Case Note & Summary
The case pertains to an appeal filed by the Commissioner of Income Tax under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal (ITAT) dated 27.01.2006. The respondent, M/s. Hede Consultancy Company Pvt. Ltd., is a company engaged in travel agency and consultancy business. On 02.12.1996, the respondent filed its return of income declaring a total income of Rs.20,38,500/-. The assessment was reopened under Section 147 of the Act by issuing a notice under Section 148 on 19.03.1999. The assessment was completed by order dated 30.03.2001, disallowing the respondent's claim of long-term capital loss of Rs.1,17,87,564/- and bringing a sum of Rs.45,99,337/- to tax. The Commissioner of Income Tax (Appeals), by order dated 18.10.2002, reversed the assessment order, holding that the transfer of shares was not a colourable transaction and that the long-term capital loss should be set off against the short-term capital gains. The ITAT upheld this order on 27.01.2006, finding both transactions genuine. The revenue then appealed to the High Court. The substantial question of law framed was whether the transaction was a colourable device to evade tax. The High Court, after hearing arguments, held that the revenue failed to prove that the transactions were colourable. The court noted that the shares were sold at a price determined by a valuer and that the transactions were genuine. The appeal was dismissed, and the question of law was answered in favor of the assessee and against the revenue.
Headnote
A) Income Tax - Colourable Device - Tax Evasion - Sections 147, 148, 260A Income Tax Act, 1961 - The issue was whether the transfer of shares of group companies at a low price and sale of shares of Mackhinon & Mackenzie Co. Ltd. at a high price, resulting in set-off of long-term capital loss against short-term capital gains, constituted a colourable device to evade tax. The court held that the transactions were genuine and not a colourable device, as the revenue failed to discharge its burden of proving that the transactions were sham or intended to evade tax. (Paras 2-5)
Issue of Consideration
Whether the transaction of transferring shares of group companies at low price causing long term capital loss and sale of shares of Mackhinon & Mackenzie Co. Ltd. at high price, making short term capital gains, thereby setting off the short term capital gains against the long term capital loss, is a colourable device to evade tax.
Final Decision
The High Court dismissed the appeal, answering the substantial question of law in favor of the assessee and against the revenue. The court held that the transactions were genuine and not a colourable device to evade tax.
Law Points
- Colourable device
- Tax evasion
- Genuine transaction
- Set-off of capital gains and losses
- Burden of proof on revenue
- Section 147
- Section 148
- Section 260A Income Tax Act
- 1961
Case Details
2013 LawText (BOM) (10) 155
TAX APPEAL NO. 54 OF 2006
NARESH H. PATIL, F. M. REIS
Ms. Asha Dessai for the Appellant, Mr. Y. V. Nadkarni with Ms. D. Shirgam for the Respondent
The Commissioner of Income Tax
M/s. Hede Consultancy Company Pvt. Ltd.
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Nature of Litigation
Appeal under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal.
Remedy Sought
The appellant (Revenue) sought to set aside the ITAT order and restore the assessment order disallowing the set-off of long-term capital loss against short-term capital gains.
Filing Reason
The Revenue contended that the transaction of transferring shares of group companies at low price and sale of shares of Mackhinon & Mackenzie Co. Ltd. at high price was a colourable device to evade tax.
Previous Decisions
The Assessing Officer disallowed the claim of long-term capital loss; the Commissioner of Income Tax (Appeals) reversed that order; the ITAT upheld the Commissioner's order.
Issues
Whether the transaction of transferring shares of group companies at low price causing long term capital loss and sale of shares of Mackhinon & Mackenzie Co. Ltd. at high price, making short term capital gains, thereby setting off the short term capital gains against the long term capital loss, is a colourable device to evade tax.
Submissions/Arguments
The appellant argued that the shares of group companies were sold at a farcical price to a group company managed by the same persons with the sole purpose of evading tax on the sale of shares of Mackhinon & Mackenzie Ltd., and hence the Assessing Officer was justified in applying the ratio laid down by the Apex Court.
The respondent argued that the transactions were genuine and supported by valuation, and the revenue failed to prove that the transactions were colourable.
Ratio Decidendi
The revenue failed to discharge its burden of proving that the transactions were colourable or sham. The transactions were supported by valuation and were genuine. The set-off of long-term capital loss against short-term capital gains was permissible.
Judgment Excerpts
The above Appeal was admitted by this Court on 26.09.2006 on the following substantial question of law :
Briefly, the facts of the case are that the Respondent is a Company engaged in a business of Travel Agency and consultancy.
Being aggrieved by the impugned Order dated 27.01.2006, the Appellants have preferred the present Appeal under Section 260A of the Income Tax Act.
Procedural History
The respondent filed return of income on 02.12.1996. Assessment was reopened under Section 147 on 19.03.1999. Assessment order dated 30.03.2001 disallowed long-term capital loss. Commissioner of Income Tax (Appeals) reversed the assessment on 18.10.2002. ITAT upheld the Commissioner's order on 27.01.2006. Revenue appealed to the High Court under Section 260A on 26.09.2006. High Court dismissed the appeal on 23.10.2013.
Acts & Sections
- Income Tax Act, 1961: 147, 148, 260A
