{"id":2644,"date":"2011-02-07T21:40:52","date_gmt":"2011-02-07T16:10:52","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=2644"},"modified":"2011-02-07T21:40:52","modified_gmt":"2011-02-07T16:10:52","slug":"acit-vs-r-k-b-k-fiscal-services-ltd-itat-kolkata-share-sale-price-cannot-be-apportioned-towards-transfer-of-controlling-interest","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/acit-vs-r-k-b-k-fiscal-services-ltd-itat-kolkata-share-sale-price-cannot-be-apportioned-towards-transfer-of-controlling-interest\/","title":{"rendered":"ACIT vs. R.K.B.K Fiscal Services Ltd (ITAT Kolkata)"},"content":{"rendered":"\n\n
Click here to download the judgement (RKBK_Fiscal_control_interest_shares.pdf) <\/strong> <\/a><\/p><\/td>\n<\/tr>\n<\/table>\n

Share sale price cannot be apportioned towards transfer of “controlling interest”
\n<\/strong><\/p>\n

The assessee sold (off-market) shares of Gujarat Ambuja Cements Ltd to Holcim Mauritius for a consideration of Rs. 105 per share. The assessee claimed that the consideration for the share had (as per a valuation report) to be taken at Rs.74.20 and the balance of Rs.30.80 had to be treated as consideration “for parting with managerial control”<\/em>. It was claimed that the said sum of Rs.30.80 was not assessable as there was no “cost of acquisition” of the “controlling interest”<\/em><\/strong>. The AO rejected the contention on the ground that managerial control is not a separate asset and assessed the entire capital gain as LTCG\/STCG<\/em>. On appeal, the CIT (A) purportedly followed Vodafone International vs. UOI<\/a><\/strong> 311 ITR 46 (Bom) and held that the consideration had to be apportioned towards the transfer of the share and transfer of controlling interest (as done by the assessee) and the amount attributable to the latter was not assessable to tax<\/em>. On appeal by the department, HELD reversing the CIT (A):<\/p>\n

(i) It is very unusual that the AO & CIT (A) did not notice that under Article 5 of the agreement, the assessee was to receive Rs. 15 per share towards non-compete undertaking<\/strong> which was included in the sale consideration. This amount is assessable as “business income<\/em>” u\/s 28(va);<\/p>\n

(ii) The argument that “controlling interest<\/em>” was transferred with the shares is not acceptable because the assessee is not a signatory to the share purchase agreement and the POA claimed was being given by the assessee to Mr. Narattom S. Sekhsaria, who signed the said agreement on its behalf, was not produced and it is not known whether the POA holder was authorized to transfer the “controlling interest”<\/strong>;<\/p>\n

(iii) The share transfer agreement merely refers to the sale of shares and the non-compete covenant<\/strong> and fixes the consideration at Rs. 90 & Rs. 15 respectively but does not refer to any “transfer of controlling interest”<\/strong>. The other circumstances (AoA etc) support the view that there was no transfer of controlling interest;<\/p>\n

(iv) As the agreement fixes the consideration for the share at Rs. 90, the valuation report splitting the consideration has no relevance. While Rs. 90 is assessable as LTCG\/STCG, Rs. 15 is assessable as “business income”.<\/p>\n

\nNote<\/strong>: (i) The ITAT suo moto<\/em> examined whether Rs. 15 was assessable as ‘business income’ and may have put the assessee in a worse position<\/em> that it might have been in had it accepted the AO’s assessment of LTCG\/STCG. For the law on whether the ITAT can do so see Linklaters LLP vs. ITO<\/a><\/strong> 132 TTJ 20 (Mum) (paras 31-33), (ii) In Vodafone International Holdings B.V. vs. UOI<\/a><\/strong> 311 ITR 46 it was held that a controlling interest is a mere incident of ownership of shares and not a distinct capital asset<\/em>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

The share transfer agreement merely refers to the sale of shares and the non-compete covenant<\/strong> and fixes the consideration at Rs. 90 & Rs. 15 respectively but does not refer to any “transfer of controlling interest”<\/strong>. The other circumstances (AoA etc) support the view that there was no transfer of controlling interest<\/p>\n

Read more ›<\/a><\/div>\n

<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[4,8],"tags":[],"class_list":["post-2644","post","type-post","status-publish","format-standard","hentry","category-all-judgements","category-tribunal"],"acf":[],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/posts\/2644","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/comments?post=2644"}],"version-history":[{"count":0,"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/posts\/2644\/revisions"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/media?parent=2644"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/categories?post=2644"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/itatonline.org\/archives\/wp-json\/wp\/v2\/tags?post=2644"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}