S. 45 : Capital gains-Sale of shares held as investment–Indexed cost of acquisition-Cannot be assessed as business income–Issue of bonus shares is held to be justified – Sale of shares at cost-Short term capital loss allowable to be set off against long term capital gains-Transaction cannot be held to be colourable device to set off the long term capital gains-Loss was allowed to be set off. [S. 28(i), 70, 71]
The Assessee has sold the 49% of the shares in the joint venture company and offered the income as long term capital gains. The Assessee company issued bonus shares and sold the part of the original and bonus shares to the Employee Welfare Trust. The cost of original shares were taken at cost and indexation and bonus shares were valued at nil cost. The loss w set off against the long term capital gains. The Assessing Officer assessed the sale of the shares of the joint venture company as business income . On appeal the CIT( A) held that the sale of the shares were assessable as capital gains. On appeal by the Revenue, dismissing the appeal of the Revenue the Tribunal affirmed the order of the CIT(A) on the grounds that the shares were held as investments which were held for more than 8 years, the intention was to hold the shares as investment , accordingly the gains arising from the transfer of equity shares are rightly assessed as long term capital gains and allowed to claim of the indexed cost of acquisition. Order of CIT(A) is affirmed. As regards the claim of short term capital loss on sale of shares to JM Financial Group Employees Welfare Trust is concerned the shares were sold at cost of Rs.10 per share after ignoring rounding off which was Rs. 10.40 per share on 31-12-2007. The purpose for sale of shares sale to the Welfare Trust was explained as being administrative convenience and for grant of ESOP. The Assessing Officer held that the sale was colorable device to artificially created, a loss to cancel the part of profit earned on sale of 49% of joint venture and thereby evade the tax . The Assessing Officer relied on Macdowell & Co. Ltd. v. GTO (1985) 154 ITR 148 (SC) disallowed the loss. Order of the CIT(A) was affirmed by the CIT(A). On appeal the Tribunal held that the financial position of the company was fully justified for the issue of bonus shares out of share premium account. The actual consideration was received from the JM Financial Group Employees Welfare Trust and the employees have exercised options to the extent of 14.82% of the shares. The Honouable Tribunal followed the ratio in CIT v. Walfort Share & Stock Brokers (P) Ltd. (2010) 326 ITR 1 (SC). and held that loss is allowed to be set off. (ITA NO . 3987/Mum/2015 & 3925 /Mum/ dt. 4-8-2023)(AY. 2008-09)
JM Financial Ltd. v. Dy. CIT (Mum.)(Trib.) www.itatonline.org
(Coram : Hon’ble Shri Aby T Varkey (JM) and Hon’ble Ms. Padmavathy S. (AM)