AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 1066
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....ds, each of which are without prejudice to one another 1. Consideration received in respect of sale of shares taxed as business income: 1.1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the action of the Assessing Officer (AO) in taxing the entire consideration received on sale of shares of Hyderabad Chemicals Lid (HCL) held as an investment since the last 35 years to Nihon Nohyaku Co. Ltd (NNCL) pursuant to a Share Purchase Agreement (SPA) under the head "Profits and Gains of Business or Profession" instead of the head "Capital Gains." 1.2. On the facts and in the circumstances of the case and in law, the CIT(A) erred in upholding the action of the AO that the aforesaid sale of shares is an adventure in the nature of trade and taxable as business income. 1.3. On the facts and in the circumstances of the case and in law, the CIT(A) erred in summarizing, without any factual basis, that the difference between the duly negotiated share price and the value as per the valuation report was the price paid for management control. 1.4. On the facts and in the circumstances of the case and in law, the....
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.... hearing of the appeal so as to enable the Income-tax Appellate Tribunal to decide the appeal according to law." 2. Brief facts of the case are that the assessee is an individual, filed his return of income for A.Y. 2015-16 on 29.08.2015 declaring his total income of Rs. 3.14 crore. In the computation of income, the assessee has shown income from salary of Rs. 31,47,555/- income from other sources of Rs. 9,70,278/- and long-term capital gain of Rs. 2.75 crore. Case was selected for scrutiny. During assessment the assessing officer (AO) noted that the assessee has claimed long term capital gain of Rs. 8.48 crore on sale of shares of Hyderabad Chemicals Limited (HCL). The assessee made investment for acquiring house property at Rs. 6.69 crore and claim exemption under section 54F. The assessee has shown sale consideration of 10500 share of Hyderabad Chemicals Limited (HCL) for a total consideration of Rs. 15.64 crore and claimed the expenditure on transfer of such claim at Rs. 42,42,430/-. The assessee has also shown to have acquired 1189 share of Hyderabad Chemicals Limited as gift from his family member Hrishit Shroff on different states. The assessee has also dealt with script ....
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....er Rs. 15.64 crore as full value of consideration. As per share purchase agreement remaining block amount and indemnity escrow account will be paid after completion of 100% share transfer. The AO asked the assessee has to why entire sale consideration accrued to assessee on transfer of sale of share be added to the income of assessee in view of section 28((ii) and CBDT Circular dated 02.05.2017. 3. The assessee filed details reply along with relevant part of sale purchase agreement of share, report of valuation Desai and Dewangi Advocates. The contents of reply of assessee is recorded in para 7.1 of assessment order. In the reply, the assessee stated that he was a shareholder of HCL (HCL was a pioneer in manufacturing pesticide formulation for over three decades and was ISO 9001-2008 certified company). The assessee was holding 12389 share which were 3.78% of total shares. The assessee has been holding this share as investment for more than 25 years. Nihon Nohyaku Company Ltd the company (NNCL) is a Japan based company engaged in manufacturing and development of chemicals and sale of HCL in Japan and worldwide. Finding opportunity in Indian market entered into share purchase agr....
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.... all shareholders sold their respective share in a single go. All shareholders had signed the share purchase agreement with NNCL, certain part of agreement was extracted in the assessment order. The AO in para 8.3 on assessment order recorded that as per share purchase agreement all shareholder are divided into five groups namely Ashwin Shroff, Dipesh Shroff and family, Atul Shroff and family, N. Sukumar and family and others. The total share held by this group was 3,27,900 and out of the same they have sold Rs. 2,42,464 by way of share purchase agreement. The share purchase agreement indicates that all shareholder have come together at one single go to perform sale of their share and agreed to all the clause referred in such agreement and transferred the control and management of the company. Such act is a color of adventure in nature of trade having different shareholding come together and negotiate with other party to get the best value of their share which were valued at Rs. 7845.23/- per equity share by the valuer and sold at Rs. 15,401 per equity share. Unless all shareholder come together and agree to the term and condition, barring power with the purchaser party want to be ....
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....business income in place of capital gain. The ld.AR of the assessee submits that the assessee is son of Ashwin Shroff and Usha Shroff who were part of Shroff family and were promoters of Excel Industries Limited. The assessee originally acquired 3500 shares of Hyderabad Chemicals Limited (HCL) on 11.10.1980. The assessee was born on 05/02/1978. These shares were purchased on behalf of assessee when assessee was minor. Subsequently, the assessee received 8889 as bonus and gift from his relatives. The average holding period of shares held by assessee as investment for more than twenty years. Further, the assessee was allotted equivalent no. of share in Vibrant Greentech Limited (VGT) the resulting company, whose name was subsequently change to HCL, pursuant to scheme of demerging. Thus, the assessee was holding 12,389 shares in HCL, being 3.78% of total share capital of HCL. HCL and its subsidiaries were promoted by late Dr Ramesh Gandhi and Dr Nandini Gandhi. Dr Nandini Gandhi was sister of grandfather of assessee. HCL was in the business of manufacturing and sale of pesticide formulation. Dr Nandini Gandhi died in October 2003. Dr Nandini Gandhi has no children. The Gandhi's along ....
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....n case of Sumeet Taneja Vs CIT (supra) is not applicable on the facts of his case, as the facts of this case is at variance, the assessee in that case was major shareholder, promoter and managing director of the company, however, the assessee was admittedly having share holding of less than 4% and was not involved in the business of the company whose shares were sold in joint agreement. The ld AR of the assessee fairly submits that in cases of certain other family members, similar transaction was treated as business income, and their appeals are pending before CIT(A) level. To support his various contentions the ld AR of the assessee relied on the following case laws; * Venkatesh Vs CIT (2000) 109 Taxman 78 (Madras), * Smt. Maharani Usha Devi Vs CIT (1892) 8 Taxman 91 (MP), * CIT Vs S. Chenniappa Mudaliar (1967 64 ITR 213 (Mad), * Gillanders Arbuthnot & Co Vs CIT (1964) 53 ITR 283 (SC), * CIT Vs Best and Co. (1966) 60 ITR 11(SC), * DCIT Vs Sandeep Dave (2019 109 taxmann.com 138 (Raipur-Trb), * Vodafone International Holding Limited Vs Union of India (341 ITR 1 SC), * Govindlal Mandhana Vs Add CIT in ITA No(s)38....
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....section 54F. We find that on similar transaction capital gain in the hands of four family members were allowed by respective AO i.e. in respect of Ashwin C Shroff (PAN: ALPS 6493H), Usha Ashwin Shroff (PAN: AAFPS 5029J), Vishwa Nellore (PAN: AKYPN 6486 H), S. Kumar Nellore (PAN: AAHPR 8333 C) and Shruti Atul Shroff (PAN AACPS 7329 E). S. Kumar Nellore was Managing Director of HCL and was in control of the management of the company and similar receipt on sale of share under same agreement was accepted as capital gain. 11. We find that the AO treated the gain on transfer of shares as business income by taking view that share purchase agreement shows that all shareholder have come together at one single go to perform sale of their share and agreed to all the clause referred in such agreement and transferred the control and management of the company. The act of such share transfer is adventure in nature of trade as all shareholder come together and on agreeing the term and condition all decided to sale the share for better advantage and is taxable as business income under section 28(va). The action of AO was upheld by ld CIT(A) by refereeing the decision of Punjab & Haryana High Cou....