Law:

Section:

Section 48 of the Income-tax Act, 1961 - Capital gains - Computation of - Assessment year 2004-05 - Whether full value of an asset for purpose of section 48 is true value bargained for by parties, which need not necessarily be market price and should not be an ersatz figure - Held, yes - Indian company, and its shareholders, including applicant, has entered into an agreement to transfer its entire business and share capital in favour of some foreign companies - Sale consideration under agreement comprises fixed amount (closing payment), payable in lump sum and contingent payments payable in instalments by 31-3-2004, 31-3-2005 and 31-3-2006 and contingent payments are not to be made unless aggregate Earnings Before Interest, Tax, Depreciation Allowance (EBITDA) of business for applicable period equal or exceed contingent cumulative threshold EBITDA - Applicant has also entered into non-competition agreement/employment agreement under which he would receive a portion of purchase price in respect of his ownership interest and will also receive substantial and indirect benefits from transaction contemplated under agreement which is for his employment for five years as CEO - Whether in the instant case, a combined reading of employment agreement, non-competition agreement and share purchase agreement, which are contemporaneous, leaves no doubt to conclude that contingent payments payable under share purchase agreement, are in substance and reality payments for ensuring performance under employment agreement to achieve desired object in exceeding EBITDA and have no real nexus to consideration for sale of shares, etc., under purchase agreement and so far as second part of consideration comprising of contingent payments is concerned, they are so arranged as to appear that they constitute a part of consideration for sale of shares, etc., whereas they are in truth and substance for achieving target of EBITDA - Held, yes - Whether, therefore, consideration mentioned in purchase agreement is a composite consideration and closing payment alone represents full value of consideration for said agreement for purposes of section 48 - Held, yes - Whether contingent payments as…

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