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Commissioner Of Income-Tax v. Smt. Nandini Nopany
Factual and Procedural Background
The question referred for the court's opinion was stated as:
“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; the relevant assessment year is 1984-85 (previous year ended 31 March 1984). The assessment was completed under section 143(3) of the Income-tax Act, 1961 on 27 January 1987. During the relevant previous year the assessee, as proprietor of Nandini Traders, engaged in share transactions in the ordinary course of business. The shares involved were related to the Birla group of companies.
It was an admitted fact that the quoted (market) price of the shares was Rs. 20,67,876. On 9 June 1983 the assessee transferred those shares to Vishwa Mangal Trading Co. Pvt. Ltd. at book value of Rs. 13,34,392. As on the valuation date relevant to the assessment year the assessee held 1,33,410 shares of Rs. 10 each in Vishwa Mangal Trading Co. Pvt. Ltd., valued at Rs. 13,34,100, and thus was not holding any Birla group shares directly on that date.
The Assessing Officer found that no money had actually passed from Vishwa Mangal Trading Co. Pvt. Ltd. to the assessee in the transaction and observed that the assessee had received 1,33,410 ordinary shares in that company (valued at Rs. 10 each). The AO further noted that out of the paid-up capital of Rs. 13,34,200 of Vishwa Mangal Trading Co. Pvt. Ltd., the assessee owned shares worth Rs. 13,34,100 and thus had absolute control of the company. On those findings, and noting the market value of the transferred shares as Rs. 20,67,876, the AO rejected the assessee's contentions and made an addition equal to the difference between Rs. 13,34,392 and Rs. 20,67,876, recorded as Rs. 7,57,382 in the Assessing Officer's order.
The assessee appealed to the Commissioner of Income-tax (Appeals), who reversed the AO's order and deleted the addition, concluding there was no basis to substitute the disclosed consideration. The Revenue appealed to the Tribunal, which upheld the Commissioner (deleting the addition). The question of law arising from that result was referred to the court for opinion.
Procedural note from the opinion: "All parties are to act on a signed copy of this dictated order on the usual undertaking."
Legal Issues Presented
- 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 (stated in the reference as Rs. 7,57,076) made by the Assessing Officer on account of transfer of shares by the assessee to Vishwa Mangal Trading Co. Pvt. Ltd., where the shares were transferred at rates lower than the quoted market rates on the date of transfer.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CIT v. Shivahami Co. Pvt. Ltd., [1986] 159 ITR 71 (SC) | Presented in the opinion as a precedent that fortifies the court's view that an addition cannot be made by treating the difference between market value and the sale price as income in circumstances where there is no evidence of concealment, misstatement or fraudulent receipt of the difference. | The court relied on this Supreme Court decision to support its conclusion that, absent evidence of design to conceal or fraudulent receipt of the difference, the AO was not justified in making the addition. |
| India Finance and Construction Co. Pvt. Ltd. v. B.N. Panda, Dy. CIT, [1993] 200 ITR 710 (Bombay HC, Division Bench) | Identified in the opinion as a Division Bench decision that supports the court's position regarding the impropriety of assessing the difference in value as income where there is no misstatement or evidence of fraud. | The court cited this Bombay High Court decision as additional support for its view and for answering the referred question against the Revenue. |
Court's Reasoning and Analysis
- The court first noted the undisputed facts: the market (quoted) value of the Birla group shares was Rs. 20,67,876; the assessee sold/transferred those shares on 9 June 1983 to Vishwa Mangal Trading Co. Pvt. Ltd. at book value (Rs. 13,34,392); and the genuineness of the sale transaction was not doubted by any income-tax authority or by the Department.
- The Assessing Officer's factual findings that no cash passed and that the assessee received shares in Vishwa Mangal (1,33,410 shares at Rs. 10 each), and that the assessee effectively controlled the transferee company, were recorded in the opinion.
- The court examined whether, on these facts, the difference between the market value and the consideration received (i.e., the lower book value) could legitimately be treated as the assessee's income. The court held that treating the difference as income was not correct in the circumstances of this case.
- The court explained that this was not a case of understatement or misstatement of the value of the shares by the assessee; the shares were genuinely sold at a value lower than market. The court emphasized that mere sale at a price below market does not, by itself, permit the inference that the seller has received the difference by fraudulent or concealed means.
- The court pointed out the absence of any direct or inferential evidence, and the absence of any finding by any income-tax authority, that the assessee had engaged in a design to conceal or had received the difference in value through fraudulent means.
- On the basis of those factual and evidentiary considerations, and by reference to the cited precedents which the court stated fortified and supported its view, the court concluded that the Tribunal was right to uphold the Commissioner (A)'s deletion of the addition.
- Accordingly, the court answered the referred question in the affirmative (i.e., that the Tribunal was justified) and against the Revenue.
Holding and Implications
Holding: The court answered the referred question in the affirmative and against the Revenue, concluding that the Tribunal was justified in upholding the Commissioner of Income-tax (Appeals) in deleting the addition. The Assessing Officer's addition treating the difference between market value and the consideration as income was not sustained.
Implications: The direct consequence is that the addition made by the Assessing Officer (the difference between the market value and the sale consideration) was deleted and the Revenue's appeal failed on this point. The opinion does not discuss broader legal implications beyond the case-specific conclusion; the court relied on existing precedents to support its decision and did not indicate the creation of a new principle or precedent beyond applying those authorities to the facts before it.
1. 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?”
2. 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.
3. 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 shares in the Birla group of companies. In 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 Mangal 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.
4. 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 the assessee had earned an income of Rs. 7,57,382.
5. 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.
6. 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.
7. 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.
8. 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. Shivahami Co. Pvt. Ltd., [1986] 159 ITR 71 (SC). We also find support in our view from a Division Bench judgment of the Bombay High Court in the case of India Finance and Construction Co. Pvt. Ltd. v. B.N Panda, Dy. CIT, [1993] 200 ITR 710. For the reasons above, we answer the question in the affirmative and against the Revenue.
9. All parties are to act on a signed copy of this dictated order on the usual undertaking.
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