M/s Mangala Investments Limited, Manipal v. JCIT, Mangalore

ITA 1124/BANG/2009 | 1996-1997
Pronouncement Date: 03-05-2010 | Result: Allowed

Appeal Details

RSA Number 112421114 RSA 2009
Bench Bangalore
Appeal Number ITA 1124/BANG/2009
Duration Of Justice 5 month(s) 3 day(s)
Appellant M/s Mangala Investments Limited, Manipal
Respondent JCIT, Mangalore
Appeal Type Income Tax Appeal
Pronouncement Date 03-05-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 03-05-2010
Date Of Final Hearing 20-04-2010
Next Hearing Date 20-04-2010
Assessment Year 1996-1997
Appeal Filed On 30-11-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE DR. O.K. NARAYANAN VICE PRESIDENT AND SMT. P. MADHAVI DEVI JUDICIAL MEMBER ITA NO.1124(BNG)/09 (ASSESSMENT YEAR : 1996-97) M/S. MANGALA INVESTMENTS LIMITED SYNDICATE HOUSE MANIPAL. VS. JOINT COMMISSIONER OF INCOME TAX (ASST.) SPECIAL RANGE MANGALORE. APPELLANT. RESPONDENT. APPELLANT BY : SRI S. PARTHASARATHI ADVOCATE. RESPONDENT BY : SMT. SWATHI S. PATIL CIT. O R D E R PER SMT. P. MADHAVI DEVI : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (ASST) MANGALORE FOR AS SESSMENT YEAR 1996-97. THE SOLITARY GROUND OF APPEAL TAKEN BY THE ASSESSEE IS AS UNDER : THE LEARNED CIT(A) OUGHT TO HAVE ACCEPTED THE EXPLANATIONS OF THE APPELLANT WITHOUT PREJUDICE TO THE MAIN CONTENTION THAT THERE WAS NO TRANSFER (THE DISPUTE OF WHICH IS PENDING IN THE SUPREME COURT) AND DIRECTED THE ASSE SSING AUTHORITY TO COMPUTE THE CAPITAL GAINS IF ANY AFTER ASCERTAINING THE REAL CONSIDERATION TOWARDS THE TRANSFER OF SHARES. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE CONSIDERATION FIXED FOR TRANSFER OF SHARES WAS UNRE AL AND MUCH MORE THAN THE EXISTING MARKET VALUE OF THE SHARE WH ICH NO PRUDENT BUSINESSMEN WOULD PAY TO BUY AND THERE WERE OTHER FACTORS TO THE FAMILY ARRANGEMENT WHICH WAS INBUILT AND ACCORDINGL Y FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAINS THE REAL CO NSIDERATION ITA NO.1124(BNG)/09 - 2 - TOWARDS THE SALE OF SHARES PER SE SHOULD HAVE BEEN DETERMINED AND HAVING FAILED TO DO SO THE CAPITAL GAINS AS COMPUT ED FOR ASSESSMENT WAS OPPOSED TO LAW AND THUS REQUIRED TO BE SET ASIDE. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY FILED ITS RETURN OF INCOME ON 2.12.1996 DECLARING LOSS OF RS.2 15 06 26 4. DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) THE ASSESSING OFF ICER OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS CLAI MED TO HAVE SOLD 5 40 159 SHARES OF M/S. ICDS LIMITED AT RS.220 PER SHARE FOR A CONSIDERATION OF RS.11 88 34 980 AND AFTER TAKING INTO ACCOUNT THE C OST OF SHARES SURPLUS REALIZED WAS TO THE EXTENT OF RS.3 62 25 694 WHICH THE ASSESSEE COMPANY CLAIMED TO BE A CAPITAL RECEIPT REPRESENTING THE DI FFERENCE ARISING ON ACCOUNT OF FAMILY DISPUTE SETTLEMENT IN ACCORDANCE WITH THE AR BITRATION AWARD GIVEN BY SHRI C. SUBRAMANIAM THE ARBITRATOR. THE ASSESSING OFFI CER WAS HOWEVER NOT CONVINCED WITH THE SAID CONTENTION AND HELD THAT TH E ASSESSEE WAS A COMPANY AND CAN HAVE NO CONNECTION WITH THE SETTLEMENT ARRI VED AT BETWEEN THE SHAREHOLDERS OF THE COMPANY. HE THEREFORE HELD THA T THE SURPLUS REALIZED BY THE ASSESSEE COMPANY HAS TO BE TAKEN AS INCOME OF THE COMPANY WHICH IS TAXABLE UNDER THE HEAD CAPITAL GAIN. HE ACCORDINGLY WORK ED OUT THE CAPITAL GAIN AND COMPUTED THE TOTAL INCOME AT RS.3 36 46 598. AGGRI EVED THE ASSESSEE APPEALED BEFORE THE CIT(A) AND THE APPEAL WAS DISMISSED. TH E ASSESSEE APPROACHED THE ITA NO.1124(BNG)/09 - 3 - TRIBUNAL IN ITA NO.4/BANG/99 AND THE TRIBUNAL VIDE ORDER DT.16.1.2009 HELD THAT THE SALE OF SHARES OF THE ASSESSEE COMPANY FAL L WITHIN THE AMBIT OF FAMILY SETTLEMENT AND THE SURPLUS GENERATED FROM SUCH FAMI LY SETTLEMENT WAS NOT CHARGEABLE TO CAPITAL GAIN AND ALLOWED THE APPEAL . AGGRIEVED BY THE ORDER OF THE TRIBUNAL THE REVENUE APPEALED BEFORE THE HON'B LE HIGH COURT OF KARNATAKA AND THE HON'BLE HIGH COURT VIDE ORDER DT.26.10.2007 IN ITA NO.69/2002 ALLOWED THE APPEAL OF THE REVENUE BY HOLDING THAT E VEN THOUGH THE SHAREHOLDERS WERE MEMBERS OF THE JOINT FAMILY THEY HAD NO RIGHT TO EXERCISE POWERS ON THE ASSETS OF THE ASSESSEE COMPANY WITHOUT INVOKING THE PROVISIONS OF THE COMPANIES ACT AND THAT THE ASSESSEE COMPANY BEING A LEGAL ENTITY WAS LIABLE TO PAY CAPITAL GAINS TAX ON THE SALE OF SHARES. TH E HON'BLE HIGH COURT FURTHER HELD THAT THE ITAT HAD NOT CONSIDERED ANOTHER QUEST ION RAISED BY THE ASSESSEE THAT IT WAS NOT LIABLE TO PAY THE CAPITAL GAINS TAX SINCE NO CONSIDERATION WAS PASSED ON SUCH TRANSFER AND THAT THERE WAS NO PROPE R DETERMINATION OF THE COST OF SHARES BY THE ASSESSING OFFICER. THE HON'BLE HI GH COURT THEREFORE REMANDED THE MATTER TO THE ITAT ONLY FOR CONSIDERAT ION OF THE DETERMINATION OF COST OF SHARES FOR THE COMPUTATION OF THE CAPITAL G AINS. IN COMPLIANCE WITH THE ORDERS OF THE HON'BLE HIGH COURT OF KARNATAKA THE ITAT HEARD BOTH THE PARTIES AND FOUND THAT THE ASSESSEE HAD NOT RAISED ANY GROU ND OF APPEAL BEFORE THE ITA NO.1124(BNG)/09 - 4 - CIT(A) IN RESPECT OF COST OF ACQUISITION OF SHARES AND HENCE THE CIT(A) HAD NOT DEALT WITH THE ISSUE AND IT WOULD BE MOST APPROPRIA TE FOR THE CIT(A) TO CONSIDER THE ISSUE AFTER GIVING OPPORTUNITY TO BOTH THE PART IES. THEREFORE THE MATTER WAS RESTORED TO THE FILE OF CIT(A). 3. PURSUANT THERE TO THE CIT(A) HEARD BOTH THE PAR TIES. BEFORE THE CIT(A) IN THE RESTORED PROCEEDINGS THE ASSESSEE HAD TAKEN A GROUND THAT CAPITAL GAINS TAX IS NOT PAYABLE BY IT IN THE ABSENCE OF COST OF ACQUISITION AND ALSO THAT THE APPEAL MUST BE KEPT IN ABEYANCE SINCE THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE HON'BLE SUPREME COURT AGAINST THE ORDER OF T HE HON'BLE HIGH COURT OF KARNATAKA. THE CIT(A) HELD THAT BOTH THE HON'BLE H IGH COURT AND ITAT HAVE RECORDED THE FINDING THAT THE SURPLUS WAS TO BE DET ERMINED ONLY AFTER CONSIDERING THE COST OF ACQUISITION OF SHARES AND T HEREFORE THE ARGUMENT THAT THERE IS NO COST OF ACQUISITION OF SHARES CANNOT BE ACCEPTED. HE FURTHER OBSERVED THAT NO MATERIAL IS PRODUCED BEFORE HIM TO SHOW THAT THE ASSESSING OFFICER HAD COMPUTED THE CAPITAL GAIN TAX INCORRECT LY AT THE COST OF ACQUISITION HE HAD ADOPTED. HE THEREFORE HELD THAT PURSUANT TO THE ORDER OF THE HON'BLE HIGH COURT THE CAPITAL GAIN WAS LIABLE TO TAX AND THE COMPUTATION OF THE A.O. WAS CORRECT. AS REGARDS THE PLEA ABOUT THE PENDENC Y OF APPEAL BEFORE THE HON'BLE SUPREME COURT AND TO KEEP THE APPEAL BEFORE CIT(A) PENDING THE ITA NO.1124(BNG)/09 - 5 - CIT(A) HELD THAT SUBJECT MATTER OF THE APPEAL FILE D BEFORE HIM AND THE SUBJECT MATTER OF APPEAL BEFORE THE HON'BLE SUPREME COURT I S NOT THE SAME AND IF THE HON'BLE SUPREME COURT DECIDES TO ALLOW THE ASSESSEE S APPEAL THE ASSESSEE SHALL BE ENTITLED TO GET RELIEF ACCORDINGLY AND THE REFORE THE APPEAL BEFORE HIM NEED NOT BE KEPT PENDING. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSION MADE BEFORE THE CIT(A) AND SUBMITTED THAT ON THE ISSUE O F TAXABILITY OF THE DIFFERENCE AS CAPITAL GAINS THE ASSESSEE HAS PREFERRED AN APP EAL BEFORE THE HON'BLE SUPREME COURT AND IF THE ASSESSEES APPEAL IS ALLOW ED THE ENTIRE EXERCISE OF COMPUTATION OR QUANTIFICATION OF THE CAPITAL GAINS WOULD BE FUTILE. HE FURTHER SUBMITTED THAT EVEN FOR COMPUTATION OF THE CAPITAL GAINS THE METHOD ADOPTED BY THE A.O. WAS NOT CORRECT. HE SUBMITTED THAT THE SH ARES SOLD WERE QUOTED SHARES AND THEREFORE THE VALUE OF THE SHARES ON THE STOCK EXCHANGE ON THE DATE OF SALE HAS TO BE ADOPTED AND NOT AT THE VALUE WHICH HAS BE EN ASSIGNED BY THE ARBITRATOR. ACCORDING TO HIM THE ARBITRATOR HAS ASS IGNED THE VALUE TO THE SHARES KEEPING IN VIEW VARIOUS OTHER FACTORS WHICH CANNOT BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAINS. HE THEREF ORE PRAYED THAT THE ISSUE OF QUANTIFICATION OF THE CAPITAL GAINS MAY ALSO BE REM ANDED TO THE FILE OF ASSESSING ITA NO.1124(BNG)/09 - 6 - OFFICER WITH A DIRECTION TO QUANTIFY THE CAPITAL GA INS AFTER TAKING INTO ACCOUNT THE QUOTED PRICE OF THE SHARES. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTE D THE ORDER OF THE CIT(A) AND AGREED THAT THE TAXABILITY OF THE CAPITA L GAINS WAS ULTIMATELY DEPENDENT UPON THE DECISION OF THE HON'BLE SUPREME COURT ON THE ISSUE OF TAXABILITY OF SURPLUS FUNDS. HOWEVER ON THE COMPU TATION OF CAPITAL GAINS SHE RELIED ON THE ORDER OF THE A.O. BUT DID NOT STRONG LY OBJECT FOR REMANDING TO THE FILE OF ASSESSING OFFICER FOR FRESH COMPUTATION OF CAPITAL GAINS AFTER TAKING THE QUOTED PRICE OF THE SHARES ALSO INTO CONSIDERATION. 6. HAVING HEARD BOTH THE PARTIES AND HAVING GONE TH ROUGH THE MATERIAL AVAILABLE ON RECORD WE FIND THAT THE MAIN ISSUE AS TO WHETHER THE SURPLUS RECEIVED BY THE ASSESSEE IS AT ALL LIABLE TO TAX AN D WHETHER IT IS TAXABLE UNDER THE HEAD CAPITAL GAINS OR NOT IS AN ISSUE PENDING BEF ORE THE HON'BLE SUPREME COURT AND THE QUANTIFICATION OF THE CAPITAL GAINS I S ONLY A NECESSARY CONSEQUENCE THEREOF. BUT AS RIGHTLY POINTED OUT BY THE CIT(A) THE ASSESSEE WILL GET THE BENEFIT IF HON'BLE SUPREME COURT ALLOW S THE APPEAL. TILL SUCH TIME THE DEPARTMENT HAS TO GIVE EFFECT TO THE ORDER OF T HE HON'BLE HIGH COURT. REGARDING THE COMPUTATION OF CAPITAL GAINS WE FIND THAT BEFORE THE HON'BLE HIGH COURT THE PLEA OF THE ASSESSEE WAS THAT THE T RIBUNAL HAS NOT CONSIDERED ITS ITA NO.1124(BNG)/09 - 7 - GROUND OF APPEAL RELATING TO THE A.O. NOT PROPERLY DETERMINING THE COST OF ACQUISITION OF SHARES AND THE DIRECTION OF THE HON' BLE HIGH COURT IS ALSO TO CONSIDER THE MATTER AFRESH. ON REMAND TO THE CIT( A) THE CIT(A) HAS HELD THAT THIS ARGUMENT IS ONLY AN AFTER THOUGHT AND THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE TO SHOW THAT THE COST ADOPTED BY THE A SSESSING OFFICER WAS WRONG. NOW THE ASSESSEE HAS RAISED THE NEW POINT THAT FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAINS THE REAL CONSIDERATION TOWARDS T HE SALE OF SHARES PER SE SHOULD HAVE BEEN CONSIDERED. AS REGARDS THE DETERMINATION OF COST OF ACQUISITION OF SHARES IT IS SEEN FROM THE ORDER OF THE ASSESSING OFFICER THAT THE YEAR OF ACQUISITION OF SHARES AND THE COST AT WHICH THEY AR E ACQUIRED ARE ALREADY AVAILABLE AND THE CIT(A) HAS RIGHTLY CONFIRMED THE ORDER OF ASSESSING OFFICER AS REGARDS COST OF ACQUISITION. HOWEVER THE POINT RAISED BY THE ASSESSEE NOW BEFORE US WAS NOT RAISED BEFORE THE CIT(A) AND THER EFORE UNDERSTANDABLY THERE IS NO ADJUDICATION ON THIS ISSUE. BUT WE FIND THAT THIS POINT ALSO IS AN IMPORTANT FACTOR TO BE CONSIDERED FOR COMPUTATION OF CAPITAL GAINS AND THE DIRECTION OF THE HON'BLE HIGH COURT WAS ALSO TO CONSIDER THE ISSUE A FRESH. THEREFORE IN THE INTEREST OF JUSTICE WE REMAND THE ISSUE TO THE FIL E OF THE ASSESSING OFFICER FOR RECOMPUTATION OF THE CAPITAL GAINS IN ACCORDANCE WI TH LAW AFTER CONSIDERING ASSESSEES CONTENTION ON THE COST OF ACQUISITION T HE ARBITRATION AWARD AND ALSO ITA NO.1124(BNG)/09 - 8 - THE QUOTED PRICE OF SHARES. NEEDLESS TO MENTION TH AT THE ASSESSEE SHALL BE GIVEN FAIR OPPORTUNITY OF HEARING. 7. IN THE RESULT THE APPEAL IS THEREFORE ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON MO NDAY 3 RD . MAY 2010. SD/- SD/- (DR. O.K.NARAYANAN) (P. MADHAVI DEVI) VICE PRESIDENT JUDICIAL MEMBER BANGALORE DT.3-5-2010. COPY TO : 1. THE ASSESSEE. 2. THE ASSESSING OFFICER. 3. CIT(APPEALS) 4. CIT 5. DEPARTMENTAL REPRESENTATIVE ITAT BANGALORE. 6. GUARD FILE ITAT BANGALORE. 7. GUARD FILE ITAT NEW DELHI. * GPR