Amit Shukla, Member (J) -
(1.) THE present appeal has been preferred by the Revenue challenging the impugned order dated 30th January 2009, passed by the learned Commissioner (Appeals) -XXXI, Mumbai, for the quantum of assessment passed under section 143(3), of the Income -tax Act, 1961 (for short "the Act") for the assessment year 2005 -06, on the following grounds: - -
"1. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals), without verification of facts, erred in concluding that the consideration of Rs. 1.20 crores (received in addition to Rs. 60.32 lacs received in May, 2002) represents payments received for transfer of shares, though there was no proof of such transfer and whether the amount received was share consideration.
2. ON the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) erred in coming to the conclusion that shares were sold in Assessment Year 2005 -06 when there was no evidence of their sale at that point of time. In fact if at all the shares can be considered as sold - it is in 2002. The Ld. CIT (Appeals) ought to have verified the actual date of sale before deciding the issue especially when the part sale proceeds of Rs. 60.32 lacs were allegedly received by the assessee as early as in May, 2002. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) erred in coming to the conclusion that the amount of Rs. 33.38 lacs mentioned in the 'Settlement' is out of the sale proceeds of the said shares. No evidence exists to prove that these proceeds were relatable to the sale of shares.
3.ON the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) erred in directing the Assessing Officer to assess the sum of Rs. 101.97 lacs (out of the total of Rs. 1.20 crores received by the assessee) as 'Capital Gains'. It is not proved that these shares were sold at all hence the question of the amounts being treated as 'Capital Gains' cannot arise in the absence of such proof.
4.ON the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) erred in holding that since the assessee is a non -resident and her income was subject to TDS and therefore, she is not liable to pay advance tax and accordingly in deleting the interest charged under section 234B of the Act amounting to Rs. 12,50,801/ -."
Brief facts, qua the issue involved are that the assessee, since deceased, was non -resident British citizen, domiciled in France, as she was married to a French Painter, Mr. Bruce Tippet. She had filed her return of income on 29th January 2007, declaring total income of Rs. 9,156. In the return of income, the assessee has given an explanatory note claiming exemption from capital gain on alienation of shares in view of Article -14(6) of the Indo -French DTAA. The said explanatory note read as under: - -
"2. During the previous years ended 31.3.2005, the assessee settled the disputes with Ms. Rashmi Agrawal, concerning, among others, the principal dispute relating to the fraudulent disposal by Ms. Rashmi Agrawal of the shores (in certain Indian listed companies) belonging to the assessee. A copy of the settlement dated 11.6.2004 is enclosed herewith. As a result of the settlement reached, the assessee accepted monetary compensation of Rs. 1,20,00,000/ -, including the compensation in lieu of the said shares. Having regard to the nature of the principal dispute relating to the shares, the substance of the settlement reached in that context and the totality of the facts and circumstances of the case, the amount of compensation attributable to the said shares is worked out at Rs. 1,01,97,000/ -. According to the assessee, his sum when aggregated to the sum of Rs. 60,32,000/ - earlier received for the shares from Ms. Rashmi Agrawal pending the resolution of the dispute, constitutes the total consideration received by the assessee for giving up her claim to the said shares under the dispute. Hence, the total consideration received for the shares is taken at Rs. 1,62,29,000/ -. Since the assessee gave up her claim to the said shares on reaching the settlement on 11.6.2004, i.e. in the previous year ended 31.3.2005, the transfer of those shares has taken place in the previous year ended 31.3.2005, i.e. in the A.Y. 2005 -06. Hence, the tax consequence, if any, of the resultant capital gains that arose to the assessee on the alienation of the said shares is considered in the A Y. 2005 -06.
Being a resident of France, the assessee claims total exemption in respect of the capital gains that arose on the alienation of the shares referred to in paragraph (2) above. The claim for exemption is based on the provisions of Article 14(6) of the Indo -French Tax Treaty, which are reproduced below for ready reference: - -
4. Without prejudice to the above, and only for the sake of completeness of the information, the assessee has worked out the capital gains, if any, on the alienation of the said shares as under; through as stated above, the same are not taxable in India under the Indo -French Tax Treaty: - -
5. The assessee has incurred the following expenses in connection with the aforesaid dispute and its settlement, which are deductible u/s. 48 of the Act, being the expenses incurred in connection with the alienation (transfer):
(2.) The genesis of the controversy regarding sale of shares and receipt of sum of Rs. 1.20 crores, after the death of her father, Late Shri Nityanand Vagle, in January 2000, when dispute arose between the assessee and her brothers, Shri N.N. Vagle and Shri K.N. Maloo, over the distribution of the estate of her late father. The estate included shares of 17 Blue Chip Companies (the details of which have been given at Page -4 of the assessment order), which were standing in the joint names of the assessee's late father either with Shri K.N. Maloo, or with the assessee. In order to transfer those shares in the name of the assessee alone and for handling the affairs in India, she had executed a general power of attorney in favour of her friend Ms. Rashmi Agarwal, in India on 16th June 2000. The share certificates were sent to Ms. Rashmi Agarwal, for getting them transferred in the name of the assessee. Thereafter, it appears that the assessee did not follow up with Ms. Rashmi Agarwal. Later on, when the dispute between the assessee and her brother reached the stage of criminal complaint and investigation by Police in the year 2003, the assessee was required to give the details of the shares which formed part of the estate of her late father. At this stage, the assessee sought information from Ms. Rashmi Agarwal, about the shares and at this stage, it was informed to her that all the shares were sold for sum Rs. 93,70,135, by Ms. Rashmi Agarwal, on behalf of the assessee in the year 2002 itself. After realising the foul play and cheating on the part of Ms. Rashmi Agarwal, the assessee sent a legal notice and later on implicated her and others, who were involved for the alleged fraud of selling of shares perpetrated by then in the criminal complaint filed before the Addl. Chief Metropolitan Magistrate. On the direction of the Magistrate, Police conducted an enquiry and investigation in the whole matter and gave a prima facie finding that Ms. Rashmi Agarwal, and one Mr. Ambasthan, have fraudulently sold these shares and have cheated the assessee. Once the finding of the police was filed before the Magistrate, Ms. Rashmi Agarwal, sought to settle the dispute with the assessee and come forward with settlement agreement dated 31st May 2004, wherein she paid a sum of Rs. 1,20,00,000. It was agreed in the terms of settlement that the assessee will withdraw all the complaints filed against Ms. Rashmi Agarwal and others. Regarding the transfer of shares, the records suggest that Ms. Rashmi Agarwal, had sold these shares for sum of Rs. 93,70,135, out of which she had deposited sum of Rs. 60,32,000, in the bank account of the assessee on 14th May 2002, without intimating to the assessee. The balance amount of Rs. 33,38,135, was not paid. When the assessee realised about the fraud committed by Ms. Rashmi Agarwal, and the same was confronted through criminal complaint, then she, vide her letter dated 16th April 2004, had offered to pay the assessee the balance sum of Rs. 33,38,135. Thus, when this entire matter of fraud and appropriation was investigated by police and adverse finding was given then in order to save herself, Ms. Rashmi Agarwal, was force to settlement which was arrived for a lump sum payment of Rs. 1.20 crores, which also included the sum of Rs. 33,38,135. The balance sum of Rs. 86,61,865 [Rs. 1.20 crores ( -) Rs. 33,38,135] was stated to be attribution of settlement of other disputes including appropriation and sale of Alibaug land belonging to the assessee. The entire settlement amount of Rs. 1.20 crores was credited to the bank of the assessee on 9th June 2004. The assessee had claimed that the entire amount of monitory compensation of Rs. 1.20 crores, is towards dispute relating to shares, because at the time of settlement, the value of these shares were more than 1.62 crores and since the assessee had received 60.30 lakhs earlier, therefore, the balance amount of Rs. 1.02 crores (approx.) pertains to compensation towards only. Thus, the transfer of these shares can be said to have arisen in the assessment year 2005 -06, because the settlement had reached on 31st May 2004, when the assessee had given up her claim on the shares.
(3.) The Assessing Officer on the other hand held that the shares under consideration were sold by Ms. Rashmi Agarwal, in the year 2002, on behalf of the assessee which was much before the settlement date took place in the financial year 2004 -05 and, therefore, the assessee's claim that sum of Rs. 1.20 crores received in the year 2004, was towards transfer of shares is not tenable. The assessee had already received sum of Rs. 60.32 lakhs on 14th May 2002, and instead of receiving balance amount of Rs. 33,38,135, the assessee has received Rs. 1.20 crores, which cannot be said to be on account of shares because it was only in pursuance of criminal complaints under various provisions of IPC against Ms. Rashmi Agarwal, that compensation was received by the assessee. Hence, the Assessing Officer concluded that the income chargeable under the head capital gain on transfer of shares had arisen in the assessment year 2003 -04 and, therefore, such shares cannot be held to be transferred once again in the assessment year 2005 -06. In the settlement agreement, there is no mention or any clause about agreeing for a high rise of the market price of the shares for the consideration for compensation. Thus, he held that if at all, any capital gain is to be taxed, then the same is taxable in the assessment year 2003 -04 and what the assessee has received in this year i.e., Rs. 1.20 crores, the same is to be taxed as income from other sources. He categorically noted that the compensation received was only to avoid further legal disputes against Ms. Rashmi Agarwal, and, therefore, the consent agreement was signed for receiving the consideration of Rs. 1.20 crores, which cannot be attributed to transfer of shares, but should be taxed as income from other sources, which is characterized as "other income" under Article -23 to DTAA between India and France. Since the income of Rs. 1.20 crores has arisen in India, therefore, the same is taxable in India as per said the Article. In the nut shell, the conclusion of the Assessing Officer is two fold; (i) the amount received by the assessee in lieu of transfer of shares is taxable as capital gain in the assessment year 2003 -04, as the shares were transferred/sold in the financial year 2002 -03; and (ii) the amount of compensation of Rs. 1.20 crores received by the assessee in terms of settlement agreement dated 31st May 2004, is to be taxed as income from other sources and not on account of shares as claimed by the assessee.;