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Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI ABY T VARKEY & SHRI OM PRAKASH KANT
This appeal by the Revenue has been preferred against order dated 22.07.2019 passed by the Ld. Commissioner of Income-tax- 40, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2015-16, raising following grounds:
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the consideration received on sale of shares of M/s.
Sangeeta Dilip Patil 2 ITA N. 6557/M/2019 AY 2015-16 Trivector Origio Scientific Pvt. Ltd. amounting to Rs. Trivector Origio Scientific Pvt. Ltd. amounting to Rs. Trivector Origio Scientific Pvt. Ltd. amounting to Rs. 16,42, 16,883/ 16,42, 16,883/- is capital gains only and not is capital gains only and not business income as per provisions of Section 28(11)(a) business income as per provisions of Section 28(11)(a) business income as per provisions of Section 28(11)(a) of the Act holding that the income received only for f the Act holding that the income received only for f the Act holding that the income received only for sale of shares without appreciating the fact that sale of shares without appreciating the fact that sale of shares without appreciating the fact that when the assessee sold the entire shares held by when the assessee sold the entire shares held by when the assessee sold the entire shares held by herself, the managerial control itself terminated and herself, the managerial control itself terminated and herself, the managerial control itself terminated and the assessee no more part of the management of the the assessee no more part of the management of the the assessee no more part of the management of the said company. said company.
2. On the facts and in the circumstances of the case and On the facts and in the circumstances of the case and On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the in law, the Ld. CIT(A) erred in holding that the in law, the Ld. CIT(A) erred in holding that the assessee has not received any income for termination assessee has not received any income for termination assessee has not received any income for termination of her management control in the ongoing company of her management control in the ongoing company of her management control in the ongoing company without appreciating the fact that without appreciating the fact that the consideration the consideration received includes the income received on termination received includes the income received on termination received includes the income received on termination of her management control as she has sold all the of her management control as she has sold all the of her management control as she has sold all the shares held by her. shares held by her.
3. On the facts and in the circumstances of the case and On the facts and in the circumstances of the case and On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the in law, the Ld. CIT(A) erred in not appreciating the in law, the Ld. CIT(A) erred in not appreciating the CBDT CBDT Cir Circular cular No.225/12/2016/ No.225/12/2016/ ITA/Il ITA/Il dated dated 02.05.2016. 02.05.2016.
Briefly stated, facts of the case are that the assessee filed Briefly stated, facts of the case are that the assessee filed Briefly stated, facts of the case are that the assessee filed return of income on 26.08.2015 declaring total income of return of income on 26.08.2015 declaring total income of return of income on 26.08.2015 declaring total income of Rs.7,62,53,270/-. The return of income filed by the assessee . The return of income filed by the assessee . The return of income filed by the assessee was selected for scrutiny selected for scrutiny and statutory notices under the Income and statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) were issued and complied with. During Act, 1961 (in short ‘the Act’) were issued and complied with. During Act, 1961 (in short ‘the Act’) were issued and complied with. During the scrutiny proceedings, the Assessing Officer noted that assessee the scrutiny proceedings, the Assessing Officer noted that assessee the scrutiny proceedings, the Assessing Officer noted that assessee had sold 2200 shares of unlisted company had sold 2200 shares of unlisted company M/s Trivector Origio M/s Trivector Origio India Pvt. Ltd. for a consideration of Rs.16,67,24,306/ . for a consideration of Rs.16,67,24,306/ . for a consideration of Rs.16,67,24,306/- and shown long term capital gain of Rs.15,91,93,555/ long term capital gain of Rs.15,91,93,555/- after claiming exemption u/s 54EC of the Act at Rs.50,00,000/ exemption u/s 54EC of the Act at Rs.50,00,000/- for investment in for investment in bonds. This company was bonds. This company was promoted by the assessee along with her by the assessee along with her
Sangeeta Dilip Patil 3 ITA N. 6557/M/2019 AY 2015-16 husband Shri Dilip Patil in the year 2005 ilip Patil in the year 2005, both having 50% shares both having 50% shares of the company. In the year 2012 of the company. In the year 2012-13, the assessee along with her 13, the assessee along with her husband sold 51% shares of the company to M/s Origio A/S vide husband sold 51% shares of the company to M/s Origio A/S vide husband sold 51% shares of the company to M/s Origio A/S vide share purchase agreement dated 28.03.2013. The balance share share purchase agreement dated 28.03.2013. The balance share share purchase agreement dated 28.03.2013. The balance share have been sold to the same company in the financial year 2014 o the same company in the financial year 2014-15 o the same company in the financial year 2014 corresponding to the assessment year under consideration vide corresponding to the assessment year under consideration corresponding to the assessment year under consideration purchase agreement dated 13.02.2015. The husband of the purchase agreement dated 13.02.2015. The husband of the purchase agreement dated 13.02.2015. The husband of the assessee sold 2700 shares of this company to M/s Origio A/S in the assessee sold 2700 shares of this company to M/s Origio A/S assessee sold 2700 shares of this company to M/s Origio A/S year under considerati year under consideration along with sale of 2200 shares by the with sale of 2200 shares by the assessee. The Assessing Officer . The Assessing Officer, however held the sale of shares as however held the sale of shares as business income in terms of section 28 of the Act as according to business income in terms of section 28 of the Act as according to business income in terms of section 28 of the Act as according to him the consideration received him the consideration received on sale of shares is actually on sale of shares is actually compensation received f compensation received from termination of her management rom termination of her management of Indian Co., which she was substantially she was substantially managing.
On further appeal, the Ld. CIT(A) deleted the addition On further appeal, the Ld. CIT(A) deleted the addition On further appeal, the Ld. CIT(A) deleted the addition observing as under:
“9.8 The AR of the appellant has also placed reliance on a 9.8 The AR of the appellant has also placed reliance on a 9.8 The AR of the appellant has also placed reliance on a number of court decisions which number of court decisions which have held that control and have held that control and management itself is a capital asset u/s. 2(14) of IT. Act. The management itself is a capital asset u/s. 2(14) of IT. Act. The management itself is a capital asset u/s. 2(14) of IT. Act. The term capital asset is defined u/s.2(14) of I.T. Act which, inter term capital asset is defined u/s.2(14) of I.T. Act which, inter term capital asset is defined u/s.2(14) of I.T. Act which, inter alia, means property of any kind held by an appellant and alia, means property of any kind held by an appellant and alia, means property of any kind held by an appellant and disposal of property would result into ca disposal of property would result into capital gain. This has pital gain. This has been held by Delhi High Court in the case of CIT vs. Shiv Raj been held by Delhi High Court in the case of CIT vs. Shiv Raj been held by Delhi High Court in the case of CIT vs. Shiv Raj Gupta (2014) 52 taxmann.com 425 (Dell and CIT vs. Sangeeta Gupta (2014) 52 taxmann.com 425 (Dell and CIT vs. Sangeeta Gupta (2014) 52 taxmann.com 425 (Dell and CIT vs. Sangeeta Wig (2014) 42 taxmann.com 146 (Del.). Wig (2014) 42 taxmann.com 146 (Del.).”
Sangeeta Dilip Patil 4 ITA N. 6557/M/2019 AY 2015-16
At the outset, before us, the Ld. Counsel of the assessee At the outset, before us, the Ld. Counsel of the assessee At the outset, before us, the Ld. Counsel of the assessee submitted that identical issue of sale of shares in the hand o identical issue of sale of shares in the hand o identical issue of sale of shares in the hand of her husband Shri Dilip Patil has been held as capital gain by the husband Shri Dilip Patil has been held as capital gain by the husband Shri Dilip Patil has been held as capital gain by the Tribunal in and ITA No. 6587/M/2019 for Tribunal in ITA No. 875/Mum/2020 and ITA No. 6587/M/2019 for Tribunal in ITA No. 875/Mum/2020 and ITA No. 6587/M/2019 for assessment year 2013 assessment year 2013-14 and 2015-16 respectively. 16 respectively.
The The Ld. Ld. Departmental Departmental Representative Repr esentative (DR) (DR) could could not not controvert position of decision in favour of the controvert position of decision in favour of the assessee on assessee on issue-in- dispute.
We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. The issue before us, is whether the gain relevant material on record. The issue before us, is whether the gain relevant material on record. The issue before us, is whether the gain arising from sale of shares of le of shares of M/s Trivector Origio India Pvt. Ltd. M/s Trivector Origio India Pvt. Ltd. is taxable under the head taxable under the head ‘capital gain’ or under the head under the head ‘profit and gains of the business gains of the business’ u/s 28(2)(a) of the Act. The Tribunal (supra) u/s 28(2)(a) of the Act. The Tribunal (supra) in the case of the husband of the assessee on identical issue has in the case of the husband of the assessee on identical issue h in the case of the husband of the assessee on identical issue h held as under:
We have analysed the nature of transaction to We have analysed the nature of transaction to We have analysed the nature of transaction to determine the character of the receipts to be assessed under determine the character of the receipts to be assessed under determine the character of the receipts to be assessed under the head business under section 28(ii)(a) of the Act. the head business under section 28(ii)(a) of the Act. the head business under section 28(ii)(a) of the Act.
This is established position of law that any such receipt 10. This is established position of law that any such receipt 10. This is established position of law that any such receipt which is described in section 28(i)(a) is duly covered as capital scribed in section 28(i)(a) is duly covered as capital scribed in section 28(i)(a) is duly covered as capital asset as defined in sec 2(14). On such type of receipt being asset as defined in sec 2(14). On such type of receipt being asset as defined in sec 2(14). On such type of receipt being asset first charge on assessee will be under the head capital asset first charge on assessee will be under the head capital asset first charge on assessee will be under the head capital gain only. If assessee is not offering such receipt under the gain only. If assessee is not offering such receipt under the gain only. If assessee is not offering such receipt under the head capital gai head capital gains, then only it is chargeable to tax under sec ns, then only it is chargeable to tax under sec 28()(a). Chargeability of such type of receipt under sec. 28(i)(a) 28()(a). Chargeability of such type of receipt under sec. 28(i)(a) 28()(a). Chargeability of such type of receipt under sec. 28(i)(a) was introduced with a motive to cover the loopholes where was introduced with a motive to cover the loopholes where was introduced with a motive to cover the loopholes where income is neither chargeable to tax under the head capital income is neither chargeable to tax under the head capital income is neither chargeable to tax under the head capital
Sangeeta Dilip Patil 5 ITA N. 6557/M/2019 AY 2015-16 gains nor in any other h gains nor in any other head. Whereas such type of ead. Whereas such type of transactions categorically covered by the finance act 1997 i.e., transactions categorically covered by the finance act 1997 i.e., transactions categorically covered by the finance act 1997 i.e., with effect from A Y 1998 with effect from A Y 1998-99 through sec, 55(2)(a). 99 through sec, 55(2)(a).
From the transactions and covenants of agreement 11. From the transactions and covenants of agreement 11. From the transactions and covenants of agreement observed, it clearly emanates that the business was being observed, it clearly emanates that the business was being observed, it clearly emanates that the business was being carried out by M/s. TOPL and assessee was simply a rried out by M/s. TOPL and assessee was simply a rried out by M/s. TOPL and assessee was simply a shareholder and not directly into the business so it can be shareholder and not directly into the business so it can be shareholder and not directly into the business so it can be affirmed that the transactions of assessee with M/s. Ori M/s affirmed that the transactions of assessee with M/s. Ori M/s affirmed that the transactions of assessee with M/s. Ori M/s Origio A/S Denmark was transfer of shares and not of Origio A/S Denmark was transfer of shares and not of Origio A/S Denmark was transfer of shares and not of business itself. In this regard w business itself. In this regard we relied upon the decisions of e relied upon the decisions of Granialowing Hon'ble High Court/Apex Court. Granialowing Hon'ble High Court/Apex Court. i. CIT Vs New India Assurance Company Ltd 122 IT 633 CIT Vs New India Assurance Company Ltd 122 IT 633 CIT Vs New India Assurance Company Ltd 122 IT 633 (Mum.) (Mum.) ii. SIN) CIT Vs F.X. Periera and Sons (Travancore) Pvt Ltd. SIN) CIT Vs F.X. Periera and Sons (Travancore) Pvt Ltd. SIN) CIT Vs F.X. Periera and Sons (Travancore) Pvt Ltd. 184 ITR 461 (Ker.) 184 ITR 461 (Ker.) iii. CIT Vs West Coast Chemicals and Industries Ltd 46 ITR CIT Vs West Coast Chemicals and Industries Ltd 46 CIT Vs West Coast Chemicals and Industries Ltd 46 135 (S.C) 135 (S.C) iv. CIT Vs Mugni Ram Bangur and Co 57 ITR 299 (S.C) CIT Vs Mugni Ram Bangur and Co 57 ITR 299 (S.C) CIT Vs Mugni Ram Bangur and Co 57 ITR 299 (S.C) v. West Coast Electric Supply Corporation Ltd Vs CIT 107 West Coast Electric Supply Corporation Ltd Vs CIT 107 West Coast Electric Supply Corporation Ltd Vs CIT 107 ITR 483 (Mad.) ITR 483 (Mad.) vi. Syndicate Bank Ltd Vs CIT 155 [TR 681 (Kar.) Syndicate Bank Ltd Vs CIT 155 [TR 681 (Kar.) Syndicate Bank Ltd Vs CIT 155 [TR 681 (Kar.) vii. Indian Bank Ltd Vs CIT 153 ITR 282 (Mad.) Indian Bank Ltd Vs CIT 153 ITR 282 (Mad.) viii. ACIT vs. Savita N. Mandhana & Ors., vs. Savita N. Mandhana & Ors., ACIT vs. Savita N. Mandhana & Ors., 3900/Mum/2010 3900/Mum/2010 ix. Rohitasava Chand Vs. CIT 306 ITR 242 (Del.) Rohitasava Chand Vs. CIT 306 ITR 242 (Del.) Rohitasava Chand Vs. CIT 306 ITR 242 (Del.) x. CIT Vs. Saroj Kumar Poddar 279 ITR 573 (Cal.) CIT Vs. Saroj Kumar Poddar 279 ITR 573 (Cal.) CIT Vs. Saroj Kumar Poddar 279 ITR 573 (Cal.) xi. CIT Vs. Shiv Raj Gupta 372 ITR 337 (Del.) CIT Vs. Shiv Raj Gupta 372 ITR 337 (Del.) 12. The jurisdictional ITAT in the case of similar facts, held in 12. The jurisdictional ITAT in the case of similar facts, held in 12. The jurisdictional ITAT in the case of similar facts, held in the case of Hami Aspi Balsara Vs ACI the case of Hami Aspi Balsara Vs ACIT 126 ITD 100, held as T 126 ITD 100, held as under "Admittedly, in the share purchase agreement no "Admittedly, in the share purchase agreement no "Admittedly, in the share purchase agreement no consideration was assigned towards non consideration was assigned towards non-compete fees and compete fees and the parties had entered into the share purchase agreement the parties had entered into the share purchase agreement the parties had entered into the share purchase agreement after mutually settling the price of shares. This clause clearly after mutually settling the price of shares. This clause clearly after mutually settling the price of shares. This clause clearly shows that in the purchase price of shares, consideration shows that in the purchase price of shares, consideration shows that in the purchase price of shares, consideration towards Restraint Clause towards Restraint Clause towards Restraint Clause was was was embedded. Admittedly, embedded. embedded. Admittedly, Admittedly, assessee on her own was not carrying on business and it was assessee on her own was not carrying on business and it was assessee on her own was not carrying on business and it was the company in which she was shareholder was carrying on the company in which she was shareholder was carrying on the company in which she was shareholder was carrying on the business, ... Thus, sectio the business, ... Thus, section 28 would be attracted where n 28 would be attracted where the assessee was carrying on business and not where the assessee was carrying on business and not where the assessee was carrying on business and not where
Sangeeta Dilip Patil 6 ITA N. 6557/M/2019 AY 2015-16 assessee only had right to carry on business in the form of assessee only had right to carry on business in the form of assessee only had right to carry on business in the form of capital asset." capital asset."
In view of the above facts, pronouncement of Hon'ble High 13. In view of the above facts, pronouncement of Hon'ble High 13. In view of the above facts, pronouncement of Hon'ble High Court and jurisdictional ITAT, we ar Court and jurisdictional ITAT, we are of the considered view e of the considered view that the assessee had rightly declared t the assessee had rightly declared income under the head income under the head Capital gains. No portion of considerations can Capital gains. No portion of considerations can be attributated be attributated for the purposes of sec. 28 hence we confirm the findings of ld. for the purposes of sec. 28 hence we confirm the findings of ld. for the purposes of sec. 28 hence we confirm the findings of ld. CIT(A) and dismissed the grounds of appea and dismissed the grounds of appeal raised by the l raised by the Revenue.” 6.1 As identical issue of the sale of the shares of the same As identical issue of the sale of the shares of the same As identical issue of the sale of the shares of the same company is involved in the case of the assessee, therefore, company is involved in the case of the assessee, therefore, company is involved in the case of the assessee, therefore, respectfully following the finding of the Tribunal (supra) the respectfully following the finding of the Tribunal (supra) the respectfully following the finding of the Tribunal (supra) the grounds of appeal of the Revenue are dismissed grounds of appeal of the Revenue are dismissed.
In the result, the appeal of the Revenue is dismissed. In the result, the appeal of the Revenue is dismissed. In the result, the appeal of the Revenue is dismissed.