Commissioner Of Income Tax-I, Baroda v. Bio Pharma....opponent(S

O/TAXAP/124/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 124 of 2006 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX-I, BARODA....Appellant(s) Versus BIO PHARMA....Opponent(s) ================================================================ Appearance: MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1 MR MANISH J SHAH, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERIandHONOURABLE MR.JUSTICE K.J.THAKER Date : 13/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1.While admitting the appeal on 08.09.2006, the following substantial question of law was formulated for our consideration; “Whether on facts and in the circumstances of the case and in law, the Appellate Tribunal is justified in deleting the addition of Short Term Capital Gain of Rs.2,03,50,292/- by acting upon the decree of the Civil Court which was based on collusive agreement?” 2.Briefly stated, the facts are that the assessee-firm was engaged in the business of manufacture of pharmaceuticals up to 31.12.1995. The firm is comprised of two partners each having 50% share. On 31.12.1995 the assessee sold the business to M/s. Century Pharmaceuticals Ltd. as a going concern at a price of Rs.3,64,00,000/- as per the agreements dated 19.12.1995 and 08.06.1996. As per the said agreements, the two partners of the assessee-firm became Directors of the Company and the sale consideration was paid to them by M/s. Century Pharmaceuticals Ltd. mainly through allotment of shares. On the basis of the facts of the case, the Assessing Officer computed short term capital gain aggregating to Rs.2,03,50,292/-. The CIT(A) vide order dated 19.03.1999 sustained the addition. The assessee filed appeal against the order of CIT(A) before the Appellate Tribunal. 3.In the meanwhile, the concerned Civil Court vide order dated 03.10.2000 passed in Civil Suit No.855/2000 reduced the sale consideration to Rs.1,41,49,707/- and directed the assessee firm and its Partners to refund the sum of Rs.2,03,50,292/- to M/s. Century Pharmaceuticals Ltd., which has been refunded by the Partners of the assessee-firm by surrendering the equity shares. Therefore, during the course of hearing before the Appellate Tribunal, the assessee sought permission to add the additional ground capital gain of Rs.2,02,50,292/- may not be taxed in view of the order passed by the concerned Civil Court. 4.The Appellate Tribunal admitted the additional ground and remitted the matter to the A.O for fresh adjudication. Pursuant to the remand, the A.O gave effect to the order of the Appellate Tribunal wherein, he repeated the addition of Rs.2,03,50,292/- as made in the original order of assessment. The CIT(A) sustained the order of the A.O in appeal. On further appeal by the assessee, the Appellate Tribunal deleted the addition of Rs.2,03,50,292/- vide order dated 06.09.2005. Being aggrieved by the same, the Revenue has filed the present appeal. 4.The Appellate Tribunal admitted the additional ground and remitted the matter to the A.O for fresh adjudication. Pursuant to the remand, the A.O gave effect to the order of the Appellate Tribunal wherein, he repeated the addition of Rs.2,03,50,292/- as made in the original order of assessment. The CIT(A) sustained the order of the A.O in appeal. On further appeal by the assessee, the Appellate Tribunal deleted the addition of Rs.2,03,50,292/- vide order dated 06.09.2005. Being aggrieved by the same, the Revenue has filed the present appeal. 5.Mr. K.M. Parikh learned Standing Counsel appearing for the Revenue submitted that the Appellate Tribunal had earlier considered the decree passed by the competent Civil Court as an evidence for taking cognizance by the A.O. He submitted that the decree of a Civil Court was not binding to the Income Tax Authority in proceedings under the Income-tax Act. However, subsequently, the Appellate Tribunal held that the order of the Civil Court is conclusive evidence, ignoring all facts discussed in the orders of the A.O and the CIT(A). The A.O only got the opportunity to verify the evidence of decree while setting aside the re-assessment proceedings and at that time, it was found that the decree from the Civil Court was only a consent decree and thus, the collusive decree was obtained for self-service. He, therefore, submitted that the impugned order of the Appellate Tribunal is bad in law and deserves to be quashed and set aside. 6.Mr. M.J. Shah learned counsel appearing for the assessee submitted that the order of the concerned Civil Court is final and binding and that it is not disturbed by any appellate Court. It was submitted that out of the sale consideration received by the assessee, the Civil Court had directed to refund the sum of Rs.2,03,50,292/-, which has been refunded by the Partners of the assessee-firm by surrendering 20,35,020 equity shares of Rs.10/- each. The refund of sale consideration directed by the Civil Court is equal to the capital gain worked out by the Revenue. Therefore, once the sale consideration is reduced by the sum of Rs.2,03,50,292/-, there would remain no capital gain. 7.We have heard learned counsel for both the sides. It is a matter of fact that the judgment and decree passed by the competent Civil Court has not been disturbed by any appellate Court. Hence, the decree passed by the Civil Court has become final and is binding. While decreeing the suit, the Civil Court observed as under; “Suit of the plaintiff is hereby decreed. It is declared that the true transaction value for transferring the assets and liabilities of M/s. Bio Pharma as going concern as on 31.12.1995 be Rs.1,41,49,707.43 and that the consideration payable to the defendants no.2 & 3 be adjusted at Rs.1,41,49,707.43. The defendants to pay to the plaintiff company Rs.2,03,50,392.52 along with running interest @ 12% p.a from the date of the suit till realization...” 8.From the above, it is clear that out of the sale consideration received by the assessee, the Civil Court had directed to refund the sum of Rs.2,03,50,292/-, which has been refunded by the Partners of the assessee-firm by surrendering 20,35,020 equity shares of Rs.10/- each. The refund of sale consideration directed by the Civil Court is equal to the capital gain worked out by the Revenue. Therefore, once the sale consideration is reduced by the sum of Rs.2,03,50,292/-, there would remain no capital gain and once there is no capital gain, the argument whether the sale by the assessee is slump sale and liable to capital gain tax or not has become academic and needs no adjudication. Accordingly, the addition of Rs.2,03,50,292/- was deleted. Considering the aforesaid factual aspects, the question of law raised is answered in favour of the assessee and against the Revenue. The appeal is, accordingly, dismissed. (K.S.JHAVERI, J.) Pravin/*