do not come under the purview of Section 45 of the Income-tax Act, 1961. This fact is also supported by RBI wherein the premier institution has observed that the funding by incorporating such kind of terms is a debt financing in the garb of so called FDI. Moreover, funds were although given to Sh. Anil Kumar Saha but it was meant....
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....y the Ld. Assessing Officer. In the last hearing your good-self wanted to know that: 1. What happened with the obligations imposed by M/s. IL&FS Trust Co. Ltd. by M/s. IIRF Holdings XV Ltd. to appellant and its co-promoters and companies? 2. What happened III respect to implementation of MOU with the Co-promoters? The point-wise reply of the same is as under: 1. The share purchase agreement with M/s. IL&FS Trust Co. Ltd. and M/s. IIRF Holdings XV Ltd. was executed-on dated 23 July, 2007 and share subscription agreement was executed on dated 8th April, 2008, the obligations was to be fulfilled was in respect of return on investment on the money invested by way of investment in shares. The appellant has not received any individual notice so far from M/s. IL&FS Trust Co. Ltd. and M/s. IIRF Holdings XV Ltd., as far as position of the co-promoters/companies is concerned, the appellant is not aware, as relations are strain with co-promoters. Therefore, it is not possible for appellant to trace any information from the companies as well as co-promoters. However the obligations are obligations, which has to be fulfilled in any ....
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....ment dated 03.03.2008 the assessee acquired right of specific performance against the co-promoters and it was also evidenced from facts that with a view to give effect to the said object certain intermediate steps were carried out by the parties during F.Y. 2008-09. The facts on record however showed that even till date the transaction contemplated by the MoU dated 03.03.2008 was not consummated and attained finality. In fact the assessee till date has not relinquished his controlling interest in ATS group of companies. It further appeared from the facts on record that the entire arrangement evidenced by MoU dated 03.03.2008 remained unexecuted. In fact at present the matter is sub judice before the Company Law Board. In terms of the decision of the Company Law Board, the arrangement envisaged by the MoU dated 03.03.2008 may be reviewed entirely and in such an event the parties may have to review; modify or reverse the transactions carried out in the interim. On these facts therefore I have no hesitation in holding that there was no transfer of a capital asset within the meaning of Sec 2(47) of the I T Act and therefore the capital gain was not chargeable to tax in A. Y. 2009-10. T....