PRINCIPAL COMMISSIONER OF INCOME TAX Vs. KARAN SINGH

JUDGEMENT

(1.) The facts-in-brief, as gathered from the file, are that the assessee, namely, Dr. Karan Singh, his wife and two sons were having shares in M/s. Jyoti Pvt. Ltd. Thus, the assessee was one of the shareholders having 21000 shares in the said company. During the financial year of 1997-98, the assessee had transferred/sold 7150 shares in the said company to M/s. Bharat Hotels Ltd., New Delhi for a consideration of rupees ten crores, though, as on 1/4/1981, the assessee had taken the indexed cost of these shares at Rs.14,48,59,000.00. However, in the return filed by the assessee on 8/3/1999, the assessee had declared a total income of Rs.16,89,477.00, i.e., Rs.12,000.00 under the head salary and Rs.16,77,477.00 as income from other sources. There was a note appended to the computation of income to the effect that the assessee had sold his shares in M/s. Jyoti Pvt. Ltd., and, as per valuation of the company's assets, there was a capital loss, which is not being claimed.

(2.) However, the Assessing Officer disputed the indexed cost of 7150 shares. He was of the view that while calculating the cost of acquisition, the value of land measuring 225.85 kanals was to be excluded as the land was not a part of sale consideration of shares of M/s. Jyoti Pvt. Ltd. to M/s. Bharat Hotels Ltd. Therefore, the Assessing Officer took the indexed cost of per share at Rs.3262..00 Thus, the Assessing Officer adopted the indexed cost of 7150 shares at Rs.2,33,23,300.00, instead of Rs.14,48,59,000.00. As such, the Assessing Officer was of the view that out of rupees ten crore being the sale price, there was a capital gain of Rs.7,66,76,700.00 as having been received by the assessee.

(3.) Against the assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), Jammu. The CIT(A) vide order dtd. 21/3/2007 deleted the addition made by the Assessing Officer on the ground that as on the date of sale of shares, the lease period of beyond 20 years was still left with M/s. Jyoti Pvt. Ltd. and hence the land value in the hand of the lessor was practically nil or negligible and for all practical purposes M/s. Jyoti Pvt. Ltd. was de facto owner of the underlying land. The value of leasehold land, therefore, cannot be excluded for calculating the Fair Market Value of shares of M/s. Jyoti Pvt. Ltd. The Assessing Officer was, thus, directed to adopt the valuation report submitted by the assessee during the assessment proceedings resulting in no capital gain.