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Facts
The assessee, deriving income from salary and business, filed a return declaring a total income of INR 43,58,060/-. During scrutiny, it was found that the assessee claimed a Long Term Capital Loss (LTCL) of INR 47,66,327/- after exemption, arising from the sale of shares of Quasar Media Pvt. Ltd. The Assessing Officer (AO) assessed the income at INR 15,78,81,266/-. The assessee appealed to the Ld. CIT(A), who partly allowed the appeal.
Held
The Tribunal held that the sale of shares of Quasar Media Pvt. Ltd. was a transfer of capital assets and not a transfer of business. The Ld. CIT(A) correctly considered the sale as resulting in capital gains and not business income. The Tribunal also upheld the Ld. CIT(A)'s allowance of the capital loss claimed by the assessee, noting that the AO had disallowed it without proper justification.
Key Issues
Whether the income from the sale of shares of Quasar Media Pvt. Ltd. is to be treated as business income or capital gains, and whether the capital loss claimed by the assessee is allowable.
Sections Cited
Sec 143(3), Sec 250, Sec 54, Sec 28(ii)(a), Sec 2(14)
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Income Tax Appellate Tribunal, DELHI “B”BENCH: NEW DELHI
Before: SHRI YOGESH KUMAR U.S & SHRI MANISH AGARWAL
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “B”BENCH: NEW DELHI BEFORE SHRI YOGESH KUMAR U.S, JUDICIAL MEMBER & SHRI MANISH AGARWAL, ACCOUNTANT MEMBER [Assessment Year :2008] DCIT vs Shri Harish Bahl Circle-22(2) D-119, Lajpat Nagar-1 New Delhi-110024. Delhi PAN-AAHPB3859K APPELLANT RESPONDENT Revenue by Ms. Pooja Swaroop, CIT DR Assessee by Shri Nikhil Rungta Date of Hearing 17.11.2025 Date of Pronouncement 16.01.2026 ORDER PER MANISH AGARWAL, AM:
The present appeal is filed by the Revenue against the order dated 01.06.2023 by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld.CIT(A)”] in Appeal No. CIT(A), Delhi-18/10248/2014-15 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dated NIL passed u/s 143(3) of the Act pertaining to Assessment Year 2008.
Brief facts of the case are that assessee derived income from salary as Director in various companies and having income under the Income from business from his own business and filed the return of income declaring total income at INR 43,58,060/- on 31.07.2008. The case of assessee was selected for scrutiny and notice u/s 143(2) was issued on 25.09.2009 followed by questionnaire and notice u/s 142(1) of the Act issued from time to time. In response assessee furnished requisite details. During the year, the assessee had claimed Long Term Capital Loss (“LTCL”) of INR 47,66,327/- after claiming exemption u/s 54 of INR 15,83,05,926/- out of sale consideration of INR 15,35,39,599/-. The AO assessed the income of the assessee at INR15,78,81,266/- in the order passed u/s 143(3) of the Act.
Against the said order, assessee filed an appeal before Ld. CIT(A) who vide order dated 01.06.2023, partly allowed the appeal of the assessee.
Aggrieved by the order of Ld.CIT(A), Revenue is in appeal before the Tribunal by taking following grounds of appeal:- 1. “Whether on the facts and circumstances of the case and in law the Ld.CIT(A) has erred in deleting the addition of Rs.15,35,23,209/- on account of business income from sale of shares of Quasar Media.
2. Whether on the facts and circumstances of the case and in law the Ld.CIT(A) has erred in considering the loss under head capital gains amounting to Rs.5,51,21,117/- claimed by the assessee.”
Before us, in support of the grounds of appeal, Ld. CIT DR for the Revenue submits that assessee has sold shares in terms of share purchase agreement as per which assessee has transferred his rights attached to shares which include all the interests in the business of the company and it cannot be said that it is a simple transfer of shares but it is transfer of business of the assessee wherein the ownership of the assessee is transferred which was held in the shape of share capital and therefore, she prayed for the confirmation of the order of the AO who has rightly treated the sale as business income.
6. On the other hand, ld. AR for the assessee submits that assessee was allotted shares of Quasar Media Pvt. Ltd. on 07.04.2005 at the time of its incorporation as founder-promoter. Out of these shares, 3199 shares were sold by the assessee during the year under appeal for a sum of INR 15,35,23,209/- and claimed deduction u/s 54 of the Act for acquiring residential house. As per Ld.AR, shares were not listed in stock exchange and thus, the same were sold through Shareholders Agreement (“SHA”) according to which the assessee has transferred the shares alongwith all the rights and interests in the company therefore, AO opined that assessee not only sold the shares but also transferred the interest in the business i.e. sale of business assets. Accordingly, the income of the assessee from such sales was treated as business income which is contrary to the fact that the shares were hold by the assessee as investment and were ultimately sold at a profit. Ld.AR submits that the assessee was promoter of the company and purchased the shares and when the shares were transferred, the buyer made an agreement and to save its interest, a share transfer agreement was executed wherein the conditions were provided for transfer of rights and interest in the business of the company of which the shares belonged. This cannot be treated as transfer of business when shares were sold by the assessee. Ld. AR submits that Ld. CIT(A) has appreciated these facts and held the sale transactions and profits earned from such transaction as chargeable to tax under the head Income from capital gain which order deserves to be upheld. He prayed accordingly.
7. Heard the contentions of both parties and perused the material available on record. The sole dispute between the parties is with respect to nature of transaction of sale of shares of Quasar Media Pvt. Ltd. to Rusell Square Holding BV, a company incorporated under the law of Netherland, whether it is business income or Income from Capital Gain. The assessee claimed that he has sold the shares of the company after holding the same for a period of more than one year therefore, it is a transfer of capital assets and should be taxable as Capital gains and cannot be treated as business income. On the other hand, Revenue is challenging the same by alleging that entire business was transferred including right and interest of the assessee, therefore, the same should be treated as business income. It is further observed that Ld. CIT(A) had considered the arguments of the assessee and thereafter, concluded that profit earned is taxable under the Income from Capital Gains. It is further seen that Ld. CIT(A) in para 5.1.4 given categorical findings that the assessee has sold only 21.32% of his holding and not the entire business was transferred. Since the buyer became the majority shareholder thus it is imperative that it take over the business of the company, and for this fact it cannot be held as the transfer of business by the assessee. Company is separate legal entity and shareholders are its members. If share is transferred by any shareholder, the business of the company is not transferred rather the rights and interest attached to the shares owned by that member stood transferred. Ld.
CIT(A) while allowing the appeal of the assessee has made following observations as contained in para 5.1.2 to 5.1.12 of the order:- 5.1.1 The Ld. AO discussed the related addition in para no. 3.4 of the impugned order dated 30.12.2010. The discussion is as under:- 3.4 Reply of the assessee has been considered and it is seen that the assessee himself accepts that it is the company which has been sold. It is to emphasize that company is not different from the business activities carried on by the company. Existence of one implies the existence of the other. Vide SHARE ACQUISITION AND SHAREHOLDERS AGREEMENT not only the shares of Quasar Media Pvt. Ltd. has been transferred but all the business activities and the company as an ongoing concern has been transferred. The premium attached with the share is actually the value of all these bundle of rights. Thus, the Income generated on sale of share of Quasar Media Pvt. Ltd. Is to be treated as business Income in the hands of the assessee and not capital gains as alongwith shares, holding rights of the management has been transferred i.e., the sale of business asset is effected in this case. It is a composite agreement for transfer of rights of the company. 5.1.2 In this regard, out of submission of the appellant (reproduced entirely in Para no. 4 supra), points being relevant for adjudication of the impugned addition of Rs. 15,35,23,209 are duly considered. 5.1.3 All the facts and circumstances related to the impugned addition of Rs. 15,35,23,209 are duly considered. I have carefully gone through the Grounds of appeal, the findings of AO on each such Ground of appeal raised by the appellant and the written submission uploaded by the appellant in support of the Grounds of appeal. 5.1.4 During the year under consideration, 3199 shares of Quasar Media had been sold by the appellant for a consideration of Rs. 15,35,23,209 giving a value of Rs. 47,991 per share. The entire sale consideration was paid for acquiring rights in 3199 shares by the buyer. The appellant had merely sold 3199 shares, which constitutes only 21.32% of the total share holding of the company. The Appellant had offered the income from sale of such shares at Long Term Capital Gain in the return of income. 5.1.5 As regards the transaction for sale of such shares, the Appellant submitted that Quasar Media was formed alongwith two other promoter share holders, i.e., Shri CP Singh and Shri Manish Vij on 07.04.2005. They undertook the business of developing interactive marketing solutions, web solution services and online media planning and buying services. M/s. WPP 2005 Limited decided to acquire the shares from the appellant and the other share holders in Quasar Media through its company, Russel Square. In the process, the buyer le. Russel Square became the majority shareholder. As a consequence of becoming a majority shareholder, it was imperative that it took over the business of the company. Generally, in such transactions, where a new majority shareholders enters the company, such majority share holder would like to take control of the management and ensures that the selling share holders act in such manner that facilitate it getting control of the company and the operations. 5.1.6 The Appellant further submitted that the sale of shares under such circumstances mandates Shareholder Agreement (SHA). The shareholders of Quasar Media jointly entered into Shareholder's Agreement with Russel Square for sale of shares. 5.1.7 Therefore, the action of the Ld. AO in determining the nature of the income generated by the sale of shares is unjustified. The Ld. AO has overlooked the actual context of the transaction and has drawn conclusions merely based on some clauses of the agreement in isolation. It is crucial to consider the entirety of the transaction, including the overall intention of the parties, the nature of investment, and the manner in which the transaction was executed. All these factors firmly establish that the income generated from the sale of shares was a capital gain and not business income. 5.1.8 Further, the submission regarding the assessment carried out in the case of Shri Manish Vij, it is concluded that the Assessing Officer's decision to treat the sale consideration received on the transfer of shares as business income under Section 28(ii)(a) of the Income Tax Act is unjustified and not in line with the provisions of the Act. The appellant has highlighted that Shri Manish Vij, who also sold shares to Russell Square under the same Share Purchase Agreement (SHA), underwent assessment under Section 143(2) of the Income Tax Act, where the Income Tax Department accepted the income returned by him, categorizing the sale of shares as long-term capital gains. 5.1.9 The share purchase agreement provided by the appellant clearly indicates that there is no specific mention of the premium price being paid for the transfer of business rights or management rights. Moreover, the appellant has presented relevant court decisions supporting the notion that control and management itself can be considered a capital asset under Section 2(14) of the Income Tax Act.
5.1.10 The principle of consistency, a well-recognized concept in tax law, establishes that when fundamental facts are identical, there must be uniformity in the treatment of assessments. In this instance, the nature of the transaction, the parties involved, and the terms of the SHA are identical to those of the appellant. Furthermore, there are no differing facts or circumstances that justify different tax treatment. 5.1.11 Considering the wide definition of the term 'capital asset' and the absence of any explicit provision in the agreement linking the premium price to the transfer of business rights, it is deemed appropriate to treat the sale consideration received on the sale of shares of Quasar Media as long-term capital gain, in accordance with the provisions of the Income Tax Act. Therefore, the Assessing Officer is directed to delete the addition made treating the sale consideration as business income and to treat it as long-term capital gain under the head 'capital gain' for the relevant assessment year. 5.1.12 This decision is based on the submissions made by the appellant, the examination of the share purchase agreement, and the reliance on relevant court decisions that support the capital gain treatment. It is also supported by the principle of consistency, ensuring fairness and uniformity in the assessment process. Given the above, the appeal of the appellant is allowed, and necessary modifications are to be made to the assessment accordingly.”
Before us, the Revenue has failed to controvert the factual findings given by ld. CIT(A) after considering the real nature of transaction under dispute of sale of shares by the assessee. Therefore, we find no error in the order of Ld.CIT(A) which is hereby upheld. Accordingly, Ground of appeal No.1 raised by the Revenue is dismissed.
Ground of appeal
No.2 raised by the Revenue is with respect 9. to allowance of capital loss of INR 5,51,21,117/-.
10. Heard the contentions of both the parties and perused the material available on record. Ld.CIT(A) observed in para 5.2.3 that assessee has incurred loss from the sale of shares and Mutual Fund. From the perusal of the assessment order, it is observed that the AO disallowed the same without making any discussion in the assessment order as to why this loss is not allowable to the assessee. From the perusal of the assessment order, we find that AO has not given any reason nor doubted the loss claimed and int eh computation has disallowed the genuinely claimed loss. Looking to these facts, we find no error in the order of Ld.CIT(A) in allowing the loss claimed by the assessee which order is hereby upheld. Accordingly, Ground of appeal No.2 raised by the Revenue is dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the open Court on 16.01.2026.
Sd/- Sd/- (YOGESH KUMAR U.S) (MANISH AGARWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Date:-16.01.2026 *Amit Kumar, Sr.P.S*