Transfer of Shares under Dispute can’t be subject to Income Tax: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that the transfer of shares under dispute cannot be subject to capital gain under the provisions of the Income Tax Act, 1961.

The assessee had received a sum of Rs.40 crores from ILFS on account of shares of ATS Estate (P) Ltd., taken by M/s. IL & FS Trust Company Ltd. and IIRF Holding XV Limited., conditionally as per the terms of Share Purchase and Shareholder Agreement dated 08.04.2008 and shares Subscription and Shareholders Agreement dated 23.07.2007. It was stated that the share which was taken by IL&FS Trust Company Ltd. and IIRF Holding XV Limited from the assessee had been acquired by the assessee from M/s ATS Infrastructure Ltd. as per the terms of agreements between promoters dated 03.03.2008.

The department found that the assessee had received money under a conditional agreement and therefore, the shares were not absolutely and forever transferred to M/s IL&FS Trust Company Ltd. and IIRF Holdings Ltd. accordingly, the Assessing Officer made an addition on account of long term capital gain and short term capital gain and computed the income at Rs.40,49,21,179/- against the income declared of Rs.48,07,446/-.

ITAT President Mr. G S Pannu and Accountant Member Mr. Kul Bharat observed that the Agreement between the parties did not attain finality during the year under consideration hence, the impugned transaction in part ought not to have been taxed in the year under consideration.

“In our considered view, the Agreement is to be a read as a whole, the transfer of shares under dispute cannot be read into isolation. Moreover, one of the challenges before the Hon’ble High Court was regarding the legality of the MOU dated 03.03.2008. It was categorically prayed that MOU was void being contrary to the provisions of section 297 of the Companies Act, 1956. Therefore, under the peculiarity of the facts where the legality and validity of the Agreement were under challenge, we do not see any infirmity into the order of Ld.CIT(A) to the extent it is held that the transfer of shares cannot be subjected to capital gain tax in the year under consideration on the ground that the entire transaction has not fructified,” the Tribunal said.

To Read the full text of the Order CLICK HERE

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