Income Tax Appellate Tribunal - Chennai
Vimaladevi Koneru, Chennai vs Assessee on 18 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
'A' BENCH, CHENNAI
BEFORE Dr. O.K.NARAYANAN, VICE-PRESIDENT
AND SHRI V.DURGA RAO, JUDICIAL MEMBER
Sl.No. ITA No. A.Y. Assessee Respondent
1. 43/Mds/2011 2008-09 M/s. Trimex The Assistant
Ores Pvt. Ltd., Commissioner
C/o of Income-tax,
B.Purushottam Central Circle-
& Co., 3-D, IV(3),Chennai.
Mandira
Apartments,
23/A, North
Boag Road,
T.Nagar,
Chennai -17.
PAN -
AACCT1264G
2. 44/Mds/2011 2008-09 M/s. Sphera The Assistant
Investments Commissioner
Pvt. Ltd., C/o of Income-tax,
B.Purushottam Central Circle-
& Co., 3-D, IV(3),Chennai.
Mandira
Apartments,
23/A, North
Boag Road,
T.Nagar,
Chennai -17.
PAN -
AAGCS0799H
3. 45/Mds/2011 2008-09 Pradeep The Assistant
Koneru, C/o Commissioner
B.Purushottam of Income-tax,
& Co., 3-D, Central Circle-
Mandira IV(3),Chennai.
Apartments,
23/A, North
Boag Road,
T.Nagar,
Chennai -17.
PAN -
AGCPK6832A
-2- ITA 43 to 48/11 etc.
4. 46/Mds/2011 2008-09 Vimaladevi The Assistant
Koneru, C/o Commissioner
B.Purushottam of Income-tax,
& Co., 3-D, Central Circle-
Mandira IV(3),Chennai.
Apartments,
23/A, North
Boag Road,
T.Nagar,
Chennai -17.
PAN -
ABTPV7239E
5. 47/Mds/2011 2008-09 Prashant The Assistant
Koneru, C/o Commissioner
B.Purushottam of Income-tax,
& Co., 3-D, Central Circle-
Mandira IV(3),Chennai.
Apartments,
23/A, North
Boag Road,
T.Nagar,
Chennai -17.
PAN -
AAKPK9513E
6. 48/Mds/2011 2008-09 Madhu The Assistant
Koneru, C/o Commissioner
B.Purushottam of Income-tax,
& Co., 3-D, Central Circle-
Mandira IV(3),Chennai.
Apartments,
23/A, North
Boag Road,
T.Nagar,
Chennai -17.
PAN-
AFDPM4138H
AND
Sl.No. ITA No. A.Y. Assessee Respondent
1. 433/Mds/2012 2007-08 The Joint Madhu Koneru,
Commissioner No.10, Cresent
of Income-tax Avenue,
(OSD), Kesavaperumal
Central Circle- puram,
IV(3) Chennai.
Chennai.
-3- ITA 43 to 48/11 etc.
2. 434/Mds/2012 2007-08 The Joint Vimaladevi
Commissioner Koneru,
of Income- No.10, Cresent
tax(OSD), Avenue,
Central Circle- Kesavaperumal
IV(3), puram,
Chennai. Chennai-28.
3. 435/Mds/2012 2007-08 The Joint Prashant
Commissioner Koneru,
of Income- No.10, Cresent
tax(OSD), Avenue,
Central Circle- Kesavaperumal
IV(3), puram,
Chennai. Chennai-28.
4. 436/Mds/2012 2007-08 The Joint M/s. Trimex
Commissioner Ores Pvt. Ltd.,
of Income- No.8-2-
tax(OSD), 293/82/A/105/F-
Central Circle- 1, Road No.45,
IV(3), Jubilee Hills,
Chennai. Hyderabad-
500 033.
5. 437/Mds/2012 2007-08 The Joint M/s. Sphera
Commissioner Investments
of Income- Pvt. Ltd., No.1,
tax(OSD), Subbarao
Central Circle- Avenue,
IV(3), C.P.Ramasamy
Chennai. Road,
Alwarpet,
Chennai-18.
6. 438/Mds/2012 2007-08 The Joint Shri Pradeep
Commissioner Koneru,
of Income- No.10, Cresent
tax(OSD), Avenue,
Central Circle- Kesavaperumal
IV(3), puram,
Chennai. Chennai-28.
Assessees by : Shri N.Devanathan, Advocate and
Shri B.S.Purushotham, FCA
Department by : Shri Shaji P. Jacob, IRS, Addl. CIT.
Date of Hearing : 18th July, 2012
Date of Pronouncement : 24th July, 2012
-4- ITA 43 to 48/11 etc.
ORDER
PER Dr.O.K.NARAYANAN, VICE PRESIDENT This is a bunch of 12 appeals. The assessees have filed six appeals and the Revenue has filed another six appeals.
2. All the six appeals filed by the assessees relate to the same assessment year 2008-09. These appeals are directed against the revision orders passed by the Commissioner of Income-tax, Central-I at Chennai. The revision orders have been passed under sec.263 of the Income-tax Act, 1961 through his proceedings dated 21.12.2010 and 22.12.2010. The revision orders have been passed in the context of assessment orders dated 31.12.2009 passed under section 143(3) of the Income-tax Act, 1961.
3. The next set of six appeals filed by the Revenue relate to the assessment year 2007-08. The appeals are directed against the orders passed by the Commissioner of Income- tax(Appeals) -I at Chennai on 2.12.2011. The appeals arise out of the respective assessments completed under sec.143(3) read with sec.153A of the Income-tax Act, 1961.
-5- ITA 43 to 48/11 etc.
4. First we will consider the appeals filed by the Revenue. The assessees are the promoter shareholders of M/s. Cyber Hills Developers(CHD). They belong to M/s. EMMAR MGF of Koneru group of concerns.
5. The promoter shareholders (asseessees in these cases) of CHD entered into an agreement on 24.4.2006 for transfer of all share holdings to M/s. Winsome Entertainment and Tourism Pvt. Ltd. (WET). The consideration was stated at `32,99,31,547/-. CHD received an amount of `27,99,31,547/- from the above said consideration in the previous year relevant to the impugned assessment year 2007-08.
6. As per the agreement, 50% of the shareholdings had to be transferred to WET in the previous year relevant to the assessment year 2007-08 itself. Accordingly, the promoter assessees have transferred 50% of the share holdings to WET in the previous year relevant to the assessment year under appeal. The proportionate balance amount was treated by the assessees as advance received from WET. As already stated, the promoter assessees have received only ` 27,99,31,547/- in the previous year relevant to the impugned assessment year, the balance of
-6- ITA 43 to 48/11 etc. ` 5 crores to be paid by WET to the promoter assessees on fulfilling certain conditions stated in the agreement and when the balance 50% of the shares are transferred. The conditions are that the promoter assessees should obtain the approval for the building plans and other connected structures and the promoters should make arrangement with Larson & Toubro (L&T) for undertaking the construction and development of the proposed hotels and also the promoters should see that the conveyance deeds relating to all rights, title and interest in the land and buildings of CHD are executed.
7. In the above background of facts, there was a search under sec.132 on 12.9.2007. In the course of search action, certain statements, share purchase agreements etc. relating to the above said transfer of shares were found and seized by the officers. In the course of search, when these matters were placed before the promoter assessees, they agreed to offer capital gains arising on transfer of shares for taxation in two assessment years. They agreed to offer long term capital gains for the assessment years 2007-08 and 2008-09. It was always the argument of the assessees that only 50% of the said consideration related to transfer of shares made in the previous
-7- ITA 43 to 48/11 etc. year relevant to the assessment year 2007-08 and therefore, capital gains needs to be computed only with reference to that 50% of the sale consideration and the balance amount had to be treated as advance. According to the assessees, final performance of the agreement was made in the previous year relevant to the assessment year 2009-10 and, therefore, till then the balance amount should have been treated as advance received. But in spite of such factual argument, in the course of search proceedings, the assessees agreed that they will offer the capital gains for taxation for the two assessment years 2007-08 and 2008-09.
8. In the returns filed by the assessees, they stood by the admission made at the time of search and offered the capital gains arising out of the transfer of shares of CHD in two assessment years 2007-08 and 2008-09.
9. But in the course of assessment proceedings, the Assessing Officer held that the entire capital gains arising out of the sale and transfer of the shares of CHD must be taxed in the assessment year 2007-08 itself and the assessees are not justified in dividing the long term capital gains between two
-8- ITA 43 to 48/11 etc. assessment years 2007-08 and 2008-09. The Assessing Officer held that the transfer of shares in fact represented sale and transfer of land situated in Hyderabad. The capital asset transferred by the assessees was the land and the shares were only representing that capital asset in the nature of land. The Assessing Officer held that the land is qualified as immovable property within the meaning of sec.269UA. The Assessing Officer held that the transfer was complete in the previous year relevant to the assessment year 2007-08 in view of the provisions of sec.53A of the Transfer of Property Act. The possession of the immovable property has been transferred to WET and lion share of the consideration was already paid and therefore, WET has become the de facto owner of the property and but for the technicality of the registration and conveyance, as such, the entire sale was concluded in the impugned previous year relevant to the assessment year 2007-08 itself and consequently the entire capital gains should be taxed in the impugned assessment year 2007-08. The Assessing Officer proceeded accordingly and taxed the entire long term capital gains in this impugned assessment year. This was taken in first appeal before the Commissioner of Income-tax(Appeals). The
-9- ITA 43 to 48/11 etc. Commissioner of Income-tax(Appeals) after going through the terms and conditions of the agreement and other surrounding facts of the cases, came to the conclusion that the land and property was neither transferred nor possession was given by CHD to WET in the previous year especially, in view of the fact that CHD itself was not in possession of the land and no registered sale deed was executed by L & T in favour of CHD. The sequence of the arrangement was that Andhra Pradesh Industrial Infrastructure Corporation Ltd. would allot the land to L&T and thereafter L&T would transfer the property to CHD and the property and rights shall thereafter pass on to the hands of WET as a consequence of transfer of shares of CHD by its promoter assessees. The fact was that the land and property was not conveyed by Andhra Pradesh Industrial Infrastructure Corporation Ltd. to L&T and naturally L&T has not executed any sale deed in favour of CHD and as such, there cannot be a case that WET was in possession of the land. In the light of the above facts and circumstances of the case, the Commissioner of Income-tax(Appeals) held that what was sold by the assessees were only shares and not immovable property. He held that the assumption of the Assessing Officer that underlying asset is an
-10- ITA 43 to 48/11 etc. immovable property and the part performance of the contract amounts to transfer under sec.2(47) is not valid because CHD was to get the land from L&T Infocity for the purpose of creating infrastructure and the land was yet to be conveyed to CHD. He observed that sec.53A of Transfer of Property Act applies in a case where the immovable property is owned by the transferor and possession is handed over to the transferee. In the present case, CHD was not in possession of the land and they were exercising only technical possession for the purpose of developing the property and in such circumstances, there cannot be a case that the possession has been given to WET. He held accordingly, that the capital gains need to be considered in proportion to the sale of shares made by the promoter assesseees. He found that only 50% shares were sold in the previous year relevant to the assessment year under appeal. Accordingly, he deleted the excess capital gains considered by the assessing authority in the hands of the assessees. He confirmed that the assessees were right in offering capital gains with reference to the sale of 50% of share holdings in CHD.
10. Revenue is aggrieved and, therefore, these appeals before us. Obviously, grounds raised in all these appeals are
-11- ITA 43 to 48/11 etc. common. The ground is that the Commissioner of Income- tax(Appeals) has failed to note that the transactions relating to sale of shares were linked with transfer of immovable property held by the company and hence sec.2(47) is relevant in these cases. It is also the case of the Revenue that the Commissioner of Income-tax(Appeals) has failed to note that the assessees had received nearly 90% of sale consideration in this assessment year itself and there is no case for treating some portion of the amount as advance and, therefore, the Assessing Officer was justified in treating the entire amount of capital gains taxable for the impugned assessment year 2007-08.
11. We heard Shri Shaji P. Jacob, the learned Commissioner appearing for the Revenue and Shri N. Devanathan, the learned counsel along with B.S.Purushotham, the learned Chartered Accountant appearing for the assessees.
12. The learned Commissioner appearing for the Revenue, in addition to various case laws relied on by him, also made reference to the amendments in sec.2, brought in by the Finance Act, 2012. The Finance Act, 2012 has inserted Explanation 2 to sec.2 which clarifies that "transfer" includes and shall be deemed to have always included disposing of or parting with an asset or
-12- ITA 43 to 48/11 etc. any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterized as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India.
13. The above Explanation may not directly apply to the present cases, as the company is not registered or incorporated outside India. Secondly, the Explanation swings into action in a situation where in spite of transfer of assets they transferred the shares and the parties are not accounting for the capital gains arising out of the transfer of the assets and the properties represented by the shares. But the present case is different. The assessees are offering long term capital gains arising in their hands on transfer of shares. The only dispute is whether the capital gains should be taxed as a whole in one assessment year 2007-08 or the capital gains should be bifurcated and assessed to tax for two assessment years 2007-08 and 2008-09.
-13- ITA 43 to 48/11 etc. Therefore, we are of the view that the newly brought in Explanation is not applicable to the present cases in hand.
14. Now coming back to the facts of the cases, it is to be seen that the parties have entered into a comprehensive agreement. The sequence of events is to be taken note of as a total package for transactions. The assessees are the promoter share holders of CHD and the property rights and other privileges attached to the shares of the CHD. They have not taken a final shape in the relevant year previous to the assessment year 2007-08. The assets, rights and privileges of the property ultimately being transferred through the sale of shares would be taking a final shape only in the previous year relevant to the assessment year 2009-10. It is in anticipation of the fulfillment of all these efforts that the assessees have entered into an agreement with WET as a business proposition. The agreement is not an agreement for sale simplicitor. It is a comprehensive business deal. The company, CHD had to be conveyed with the right over the property by L&T as and when L&T gets the documents ready to execute the conveyance in favour of CHD. It is only thereafter CHD could have transferred the land and property to WET. As already mentioned by the
-14- ITA 43 to 48/11 etc. Commissioner of Income-tax(Appeals) in his order, so many conditions are to be fulfilled by CHD before closing the agreement. The technical possession enjoyed by CHD over the land was for initiating preliminary operations for constructing the proposed buildings and structures. When all these facts and circumstances are taken into consideration, it is not possible to hold a view that the entire land and property was transferred by CHD to WET in the previous year relevant to the assessment year 2007-08. As already held by the Commissioner of Income- tax(Appeals), only 50% shares of CHD were sold by the assessees to WET. The capital gains arising out of the transfer of balance shares have also been offered by the assessees for the following assessment year 2008-09. Therefore, in these circumstances it is not proper on the part of the Assessing Officer to treat that the entire transaction was complete in the previous year relevant to the assessment year 2007-08 itself. Transfer of entire land and property in fact, did take place only in the previous year relevant to the assessment year 2009-10 when the entire shares have already been sold to WET.
15. As a matter of fact, it is always true that a share having a stand in the market will always represent some assets. It is the
-15- ITA 43 to 48/11 etc. value of the assets, rights and such other privileges that will ultimately decide the market value of a share. A doubt arises only in cases where assets and properties are transferred by parties in the form of share transfer by treating assets and properties different from shares to avoid payment of taxes. Even the Explanation 2 brought in by the Finance Act, 2012 is to handle such situation. In such cases, transfer of assets are coloured as transfer of shares for evading payment of tax. In the present case, there is attempt to evade payment of taxes, as the assessees have already offered capital gains for taxation in two assessment years 2007-08 and 2008-09.
16. In the facts and circumstances of the cases, we agree with the Commissioner of Income-tax(Appeals) that the assessees have transferred only 50% shares during the previous year relevant to the impugned assessment year and, therefore, that proportionate capital gains alone could be brought to tax for the assessment year 2007-08. The orders of the Commissioner of Income-tax(Appeals) are upheld.
17. The Revenue fails in the appeals filed by them.
-16- ITA 43 to 48/11 etc.
18. Next, we will consider the appeals filed by the assessees. As already stated, the assessees have filed the appeals against the revision orders passed by the Commissioner of Income-tax. On examining the records of the case, the Commissioner of Income-tax found that the entire capital gains were brought to tax by the Assessing Officer for the assessment year 2007-08 and as such, he has reduced the proportionate amount of capital gains for the assessment year 2008-09. He was of the opinion that the Assessing Officer ought to have made protective assessments in the hands of the assessees for the assessment year 2008-09 for that remaining part of long term capital gains. It is in the above background that he has passed the revision orders.
19. Now, while confirming the orders of the Commissioner of Income-tax(Appeals) for the assessment year 2007-08, we have held that the capital gains have to be assessed for the two assessment years 2007-08 and 2008-09. When that is the position, there is no necessity of making protective assessments on that ground for the assessment year 2008-09. Therefore, we find that the revision orders passed by the Commissioner of
-17- ITA 43 to 48/11 etc. Income-tax have become infructuous. The orders are therefore, set aside.
20. In result, the appeals filed by the Revenue are dismissed and the appeals filed by the assessees are allowed.
Orders pronounced on Tuesday, the 24th of July, 2012 at Chennai.
Sd/- Sd/-
(V.Durga Rao) (Dr. O.K.Narayanan)
Judicial Member Vice-President
Chennai,
Dated, the 24th July, 2012.
mpo*
Copy to: 1. Assessee
2. Department
3. CIT
4. CIT(A)
5. DR
6. GF.