Commissioner Of Income Tax-Iv vs Gillette Diversified Operations ...
2010 Latest Caselaw 2244 Del

              THE HIGH COURT OF DELHI AT NEW DELHI

%                               Judgment Delivered on: 28.04.2010

+            ITA 434/2009


COMMISSIONER OF INCOME TAX-IV                            ... Appellant


                                 - versus -


GILLETTE DIVERSIFIED OPERATIONS PVT. LTD.               ... Respondent

Advocates who appeared in this case:

For the Appellant : Mr Sanjeev Sabharwal For the Respondent : Ms Kavita Jha

CORAM:-

HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE V.K. JAIN

1. Whether Reporters of local papers may be allowed to see the judgment? Yes

2. To be referred to the Reporter or not? Yes

3. Whether the judgment should be reported in Digest? Yes

V.K. JAIN, J.(ORAL)

1. This is an appeal against the order of the Income Tax

Appellate Tribunal dated 30.04.2008, whereby it allowed the

appeal filed by the respondent/assessee being ITA

No.5342/Del/2004, against the order passed by the

Commissioner of Income Tax(Appeals) for the assessment year

2000-2001 and dismissed the Cross Appeal filed by Revenue,

being ITA No. 3099/Del/2005.

2. The respondent company, which is engaged in the

business of leasing of equipments, filed a return declaring loss

of Rs.4,71,54,210/- for the assessment year 2000-2001.

Since 1st January, 2000, the appellant company amalgamated

with Gillette Diversified Operations Private Limited (GDOPL).

The assessee company had purchased shares of WSIL on 4 th

April, 1996 for a sum of Rs.7,92,70,381/-. Those shares were

sold on 30th December, 1999 for a consideration of

Rs.7,88,76,000/-. However, due to application of cost index,

the cost of these shares for the purpose of computation of

capital gain worked out to Rs.10,11,02,224/-, thereby

resulting in capital loss of Rs.2,22,26,224/-.

3. The assessee had also purchased share of GDOPL on

4th April, 1996 for a consideration of Rs.8,40,83,094 and had

sold those shares to Gillette Group India Private

Limited(GGIPL) on 30 th December, 1999 for a sale

consideration of Rs.8,36,64,770/-, thereby resulting in loss of

Rs.4,18,324/-. However, due to application of cost index, the

capital loss on sale of these shares worked out to

Rs.2,35,76,735/- The Assessing Officer noticed that the

assessee company had outstanding liability of Rs.19.77 crores,

used for purchase of shares of group companies. He concluded

that the transactions were entered on the same date merely to

create capital loss and was a colourable device for tax

avoidance.

4. The Assessing Officer disallowed the capital loss on

sale of shares on the ground that these shares were purchased

from the funds made available by the group companies and

observing that the assessee company had entered into these

transactions on the same day only to create capital loss of

investment held by it.

5. In the appeal filed by the assessee, Commissioner of

Income Tax(Appeals) allowed the loss on account of sale of

WSIL shares but upheld the disallowance of loss in respect of

shares of GGIPL on the ground that the sale proceeds were

used to reduce liabilities prior to amalgamation with GDOPL.

6. While allowing the appeal filed by the assessee and

dismissing the cross-appeal filed by the Revenue, the Income

Tax Appellatte Tribunal noted that no plausible objection had

been raised before it to justify disallowance of loss on share of

shares of WSIL. The Tribunal, therefore, upheld the order of

Commissioner of Income Tax(Appeals), allowing the loss

incurred by the assessee on sale of shares of WSIL.

7. As regards sale of shares of GDOPL, which were

purchased on 4th April, 1996 and sold to GGIPL on 30th

December, 1999, the Tribunal was of the view that the

transaction of sale of these shares was quite similar to the

transaction of sale of shares of WSIL. The Tribunal noted that

no benefit of capital loss had been taken by the assessee till

date by adjusting it against other Long Term Capital Gains. It

was also noted that even in the assessment of 2002-2003 the

amalgamated company had brought forward the losses of

earlier years. The Tribunal, therefore, felt that had the shares

been sold as a device to obtain any unfair tax benefit, the

assessee company or the amalgamated company would have

immediately adjusted it against income from Long-Term

Capital Gains. The Tribunal accepted the explanation given by

the assessee that Gillette Company having suffered huge losses

was not in a position to carry on its manufacturing activities

and wanted to reduce its liability, prior to amalgamation by

paying all funds to its group. The Tribunal was of the view

that it was immaterial whether the loan was due to a group

company or to an outsider. The Tribunal took note of the fact

that actual loss of sale of shares was only Rs.4,18,324/- and it

was only on account of indexation that the amount of capital

loss had increased. The Tribunal was of the view that the

transaction could not be thrown out merely because it was

carried out a few days before amalgamation of the company.

8. As noted by the Commissioner of Income Tax(Appeals)

as well as by the Income Tax Appellate Tribunal, shares in

question were held by the assessee company for more than

three years before they were sold. The assessee company was

very much entitled in law to sell the shares held by it at any

time, which it considered to be appropriate for such sale. It is

for the holder of the shares and not for the Revenue to decide,

when to sell the shares held by it. The CIT(A) was of the view

that there was no necessity to sell the shares as the assessee

itself had received back share application money or advance for

shares from GGIPL/WISL/GDOPL and the sale proceeds were

used to reduce liabilities prior to amalgamation of assessee

with GDOPL. He was also influenced by the fact that the sale

proceeds were used to repay outstanding liability of GGIPL

which was a group company. If the sale of shares was not

illegal, it could have been made to any one, including a group

company. It is immaterial that the purpose of sale of shares

was to reduce the outstanding liabilities of the assessee

company. There was nothing illegal in the assessee company

selling shares held by it, for the purpose of reducing its

liabilities. It is also absolutely immaterial that the liabilities of

the assessee company were towards group companies.

Similarly, it is also immaterial that the shares sold by the

assessee company were of another group company. It is also

immaterial as to who the purchaser of the shares was, so long

as the shares are not sold at a price which was higher or lower

than their fair price and there was no restriction on sale of

such shares to a group company. All these factors could have

been relevant had the Tribunal found that the transactions

undertaken by the assessee company were a colourable device

with a view to cause a loss to the Revenue. As noted by the

Tribunal, neither the assessee company nor the amalgamated

company adjusted the capital loss on account of sale of these

shares against any long-term capital gain even till the

assessment year 2002-2003. No tax benefit was, therefore,

obtained by the assessee company for at least two years after

the capital loss was booked by it. Hence, it cannot be said that

the transactions in question were a colourable device, meant to

gain some unfair tax advantage.

9. The Income Tax Appellate Tribunal being the final fact

finding authority, we cannot interfere with the finding recorded

by it unless it is shown to be perverse. The appellant has

failed to show any perversity in the finding recorded by the

Income Tax Appellate Tribunal. No substantial question of

law, therefore, arises for our consideration. The appeal is,

accordingly, dismissed.

(V.K. JAIN) JUDGE

(BADAR DURREZ AHMED) JUDGE APRIL 28, 2010 RS/