1. This appeal has been filed by the assessee against the order of learned CGT(A) dt. 21st Nov., 1997, for the asst. yr. 1991-92, 2. Shri A.A. Thakkar, advocate, along with Shri Kanchan Kaushal, F.C.A., appeared on behalf of the appellant, whereas Shri D.K.Shrivastava, CIT Departmental Representative ITAT, represented the Department.
3. This appeal was filed by the assessee on 23rd Jan., 1998. The Department moved an application for early hearing of the appeal. The prayer of the Department was allowed vide order dt. 24th May, 2002, passed on the order-sheet, Later on, the other appeals of this group were also clubbed for hearing together with this appeal vide order dt.
18th Feb., 2003. The arguments in this appeal were advanced on 18th Feb., 2003, and subsequently on 20th March, 2003. On 20th March, 2003, the parties agreed that the other connected appeals in which the prayer for admission of additional grounds, etc. was to be considered and decided may be released. In view of this position, the arguments were concluded in this appeal alone on 20th March, 2003, and other appeals were released for listing for hearing in future. Hence, the present appeal is being decided.
4. Before proceeding to adjudicate the grounds taken in this appeal by the assessee-appellant, we consider it proper to record the relevant facts relating to this matter in brief. These facts are as under: (1) The assessee, Shri Rajendra Singh, sold 16,00,000 shares of M/s Jai Prakash Industries Ltd. to M/s Peartree Electrical Industries (P) Ltd. @ 12.50 per share. In this regard, an agreement was executed on 24th April, 1990. The AO noticed that the transfer of shares was registered in the share transfer register of the company on 22nd Nov., 1990, and on this date, quoted rate of shares of M/s J.P.I.L was at Rs. 24.50 share. In this view, since shares were transferred otherwise than for adequate consideration, this transaction constituted a deemed gift within the meaning of Section 4(1)(a) of GT Act.
(2) As the assessee had not filed any return of gift, the AO issued notice under Section 16 on 14th July, 1994, in response to which the assessee filed return on 4th Oct., 1994, declaring Nil gift.
(3) The AO examined the entire matter and after discussing the issue relating to deemed gift, he passed assessment order on 20th Feb., 1997. In doing so, the AO followed his order in the case of Shri S.K. Dixit. The relevant observation of the AO in this regard is as under : "The facts of this case are similar to that of Shri S.K. Dixit, 5, Park Road, Lucknow, which have been discussed in detail in the assessment order dt. 29th March, 1996, passed under Section 15(3) of GT Act for asst. yr. 1991-92" (4) The computation of taxable gift of Rs. 1,92,00,000 as made by him in the assessment order is as under : "For the reasons discussed in the assessment order under Section 15(3) of Shri S.K Dixit, I hold that the assessee transferred 16,00,000 shares of M/s Jai Prakash Industries Ltd. to M/s Peartree Electrical Industries (P) Ltd. otherwise than for adequate consideration. The deemed gift under Section 4(1)(a) is worked out as under: Market value of 16,00,000 shares on the date of transfer i.e., 22.11.1990 @ Rs. 24.50 per share (5) The assessee had taken nine grounds before the learned CGT(A) to challenge the assessment order. The learned CGT(A) has decided the appeal by following his order in the case of Shri Ashok Sharma without considering the grounds taken before him, The relevant part of his order is as under: "4. In the case of Shri Ashok Kumar Sharma, I have dismissed the appeal vide my order dt. 28th Nov., 1996, in appeal No. 3/GT/Cir.2(1)/Lko/1996-97. Shri Ashok Kumar Sharma as well as the appellant belong to the same group of persons. JA copy of the order passed by me in the case of Shri Ashok Kumar Sharma is enclosed with this order also. For the detailed reasons given in that order, I hold that the AO was justified in initiating the proceedings under Section 16 of the GT Act and taxing the appellant to deemed gift." (6) Ground Nos. 3 & 7 : (6) The assessee has taken legal pleas in ground No. 3 for challenging the validity of proceedings under Section 16(1) of the GT Act. Vide ground No. 7, it is averred that the learned CGT(A) has not adjudicated grounds No. 2.1, 2.2, 2.3 of the grounds of appeal taken before him. Thus, the contention of the assessee was that the issue relating to validity of the initiation of escaped assessment proceedings has remained unadjudicated. Since ground Nos. 3 and 7 relate to the same aspect of the matter we proceed to consider these grounds all together.
(7) Before considering the arguments of the learned representatives of the parties on these grounds, we think it proper to reproduce the reasons recorded by the AO for initiating assessment proceedings.
The statement of reason recorded by him is as under : "During asst. yr. 1991-92 relevant to financial year 1990-91 assessee had shown sale of equity shares of JIL @ Rs. 12.50 per share to M/s Essjay Enterprises (P) Ltd. The shares were transferred in the register to the company on 22nd Nov., 1990, when the quoted price of share was Rs. 24.50 per share. Thus, the transfer in question has been made otherwise than for adequate consideration and is a case of deemed gift under Section 4(1)(a) of GT Act. I have reason to believe that taxable gift of Rs. 1,92,00,000 escaped assessment for asst. yr. 1991-92. Notice under Section 16 is hereby issued." (8) On 31st Dec., 1996, the assessee noted the reasons for issuance of notice under Section 16. Shri K.B. Agarwal, who attended on behalf of the assessee the proceedings on 31st Dec., 1996, was required to explain and submit supporting evidence. The case was listed on 16th Jan., 1997, Before that a letter dt. 1st Jan., 1997, was written to the Dy. CGT by the assessee in which the entire position was explained. The relevant part of the version of the assessee regarding the date of transfer and plea taken in support of his version is contained in para 2, which is as under : "2. The aforesaid 16,00,000 equity shares of JIL were actually transferred on 24th April, 1990, when the transfer deed in respect of the shares in question was duly executed and physical delivery of the share certificates along with the duly executed transfer deed were given to the transferee, namely, M/s Peartree Electrical (P) Ltd. on that date. Photostat copy of the transfer deed is furnished as Annexure 1. It is respectfully submitted that your view that the transfer of shares takes place on the date on which the transfer is registered in the share transfer register of the company, is erroneous and incorrect. It is established law that transfer of a movable property is complete, when the delivery of the property is handed over to the purchaser, irrespective of the fact whether the consideration for the transfer had passed or not. In this connection, your kind attention is invited to Palkhivala's Commentary on Income-tax (Eight Edition), Vol. 1, p. 765 extract from which is reproduced below : Year of chargeability--For determining the year of chargeability, the relevant date is not the date of the agreement to sell but the date of the sale, i.e., effective transfer of title as contemplated by the parties. Capital gains are assessable as the income of the year in which the transfer takes place, even though they may be realized later on or there may be no realization at all as a result of a variation agreed upon in a subsequent year. But capital gains must "arise" or accrue before they can be taxed.' (9) In subsequent letter dt. 27th Nov., 1997, also the assessee explained the entire position in relation to market value of the shares, etc. It was again asserted that the shares were transferred on 24th April, 1990, @ 12.50 per share. In para 4 of this letter, it was pointed out that in the case of Shri S.K. Dixit and Shri D.G. Kadkade, the AO has also referred to some discounted value of Rs. 10.96 on the date of sale.
5. The learned counsel for the assessee Shri Thakkar submitted that though the AO initiated proceedings for escaped assessment by recording reasons, but he has not made the assessment order on the basis of such reasons and rather he has followed the case of the other assessee viz., Shri S.K. Dixit, in whose case, the facts were totally different, inasmuch the date of transfer in that case was taken to be 18th April, 1990, which was the date of agreement to sell the shares, whereas in the notice issued under Section 16, in the case of present assessee, the date of entry in the register of transferee company was taken as date of transfer. According to him, therefore, there was no nexus between the reasons recorded and the assessment made. The learned counsel also submitted that in the case of Shri S.K. Dixit, the AO had followed the decision of Hon'ble Supreme Court of India in the case of V.R. Shelat v. P.J. Thakar (1999) 45 Comp. Cases 43 (SC), which basis has not been adopted by him while passing assessment order in the case of the present assessee. The learned counsel also submitted that only those reasons, which were recorded by the AO can be seen while making the assessment and no other reason can be considered. In this regard, he placed reliance on the decision of Allahabad High Court in Jamna lal Kabra v. ITO and Ors. (1968) 69 ITR 461 (All) and also on the following decisions: (i) Equitable Investment Co. (P) Ltd. v. ITO (1988) 174 ITR 714 (Cal) (v) N.D. Bhatt, IAC v. I.B.M. World Trade Corporation (1995) 2161TR 8n (Bom) 6. Shri D.K. Shrivastava, the learned Senior Departmental Representative (CIT, ITAT), on the other hand, justified the action of the AO. According to him, since consideration for transferring the shares was found to be inadequate, the AO was fully justified in issuing notice under Section 16. He also pointed out that the value of the shares was to be determined in accordance with the Schedule II of IT Act, 1961, (sic-GT Act, 1958) and, thus, the AO was fully entitled to proceed under Section 16(1) of the GT Act. He also pointed out that there is no dispute about the quoted price of the shares, which goes to show that there was inadequacy of the consideration. The other argument of the learned Senior Departmental Representative was that the AO had shown that there was inadequacy of the consideration and the amount of consideration was not in accordance with the market price of the share on the date of transfer. The learned Senior Departmental Representative also pointed out that the AO is bound to act in the interest of Revenue to take the possible view and if there are two possible views, he can opt for any of the views. It was also pointed out by him that the assessee too had not challenged the reasons recorded for initiating proceedings under Section 16 of the GT Act before the AO during the assessment proceedings.
7. In support of his arguments the learned Senior Departmental Representative placed reliance on the following decisions also ; (ii) Phool Chand Bajrang Led and Anr. v. ITO and Anr. (1993) 203 ITR 456 (SC) 8. We have carefully considered the facts and circumstances of the case, the material to which our attention was invited and the rival submissions First of all, we would like to dispose of ground No. 7 taken by the assessee in this appeal. According to this ground, the learned CGT(A) has not adjudicated specific grounds taken before him for challenging the validity of the proceedings under Section 16(1) of the GT Act.
9. We have gone though the order passed by the learned CGT(A). As referred to above, he has followed his order in the case of Ashok Kumar Sharma. He has also held that the AO was justified in initiating the proceedings under Section 16 of the GT Act and in taxing the appellant to deemed gift. Thus, the grounds relating to initiation of proceedings under Section 16 have been decided by the learned first appellate authority. We have also gone through the order of Ashok Kumar, which is dt. 28th Nov., 1996. A perusal of the said order shows that in paras 5 to 10 of that order learned CGT(A) has considered the issue and rejected grounds No. 1 and 2 taken up by the assessee by upholding the approach of the AO. Since the learned GGT(A) has followed his order in the case of Ashok Sharma, his reasons for upholding the order of the AO in the case of Shri Ashok Sharma shall apply with equal force for upholding the approach of the AO in initiating the proceedings under Section 16 in this case also.
10. In view of the above, it is, thus, clear that the learned CGT(A) has rejected the grounds taken before him by the assessee. Hence, we do not find force in the plea taken by the appellant through ground No. 7.
Consequently, this ground is rejected.
11. So far as the pleas of the assessee taken in ground No. 3 are concerned, on merits also, we find little force in the submission of the assessee. On the other hand, we find sufficient force in the contention of the learned Senior Departmental Representative that since the AO had sufficient material before him to come to the conclusion that there was inadequacy of consideration while transferring the shares, hence it was a case of deemed gift and, thus, on the basis of his conclusion, he was justified in initiating the proceedings for making assessment. After going through the reasons recorded by the AO, it is found that the AO has considered the rates as on 22nd Nov., 1990, on which date the rate was Rs. 24.50 per share. His conclusion may not be upheld finally but for issuing notice under Section 16, in our view, the material considered by him was sufficient. Hence, the validity of the notice under Section 16 cannot be challenged. The other contention of the learned counsel for the assessee was that the assessment has not been passed in consonance with the reasons recorded and there is no mention of the reasons recorded in the assessment order. We do not find any force in such arguments also. The reasons recorded are relevant for initiating the proceedings and if the reasons are not reproduced in the assessment order, then the proceedings cannot be held to be invalid. In view of the above, various pleas taken in the ground No. 3 stand rejected 12. Through these grounds, the assessee has challenged the order of learned CGT(A) in upholding the order of AO in determining the taxable deemed gift of Rs. 1,92,00,000.
13. We have narrated the relevant facts relating to determination of taxable gift in the case of the assessee in the earlier part of this order in paras 4 and 3. However, since the detailed arguments have been made by the learned counsel for the assessee by referring to other connected cases for showing the contradictory approach of the Department, we consider it proper to narrate some additional facts relating to determination of taxable gift in the other connected cases of the group to which the assessee belonged, because in all these cases, the assessees have transferred shares by entering into agreements and by executing the transfer deeds, etc. and the issue in all these cases related to the ascertainment of the date of transfer and the determination of the taxable gifts on account of transfer of shares. The factual position as emerges from the material on record is as under: Date of transfer taken by the AO for the purpose of calculation of gift under s. l(l)(a) 22-11-90 (i. e., date of registration of transfer of shares under s.
108) 14. On the basis of above chronology of dates and also on the basis of the fact sheets submitted by the Department, it is found that the shares were transferred by four persons belonging to the same group i.e., (1) Shri Rajendra Singh, (2) Shri D.G. Kadkade, (3) Shri Ashok Kumar Sharma, and (4) Shri S.K. Dixit. It is found that in the case of the assessee, the AO as well as learned CGT(A) has taken the date of entry in the register of the transferee company being 22nd Nov., 1990, as the date of transfer, whereas in the other three cases, although the particulars relating to dates of agreement and date of entry under Section 108 of the Companies Act, were available, the Department has not considered the date of entry in the register of the transferee company, which was 22nd Nov., 1990, in all the four cases as date of transfer on uniform basis. Whereas in three cases, the dates of agreement being 24th April, 1990, (in the case of Shri D.G. Kadkade), and 18th April, 1990, in the cases of other two assessees (i.e., Shri Ashok Sharma and Shri S.K. Dixit) have been taken as the date of transfer, in the case of the present assessee a different approach is adopted.
15. The above aspect can be highlighted and illustrated by making reference to the assessment orders and the appellate orders in the cases of different assessees referred to above.
16. So far as the case of Shri S.K. Dixit is concerned, a perusal of the assessment order, which is available at pp. 38 to 52 of the paper book goes to show that the AO considered the date of agreement (18th April, 1990) for transfer of the shares and by following the case of Shelat v. P.J. Thakar (supra) he has taken the date of transfer as 18th April, 1990, i.e., the date on which physical delivery of share certificates along with the executed transfer deed took place. The relevant portion of his finding in this regard is as under : "5. Now, the first question that arises is that what is the date of transfer of shares to be taken in this case It has been submitted by the assessee in this regard that the date of transfer is 18th April, 1990, when the agreement was entered into between the assessee and the purchaser, transfer deed was duly executed, and the physical delivery of the share certificates along with duly executed transfer deed was given to the purchaser namely, M/s Sequences Estates (P) Ltd, It is established law that the transfer of movable property is complete when the delivery of the property is given to the purchaser irrespective of the fact whether consideration for the transfer had passed or not. It has been repeatedly held by the Courts that the transfer of shares in a limited company is complete as between the transferor and the transferee as soon as the transfer deed duly signed by the transferor is handed over to the transferee or his agent along with the share certificates and the transferee or his agent along with the share certificates and the transferee seeks transfer of such shares and the transfer is not refused by the company. Reliance has been placed on a host of case law by the decision of Hon'ble Supreme Court of India in the case of V.R. Shelat v. P.J. Thakar (1995) 45 Comp. Cas 43 (SC) On careful consideration of the facts, circumstances of the case and the provisions of law, it is observed that the law on this issue has been well-settled by the Hon'ble Supreme Court of India in its aforesaid decision besides a number of other case laws. The date of transfer of shares in the present case which is to be considered for working out the taxable gift is accordingly taken as 18th April, 1990, i.e., the date on which physical delivery of the share certificates along with the duly executed transfer deed was given to the transferee." 17. On the basis of the rates of shares on 18th April, 1990, being Rs. 12.75 per share as against rate of transfer shown by the assessee i.e., Rs. 11.50 per share, the AO has computed the taxable gifts in the following manner : "6. Now, we come to the issue of the value of the taxable gift on the date of transfer i.e., 18th April, 1990. As mentioned earlier, market rate as on that date was Rs. 12.75 per share, whereas the assessee transferred the share @ Rs. 11.50 per share meaning thereby difference of Rs. 1.25 per share. Thus, the market value of 2,00,000 shares transferred as on the date of transfer exceeded the value of the consideration by Rs. 2,50,000 (Rs. 1.25 x 2,00,000) which is accordingly deemed to be a gift made by the assessee under Section 4(1)(a) of the GT Act, 1958. The assessee was asked to furnish his explanation in this regard." 18. It may be pointed out that it could not be shown that these findings of the AO have been reversed or modified by any superior authority. The Department has not filed any evidence to show that any action under Section 263 was taken by the learned CIT in respect of this order.
19. So far as the case of Ashok Sharma is concerned, on the perusal of the appellate order, it is found that the AO took the. date of transfer as on 18th April, 1990 and the learned CIT(A) has upheld his approach.
The taxable gift was also determined on the basis of such approach.
20. Thus, it is found that in other three cases out of four cases mentioned above, it is the date of delivery of shares certificates and/or the date of agreement and not the date of entry in the register of the transferee company, which was taken by the Department as the date of transfer of shares and on that basis, the amount of taxable gift was determined, Thus, in the present case a total different approach has been adopted by taking the date of entry of transfer of shares in the register of the transferee company as the date of transfer of shares.
21. The learned representatives of the parties have made detailed and elaborate submissions on various aspects relating to the issue. It is not possible to reproduce such detailed arguments in the body of this order. We shall, therefore, consider only relevant arguments in brief.
22. According to the learned counsel for the assessee, the assessee had transferred 16 lakhs shares @ Rs. 12.50 and in this regard, instrument of transfer was executed on 18th April, 1990, on Form No. 7B, which is on prescribed form and in order to set out the modality of payment, etc., a further agreement dt. 22nd April, 1990, was executed between the transferor and the transferee. The learned counsel in this regard invited our attention to the document i.e., the share transfer form (Form No. 7B) which is available on p. 27 of the paper book and also to the agreement dt. 24th April, 1990, which is available on pp. 1 to 37 of the paper book.
23. Thus, the learned counsel for the assessee emphatically asserted that the date of transfer of shares in the present case is to be taken as 24th April, 1990 only on which date the transaction of transfer of shares was completed and delivery of shares was also made.
24. On the basis of the documents referred to above, it was argued that the date of transfer of the shares cannot be determined on the basis of registration entry in the register of the transferee company. The learned counsel also submitted that position relating to determination of the date of transfer has been settled by the Hon'ble Supreme Court of India in the case of Shelat v. Thakar (supra) which decision has been followed by various Courts.
25. The learned Senior Departmental Representative, on the other hand, submitted that the transaction of transfer was completed only when the entry of transfer was made in the register of the transferee company and not on the date of agreement. After referring to the document i.e., share transfer form, he pointed that this deed was executed on 18th April, 1990, whereas the agreement was subsequently executed on 24th April, 1990 and the perusal of the agreement shows that the delivery of the shares, etc. was to take place subsequently.
26. The learned Senior Departmental Representative advanced detailed arguments on this point and contended that the agreement deed dt. 24th April, 1990, cannot be taken to be the basis for determining the date of transaction of transfer of shares by the assessee. He also submitted that the transfer of shares or sale of shares is to be done in accordance with the provisions of the Companies Act and the company shall not register the transfer of shares, unless transfer instrument is duly executed by both the parties and duly stamped, etc. and the share are also delivered. According to him, for making registration of shares in the transferee company, all these conditions have to be satisfied.
27. The learned Senior Departmental Representative further made the following submissions : (1) Sale deed in the present case was not executed on 24th April, 1990 and the deed dt. 24th April, 1990, was only an agreement to sell.
(2) In the instant case, the delivery of shares is not proved from the instrument of transfer also. It is not proved that the shares were actually transferred and delivered on that date or prior to it or subsequent to it.
(3) The decision of the Hon'ble Supreme Court of India in the case of Shelat was on different facts relating to a case of gift and the same has no application to the present matter.
28. Thus, the learned Senior Departmental Representative fully supported the view taken by the learned CGT(A).
29. In reply, the learned counsel for the assessee pointed out that the decision of Hon'ble Supreme Court of India in the case of V.R. Shelat v. P.J. Thakar (1995) 45 Comp. Cas 43 (SC) is fully applicable.
Regarding the proof of delivery of shares or transfer of share certificates, it was pointed out by him that in its reply dt. 1st Jan., 1997, the assessee had specifically submitted before the AO that the shares were actually transferred on 24th April, 1990, when the transfer deed in respect of the shares in question was duly executed and the physical delivery of the share certificate along with the duly executed transfer deed were given to the transferee company namely, M/s Peartree Electrical (P) Ltd. on that date and this version of the assessee was not, disputed by the Department, inasmuch as no further evidence or proof was sought from the assessee regarding delivery of shares and transfer of share certificates. According to the learned counsel, since the specific reply of the assessee was not doubted or discarded and further since neither the AO nor the learned CGT(A) demanded any further proof regarding delivery of the shares, the issue stood concluded and the assessee had discharged its onus.
30. During the course of hearing of appeal, the Bench made query and required from the learned counsel about the proof of date of delivery of the shares or execution of share certificates. In reply, he submitted that all the formalities relating to transfer of shares were completed on 24th April, 1990, after the execution of the agreement for sale. The learned counsel also offered to produce the proof of delivery of shares and share certificates before the Bench, in case it was so directed. However, the Bench did not ask the learned counsel to do so as it. would have amounted to admitting fresh evidence at the appellate stage, which course was not found to be proper.
31. Regarding the provisions contained under Section 108 of the Companies Act, it was submitted by him that the entry in the register of the transferee company is a subsequent formality, which presupposes the execution of the transfer deed in relation to transfer of shares and delivery thereof and, therefore, the date of entry in the register of transferee company, cannot be taken to be the date of transfer of shares.
32. Before dealing with the various arguments, we would like to set out the inconsistency in the approach of the Department while dealing with the same issue in the case of various persons belonging to same group.
As pointed out earlier, on one hand the Department has taken the date of transfer of shares, delivery of share transfer certificate and execution of the sale deed, etc. as the date of transfer of shares in the case of S.K. Dixit, Shri Ashok Sharma and Shri Kadkade, on the other hand, in the case of present assessee it is the date of entry in the register of the transferee company, which has been taken to be the date of transfer. There is no explanation to this inconsistency. As mentioned above, no proceedings under Section 263 have been taken by the Department to set aside the assessment order in the case of other three assessees and the assessment order in the case of Shri S.K.Dixit, perhaps, has even become final. Since the Department has taken the date of execution of share transfer certificate, as the relevant date for determining the transaction of transfer of shares in three other cases, the same approach should have been adopted in the case of the present assessee, in order to maintain consistency and uniformity.
In view of the above referred discrepancy, the approach of the Department is found to be self-contradictory and inconsistent. We cannot uphold such an inconsistent approach, particularly when there are no justifying reasons for adopting a different approach in the case of the present assessee.
33. There are other serious discrepancies also. On perusal of the assessment order and order of learned CGT(A), it is found that while passing assessment order in the case of the present assessee, the AO followed the assessment order in the case of S.K. Dixit, but the irony of the situation is that the approach adopted in the case of S.K. Dixit has not been followed in this case. To repeat, if that case was followed, then it was the date of execution of the transfer deed and delivery of the shares, which was the relevant date and not the date of entry in the register of the transferee company, which has been taken to be the date of transfer in the case of the present assessee. The AO has not tried to explain this discrepancy.
34. The learned CGT(A) too has committed a similar error. Firstly, he did not examine the mistake committed by the AO in making reference to the assessment order of Shri S.K. Dixit and in acting differently, and secondly, he too followed the case of Ashok Sharma for upholding the action of the AO without comparing the two cases. Here also, it may be pointed out, at the cost of repetition, that in the case of Shri Ashok Sharma, the AO had determined the date of transfer of share certificates as the date of transfer, as observed by the learned CGT(A) in para 3 of his order in the case of Shri Ashok Sharma.
35. From the above, it is clear that in the case of Ashok Sharma also, the date of transfer of share was not taken on the basis of entry of registration in the register of transferee company and, therefore, if Sharma's case was to be followed as has been claimed by the learned CGT(A), while deciding the appeal of the present assessee, then the action of the AO in taking the date of entry in the register of transferee company, could not have been sustained.
36. Thus, we find the approach of two Departmental authorities not only inconsistent and self-contradictory, but also paradoxical. There is no justification or reconciliation to such an approach particularly when the same learned CGT(A) has decided the case of Ashok Sharma and the case of the present applicant. He was expected to adopt a consistent approach in the two cases decided by him.
37. In view of the above referred contradictions, we find little scope to sustain and uphold the order of the learned CGT(A) in the case of the present assessee.
38. Now we proceed to examine the matter from legal point of view. The issue before us is as to whether the date of execution of sale deed or the date of transfer of share certificates or the date of actual delivery of shares are the relevant dates for deciding the date of transfer in the case of sale of shares or it is the date of registration of transfer of shares in the register of transferee company, which is the relevant date.
39. For adjudicating the above issue, we have to examine the nature of the property involved the shares and have also to ascertain the mode of transfer of said property.
40. The shares are included in the definition of 'goods' as per Clause 7 of Section 2 of Sale of Goods Act. This provision runs as under: "(7) "goods" means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale ;" 41. Since the share is to be treated as goods or movable property, the transfer in such property passes, when the transfer of property in the goods takes place i.e., by the delivery of goods.
42. The mode of transfer of goods is prescribed in Sections 4 and 5 of the Sale of Goods Act i.e., by executing the contract of sale. However, since the transfer of shares involves acquisition of certain rights and interest in such property by the purchaser of shares, the provisions of the Companies Act, which regulate the mode of acquiring such rights also become relevant.
43. The issue relating to mode of transfer of shares came before the Hon'ble Supreme Court of India in the case of Vasudeo Ramchandra Shelat (supra). In that case, by virtue of a will made on 10th June, 1945, Shri J.M. Thakar made a will in favour of his wife, namely, Bai Rukmani. She executed a registered gift deed purporting to donate the shares in various limited companies of which details were given in the gift deed to her brother, namely, V.R. Shelat. Before her death, she had signed several blank transfer forms to be filled in by the donee, so as to enable him to obtain the transfer of donated shares in the register of the various companies and share certificates in his own name, She had put her signatures in the correct places showing that she meant to sign as a transferor of the shares. The shares could not, however, be transferred in the registers of the various companies, in accordance with the relevant provisions of Company Law before lady's death. Shri Shelat claimed that he was entitled to shares covered by the registered gift deed, but the claim was disputed. The Single Judge of the Hon'ble High Court held Mr. Shelat to be entitled to the shares, but the Division Bench of the Hon'ble Gujarat High Court took a contrary view. The matter was agitated before the Hon'ble Supreme Court of India. Their Lordships after considering the entire matter upheld the claim of the donee i.e., Shri Shelat. While considering the matter, the Hon'ble apex Court made reference to the observations of the Privy Council in the case of Maneckji Pastonji Barucha v. Wadilal Sarabhai Co., which are as under: " But, further, there seems to their Lordships a good deal of confusion arising from the prominence given to the fact that the full property in shares in a company is only in the register holder, That is quite true. It is true that what Barucha had was not the perfected right of property, which he would have had if he had been the registered holder of the shares which he was selling. The company is entitled to deal with the shareholder who is on the register, and only a person who is on the register is in the full sense of the word owner of the shares. But the title to get on the register consists in the possession of a certificate, together with a transfer signed by the registered holder. This is what Barucha had. He had the certificates and blank transfers, signed by the registered holders." 44. After referring to the above observations, the Hon'ble Supreme Court of India observed as under: "Thus, we find that in Barucha's case a distinction was made between "the title to get on the register" and "the full property in the shares in a company". The first was held to have been acquired by mere delivery, with the required intention, of the share certificate and a blank form signed by the transferor. The second is only obtained when transferee, in exercise of his right to become a shareholder, gets his name on the register in place of the transferor. The antecedent right in the person to whom the share certificate is given with a signed blank transfer form under a transaction meant to confer a right or title upon him to become a shareholder, is enforceable so long as no obstacle to it is shown to exist in any of the articles of association of a company or a person with a superior right or title, legal or equitable, does not appear to be there. We think that Section 6 of the Transfer of Property Act justifies such a splitting up of rights constituting "property" in shares just as it is well recognized that rights of ownership of a property may be split up into a right to the "corpus" and another to the "usufruct" of the property and then separately dealt with." "The Companies Act of 1913 was meant "to consolidate and amend the law relating to trading companies and other association". It is concerned with the acts and proceedings relating to the formation, running and extinction of companies, with rights, duties and liabilities of those who are either members or officers of such companies, and of these who deal with companies in other capacities.
Its subject-matter is not transfer of property in general. It deals with transfers of shares only because they give certain rights to the legally recognized shareholders and imposes some obligations upon them with regard to the companies in which they hold shares. A share certificate not merely entitled the shareholder whose name is found on it to interest on the share held but also to participate in certain proceedings relating to the company concerned. It is for this purpose that Section 29 of the Act, of the title to a share.
Section 34 of the Act does not really prescribe the mode of transfer but lays down the provisions for "registration" of a transfer. In other words, it presupposes that a transfer has already taken place.
The manner of transfer of shares, for the purposes of company law, has to be provided, as indicated by Section 28, by the articles of the company, and, in the absence of such specific provisions on the subject, regulations contained in Table "A" of the First Schedule of the Companies Act apply.
Table "A" of the First Schedule to the Companies Act of 1913 gives regulation 19 as follows: "19. Shares in the company shall be transferred in the following form, or in any usual or common form which the directors shall approve : 1, A.B. of ...... in consideration of the sum of rupees.... Paid to me by C.D. of ..... (hereinafter called 'the said transferee'), do hereby transfer to the said transferee the share (or shares) numbered in the undertaking called the . ....Company Limited, to hold upto the said transferee, his executors, administrators and assignees, subject to the several conditions on which I held the same at the time of the execution thereof, and I (the said transferee) do hereby agree to take the said share (or shares) subject to the condition aforesaid. As witness our hands the .......day of........Witness to the signature of, etc." 47. In the case of Sheela Devi Chamaria v. Tarachand Saraogi and Ors.
(1987) 163 ITR 406 (Cal), the Hon'ble Calcutta High Court has followed the decision of Hon'ble Supreme Court of India in the case of V.R.Shelat (supra), 48. After quoting the observations of the Hon'ble Supreme Court of India in that case, the Hon'ble High Court has observed as under: " In the light of the observation made by the Supreme Court, it must be held that the gift of the shares was complete as soon as the shares were handed over to the plaintiff along with the blank transfer form duly signed by Motilal. The non-recording of the transfer in the books of the company did not invalidate the gift in any way. Although the plaintiff would not be regarded as a shareholder by the company until the transfer was recorded in the books of the company, nonetheless, in the eye of law, it was the plaintiff who was the owner of the shares and the gift was completed by the delivery of the share certificates along with the blank transfer form duly signed by the transferor. The plaintiff has acquired a complete legal right to have the shares registered in her name." 49. Thus, according to the Hon'ble High Court, a gift of share is complete as soon as the shares are handed over to the donee along with blank transfer forms duly signed by the donor. The non-recording of the transfer in the books of the company does not invalidate the gift in any way. It was held in that case that although the donee will not be regarded as shareholder by the company until the transfer is recorded in the books of the company, none the less in the eyes of law, it is the donee, who is the owner of the shares and the gift becomes complete by the delivery of share certificate along with the blank transfer form duly signed by the transferor and the donee acquires a complete legal right to have the shares registered in his/her name. .
50. The issue was also considered in the case of R. Subba Naidu v. CGT (1969) 73 ITR 794 (Mad). In that case also, the Hon'ble Madras High Court held that the transfer of interest in the shares from the transferor to the transferee is independent of the requirement of its registration for the purposes of Companies Act., as without an interior transfer, there can be no question of applying for registration of it.
It was held by the Hon'ble Court that there should first be a transfer properly made of shares, which should then be presented along with the share certificates to the Board of Directors either by the transferor or transferee for change of registration in respect of them.
51. In the case of CWT v. Babulal Jatia (1982) 137 ITR 540 (Cal), the Hon'ble Calcutta High Court has followed the case of V.R. Shelat (supra) and upheld the approach of the Tribunal in taking the view that by delivery of share certificates to donee as well as the execution of the deed of transfer in favour of the donee, the shares stood transferred to the donee.
52. Thus, in view of the above referred decisions, it is clear that the transfer of property in the shares to the transferee gets completed by the delivery of the share certificate and execution of transfer deed, etc. Section 108 of the Companies Act, which deals with the transfer of shares and debentures provides that transfer cannot be registered except on production of instrument of transfer. Thus, Section 108 regulates registration of transfer of shares. For transfer of shares, Form No. 7B has been prescribed. Hence, for registration of transfer of shares, a duly executed Form No. 7B should accompany the certificate of shares and must be lodged with the company within the prescribed period. For completing the formality of registration, the mode prescribed under Section 108 is mandatory, but the procedure for registration of transfer in the transferee company cannot be a relevant aspect for determining the transaction of transfer of shares, which is an independent act and which has to be anterior in point of time.
Section 112 of the Companies Act lay's down the procedure for certification of transfer. Certification, in effect, means a statement by the company, that certain documents have been delivered to the company for the purposes of transfer of shares. It is a kind of receipt. Thus, for the purposes of affairs of the transferee company, the entry in the register of members of the company is relevant. In the case of Howrah Trading Co. Ltd. 29 Comp. Cas (SC) has explained the point by observing as under: "It, therefore, follows that the equitable right of the transferee gets metamorphosed into the absolute right of a shareholder only When the names of the transferees after the recognition of the transfer, are entered on the register. This can be viewed from another angle and it is this when once the transferee does everything that he is required to do under law, to get his name entered on the register by proper lodgement of the instruments of transfer and no other obstacles remain in enforcement of the said right, the transfer becomes effective as against the company also.
Thereafter, the company cannot unilaterally alter its articles affecting the aforesaid right of the transferee. Mere delay in the actual registration of the name of the transferee on the register provided there is a proper lodgement of the instrument of transfer cannot affect the above right of the transferee. If that be the position, the right of the transferee to get his name entered on the register gets crystalized when proper lodgement is effected and the transfer from the date of the proper lodgement becomes effective as against the company also, and such rights cannot be affected by subsequent actions of the company like amendment of articles, etc.
Subject to what is stated above, the transfer, once the company after recognizing the transfer enters the name on the register, relates back to the time when the transfer was first made " " that where the name of transferor is entered and he signs the transfer deed with the certificates annexed to it and hands it over to the transferee, who, if he so chooses, may complete the transfer by entering his name and then apply to the company to register his name in place of transferor, such blank transfer will be valid." 53. In the case of Mollins Overseas Holdings Ltd. v. M.O.I. Engg. Ltd., it was observed that a transfer of share becomes effective at the moment, the transfer documents are completed, executed and handed over and after those only mutation of name of the buyer in company's register of members is done, which may be done as per procedure laid down.
54. In view of the above referred decisions, the legal position is very clear and in view of the same, the date of registration of transfers in the register of the company is not at all relevant for deciding the transaction of sale of shares. The approach of the Departmental authorities in adopting and taking the date of entry in the register of the transferee company as the date of transfer of shares cannot, therefore, be legally upheld. In our considered view, the issue, in fact, stands settled by the Hon'ble Supreme Court of India by its decision rendered in the case of Shelat (supra). The contention of the learned Senior Departmental Representative that the case of Shelat relates to transaction of gifts and, therefore, distinguishable, cannot be accepted, because we are concerned with the mode of transfer of shares, which may be either by way of sale or by way of gift, etc.
55. We, therefore, hold that it is the date of delivery of share certificates along with the execution of the deed of transfer and not the date of entry of registration in the register of transferee company, which is the decisive date for determining the date of transaction of 'sale' in the case of transfer of shares.
56. So far as the case of present assessee is concerned, as referred to above, the assessee had submitted before the Departmental authorities that the transaction of sale was completed on 24th April, 1990, on which date the share certificates were delivered and the transfer deed was executed. Since the AO did not dispute this version of the assessee, in our view, the matter stood concluded there. The learned first appellate authority too followed the same course. It may also be pointed out that the assessee moved an application under Section 34 of the GT Act, for rectifying the order of the learned CGT(A) and learned first appellate authority had passed the order on 22nd March, 2002. A copy of this order is available on pp. 30 and 31 of the paper book. The learned first appellate authority, although observed that there was no evidence about the date on which the shares were actually lodged with the company for transfer, but did not ask the assessee to file the proof of delivery of shares in the lodging of the transfer certificates with the transferee company. The assessee cannot, therefore, be blamed for non-production of the evidence to prove the actual delivery of the shares.
57. In the case of the assessee, the instrument of shares (Form No. 7B) (share transfer form) prescribed under Section 108(1A) of the Companies Act, 1956, which is available at p. 27 of the paper book was signed by the parties and executed on 18th April, 1990. In this document, the number of shares i.e., 16,00,000 is mentioned in the relevant column and distinctive numbers have also been given. The consideration is mentioned at 2,04,00,000 only. The name of the recognized stock exchange is mentioned as Delhi. Thus, these documents contained all the relevant information and value of stamps fixed has also been shown. The sale consideration mentioned in this document was to be paid by the purchaser as per modalities set out in the other deed, i.e., the deed of agreement dt. 24th April, 1990. In this deed, it has been mentioned in clear terms that the seller has agreed to sell 16,00,000 equity shares of JIL to the purchaser on spot delivery basis. The other conditions including the price of shares have also been given. In para 3 of this deed, it is stipulated that the purchaser shall pay the entire sale consideration of Rs. 2 crores, etc. immediately on the registration of transfer of shares. Further, in para 5, it is stated that the seller shall deliver to the purchaser the share certificates in respect of the said 16,00,000 shares with duly executed share transfer deed in respect thereof and the purchaser shall promptly acknowledge the receipt of the said certificate along with the duly signed transfer deed.
58. As per the reply of the assessee reproduced above dt. 1st Jan., 1997, 16,00,000 equity shares of JIL were transferred on 24th April, 1990, when the transfer deed in respect of the shares in question was duly executed and physical delivery of the share certificates along with duly executed transfer deed were given to the transferee company, namely, M/s Peartree Electricals (P) Ltd. on that date. Thus, in view of the version of the assessee as set out in the above referred reply, the delivery of share certificates, etc. was made on 24th April, 1990, after the execution of the agreement. In view of the above stated facts, all the necessary requirement for transferring the shares stood satisfied on 24th April, 1990. If in pursuance or in compliance to the deed of agreement dt. 22nd April, 1990, the delivery of the share certificate was made on that date i.e., on 22nd April, 1990, as asserted by the assessee, if that is done, nothing else remained there for completing the transaction of sale of shares between the assessee and the transferee (purchaser) and the property in the shares stood transferred to the purchaser.
59. Although, after considering the documents referred to above and the version of the assessee, we should have held that the sale of shares was completed on 24th April, 1990 however, since a doubt has been raised by the Department and arguments have been placed by making reference to the Form No. 7B, which is dt. 18th April, 1990, and the deed dt. 24th April, 1990, we consider it proper to decide the issue in the light of observations made above, subject to the verification of the date of actual delivery of the share certificates by the transferor to the transferee. The AO is directed to make this verification by asking the assessee to produce the relevant documents to prove the deed of actual delivery of share certificates and execution of the transfer deed.
60. In view of the above, we hold that if on verification, it is found that the share certificates were actually delivered to the transferee company on 24th April, 1990, after execution of the agreement, as alleged by the assessee, then the issue shall be decided in favour of the assessee by taking the date of transfer of shares as 24th April, 1990. In case it is found that the share certificates were delivered on any subsequent date, then such date shall be taken to be the date of transfer/sale of shares. Thus, the above grounds are decided in favour of the assessee subject to verification of the date of actual delivery of the share certificates and accordingly.
61. This ground is directed against the findings of learned CGT(A) that the sale of shares by the assessee in the present case amounts to a deemed gift under Section 4(1)(a) of the GT Act.
62. The learned counsel for the assessee submitted before us that before, the AO, the assessee had explained the circumstances and factors for taking the value of the shares at agreed rate of Rs. 12.50 per share on 24th April, 1990. It was pointed out that the difference in the rate quoted and rate at which the shares in questions were transferred was on account of the following reasons : "(i) The shares were sold ex-dividend, that is, the final dividend for financial year 1989-90 was to be received by the seller and the purchaser had no right on such dividend declared by JIL, if any, I have actually received final dividend of Rs. 8,00,000 on these shares (a) Rs. 0.50 per share declared by the company in the meeting held on 12th Sept., 1990.
(ii) The shares were sold in bulk and without involvement of any broker which would have entailed brokerage of at least Rs. 0.25 per share had the transaction been carried out through a broker. This fully accounts for the difference in quoted value of shares and its actual sale price. " 63. According to the learned counsel, in view of the above reasons, as advanced in the reply of the assessee dt. 1st Jan., 1997, the difference stood explained. A reference was also made to the reply of the assessee dt. 27th Jan., 1997, in which also the following plea was taken : "2. It appears that in initiating the gift-tax proceedings, the quoted price of the share has been taken to be the 'market value' for the purpose of Section 4(1)(a). Quoted price need not always be the market value. In my case why it is not so has been fully explained by the following three factors : (i) that the shares were sold ex-dividend i.e., dividend @ 50 paise per share was received by me even though the shares were sold before the date of declaration of dividend; (ii) the transaction for sale was direct and no brokerage was paid in the deal; (iii) the shares were sold in bulk. It is common knowledge that where the shares are sold in bulk the price realized is always less than the quoted price; On the above facts, the consideration passed is quite fair and reasonable and the same cannot be considered to be inadequate. This point has not been given due consideration by the learned D.C. while recording reasons for initiating the proceedings even though prior to recording of reasons, these facts were furnished to him during the course of income-tax assessment proceedings. The proceedings under Section 4(1)(a) have, therefore, not been validly initiated.
There was no other material before the then D.C. to come to a finding that the consideration passed was inadequate. The present proceedings deserve to be dropped on this ground alone." 64. According to the learned counsel, the difference being nominal and insignificant, should have been ignored and in view of the decision of Hon'ble Madras High Court in the case of CGT v. Indo Traders and Agencies (Madras) (P) Ltd- (1981) 131 ITR 313 (Mad), unless the difference in the price was such as to 'shock the conscience of the Court', it would not be proper to hold that the transaction was otherwise than for adequate consideration.
65. The learned Senior Departmental Representative, on the other hand, argued that it was a clear-cut case of deemed gift, because the market rate of shares was to be taken as the proper and adequate consideration.
66. While deciding ground Nos. 1, 2 and 3, we have made it clear that the date of transfer of shares shall be taken to be 24th April, 1990, if the delivery of the shares is proved by the assessee. In case, it is done the rate of shares a son 24th April, 1990, is to be considered.
There is no dispute about these rates. From the Delhi Quotation List of Delhi Exchange Association available at pp. 10 and 11 of the paper book also, it is found that as on 17th Feb., 1990, the rate of Jaiprakash Industries Ltd, was at Rs. 13.25. This date is relevant, because Form No. 7B was executed on 18th April, 1990.
67. If we consider the difference between the agreed rate and the quoted rates in the stock exchange before the date of delivery of shares then the difference shall be found to be insignificant.
(a) where property is transferred otherwise than for adequate consideration the amount by which the value of the property as on the date of transfer and determined in the manner laid down in Schedule II exceeds the value of consideration shall be deemed to be gift made by the transferor." 70. The Hon'ble Madras High Court has observed in the case of CGT v.Indo Traders & Agencies (Madras) (P) Ltd. (supra), that the provision of GT Act is designed to check evasion of tax by persons transferring property for inadequate consideration. Thus, if a person had effected a gift, which would be without consideration, he would be liable to be taxed under the Act. The same person may, in order to avoid the tax, transfer the property for paltry consideration, so as to get out of the operation of the Act, then he can be made liable under Section 4(1)(a) of the GT Act. It is this attempt at evasion, which was sought to be parted by enacting Section 4(1)(a) of the GT Act.
71. The decision of Hon'ble Madras High Court in the case of Indo Traders & Agencies (Madras) (P) Ltd. (supra) was cited with approval by the Hon'ble Supreme Court of India in the case of Reva Investment Ltd. v. CGT (2001) 249 ITR 337 (SC). Hence, it will be proper to refer to the detailed reasons given by their Lordships of the Hon'ble Madras High Court. It has been pointed out that the provision of Section 4 of the GT Act is similar to one in Section 16 of the IT Act, 1961, It was also pointed out that when transfer of property belonging to a minor is challenged or the adequacy of consideration in a suit for specific performance of a contract for sale is challenged, as held in English case, viz., Coles v. Trecothick 1804 9 Ves J. 234 : "Unless the inadequacy of price is such as shocks the conscience, and amounts in itself to conclusive evidence of fraud in the transaction, it is not itself a sufficient ground for refusing a specific performance.
The consideration, which weighed with the Courts in examining the adequacy of the consideration in respect of the sale by a minor or in respect of a relief for specific performance would also apply in the examination of transaction under Section 4(1)(a). Unless the price was such as to shock the conscience of the Court that it cannot be reasonable consideration at all, it would not be possible to hold that the transaction is otherwise than for adequate consideration, In fact, in the Full Bench judgment of the Patna High Court, it is mentioned by the Chief Justice Harries that the adequacy of consideration is a matter for party--Rai Bahadur H.P. Banerjee v. CIT (1941) 9 ITR 137, 138 (Pat). The judgment of the Patna High Court has been approved by the Supreme Court in the later decision, Tulsidas Kilachand v. CIT (1961) 42 ITR 1 (SC). Of course, it is not enough if a transfer is for "good consideration." It should also be for adequate consideration. An adequate consideration is not necessarily what is ultimately determined by someone else as market value." 73. A similar view was taken by the same High Court in a subsequent case as cited by the Hon'ble Supreme Court of India in Rewa Investment's case (supra) i.e., in the case of CGT v. D. Surendra Nath Reddy (1998) 233 ITR 21 (Mad).
74. If we consider the difference between the quoted price and the agreed price i.e., Rs. 13.25-12.50, the difference will be of 0.75 ps.
per share only. For this difference, the explanation of the assessee as referred to above in its reply dt. 27th Jan., 1997, was in our view sufficient. The shares were transferred without or ex-dividend. The transaction was of large number of shares. The transfer was not made through brokers.
75. Although in the case of S.K. Dixit, a similar explanation was rejected by the AO, but we are not convinced with the reasons assigned by the AO while rejecting the explanation of the assessee. In our view, all the three reasons assigned by the assessee certainly explained the justification for the agreed rates.
76. It may also be pointed out that the approach of the AO in rejecting the explanation of the assessee was contrary to the views of Hon'ble Supreme Court of India approving the decision of Madras High Court in the case of Indo Traders (supra), at p. 322 wherein the following observation was made : "The relevancy of the market price as shown by the provision is only to fix the quantum of the value of the gift after it is found that the transaction was for inadequate consideration. When once the GTO assumes jurisdiction and is in a position to establish that the property has been transferred otherwise than for adequate consideration then there is no option for him but to take the market value of the property as on the date of transfer and compare it with the value of the consideration as shown by the party. The difference will be deemed to be a gift made by the transferor. If the legislature had contemplated as a universal rule that the market value should alone be the criterion for testing the adequacy of the consideration, the provision would have been differently worded. The wording would have been," where the property is transferred for less than its market value, then the difference between the market value and the consideration is stipulated, shall be deemed to be the gift made by the transferor." 77. In the case of Ashok Dixit, the AO has tried to minutely scrutinize the reasons for the small difference of 75 ps. out of Rs. 13.25 i.e., less than six per cent. The assessing authorities have totally misconceived their jurisdiction by acting as valuers instead of as adjudicators. Their task was of adjudicating as to whether the consideration shown was so grossly inadequate as to shock their conscience. No doubt different views could be taken by a willing seller and a willing purchaser in regard to the three factors mentioned by the assessee, and it was not for the AOs to decide which view would be more sound from the seller's point of view. For their purposes it was sufficient to find that the explanations could not be rejected as outrageously absurd. An explanation which requires such elaborate reasoning to reject cannot be said to fall in that category. Whatever the reasoning for the minute and critical scrutiny of the explanations, the fact remains that considerations which weigh with a transaction involving a lakh of rupees cannot be the same that would weigh in respect of a transaction involving two crores of rupees. The mere circumstances that the seller and the purchaser were closely related cannot alter this basic fact.
78. In view of the above, we are of the considered opinion that the difference between the quoted price and the agreed price is not as such as to shock conscience of the Court. Thus, the approach of the Departmental authorities in treating the difference as deemed gift cannot be upheld.79. In the light of the above, these grounds are also allowed in favour of the assessee.
80. In the result, the appeal is partly allowed for statistical purposes.