COMMISSIONER OF INCOME TAX Vs. SIEL LTD.

JUDGEMENT

(1.) THESE two appeals by the Revenue pertain to one assessment year 2000 -01 and the challenge is to acceptance of book loss of Rs.10.12 crores/indexed loss of Rs.13.62 crores on sale of shares @ Rs. 2.02 per share of Siel Tizit Ltd. on the ground that the sale was a colourable device. The said shares were sold by the respondent assessee to the joint venture partner Plansee Tizit Aktiengesellschaft, (Plansee, for short), an Austrian company.

(2.) PLANSEE and the assessee had entered into a joint venture agreement dated 20th June, 1994, followed by first amendatory agreement dated 6th August, 1996 for setting up and forming the company Siel Tizit Ltd. for carrying on business of manufacture, sale, distribution, export and other dealings in hard metals. The two joint venture partners equally acquired the paid up equity capital of 15000000 equity share of Rs.10/ - each aggregating to Rs.1500 lakhs i.e., the two joint venture partners had 50% share holding.

(3.) IN the previous year i.e., assessment year 1999 -2000, the respondent -assessee renounced in favour of Plansee their entitlement to subscribe 3000000 equity shares of Rs.10/ - each in the rights issue. Plansee's share holding increased to 58.3% and while respondent assessee's share holding got decreased to 41.7%. Thereupon, the respondent -assessee and Plansee had entered into an agreement dated 31 st March, 1999. The agreement records that Seil Tezit Ltd. had proposed to offer one crore fresh equity shares of Rs.10/ - each for cash at par on rights basis, but the respondent assessee due to financial difficulties, was unable to subscribe to 40166667 shares which would be offered to them by way of rights offer and had decided to renounce the same in favour of Plansee. Further, Plansee on request agreed to buy the assessee's shareholding consisting of 12700000 equity shares for consideration of USD 600000, which on conversion, came to Rs.2.02 per share of face value of Rs.10/ - each.