Delhi HC: No Income Tax Applicable Without Actual Transfer, Even for Property Worth ₹150 Cr [Read Order]

In a recent ruling, the Delhi High Court held that the mere existence of a high-value property does not create taxable income in the absence of an actual transfer of ownership, even if the estimated value of the property is Rs. 150 crores.

Snerea Properties Pvt. Ltd. and Shrey Properties Pvt. Ltd. filed appeals against assessment orders that treated Rs. 75 crores each as undisclosed income.

The Assessing Officer had reopened their cases after a search on a third party led to the discovery of a Memorandum of Understanding suggesting that 50% of a jointly held property at Prithviraj Road, New Delhi, had been transferred for Rs. 5 crores despite having a market value of Rs. 150 crores.

Based on this, the officer added Rs. 75 crores to each company’s income under Section 68 of the Income Tax Act. The petitioners’ counsel argued that the companies never transferred their interest in the property and that only shares of the companies were sold by the shareholders to another entity.

They said that no funds had been received by the companies and no ownership had been given up. The entire transaction took place at the shareholder level, and any tax liability, if at all, would arise only for the selling shareholders.

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The income tax department’s counsel argued that the share sale was undervalued and that the underlying intent was to transfer property ownership indirectly. The department relied on the MoU and claimed that the companies’ business nature supported the treatment of the transaction as business income.

The division bench comprising Justice Vibhu Bakru and Justice Tejas Karia observed that there was no evidence of the companies transferring their property interest. The court also observed that no unexplained credit had been found in the companies’ books, and Section 68 was not applicable. It further stated that even if the property was worth Rs. 150 crores, no taxable income could arise in the companies’ hands unless there was an actual transfer by them.

The court found that the Income Tax Appellate Tribunal had wrongly remanded the case back to the CIT(A) despite clear findings. The court held that the corporate veil could not be lifted in this case to treat the share sale as a property transaction by the companies. The appeals were allowed, and the ITAT order was set aside. The court restored the earlier order of the CIT(A), which had deleted the additions.

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