COMMISSIONER OF INCOME TAX KARNATAKA (CENTRAL) CENTRAL REVENUE BUILDINGS QUEENS ROAD BANGALORE 560001 Vs. LATE SRI H R BASAVARAJ BY LEGAL REPRESENTATIVE M/5 HRB FAMILY TRUST 26/2-A, SANKEY ROAD BANGALORE

JUDGEMENT

(1.) 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.

(2.) 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.

(3.) 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.