While deleting the additions made under Section 68 of the Income Tax Act, 1961, in the hands of the appellants, the Delhi High Court ruled that the transaction of sale & purchase of shares of appellant companies would not result in any income in their hands if they had not transferred any of their properties during the relevant Assessment Year. The Court clarified that the incidence of tax, if any, would be confined to the transacting parties, that is, the then existing shareholders of the appellant and the transferees to whom the shares have been allegedly sold at an undervalued price.
The Division Bench comprising Justice Vibhu Bakhru and Justice Tejas Karia observed that holding of property by the appellant companies as either stock-in-trade or any other asset is not relevant in considering if any addition could be made to the income of the appellant u/s 68 on account of the sale/purchase of the shares of the appellant by its shareholders or by otherwise acquisition of shares. The Bench clarified that the appellant continues to hold the title and interest in the subject property and had not alienated their interest or title in favour of any other person.
In this case, a seizure of the MoU found during the search conducted in the case of Aerens Group of Companies, reflected that 50% of the share in the Prithviraj Road Property jointly held by the appellants (Assessees) was transferred to one Om Shivay Real Estate Pvt Ltd. The point of dispute was that even though the market price of the property was estimated at around Rs. 150 crores, the transactions were, however, conducted at a value of Rs. 5 crores each. This resulted in reopening, and opining that each of the appellants holding a 50% share in the property had transacted at an undervaluation, the AO referred to the DVO, who reported that neither any investment was made by the appellants, nor any alterations were made in the structure. Thus, the AO determined the market value of the property at Rs. 150 crores and treated the entire consideration as income from an undisclosed source u/s 68.
On appeal, the CIT(A) noted that none of the appellants had transferred their title or sold their interest in the property during the relevant financial year, and rather, the transactions were consummated by the sale of shares by the existing shareholders of the appellants to the Transferee, who had acquired shares in the appellant companies. Finding no single evidence that could lead to the entire transaction as a sham, the CIT(A) deleted the additions made u/s 68.
The matter travelled to the High Court, where it was accepted that the appellants have not transferred any part of their interest or title in the property to any third party, and the interest, if any, acquired by the Transferee in Om Shivay Real Estate Pvt Ltd, is by virtue of acquiring the shares of the appellant. The Court therefore pointed to the fundamental error committed by the AO in assuming that the acquisition of an indirect interest in the subject property by transfer of shares or allotment of shares of the appellants resulted in the appellants being divested of any interest or title held by them in the subject property. Accordingly, the Court answered the issue in favour of the appellants.
Appearances:
Advocates Gautam Jain, Shaantanu Jain, and Manish Yadav, for the Appellant
Advocate Siddhartha Sinha, for the Respondent
