IN THE ITAT,
Max Telecom Ventures Ltd.
v.
Assistant Commissioner of Income-tax
JOGINDER PALL, ACCOUNTANT MEMBER (
AND A.D. JAIN, JUDICIAL MEMBER
INCOME TAX APPEAL NO. 172 (ASR.) OF 2002
[Assessment year 1998-99]
March 23, 2007
Section 45, read with section 2(47), of the Income-tax Act,
1961 - Capital gains - Year in which assessable - Assessment year 1998-99 -
Whether expression ‘transfer’ used in section 45 is transfer in relation to a
capital asset and not sale of capital asset; for purpose of capital gains, sale
is not only made of transfer of a capital asset - Held, yes - On 17-3-1998, assessee
entered into a share purchase agreement for sale of certain shares - Said
agreement was acted upon and was followed by delivery of share certificates
along with transfer deeds on 23-4-1998 - Whether in view of C.B.D.T. Circular
No. 704, dated 28-4-1995, material date of transfer for purpose of section 45
would be 17-3-1998 and not 23-4-1998 - Held, yes - Whether therefore, capital
gains arising out of transfer of shares was taxable in relevant year - Held,
yes
Circulars and Notifications: CBDT Circular No. 704, dated 28-4-1995
FACTS
On 17-3-1998
the assessee-company entered into a share purchase agreement for sale of
certain shares. In the return filed for the assessment year 1998-99, the
assessee showed capital gains arising on the sale of said shares but submitted
that 1-4***, and since some of the conditions contained in the said agreement
were complied with in April 1998 and share certificates and transfer deeds
thereof were handed over to the purchaser on 23-4-1998 along with receipt of
consideration, the long term capital gain on said sale was liable to be
considered in the subsequent assessment year. The Assessing Officer, however,
while relying on the CBDT’s Circular No. 704, dated 28-4-1995, 2-4*** the share
purchase agreement was entered into.
Therefore, 3-4-5***. On appeal,
the Commissioner (Appeals) upheld the impugned order.
On second
appeal:
HELD
Section 45
provides that any profits or gains arising from the transfer of a capital asset
effected in the previous year shall, save as otherwise provided in sections 54,
54B etc. be chargeable to income-tax under the head ****‘Capital gains’, and
shall be deemed to be the income of the previous year in which the transfer
took place. The expression “transfer”
used in the section is ‘transfer in relation to a capital asset’ and not sale
of capital asset.
A bare reading
of the said section would show that expression ‘transfer’ used in the Act has
much wider meaning and cannotation and the same is not only confined to
sale. It extends and covers many other
situations for the purpose of capital gains under the Act. Nowhere, the section says that definition of
“transfer” shall be as per the definition of sale under the Sale of Goods Act,
1930. Thus, reliance of the assessee on
Section 4 of the sale of goods Act was misplaced and not correct and,
therefore, it was not applicable to the facts of the instant case. [
As regards the
issue as to whether the date of transfer of shares in the instant case should
be reckoned as 17-3-1998 i.e., the date of execution of the Agreement for sale
of shares or 23-4-1998 i.e. when delivery of share certificates alongwith
transfer deeds were handed over to the purchaser, the provisions of the Act
draw a distinction between a short-term capital gain and long-term capital
gains and accord different treatment for the purpose of levy of tax on such
gain. The issue whether a particular
asset is a long-term asset or short-term asset depends on the holding of the
capital asset by the assessee. In the
case of “Transfer of Shares”, there was confusion as what should be considered
as date of purchase and date of sale for the purpose of ascertaining whether
the capital asset was a short-term capital asset or long-term asset. Therefore, C.B.D.T. issued clarification vide
Circular No. 704 dated 28-4-1995 where it was mentioned that when shares are
transacted through stock exchanges, it is the established procedure that the
brokers first enter into contracts for purchase/sale of securities and
thereafter, follow it up with delivery of shares, accompanied by transfer deeds
duly signed by the registered holders.
The seller is entitled to receive the consideration agreed to as on the
date of contract. In such cases, it was
clarified that the date of transfer of shares should be the date of broker’s
note provided such transactions were followed up by delivery of shares and also
the transfer deeds. The Board further clarified
that in respect of the transactions of shares directly between the parties and
not through stock exchange, date of contract of sale as declared by the parties
shall be treated as the date of transfer provided it is followed up by the
parties shall be treated as the date of transfer provided it is followed up by
actual delivery of shares and the transfer deeds. Nowhere, the said Circular says that the same
would not be applicable in a case where the agreement was for conditional sale. Even if, certain conditions are stipulated in
the agreement, the Circular takes care of the same because it qualifies that
the date of contract for sale shall be treated as the date of transfer provided
it is followed up by actual delivery of shares and the transfer deeds. In a case where the transaction is not
followed by delivery of shares and transfer deeds due to non-fulfillment of the
conditions, it will not be regarded as transfer for the purpose of capital
gain. Therefore, the uncertainties
arising in the contract on account of stipulation of certain conditions had
been taken care of by subsequent delivery of shares and transfer deeds. [
In the instant
case, there was no doubt that share purchase agreement was acted upon and was
followed by delivery of share certificates alongwith transfer deeds of
23-4-1998. In fact, transfer of shares
took place on a much earlier dated that the date mentioned in the month of
August in the Agreement. No doubt, the
conditions stipulated in the agreement were mostly procedural in nature and did
not effect the transfer of shares. The
agreement itself conferred rights and obligations of the parties
concerned. The mere fact that there was
a clause to rescind the agreement the same would not make the transfer as
conditional. [
In the instant
case, the entire agreement executed on 17-3-1998 among the parties was acted
upon. It was conceded by the assessee
that the approval of Government authorities had been received in the accounting
period relevant to assessment year under consideration. The entire shares were delivered alongwith
transfer deeds on 23-4-1998. Therefore,
the same was not a conditional sale as was also understood by the parties at
the time when resultant capital gains on sale of shares was included in the
original return filed by the assessee.
Therefore, the case of the assessee was fully covered by the circular of
the Board as the date of transfer for the purpose of section 45 would be
17-3-1998 and not 23-4-1998.
The
authorities below were justified in taking the date of transfer of shares as
17-3-1998 falling in the accounting period relating to the assessment year
under consideration. Accordingly, the
order of the Commissioner (Appeals) was to be confirmed. [
In the result,
the appeal of the assessee was dismissed. [