ITO 19(2)(3), MUMBAI v. HARSHIT M SAVLA HUF, MUMBAI

ITA 6379/MUM/2009 | 2006-2007
Pronouncement Date: 29-07-2011 | Result: Dismissed

Appeal Details

RSA Number 637919914 RSA 2009
Assessee PAN AABHH2762R
Bench Mumbai
Appeal Number ITA 6379/MUM/2009
Duration Of Justice 1 year(s) 7 month(s) 19 day(s)
Appellant ITO 19(2)(3), MUMBAI
Respondent HARSHIT M SAVLA HUF, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted H
Tribunal Order Date 29-07-2011
Date Of Final Hearing 07-07-2011
Next Hearing Date 07-07-2011
Assessment Year 2006-2007
Appeal Filed On 10-12-2009
Judgment Text
1 ITA NO. 6379/MUM/2009 ASSESSMENT YEAR : 2006-07. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H MUMBAI BEFORE SHRI P.M.JAGTAP ACCOUNTANT MEMBER & SHRI R.S. PADVEKAR JUDICIAL MEMBER. I.T.A. NO. 6379/MUM/2009 ASSESSMENT YEAR : 2006-07. THE INCOME-TAX OFFICER HARSHIT M. SAVLA HUF 19(2)(3) MUMBAI. VS. 602 LANDMARK CHS TAGORE ROAD NEAR POST ADDAR SCHOOL SANTACRUZ (W) MUMBAI 54. PAN AABHH2762R. APPELLANT. RESPONDENT. APPELLANT BY : SHRI T.T. JACOB. RESPONDENT BY : SHRI UMESH GALA. O R D E R. PER P.M. JAGTAP A.M. : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF THE LEARNED CIT(APPEALS)-30 MUMBAI DATED 26-10-2009 AND IN THE SOLITARY GROUND RAISED THEREIN THE REVENUE HAS CHALLENGED THE ACTION OF T HE LEARNED CIT(APPEALS) IN DELETING THE DISALLOWANCE MADE BY THE AO U/S 47(XII I) ON ACCOUNT OF ASSESSEES CLAIM FOR SHORT TERM CAPITAL LOSS OF RS.15 50 304/- . 2. THE ASSESSEE IN THE PRESENT CASE IS HUF WHICH FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 31 ST JULY 2006 DECLARING A TOTAL INCOME OF RS.3 32 740/-. IN THE SAID RETURN THE ASSESSEE HAD DECLARED SHORT TERM CAPITAL LOSS OF RS.15 50 304/- AS ARISING FROM SALE OF SHARES O F M/S SUYASH LABORATORIES LTD. TO 2 ITA NO. 6379/MUM/2009 ASSESSMENT YEAR : 2006-07. M/S AARTI DRUGS LTD. THERE WAS A PARTNERSHIP FIRM IN WHICH THE ASSESSEE WAS A PARTNER. THE SAID FIRM WAS TAKEN OVER BY M/S SUYASH LABORATORIES LTD. AND THE ASSESSEE HAD BECOME SHAREHOLDER AS WELL AS DIRECTOR OF M/S SUYASH LABORATORIES LTD. 51676 SHARES HELD BY THE ASSESSEE IN M/S SUYA SH LABORATORIES LTD. WERE SOLD TO M/S AARTI DRUGS LTD. A GROUP COMPANY OF M/S SU YASH LABORATORIES LTD. FOR RS.1 85 51 708/- AND SHORT TERM CAPITAL LOSS ARISIN G FROM THE SAID TRANSACTION AMOUNTING TO RS.15 50 304/- WAS DECLARED BY THE ASS ESSEE. ACCORDING TO THE AO THE PARTNERSHIP FIRM HAVING BEEN TAKEN OVER BY A CO MPANY AND ALL THE PARTNERS OF THE SAID PARTNERSHIP FIRM HAVING BECOME SHARE HOLDE RS/DIRECTORS OF THE SAID COMPANY ANY TRANSFER OF SHARES HELD BY THEM WITHIN FIVE YEARS FROM THE TAKEOVER BY THE COMPANY COULD NOT BE TREATED AS TRANSFER AS PER THE PROVISIONS OF SECTION 47(XIII). RELYING ON THE SAID PROVISIONS HE DISALL OWED THE CLAIM OF THE ASSESSEE FOR SHORT TERM CAPITAL LOSS OF RS.15 50 304/- IN THE AS SESSMENT COMPLETED U/S 143(3) VIDE AN ORDER DATED 12-12-2008. 3. AGAINST THE ORDER PASSED BY THE AO U/S 143(3) A N APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) AND IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) THAT SECTI ON 47(XIII) NOWHERE PROVIDES THAT THERE COULD BE NO TRANSFER OF SHARES BY THE ER STWHILE PARTNERS AND THE CONDITIONS STIPULATED THEREIN RATHER WAS THAT THE A GGREGATE SHARE HOLDING OF THE ERSTWHILE PARTNERS CONTINUES TO BE MORE THAN 50% OF THE TOTAL VOTING POWER. IT WAS SUBMITTED THAT M/S AARTI DRUGS LTD. WAS AN ERSTWHIL E PARTNER IN THE FIRM AND SINCE THE SHARES WERE SOLD BY THE ASSESSEE TO THE SAID CO MPANY THERE WAS ONLY AN INTER- SE TRANSFER OF SHARES AMONGST THE ERSTWHILE PARTNER S. IT WAS CONTENDED THAT THE SAID SALE THUS DID NOT RESULT IN THE REDUCTION OF SHARE HOLDING OF THE ERSTWHILE PARTNERS IN THE COMPANY AND SINCE THE AGGREGATE SHARE HOLDING O F THE PARTNERS CONTINUED TO REMAIN THE SAME THERE WAS NO VIOLATION OF THE COND ITION STIPULATED IN SECTION 3 ITA NO. 6379/MUM/2009 ASSESSMENT YEAR : 2006-07. 47(XIII). IT WAS CONTENDED THAT THE DISALLOWANCE MA DE BY THE AO ON ACCOUNT OF ASSESSEES CLAIM FOR SHORT TERM CAPITAL LOSS ARISIN G FROM THE SALE OF SHARES TO M/S AARTI DRUGS LTD. BY INVOKING THE PROVISIONS OF SECT ION 47(XIII) WAS NOT SUSTAINABLE. 4. THE LEARNED CIT(APPEALS) FOUND MERIT IN THE SUBM ISSIONS OF THE ASSESSEE AND ACCEPTED THE SAME FOR THE FOLLOWING REASONS GI VEN IN PARAGRAPH NOS. 8 8.1 8.2 AND 8.3 OF HIS IMPUGNED ORDER : 8. I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER SUBMISSIONS MADE ON BEHALF OF THE APPELLANT AND THE FACTS OF THE CASE. THE LONG TERM CAPITAL LOSS HAS ARISEN TO THE APPELLANT ON THE TENDERING OF THE SHARES UNDER THE BUY BACK SCHEME CARRIED OUT BY THE COMPANY IN WHICH THE APPE LLANT IS A SHAREHOLDER. THE PROVISIONS OF THE SECTION 46A TO WHICH THE APPE LLANT RELIED ARE QUITE CLEAR AND UNAMBIGUOUS. THE CAPITAL GAINS OR LOSS AR ISING ON THE BUY BACK OF SHARES IS ASSESSABLE UNDER THE PROVISIONS OF S.46A AS CAPITAL GAINS. 8.1 WITH REGARD TO THE SALE OF SHARES TO M/S AARTI DRUGS LIMITED IN MY VIEW ALSO THE SALE OF SHARES HAS ONLY RESULTED IN A N INTER SE TRANSFER OF SHARES AMONGST THE PARTNERS. THUS THE SALE DOES NOT RESULT IN THE REDUCTION OF SHAREHOLDING OF THE PARTNERS IN THE COMPANY AND THE AGGREGATE SHAREHOLDING OF THE PARTNERS CONTINUES TO REMAIN UNCHANGED. THE EMPHASIS IS ON AGGREGATE SHAREHOLDING. THEREFORE I AM OF THE VIEW THAT THERE IS NO VIOLATION OF SEC. 47(XIII)(D). 8.2 THE CONTENTION OF THE ASSESSING OFFICER THAT TH ERE IS A VIOLATION OF THE CONDITION OF S. 47(XIII)(D) AND IN VIEW THEREOF THE LOSS ON THE SALE / SURRENDER OF SHARES UNDER BUY BACK SCHEME OF SHARES SHOULD NO T BE ALLOWED SEEMS DEVOID OF MERIT. TO MY MIND THE REQUIREMENTS OF SEC TION 47(XIII)(D) ARE CLEAR. CLAUSE (D) OF THE PROVISO TO S. 47(XIII) RE ADS AS UNDER : (D) THE AGGREGATE OF THE SHAREHOLDING IN THE COMPA NY OF THE PARTNERS OF THE FIRM IS NOT LESS THAN FIFTY PERCENT OF THE TOTA L VOTING POWER IN THE COMPANY AND THEIR SHAREHOLDING CONTINUES TO BE AS S UCH FOR A PERIOD OF FIVE YEARS FROM THE DATE OF THE SUCCESSION. 8.3 THE CLAUSE CLEARLY USES THE WORD AGGREGATE OF THE SHAREHOLDING IN THE COMPANY. THE LATER PART OF THE CLAUSE WHICH REQUI RES THEIR SHAREHOLDING TO 4 ITA NO. 6379/MUM/2009 ASSESSMENT YEAR : 2006-07. BE MAINTAINED AS SUCH FOR A PERIOD OF FIVE YEARS FROM THE DATE OF SUCCES SION MUST REFER TO SUCH AGGREGATE SHAREHOLDING ONLY. FUR THER AS CONTENDED BY THE APPELLANT IF THE INTENTION OF THE LEGISLATURE WAS THAT THE ERSTWHILE PARTNERS SHOULD NOT SELL THEIR SHARES IN THE COMPANY FOR A P ERIOD OF FIVE YEARS THEN THE LEGISLATURE WOULD HAVE ACCORDINGLY DRAFTED THE SECTION. IN ABSENCE OF SUCH EXPRESS PROVISIONS THE VIOLATION AS PERCEIVE D BY THE ASSESSING OFFICER IS NOT MERITED. FOR THE REASONS GIVEN ABOVE AND FOLLOWING THE APPEL LATE ORDER OF HIS PREDECESSOR IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 ON A SIMILAR ISSUE THE LEARNED CIT(APPEALS) DELETED THE DISALLOWANCE MADE BY THE A O ON ACCOUNT OF ASSESSEES CLAIM FOR SHORT TERM CAPITAL LOSS ON SALE OF SHARES TO M/S AARTI DRUGS LTD. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS) THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS SUBMITTED BY THE LEARNED COU NSEL FOR THE ASSESSEE THE LEARNED CIT(APPEALS) HAS DECIDED THE ISSUE UNDER CO NSIDERATION IN THIS APPEAL FOLLOWING THE ORDER OF HIS PREDECESSOR IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2005-06 AND THE SAID ORDER PASSED IN ASSESSEES CAS E FOR ASSESSMENT YEAR 2005-06 DECIDING A SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE HAS BEEN UPHELD BY THE TRIBUNAL VIDE ITS ORDER DATED 9 TH JULY 2010 PASSED IN ITA NO. 6654/MUM/2008. MOREOV ER AS RIGHTLY HELD BY THE LEARNED CIT(APPEALS) THERE WAS A TRANSFER OF SHARES INTER- SE AMONGST THE ERSTWHILE PARTNERS AS THE ASSESSEE AND M/S AARTI DRUGS LTD. BOTH WERE ERSTWHILE PARTNERS OF THE PARTNERSHIP FIRM WHICH WA S TAKEN OVER BY SUYASH LABORATORIES LTD. THERE WAS THUS NO CHANGE IN THE AGGREGATE SHAREHOLDING OF THE ERSTWHILE PARTNERS WHICH CONTINUED TO REMAIN MORE T HAN 50% OF THE TOTAL VOTING POWER EVEN AFTER THE TRANSFER OF SHARES BY THE ASSE SSEE TO M/S AARTI DRUGS LTD. THE CONDITION STIPULATED IN SECTION 47(XIII) THUS WAS N OT VIOLATED IN THE CASE OF THE ASSESSEE AND THE AO IN OUR OPINION WAS NOT JUSTI FIED IN DISALLOWING THE CLAIM OF 5 ITA NO. 6379/MUM/2009 ASSESSMENT YEAR : 2006-07. THE ASSESSEE FOR SHORT TERM CAPITAL LOSS ON A SALE OF SHARES BY THE ASSESSEE TO AARTI DRUGS LTD. BY INVOKING THE SAID PROVISIONS HOLDING THAT THERE WAS NO TRANSFER OF SHARES. WE THEREFORE FIND NO INFIRMITY IN THE IMP UGNED ORDER OF THE LEARNED CIT(APPEALS) DELETING THE SAID DISALLOWANCE MADE BY THE AO AND UPHOLDING HIS IMPUGNED ORDER ON THIS ISSUE WE DISMISS THE APPEA L OF THE REVENUE. 6. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. . ORDER PRONOUNCED ON THIS 29 TH DAY OF JULY 2011. SD/- SD/- (R.S. PADVEKAR) (P.M. JAGTAP) JUDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI DATED: 29 TH JULY 2011. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR H-BENCH. (TRUE COPY ) BY ORD ER ASSTT. R EGISTRAR ITAT MUMBAI BEN CHES MUMBA I.