TaxTMI 
TaxTMI 
TaxTMI 
2010 (3) TMI 1296
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....irecting to consider price quoted at Ahmedabad Stock Exchange only, though on the date of transfer no quotation of transaction was noted in Ahmedabad Stock Exchange as against the price quoted on Bombay Stock Exchange which is stock exchange in nearest State to the State in which Core Health Care exists and where the transaction of these share were taking place regularly during the period of sale/transfer of shares by the assessee for determining the value of shares transferred for determining 'deemed gift' u/s.4(1)(a) of the Gift Tax Act in view of the provisions of Rule 2(9) read with Explanation thereunder of Schedule III of the Wealth Tax Act ?" 2. Since common questions of law are involved in both these appeals, the same were taken up for hearing together and are disposed of by this common judgment. 3. The original appellants before the Tribunal viz., M/s Eskay Services Pvt. Ltd. and M/s Vikramaditya Financial P. Ltd. have merged into M/s Genesis Consultants Ltd., the respondent herein, with effect from 1st April 1993. 4. The facts of Tax Appeal No. 247 of 1999 stated briefly are that, during the income tax assessment proceedings of Messrs Eskay Services Pvt. Ltd. for Asses....
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....essment year 1992-93 in the prescribed form. Initially, there was no compliance, however, subsequently the assessee filed a "Nil" return under the Gift Tax Act along with a note appended to the return explaining why 'Nil" taxable gift had been shown. 6. Thereafter, the Assessing Officer issued notices under section 15(2) of the Act in the case of both the assessees and upon conclusion of the proceedings, held that there was a deemed taxable gift of Rs. 4,37,30,000/- in the case of each of the assessees. The Assessing Officer held that there was a deemed gift by the transferor company to the transferee company in both the cases which was liable to gift tax. The Assessing Officer found that the shares of Core Parenterals Ltd., which were the subject matter of transfer, were quoted on the Ahmedabad Stock Exchange as well as on the Bombay Stock Exchange. He, however, found that the transactions of purchase and sale on the Ahmedabad Stock Exchange were not regular in the sense that in the whole financial year 1991-92, there were only three transactions, whereas there were several transactions and the shares were regularly quoted every month on different dates at the Bombay Stock Exchan....
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....ar as the valuation of the shares in question is concerned, the Tribunal held that the valuation for the purpose of determining the deemed gift had to be based on the quotation of the shares in the Ahmedabad Stock Exchange and not that in the Bombay Stock Exchange. As regards the question as to whether the right to bonus share was also required to be included in the value of the deemed gift as on the date of transfer, the Tribunal was of the view that the record date for the purpose of declaration of bonus was 17.9.1991 whereas the transfer/sale of share in the case of both the assessees had taken place prior to the said date i.e. on 14.9.1991 and 15.9.1991 respectively, hence, the bonus shares were not in existence on the date of transfer and that any subsequent issue after the date of transfer to the transferee company does not in any manner involve a gift because after the resolution was passed in the general meeting till the actual allotment of bonus shares was made, there was no separate identifiable property which could be treated as a capital asset. It was, accordingly, held that no separate addition could be made to the value of deemed gift by treating "right to bonus" as s....
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....e, when no quotation in respect of the said shares of a close date is available at the local Stock Exchange. 12. On the other hand, Mr. S. N. Soparkar, learned Senior Advocate appearing for the respondent submitted that the entire case of the revenue that the transfer of shares included transfer of bonus shares is misconceived. It was submitted that, in the facts of the present case, the Annual General Meeting of Core Parenterals Ltd. took place on 4th June 1991, where a bonus in the ratio of 1:1 was declared. The record date for the purpose of bonus shares was 17th September 1991. The respondent admittedly sold the shares on 15.9.1991 and 14.9.1991 respectively and they were lodged with Core Parenterals Ltd. by the transferee companies on 16.9.1991 before the record date. The shares were transferred in the name of the transferee company on 25.9.1991 and 30.9.1991 respectively. It was submitted that shares are goods within the meaning of section 2(7) of the Sale of Goods Act, 1930 and that the transaction is complete, the moment parties agree to transfer the goods. Reliance was placed upon the decision of the Supreme Court in Vasudev Ramchandra Shelat v. Pranlal Jayanand Thakar, (....
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.... is a quoted share is issued by the concerned stock exchange in a prescribed form, the same is required to be accepted as conclusive. That in the facts of the present case, Core Parenterals Ltd. was situated in Ahmedabad, the assessee company was also situated at Ahmedabad and the assessee had produced a certificate of quoted share from the Ahmedabad Stock Exchange, which in view of the Explanation to section 2(9) was required to be accepted as conclusive. Hence, the rate of the shares as quoted by the Ahmedabad Stock Exchange was required to be taken into consideration and not the rate quoted by the Bombay Stock Exchange. 14. In the background of the facts and submissions noted hereinabove, two issues arise for consideration. Firstly, whether on the date of transfer of the shares by the assessee companies to the transferee companies, there was any existing right to get the bonus shares, and secondly, the manner in which the shares are to be valued. 15. Insofar as the first question is concerned, the admitted facts are that each assessee company sold 1,25,000 equity shares of Core Parenterals Ltd. to its sister concern, Balraj Financial P. Ltd. on 15.9.1991 and 14.9.1991 respecti....
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....accordance with the articles of association of a company. In M.P. Barucha v. W. Sarabhai & Co.1 which was a case of handing over share certificates together with blank signed transfer forms, the Privy Council said (at p. 97-98): "But, further, there seems to their Lordships a good deal of confusion arising from the prominence given to the fact that the full property in shares in a company is only in the registered holder. That is quite true. It is true that what Barucha had was not the perfect right of property, which he would have had if he had been the registered holder of the shares which he was selling. The company is entitled to deal with the shareholder who is on the register, and only a person who is on the register is in the full sense of the word owner of the share. But the title to get on the register consists in the possession of a certificate, together with a transfer signed by the registered holder. This is what Barucha had. He had the certificates and blank transfers, signed by the registered holders. It would be an upset of all Stock Exchange transactions if it were suggested that a broker who sold shares by general description did not implement his bargain by su....
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.... shares would follow as a matter of course by compliance with the provisions of Company law. In other words, a transfer of "property" rights in shares, recognised by the Transfer of Property Act, may be antecedent to the actual vesting of all or the full rights of ownership of shares and exercise of the rights of shareholders in accordance with the provisions of the Company law. 13. The Companies Act of 1913 was meant "to con- solidate and amend the law relating to trading companies and other associations". It is concerned with the Acts and proceedings relating to the formation, running, and extinction of companies, with rights, duties, and liabilities of those who are either members or officers of such companies, and of those who deal with companies in other capacities. Its subject-matter is not transfer of property in general. It deals with transfers of shares only because they give certain rights to the legally recognised share- holders and imposes some obligations upon them with regard to the companies in which they hold shares. A share certificate not merely entitles the shareholder whose name is found on it to interest on the share held but also to participate in certain pr....
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....m the language employed in the section it is abundantly clear that the same applies to registration of a transfer of shares, which presupposes a previous transfer of shares. Thus, transfer of shares precedes the registration thereof. In the light of the principles laid down in the aforesaid decision the transfer of shares takes place when the share certificate is given to the transferee along with signed transfer forms whether blank or duly filled in. In the present case, the respondent admittedly sold the shares on 15.9.1991 and 14.9.1991 respectively and they were lodged with Core Parenterals Ltd. by the transferee companies on 16.9.1991 before the record date. Thus, share certificates along with the blank transfer forms were given to the transferee company before 16.9.1991 and were lodged with the Core Parenterals Ltd. on that date. Thus, the transfer of shares as between the transferor and the transferee stood concluded when the shares were sold to the transferee by handing over the share certificates along with blank transfer forms prior to the record date and not on 30th September 1991 when the shares were registered in the name of the transferee company. 20. The next conten....
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....t the shareholders as dividend are impounded to increase the capital of the company and what the shareholders get is not any payment out of the accumulated profits but bonus shares credited as fully paid up. This analysis of the mechanics of issue of bonus shares is clearly borne out by regulation 96 in Table A to the Companies Act, 1956. The material portion of this regulation provides : "96. [1] The company in general meeting may, upon the recommendation of the board, resolve - [a] that it is desirable to capitalise any part of the amount for the time being standing to the credit of any of the company's reserve accounts, or to the credit of the profit and loss account, or otherwise available for distribution; and [b] that such sum be accordingly set free for distribution in the manner specified in clause (2) amongst the members who would have been entitled thereto, if distributed by way of dividend and in the same proportion. [2] The sum aforesaid shall not be paid in cash but shall be applied, subject to the provision contained in clause (3), either in or towards .... [ii] paying up in full, unissued shares or debentures of the company to be allotted and distributed,....
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....fer to get the bonus shares. 22. The decision of the Apex Court in Messrs. Gopal Paper Mills Co. Ltd. v. Commissioner of Income Tax, Central, Calcutta, 1970(2) SCC 80, does not carry the case of the revenue any further inasmuch as in the facts of the said case, the general meeting of the company was held on December 30, 1954 and the resolution passed at the meeting specifically provided that the accumulated undivided profits of the company standing to the credit of the general reserve as on June 30, 1954 "be capitalized and distributed amongst the holders of the ordinary shares in the Company on the footing that they had become entitled thereto as capital and that the said capital be applied on behalf of such Ordinary shareholders in payment in full for 5,00,750 Ordinary shares of Rs. 10/- each, in the Company and that such 5,00,750 New Ordinary shares of Rs. 10/- each, credited as fully paid-up shall rank in all respects pari passu with the existing ordinary shares". The Supreme Court found that resolution clearly provided that the ordinary shareholders became owners of the bonus shares to which they were entitled to under the resolution as from the date of the resolution. It was....
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....are is a property which comes into existence with an identity and value of its own and capable of be- ing bought and sold as such. Neither in Dalmia In- vestment nor in Hunsur Plywood case was this Court concerned with a question whether the bonus share could be regarded as an accretion or not. This Court in those cases was only concerned with a question relating to the valuation of the bonus share for tax purposes." 24. The aforesaid decision case would not be applicable to the facts of the present case, inasmuch in the said case the Court was considering the issue as to whether accretions like bonus shares and dividend and interest accrued on the original shares pledged would from part of the pledged property. The Court held that the bonus shares, dividend and interest which were received by the plaintiffs and which were relatable to the pledged stocks must also be regarded as accretions thereto and that the same would form part of the pledged property. This decision having been rendered in the context of a totally different set of facts, reliance placed upon the same is misconceived. 25. In Sri Gopal Jalan and Co. v. Calcutta Stock Exchange Association Ltd., AIR 1964 SC 250 [(....
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....he value quoted in respect of such share or debenture on the date on which the gift was made or where there is no such quotation on such date, the quotation on the date closest to such date and immediately preceding such date." The Explanation to Rule 2 provides that the words and expressions used in the said rule and rules 3 to 7 but not defined and defined in rule 2 of Schedule III to the Wealth Tax Act shall have the meanings respectively assigned to them in rule 2 of that Schedule. 29. Schedule III to the Wealth Tax Act, 1957 provides for "Rules for determining the value of assets". Clause (9) of Rule 2 defines "quoted share" or "quoted debenture" in the following terms : "(9) "quoted share" or "quoted debenture", in relation to an equity share or a preference share or, as the case may be, a debenture, means a share or debenture quoted on any recognised stock exchange with regularity from time to time, where the quotations of such shares or debentures are based on current transactions made in the ordinary course of business. Explanation. - Where any question arises whether a share or debenture is a "quoted share" or a "quoted debenture" within the meaning of this clause, ....
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....re is "a quoted share" within the meaning of the said clause, a certificate to that effect furnished by the concerned Stock Exchange in the prescribed form shall be accepted as conclusive. In the present case, it is an admitted position that the respondent-assessees have produced a certificate of the Ahmedabad Stock Exchange to the effect that the shares of Core Parenterals Ltd. are quoted shares within the meaning of clause (9) of Rule 2 and as such, the said certificate is required to be accepted as conclusive. Once a certificate as provided under the Explanation is submitted by the assessee, it is not open for the revenue to go behind the certificate and hold that the quoted shares were not quoted with regularity on the said stock exchange. It is to be deemed that such shares are quoted with regularity on the said stock exchange. In the circumstances, it was not permissible for the Assessing Officer to resort to the value of the quoted shares on the Bombay Stock Exchange when the said shares were already quoted on the Ahmedabad Stock Exchange and a certificate as envisaged under the Explanation to Rule 2(9) of Schedule III to the Wealth Tax Act was provided by the assessee. 32.....