PREMIER SYNTHETIC INDUSTRIES Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THE assessee has preferred these appeals as against the order of the Tribunal relating to assessment years 1987-88 and 1988-89. The above Tax Case (Appeals) are admitted on the following common substantial question of law:-

(2.) THE assessee herein is a partnership firm. The return originally filed by the assessee was accepted under Section 143(3) of the Income Tax Act. Subsequently, while scrutinising the assessment for the assessment year 1988-89, it was found that the assessee had claimed short term capital loss on sale of shares for the assessment year 1987-88, which was identical to that of the assessment year 1988-89. Accordingly, the assessment for assessment year 1987-88 was sought to be reopened under Section 147 of the Income Tax Act. The assessee went on appeal before the Commissioner of Income Tax (Appeals), who found the modus operandi adopted to purchase the shares of the Premier Mills Limited and subsequent sale of the same to a sister concern of the Premier Mills Limited, were all colourable device, as such, the claim of capital loss was rejected. Aggrieved by the same, the assessee went on appeal before the Income Tax Appellate Tribunal, which remanded the matter back to the officer for a fresh consideration based on the records. As far as the assessment year 1988-89 is concerned, the facts are one and the same. It is seen from the order of the Assessing Authority that after remand order by the Tribunal, the assessee was called upon to produce the records regarding the transactions of purchase of shares of Premier Mills Limited from Unit Trust of India, which were subsequently sold by the assessee to the sister concern by name M/s. Belathur Investments Private limited.

(3.) A perusal of the order of the Tribunal shows that Jagadish Chandran, the Managing Director of the Premier Mills Limited had an agreement in his individual capacity with the Unit Trust of India to repurchase the shares of Premier Mills Limited, by using the name of the assessee's firm. Jagdish Chandran purchased the shares at highest price than the market price. Then the shares were subsequently sold to Belathur Investments Private Limited, a group concern of M/s.Premier Mills Limited, wherein, Savita Chandran, who is the wife of Jagdish Chandran, Managing Director of Premier Mills Limited, is the Managing Director. Going by the above said facts, the Tribunal pointed out that it cannot be said that the assessee's firm repurchased the shares as per the agreement. Secondly, the Tribunal pointed out that there was no agreement between the assessee firm and Unit Trust of India to repurchase the shares of Premier Mills Limited. In order to escape from the provisions of Section 77 of the Companies Act, Premier Mills Limited utilised the services of assessee's firm to purchase its own shares indirectly. Thus, when the market price of the shares was at Rs.8.50 per share at the time of repurchase, no ordinary prudent business man would agree to purchase the shares at higher price, triple the one quoted in the open market. Thus, the Tribunal found, as a matter of fact, the intention to repurchase the shares was evident to keep the control over Premier Mills Limited by the said company itself. As regards payment of compensation or commission, the Tribunal pointed out that the same was subsequently withdrawn after the transaction was over. Thus, the Tribunal confirmed the view of the authorities below that there was no pre existing agreement between the assessee and the Unit Trust of India as regards the purchase of shares at highest price which stated to have been purchased. The Tribunal further held that there was no material to show as regards flow of funds from the assessee for the purchase of shares and that the transactions were genuine transactions. Based on these materials, the Tribunal rejected the appeal.