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Judgment
Justice Ravi Malimath
These five appeals are preferred by the revenue challenging the order passed by the tribunal holding that the tax on capital gains payable by the assessee in respect of transfer of shares is assessable for the assessment year 1998-97 and thus set-aside the order passed by the assessing authorities under block assessment on the ground that the said income being undisclosed. The assessees were shareholders of M/s Kurechermala Plantation Limited They sold the said plantation to M/s Prudential Capital Market Ltd., and the total consideration was Rs.540 lakhs. The shareholders entered into a memorandum of understanding with Prudential Capital Limited on 23.11.1993 to transfer all shares held by the family members in the name of M/s Prudential Capital Market Limited/their nominees. The memorandum contained a clause to the effect that the shares will be transferred on receipt of full and final payment from the purchasers. The assessee received Rs.20.00 lakhs on the day of enterin into the memorandum of understanding. Rs.90.00 lakhs was received by them on 30.1.1994. February to July; 1994 was the moratorium period and no payrrieilfs were. made. Between August 1994 to December 1995 they received Rs.340 lakhs. The last payment was made -)n 16.3.1998 i.e., the balance amount of Rs.20.00 lakhs.
Under the terms of MOU, the assessee and his family members have given. the share certificate along with transfer forms duty signed by them to Sri. U.C. Bhandari, escrow agent to hold it in a fiduciary capacity. On receiving the final sale consideration on 16.03.1998 a no objection letter was given on 18.03,1998 for transfer of shares to Prudential Capital Group or their nominees. However, the agent handed over the share certificates in breach of trust, even before the final payment. On receipt of the share certificates, the same was presented to the Company and the shares were transferred to Mr. Vinod Baid, Mrs. Usha Bald and M/s. Ritual Finance Consultants Ltd., nominees of M/s. Prudential Market Capital Ltd., on 11.11.1996 and 31.01.1997 without the knowledge of the assessee and his family members and against the conditions laid down in the MOU as well as the instructions of the assessee to Mr. U.C. Bhandari who acted as an agent.., A search was conducted in the premises of the assessee on 05.12.1997. Subsequently, they filed a return on 28.09.1998 disclosing the aforesaid income. But the Assessing Authority held that as these receipts were not disclosed in the return filed for the assessment year 1997-98 and as no capital gains was paid on the said income, they proceeded to assess the assessee for the Mock period on the ground of undisclosed income. Their stand was that once the shares were transferred in the name of the purchasers, immediately, thereafter, in the next assessment year, the assessee ought to nave declared the income and paid the capital gains. Aggrieved by the said order of assessment, the assessee preferred an appeal to the Commissioner of Appeals. The Commissioner upheld the order passed by the Assessing Authority except to the assessment of Rs.20, lakhs which according to him should have assessed for the assessment year 1998-99 and not 1997-98 as the. said payment was made on 16.03.1998. The assessee appealed to the Tribunal against the order of the Commissioner and revenue has also. preferred an appeal in so far as Rs.20 lakhs is concerned. The Tribunal heard all these appeals together and by 8 common order held that in terms of MOU, the shares have to be transferred only on payment of entire:. amount. Admittedly, the last payment of lakhs was made on 16.03.1998 and therefore, the assessee had to declare the capital gains and pay tax in the returns to be filed in the year 1998-99. Even though shares were transferred in the name of purchasers and substantial amount had been paid to the assessee in terms of MOU, in law, sale of shares were completed on payment of entire amount i.e. payment of balance amount of Rs.20 lakhs on 16.03.1998. Therefore, they held that the Assessing Authority was not justified in assessing these incomes in the block assessment. In so far holding that it is to be taken into account during the year 1998-99 is concerned, it was affirmed. Aggrieved by these orders, the revenue is in appeal.
These appeals were admitted to consider the following substantial questions of law:
Whether, on the facts and circumstances of the case, the Income Tax. Appellate Tribunal is correct in law in holding that in as mcuh as the entire capital gains brought to tax in the block assessment was directed to be deleted, the revenue''s appeal assailing the exclusion of the sum of Rs.26 lakhs directed by the appellate Commissioner from the computation of the capital gains, was liable to be rejected?
Whether, the appellate order passed by the Tribunal dismissing the revenue''s appeal without deciding the issue relating to exclusion of the sum of Rs.20 lakhs is sustainable in law?
Whether, on the facts and circumstances of the case, that since transfer of shares was completed during the financial year 1996-97 relevant for the assessment year 1997-98 so as to be assessable in the assessee''s case, the sum of Rs.20 lakhs was not liable to be excluded from the computation of such capital gains in the block assessment?
The facts are not in dispute. The MOU.. in respect of the transfer of shares. was entered into on 23.11.1993. The total sale consideration. agreed upon is Rs.5,40,00,000/-. The assessee received Rs.20.00. lakhs on the day of entehng into the Memorandum of Understanding. In terms of MOU, Rs.90 lakhs was paid on 30th December 1993 and another Rs.90.00 lakhs was received by there on 30m january 1994. February to July, 1994 was the moratorium period and no payments were made. Between August 1994 to December 1995 they received Rs.340 lakhs. The last payment was made on 1G.3.1998 i.e., the balance amount of Rs.20.00 lakhs. The MOU contain a Clause regarding when the title in the shares is transferred which reads as under:-
The shares will be transferred to the 15t party on full and final payment.
It is not in dispute that the full and final payment was paid on 16.03.1998 i.e. a sum of Rs.20 lakhs. Therefore, the assesses have to pay capital gains in the assessment year 1998-99.
The record also discloses that after the MOU was entered into, the share certificates duly signed were handed over to one Sr. U.C. Bhandari, Chartered Accountant. He was expected to hand over these duly signed shares only on payment of the entire sale consideration. However, the material on record discloses that in breach of the aforesaid terms, he handed over these share certificates to the purchasers without the knowledge and consent of the assessee. Because the shares were transferred on 11.11.96 and 31,01.97, no capital gains was paid in the assessment year 1997-98. In the search conducted, as these facts were noticed, the Assessing Authority has assessed the assesses under block assessment.
The capital gains is payable only after the transfer takes place. In the case of movable properties, the agreement between the parties is reduced in writing and the agreement expressly stipulates when the transfer should take place between the parties. In the instant case, it is clear that the transfer took place before the full and final settlement. The full and final payment was made on 16.03.1998. Therefore, the assessee was under an obligation to pay capital gains after showing these income in the assessment year 1998-99. Even before that, in a search the Assessing Authority noticed these transactions. Merely because shares have been transferred in the name of purchasers, contrary to the stipulation in the MOU and without the consent and knowledge of the assesses, it cannot be said that the capital gains payable is to be treated as a undisclosed income on the ground that the assessee should have paid the tax in the assessment year 1997-98. The Appellate Tribunal on a proper aside the order passed by the Assessing Authority s well as the Appellate Authority. The finding recorded by: the Tribunal is legal and valid and does not call for any interference. Similarly, the First Appellate Authority was justified in holding that Rs.20 lakhs paid on 16.03.1998. cannot be assessed for the assessment year 1997-98. It should be assessed in the year 1998-49 and therefore, the Tribunal was justified in dismissing the lveal against the said order passed by the revenue. We do not see any merit in all these appeals. The substantial questions of law framed are answered in favour of the assessee and against the revenue. Accordingly; these appeals are dismissed.