TRAK SERVICES (P) LIMITED,NEW DELHI vs. ITO, WARD-16(3), NEW DELHI

The grounds of appeal reads as under:-

Brief facts of the case are that the assessee company has declared Long Term Capital Gain (In short LTCG) of Rs. 13134996/- from the transfer of 1538460 shares of M/s Axis IT&T Ltd. sold on 28/4/2008. The assessee company has declared the sale price of these shares at Rs. 13.50 per share on the date of transfer. However, the rate of share of M/s Axis IT&T Ltd. as on 28/4/2008(date of transfer) is Rs. 20.50 per share, since it a quoted share. The transfer of these shares was on off market transaction. The assessee was asked as to why the shares value on the date of transfer be not taken at Rs. 20.5 per share. To this, the assessee pleaded that in this case 61% of the shareholders of Ms Axis AT&T Ltd. came together and decided to sell their holdings to one party. A written agreement to this effect was executed on 11/1/2008. Since there is a bar for sale of shares in the stock exchange as per which only 5% of the shares, could be transacted in a single day. However, this plea does not hold water as this was an off-market transaction and hence there was no bar to transfer any number of shares as one liked.

The AO further noted that it is not clear as to how the assessee has calculated or adopted the value of shares of this company at Rs.13.50 per shares as on 28/4/2008 when the transfer actually took place. That the value of a share has got to be adopted on the date of transfer, since that is the only relevant date when the capital gain accrues. That the assessee has itself admitted the date of sale as 28/4/2008 since it has been shown in the year under consideration. That there is no dispute with regard to the fact that the price of share of this company as on 28/4/2008 was Rs.20.50 per share. In view of the above, AO held that full value of consideration in respect of this transaction is adopted at Rs. 50.50 per share & the sale value of 1538460 shares would work on to Rs. 3,15,38,430/-. The assessee has declared the full value of consideration at Rs. 20769210/- and hence the AO made addition of Rs.1,07,69,220/-.

Upon assessee’s appeal, the Ld. CIT(A) confirmed the action of the Assessing Officer.

Against this order, the assessee is in appeal before the Tribunal. We have heard both the parties and perused the records.

The Ld. Counsel for the assessee submitted that original return was filed on 18.03.2009 and revised return filed on 17.09.2010 declaring loss of Rs.16,68,409/-. After taking sale consideration of Rs.2,07,69,210/- (Rs.13.5/- per share) as per date of agreement, the assessee declared long term capital gain on sale of listed share of M/s Axis IT&T Limited. The assessee further referred to page 50 to 103 of the paper book and submitted that the shares purchase agreement dated 11.01.2008, where 60.69% shares holders came together and agreed to sell their holding to one party at an agreed rate of Rs.13.5/- per share. All conditions mentioned in agreement were complied with and the agreement was in accordance with the terms of Regulation 22(16) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. The assessee further submitted that all corporate, regulatory and statutory approvals, consents given by the stock exchanges on which the Company is listed and acknowledgement from SEBI in respect of the transaction were to be obtained by the seller and delivered to the purchaser. A public announcement and offer to purchase minimum of 20% of voting capital of the company from all the shareholders was required to be made by the Purchaser in accordance with SEBI and only after the conclusion of the open offer, the purchase price, share certificates, share transfer forms, etc was to be released in favour of the seller. Subsequent to this, resolution was to be passed to approve the transfer, necessary filings were to be made with the Registrar of Companies. The assessee further submitted that the advance of Rs.40,13,824/- and balance payment of Rs.1,62,88,660/- was received on 24/01/2008 and 29/04/2008 respectively after deducting transaction fee. The assessee vide letter dated 04/011/2011 has also filed the ledger of the purchaser in books. The assessee referred to the paper book page 109 where it was mentioned that the share price of M/s Axis IT&T Limited was Rs.11.21/- per share on the date of signing the term sheet i.e. on 30/11/2007 and showing share price from the website moneycontrol.com. The assessee submitted a chart showing “payment as per agreement to sell” and “payment as per bank statement” which reads as under:-

The Ld. Counsel for the assessee further relied upon following propositions:-

After hearing the rival contentions and after perusing the case laws cited by the Ld. AR, we find that after taking sale consideration of Rs. 2,07,69,210/- (Rs. 13.5/- per share) as per date of agreement, the assessee declared long term capital gain on sale of listed share of M/s Axis IT&T Limited and as per the sale purchase agreement dated 11.01.2008, 60.69% shares holders came together and agreed to sell their holding to one party at an agreed rate of Rs. 13.5/- per share and all the conditions mentioned in agreement were complied in accordance with SEBI Regulations. In the agreement, it was also mentioned that there are no related party transactions. The advance of Rs. 40,13,824/- and balance payment of Rs. 1,62,88,660/- was received on 24.1.2008 and 29.4.2008 respectively after deducting transaction fee and the ledger of the purchaser in the books of the assessee was also filed vide letter dated 4.11.2011. The share price of M/s Axis IT&T Limited was Rs. 11.21/- per share on the date of signing the term sheet on 30.11.2007 showing share price from the website moneycontrol.com. We note that the payments were made as per agreement to sell and the same is verifiable from the bank statements. In view thereof, it is crystal clear that the transaction was an off market transaction of listed shares held by the assessee as an investment in its balance sheet and assessee has entered into a share purchase agreement on 11.01.2008 and the transfer of shares actually took place on 28.4.2008 and consideration of the shares was taken Rs. 13.50 per share i.e. the price prevailing on the date of share purchase agreement. As per clause B of the aforesaid agreement the sellers are inter alia the owners of 12,113,184 fully paid up equity shares, representing 60.69% of the issued, subscribed and paid up equity shares capital of the company as more fully specified in Annexure-A. Further they have an absolute right to sell the shares, free from all liens, charges and encumbrances. Therefore, it is established that the adoption of value by the Assessing Officer as on the date of transfer was only a hypothetical value i.e. the price as on 28.4.2008. Hence, the resulting addition of Rs. 10769220/- is not tenable. We note that it is settled law that full value of consideration used in section 48 does not have any reference to market value but only to consideration referred to in sale deeds as sale price of assets which have been transferred, as laid down by the Hon’ble Supreme Court of India in the case of CIT vs. Gillanders Arbuthnot & Co. (1973) 87 ITR 407 (SC) wherein, it has been held as under:-

Keeping in view of the aforesaid discussions and on the anvil of the decisions of the Apex Court, as aforesaid, we are of the considered opinion that the lower authorities have been completely wrong in making and sustaining the addition of Rs. 1,07,66,220/- on account of increase in sale consideration of shares, which needs to be deleted. We hold and direct accordingly.

In the result, the appeal of the assessee is allowed.