DINESH VAZIRANI Vs. PRINCIPAL COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) Petitioner is an individual and resident of India. Petitioner, along with two other individuals, and one company (collectively referred to as Promoters) was the promoter of a company by the name WMI Cranes Ltd. (the Company) Petitioner held 2,35,900 equity shares out of 9,99,920 issued and paid up share capital of the company of Rs.10.00 each. Promoters entered into Share Subscription and Purchase Agreement (SPA) dtd. 11/10/2010 with M/s Konecranes Finance Corporation (Purchasers). Under the agreement, promoters agreed to sell 51% of the paid up and issued equity share capital of the company to the purchasers. Between the promoters, they held collectively 100% issued and paid up share capital of the company.

(2.) Simultaneously with SPA, the promoters and purchasers entered into second share purchase agreement (Second SPA) for the transfer of the remaining equity shares held by the promoters upon satisfaction of certain conditions under Second SPA so that at a future point of time, purchasers will hold 100% of the issued and paid up equity share capital of the company. SPA provided for a value of Rs.155,00,00,000.00 as consideration to be paid to the promoters which effectively was working out to about Rs.3212.31 per share. SPA also provided that out of Rs.155,00,00,000.00 that was payable as sale consideration, a sum of Rs.30,00,00,000.00 would be kept in escrow, based on which a separate escrow agreement was entered into between promoters, purchasers and the escrow agent. At the time of closure of the deal, promoters received Rs.125,00,00,000.00 as sale consideration and the shares were transferred. Balance Rs.30,00,00,000.00 was kept in escrow account. SPA provided for specific promoter indemnification obligations and it provides that if there is no liability as contemplated under the specific promoter indemnification obligations (clause 7.2.1 of SPA) within a particular period, this amount of Rs.30,00,00,000.00 would be released by the escrow agent to the promoters. Clause 7.8 of SPA provides for escrow arrangement. The escrow account was to be in force for 2 years from the closing date. These specifics were given to give a background of the matter.

(3.) Petitioner filed his return of income for A.Y.-2011-2012 on 29/7/2011 declaring income of Rs.22,51,60,130.00. The return of income included Rs.20,98,08,685.00 as long term capital gains on the sale of shares of the company. The capital gains was computed by petitioner taking into account the proportion of the total consideration of Rs.155,00,00,000.00, including the escrow amount of Rs.30,00,00,000.00, which had not, by the time returns were filed, received by the promoters but still parked in the escrow account. The assessment was selected for scrutiny and assessment under Sec. 143 (3) of the Act was completed and an order dtd. 15/1/2014 was passed accepting total income as declared by petitioner.