tag:blogger.com,1999:blog-3202774368551476669.post2352666247331941709..comments2023-09-15T16:21:31.980+05:30Comments on INDIAN CORPORATE LAW: The Fallout of Daga CapitalUmakanth Varottilhttp://www.blogger.com/profile/12438677982004444359noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-3202774368551476669.post-37737648623205650722009-02-23T14:13:00.000+05:302009-02-23T14:13:00.000+05:30This raises a very interesting issue – whether the...This raises a very interesting issue – whether the acquisition of controlling interest can be characterised as a no-cost transaction and outside the scope of capital gains under s. 45 of the Income Tax Act. <BR/><BR/>In Srinivasa Shetty’s case, the issue before the Court was whether the sale of goodwill of a newly commenced business was taxable under s. 45. However, as you have pointed out, there is a distinction in this respect between “no-cost” items and items that are incapable of having a cost. In Srinivasa Shetty, the Court observed as follows (page 466): <BR/><BR/>13. What is contemplated is an asset in the acquisition of which it is possible to envisage a cost. The intent goes to the nature and character of the asset, that it is an asset which possesses the inherent quality of being available on the expenditure of money to a person seeking to acquire it. It is immaterial that although the asset belongs to such a class it may, on the facts of a certain case, be acquired without the payment of money. That kind of case is covered by Section 49 and its cost, for the purpose of Section 48 is determined in accordance with those provisions. There are other provisions which indicate that Section 48 is concerned with an asset capable of acquisition at a cost.<BR/><BR/>Further, the Department may contend that the cost of acquisition for shares representing controlling is on a different footing because the ability to control is only an incidence of ownership of the shares, and does not exist independently as a right. Therefore, the Department may argue that the cost of acquisition cannot be said to be nil, and that capital gains will be assessed at the difference between the sale price (including controlling interest premium) and the actual cost of shares. This view has seems to have been accepted by the Madras High Court in Venkatesh v. CIT, [2000] 243 ITR 367 (Mad). In that case, the assessee unsuccessfully argued that there is no cost of acquisition for a controlling interest. There are also decisions of the Andhra Pradesh High Court and the Supreme Court that appear to endorse this view.<BR/><BR/>In view of these decisions, it appears to be difficult to contend that there is no cost of acquisition as far as a controlling interest is concerned.V. Niranjanhttps://www.blogger.com/profile/08357572960266796641noreply@blogger.comtag:blogger.com,1999:blog-3202774368551476669.post-77959470317795499292009-02-21T11:26:00.000+05:302009-02-21T11:26:00.000+05:30In the BL Issue of 21 st Feb, there is an article ...In the BL Issue of 21 st Feb, there is an article published on - Vodafone case - referred by me in my earlier Post.<BR/><BR/>Reproduced below is an extract there from:<BR/><BR/>QUOTE<BR/><BR/>"How can capital gains arising out of the sale transaction be computed? As far as the sale of shares of CGPI is concerned, this would not be taxable in India. <BR/><BR/>As far as the transfer of "controlling interest" is concerned, the capital gains would amount to Rs Y minus the cost price of the "controlling interest". The "controlling interest" was acquired by simply buying majority shares in CPGI. <BR/><BR/>It is, therefore, self-generated and involves no cost price.<BR/><BR/>Therefore, in view of the Supreme Court decision in B. C. Srinivasa Setty (128 ITR 294), no capital gains tax is payable."<BR/><BR/>UNQUOTE <BR/><BR/>(Bold Font supplied by me is to highlight the rerquired portions)<BR/><BR/>1. In my opinion, the correct or better view, and the stand an assessee should, perhaps, take, would be on the following lines:<BR/><BR/>Cost of acquisition (of controlling interest) being the cost/equivalent of the shareholding held - say. X<BR/><BR/>Sales price - Y<BR/><BR/>Cost of improvement (being the difference / excess between/of <BR/>Y and/over X ) - IE Y-X <BR/><BR/>Cost + Improvement = X + (Y -X)<BR/><BR/>CG = Y - (X + (Y - X))<BR/>I.E. Y - X - Y + X <BR/><BR/>Result is (A BIG) - ZERO*<BR/><BR/>IF so, that will necessarily be the the MARKS* the Revenue deserves / may eventually secure!<BR/> <BR/>Is that puzzling? <BR/><BR/>Any Comment?!<BR/><BR/>KEY NOTE: 'Srinivasa' deals with a case of 'no conceivable cost' - NOT A 'NIL' COST SITUATION. For an elaboration of this aspect, one may refer - (2006)5 CAT 432 (Mag)<BR/><BR/>A feedback, preferably by e'mail, to - vswaminathan13@yahoo.com - will be appreciated.<BR/><BR/>vswaminathanAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-3202774368551476669.post-76799646976516500582009-02-20T08:32:00.000+05:302009-02-20T08:32:00.000+05:30One may refer my earlier 2 Posts commenting on the...One may refer my earlier 2 Posts commenting on the subject dispute.<BR/><BR/>The further development referred to now clearly bears out, rather goes to support one's firm conviction, that the tax adinistration is no longer interested in even having a serious look or relook at what the law, in terms, provide,or whether any view taken by it in anyone or more cases is fraught with problems in implentation, to the prejudice/discomfiture of the tax payers. valid reasons for which are in abundance in the statute, etc. , etc. One such case of a recent origin is - Vodafone International. As one needs to be aware, the stand taken by the revenue is prima facie patently misconceived and against all attendant odds. (Any one passionately interested, may refer to the published article in(2009)176 Taxman 82 (Mag. Even the later SC 's Order, as I see it, does not agree with but is a pointer to the fact that the Revenue has, without proper home work,conceived of the steps against the assessee, not giving any thought to the most fudamentasl aspect / impediment of 'territorial jurisdiction' under the Indian law.<BR/>vswamiAnonymousnoreply@blogger.com