2006 (9) TMI 348 - AT - Income Tax

Summary

Issues Involved:
1. Whether the Learned CIT(A) is justified in holding that the transfer of interest in the property of shares had not been completed in the year under consideration.

Issue-wise Detailed Analysis:

1. Transfer of Interest in Property of Shares:
The core issue in all the appeals was whether the transfer of interest in the property of shares had been completed in the year under consideration. The facts in all the appeals were identical, involving the transfer of shares of Vasant Sagar Properties Pvt. Ltd. (VSPPL) to Veena Investment Ltd. (VIL) as per an agreement dated 4-11-1999. The shareholders of VSPPL, including the assessee, had agreed to sell their shares to VIL for a total consideration of Rs. 18.72 crores, with an advance payment of Rs. 4,01,99,000 and an additional Rs. 9.36 crores paid in the year under consideration.

During assessment proceedings, the Assessing Officer examined the agreement and noted that no date was mentioned for the completion of the deal. The assessee argued that the transfer of shares had not been completed as the shares were held in escrow with a solicitor and full payment had not been received. The Assessing Officer, however, concluded that the transfer took place in the year under consideration, citing factors such as the handing over of shares and substantial payment received. He relied on various judgments to support his view that the transfer was complete despite the shares not being registered in the company's books.

On appeal, the Learned CIT(A) considered the provisions of section 45 and the definition of "Transfer" under section 2(47) of the Income-tax Act, 1961. He observed that the intention of the parties was clear that the transfer of shares was conditional upon full payment of the purchase price. The shares were held by the solicitor in escrow and not delivered to the buyer, indicating that the transfer was not complete. The CIT(A) distinguished the case law relied upon by the Assessing Officer and concluded that no capital gain arose in the year under consideration.

Upon further appeal, the Tribunal upheld the CIT(A)'s decision. The Tribunal examined the relevant provisions of the Sale of Goods Act, 1930, and concluded that the contract was conditional and the sale would be complete only upon full payment of the purchase price. The solicitor was acting as a trustee and not as an agent of the transferee, and the shares were not delivered to the transferee. Hence, the transfer did not take place in the year under consideration, and the provisions of section 45 could not be applied. The Tribunal dismissed the revenue's appeals, affirming that the transfer of shares did not occur in the year under consideration and no capital gain was exigible.

Conclusion:
The Tribunal concluded that the transfer of shares was conditional upon full payment of the purchase price, and since this condition was not fulfilled in the year under consideration, the transfer did not take place. Consequently, no capital gain arose in the year under consideration, and the appeals of the revenue were dismissed.