COMMR. OF INCOME TAX-I, CHD. vs. USHA SABOO

ITA/557/2006HC Punjab & HaryanaPHHC01075292200615 May 2015Author: MR. JUSTICE A.B. CHAUDHARI,MR. JUSTICE M.M. AGGARWAL34 pages
AI SummaryDismissed

What were the facts?

The appeals by the Commissioner of Income Tax (CIT) concerned assessment year 1994-95, arising from an assessment order under section 143(3). The respondents are members of the Saboo group, which held 40% shares in Groz Beckert Saboo Ltd., a joint venture with the German Groz Beckert group (holding 60%). Disputes led to a Share Purchase Agreement dated 21.01.1993, where the Saboo group sold its shares to the Groz Beckert group for Rs. 400/- per share. The agreement included restrictive/negative covenants by the Saboo group. The respondents claimed to apportion Rs. 100/- out of the Rs. 400/- per share as consideration for these negative covenants. This claim was rejected by the Assessing Officer and CIT(A) but allowed by the Income Tax Appellate Tribunal (ITAT). The CIT appealed the ITAT's order.

What did the High Court hold?

The High Court held that although the Share Purchase Agreement did not explicitly bifurcate the consideration for the shares and the negative covenants, the assessee was entitled to apportion a part of the consideration towards the negative covenants. The Court found that the matter was covered by Supreme Court judgments and the views of several other High Courts. On facts, the Court held that the amount of Rs. 100/- out of Rs. 400/- per share apportioned towards the negative/restrictive covenants was on the conservative side. The Court agreed with the Tribunal's acceptance of the valuation report, which provided different valuations for the shares, indicating that the Rs. 100/- apportionment was reasonable. The Court rejected the Revenue's contention that the consideration for the negative covenants was assessable to tax under Section 28 of the Act, finding Section 28(ii)(a) & (b) inapplicable as the Saboo group did not manage the whole or substantially the whole of the company's affairs. Section 28(va) was also held inapplicable as it came into force later. The question of law was answered against the Revenue.

What were the issues?

1. Whether, on the facts and circumstances, the ITAT was justified in law in treating a sum of Rs. 100/- per share as a capital receipt not chargeable to tax, considering Section 48 of the Income Tax Act, 1961, which makes entire receipts on sale of shares chargeable to tax? Assessee's contentions: The assessee contended that they were entitled to apportion a sum of Rs. 100/- out of Rs. 400/- per share as consideration for the negative covenants. They argued that the agreement, though not explicitly bifurcating the consideration, allowed for such apportionment. They relied on the Supreme Court's judgment and views of other High Courts. They also contended that the ITAT rightly accepted the valuation report which supported their apportionment. Revenue's contentions: The Revenue contended that the entire receipt on sale of shares was chargeable to tax under Section 48 and that no part of it could be treated as a capital receipt for negative covenants. They also argued that the consideration for negative covenants, if any, was assessable to tax under Section 28 of the Act.

Which sections of the Income-tax Act were involved?

Section 48,Section 143(3),Section 10F,Section 28,Section 28(ii)(a),Section 28(ii)(b),Section 28(va)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH

Date of Decision: 15th May, 2015

1.

ITA No. 557 of 2006 Commissioner of Income Tax-I, Chandigarh

….Appellant

versus Smt. Usha Saboo

..Respondent

2.

ITA No. 262 of 2010

Commissioner of Income Tax-I, Chandigarh

….Appellant

versus Smt. Pallabi Saboo

..Respondent

3.

ITA No. 263 of 2010 Commissioner of Income Tax-I, Chandigarh

….Appellant

versus Shri R.K.Saboo

..Respondent

4.

ITA No. 264 of 2010 Commissioner of Income Tax-I, Chandigarh

….Appellant

versus Smt. Anuradha Saboo

..Respondent

5.

ITA No. 351 of 2010 Commissioner of Income Tax-I, Chandigarh

….Appellant

versus Shri Jai Vardhan Saboo

..Respondent

6.

ITA No. 352 of 2010 Commissioner of Income Tax-I, Chandigarh

….Appellant

versus Shri Yashvardhan Saboo

..Respondent

7.

ITA No. 353 of 2010 Commissioner of Income Tax-I, Chandigarh

….Appellant

versus Shri R.K.Saboo

..Respondent

The order continues below.

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