COMMISSIONER OF INCOME-TAX VS SMT. NANDINI NOPANY
1999 P T D 3343
[230 I T R 679]
[Calcutta High Court (India)]
Before Vinod Kumar Gupta and Dipak Prakas Kundu, JJ
COMMISSIONER OF INCOME-TAX
Versus
Smt. NANDINI NOPANY
Income-tax Reference No. 192 of 1992, decided on 17/12/1997.
Income-tax---
----Income---Additions to income---Purchase and sale of shares-- Understatement of consideration ---Assessee holding shares of B group of Cos.---Shares held in B group of Cos. sold by assessee to V Co. at book value which was less than market value ---Assessee receiving shares of V Co. as sale consideration---No evidence that assessee received difference between book value and market value of shares sold---Difference between market value and price at which shares sold not assessable as income.
The assessee held some shares in B group of companies and the quoted price of those shares was to the tune of Rs.20,67,876. The assessee sold the shares which she held in B group of companies to V Co. as per book value at Rs.13,34,392. As on the valuation date relevant to the assessment year 1984-85, the assessee was holding, after the transfer of the aforesaid shares of B group of companies in favour of V Co., 1,33,410 shares of Rs.10 each valued at Rs.13,34,100 in V Co. The assessee, therefore, as on that date was not holding any shares in B group of companies. The Assessing Officer found that in the transaction of sale of shares, no money had actually passed from V Co. to the assessee and that by the sale of the shares of B group of companies to V Co., the assessee had received 1,33,410 ordinary shares of V Co. at the value of Rs. 10 each per share. The Assessing Officer further found that, out of the total paid-up capital of Rs.13,34,200 of V. Co., the assessee was owning shares worth Rs.13,34,100 and, therefore, the assessee had the absolute control over the said company. On the ground that the market value of the shares transferred by the assessee was Rs.20,67,876, the Assessing Officer rejected the contention of the assessee regarding the transfer of the shares and added the difference between the amount of Rs.13,34,392 and Rs.20,67,876 and held that the assessee had earned an income of Rs.7,57,382. The Commissioner of Income-tax (Appeals) reversed the order of the Assessing Officer on the ground that there was no case for substituting the disclosed value of consideration on transfer of the shares and he accordingly deleted the addition made on that account in the income of the assessee. The Tribunal upheld the finding of the Commissioner of Income-tax (Appeals). On a reference:
Held, that the genuineness of the transaction of sale and purchase of shares between the assessee and V Co. had not been doubted by the Department. This was not a case where any understatement of value or misstatement of value of the shares sold was made by the, assessee. This was a case where the assessee had sold the shares at a value admittedly lower than the market price. There was no evidence direct or inferential, nor was there any finding by any income-tax authority that the assessee received the difference between the book value and market value of shares sold. Therefore, the Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals) in deleting the addition of Rs.7,57,076 on account of transfer of shares made by the assessee to V Co.
CIT v. Shivakami Co. (P.) Ltd. (1986) 159 ITR 71 (SC) and India Finance and Construction Co. (Pvt.) Ltd. v. Panda (B.N.), Deputy CIT (1993) 200 ITR 710 (Bom.) fol.-
JUDGMENT
The following question of law has been referred for our opinion:
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals) in deleting the addition of Rs.7.57.076 made by the Assessing Officer on account of transfer of shares made by the assessee to Vishwa Mangal Trading Co. (Pvt.) Ltd., at rates lower than the quoted market rates on the date of transfer?"
The assessee is a resident individual and the assessment year involved is 1984-85 for which the previous year ended on March 31, 1984. The assessment was completed under section 143(3) of the Income Tax Act, 1961 on January 27, 1987.
During the relevant previous year, the assessee was the proprietor of a concern known as Nandini Traders in which she made certain share transactions in the ordinary course of business. The shares that she held are related to the Birla group of companies.
The admitted fact is that the quoted price of those shares was to the tune of Rs.20,67,876. On June 9, 1983, the assessee transferred the said shares in favour of another company by the name of Vishwa Mangal Trading Co. (Pvt.) Ltd., as per book value at Rs.13,34,392. As on the valuation date relevant to the assessment year 1984-85, the assessee was holding, after the transfer of the aforesaid shares of the Birla group of companies in favour of the: abovenamed Vishwa Mangal Trading Co. (Pvt.) Ltd., 1,33,410 shares of Rs 10 each valued at Rs.13,34,100 in the abovenamed Vishwa Mangal Trading Co. (Pvt.) Ltd. The assessee, therefore, as on that date was not holding any snares in the Birla group of companies to the course of assessment, the Assessing Officer found that in the transaction under consideration no money had actually passed from Vishwa Mangal Trading Co. (Pvt.) Ltd., to the assessee and that by sale of the shares of the Birla group of companies to Vishwa Maigal Co. (Pvt.) Ltd., the assessee had received 1,33,410 ordinary shares of that company at the value of Rs.10 each per share. The Assessing Officer further found that out of the total paid-up capital of Rs.13,34,200 of Vishwa Mangal Trading Co. (Pvt.) Ltd., the assessee was owning shares worth Rs.13,34,100 and, therefore, the assessee had the absolute control over the said company.
Upon consideration of all the above facts and also the question that the market value of the shares transferred by the assessee was Rs.20,67,876, the Assessing Officer rejected the contention of the assessee regarding the transfer of shares and added the difference between the amount of Rs.13,34,392 and Rs.20,67,876 and thus held that assessee had earned an income of Rs.7.57,382.
Being aggrieved, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) who after considering the facts and circumstances of the case reversed the order of the Assessing Officer being of the opinion that there was no case for substituting the disclosed value of consideration on transfer by the shares and he accordingly deleted the addition made on that account in the income of the assessee by the Assessing Officer.
Being aggrieved, the Revenue filed an appeal before the Tribunal. The Tribunal upheld the finding of the Commissioner of Income-tax (Appeals) by agreeing with the contentions. Thus, under those circumstances, the aforesaid question of law has been referred to us for our opinion.
The genuineness of the transaction of the sale and purchase of the shares between the assessee and Vishwa Mangal Trading Co. (Pvt.) Ltd., has not been doubted by the Assessing Officer. This has not even been questioned by the Department. It is not disputed that the assessee had transferred those shares at the book value cost maintained by her. It is also not disputed that the book value cost was lower than the market value of the shares. In fact it is admitted that the- market value of those shares was to the tune of Rs.20,67,876.
Under those circumstances, holding that the assessee had derived any income, being the difference between the market value and the price on which the shares were sold by the assessee in our opinion, was not correct. We are of the view that the Tribunal rightly upheld the finding of the Commissioner of Income-tax (Appeals). It is not a case where any understatement of value or misstatement of value of the shares sold was made by the assessee. This is a case where the assessee had sold the shares at a value admittedly lower than the market price. Yet the shares could not be assessed on the difference amount being her income because no inference can be drawn in the facts and circumstances of the case that the design of the assessee was such that she concealed certain facts and she received the difference of the value by fraudulent means. There was no evidence direct or inferential, nor was there any finding by any Income-tax Authority that the assessee indulged in such a practice. We are fortified in our view by a judgment of the Supreme Court in the case of CIT v. Shivakami Co. (P.) Ltd. (1986) 159 ITR 71 (SC). We also find support in our view from a Division Bench judgment of the Bombay High Court to the case of India Finance and Construction Co. (Pvt.) Ltd. v. Panda (B.N.), Deputy CIT (1993) 200 ITR 710.
For the reasons above, we answer the question in the affirmative and against the Revenue
All parties are to act on a signed copy of this dictated order on the usual undertaking.
M.B.A./3120/FC Reference answered.