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2023 (2) TMI 175 - HC - Income TaxCapital gain - consideration received towards sale of shares - transfer of capital asset - Relevant assessment year - transfer governed by Section 108 of Companies Act, 1956 - HELD THAT - As settled that transfer of shares shall take place only after registration by the Registrars of the Company - Mannalal Khetan v. Kedar Nath Khetan 1976 (11) TMI 135 - SUPREME COURT and LIC v. Escorts Ltd. 1985 (12) TMI 289 - SUPREME COURT It is not in dispute that assessees have received Rs.35 Crores as advance sale consideration towards sale of their shares. It is also not in dispute that the Company had written to the KIADB and the KIADB had permitted transfer of shares. The principal argument advanced on behalf of the Revenue is, as back as on July 29, 2009, Shri. G. Somashekar Reddy has executed a Lease Deed in favour of M/s. KPIT Cummins and thus, he was functioning as the owner of the Company. Though this argument is attractive, it is relevant to note that transfer of shares shall happen only in accordance with Section 108 of Companies Act. So far as the lease agreement in favour of KPIT Cummins, we may record that the lessor is the Company namely M/s. Shailendra Techno Park Pvt. Ltd., and Shri. G. Somashekara Reddy is only described as a Director of the said Company. In view of the settled position of law and the factual matrix of the case recorded by the ITAT that Share Certificates were not delivered during the previous year of relevant assessment year, no exception can be taken to the ITAT's view. Revenue appeal fail.
Issues Involved:
1. Whether the Assessee can be subjected to capital gains tax for the relevant assessment year. 2. Whether the transfer of capital assets took place in the year relevant to the assessment year or in a subsequent year. Analysis: 1. The case involved appeals by the Revenue against the ITAT's order regarding the capital gains tax liability of the Assessee for the assessment year 2008-09. The key question was whether the transfer of shares and the substantial consideration received by the Assessee in 2007 should result in capital gains tax liability for the same year, despite the actual transfer of shares happening in 2013. The Revenue contended that the management transfer and consideration receipt indicated a transfer of shares, justifying tax liability. 2. The facts revealed that the Assessee had received a significant sum as advance consideration for the sale of shares in 2007. The AO held that this triggered capital gains tax liability for the assessment year 2008-09. However, the ITAT found that the actual transfer of shares did not occur in the relevant assessment year, as evidenced by the non-delivery of share certificates. The Share Transfer Agreement in 2013 further supported this finding, indicating that the transfer was completed in a subsequent year. 3. The legal analysis delved into the provisions of Section 108 of the Companies Act, 1956, which governs the transfer of shares. The judgment cited precedents emphasizing that share transfer is only complete upon registration by the Company's Registrar. The Share Transfer Agreement and the non-delivery of share certificates during the relevant assessment year aligned with this legal framework, supporting the ITAT's decision. 4. The arguments presented by both parties focused on the timing and completion of the share transfer process. The Revenue's position relied on the receipt of consideration and management transfer, while the Assessee emphasized the legal requirements for share transfer registration. Ultimately, the judgment upheld the ITAT's decision, dismissing the appeals and ruling in favor of the Assessee, as the transfer of shares was not completed in the relevant assessment year, absolving them of capital gains tax liability. 5. The detailed analysis of the factual circumstances, legal provisions, and precedents highlighted the importance of share transfer registration and the completion of formalities for tax liability determination. The judgment's thorough examination of the timeline and legal requirements ensured a fair and accurate resolution of the capital gains tax dispute in this case.
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