NDTV WORLDWIDE LTD,NEW DELHI vs. DCIT 18(1), NEW DELHI
Facts
NDTV Worldwide Ltd, engaged in consultancy, challenged two additions made by the AO for AY 2014-15: disallowance of excess Director's remuneration (Rs. 60.36 lakhs) and alleged capital gains (Rs. 2.16 crores) from a conditional share transfer. The assessee contended that the remuneration was reversed and offered in the next year, and the share transfer was not complete due to non-receipt of full consideration and subsequent cancellation of the SPA. The CIT(A) upheld both additions.
Held
The Tribunal allowed the appeal, holding that the disallowance of Director's remuneration was not justified as the matter was revenue neutral and the amount was offered to tax in the subsequent year, preventing double taxation. Regarding capital gains, it found that no effective 'transfer' occurred under Section 2(47) as the share purchase agreement was conditional on full payment, which never materialized, and the transaction was subsequently cancelled, applying the real income theory.
Key Issues
Whether excess Director's remuneration was taxable despite being revenue neutral and reversed in a subsequent year, and if capital gains accrued on a conditional share transfer where consideration was not received and the transaction was cancelled.
Sections Cited
143(3), 143(2), 142(1), 45, 45(1), 2(47), 48, 234B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “E”: NEW DELHI
Before: SHRI G.S. PANNU & SHRI ANUBHAV SHARMA
INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E”: NEW DELHI BEFORE SHRI G.S. PANNU, VICE PRESIDENT AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No. 1180/Del/2019 (Assessment Year: 2014-15) NDTV Worldwide Ltd, Vs. DCIT, Okhla Industrial Estate, Circle-18(1), Phase-II, New Delhi New Delhi (Appellant) (Respondent) PAN: AACCN9121G
Assessee by : Shri Rohit Tiwari, Ms Tanya & Ms Shivani, Advocates Revenue by: Shri Sandeep K Mishra & Ms Garima Sharma, Sr. DRs & Date of Hearing 26/07/2024 Date of pronouncement 29/07/2024
O R D E R PER ANUBHAV SHARMA, J. M.: The appeal has been preferred by the Assessee against the order dated 27.12.2018 of Ld. Commissioner of Income Tax (Appeals)-6, Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. 'FAA') in appeal No. /10644/2016-17 arising out of an appeal before it against the order dated 23.12.2016 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as 'the Act') by the Id Assessing Officer, Dy. Commissioner of Income Tax, Circle-18 (1), New Delhi (hereinafter referred as the Ld. AO).
ITA No. 1180/Del/2019 NDTV Worldwide Ltd 2. Facts in brief are that the NDTV Worldwide Limited hereinafter referred to as the assessee or appellant, is engaged in providing consultancy services for setting up channels, operational technical consultancy and training for broadcasters etc. The tax return for the captioned assessment year was filed on November 21, 2014 declaring taxable income of Rs.4,14,96,979. The tax return was selected for scrutiny through CASS under sub section 2 of section 143 of the Income Tax Act, 1961, the Act and notice under sub section 2 Section 143 was issued on August 31, 2015. Further, notice under subsection 1 of Section 142 of the Act was issued on the appellant on April 12, 2016. Ld AO completed the assessment under sub section 3 of section 143 of the Act vide order dated December 23, 2016 received by the appellant on December 29, 2016. While completing assessment and in computing the total income of the appellant, the Ld. AO made the addition of Rs. 60,36,201 on account of disallowance of Directors remuneration and an addition of Rs. 2,16,13,021 on account of alleged capital gains on the transfer of shares or investments. Thus, assessed the income at Rs. 6,91,46,201 as against the returned income of Rs. 4,14,96,976. 3. Being aggrieved by the said assessment order, the appellant had challenged the disallowance of Director Remuneration Rs. 60,36,201 submitting that the said remuneration was in excess of the permissible limits of the Companies Act 1956. The Company applied for the permission to Central Government on 30th March 2014. The same was rejected by the Central Government on 10th October 2014. The Company filed the representation on 21st November 2014 for reconsideration of the order issued on 10th October 2014. The said application was also rejected by Central Government on 9th January 2015. Accordingly, the appellant application for the permission of Central Government in order to pay such an amount was pending as on 31st March 2014. It was only in the next year that is AY 2015- 16 that the application of the appellant got rejected by the Central Government. Accordingly, the appellant reversed the amount of remuneration Page | 2
ITA No. 1180/Del/2019 NDTV Worldwide Ltd and offered the same as its income in the AY 2015-16. Further, the appellant also submitted that the amount of the expense was claimed as per the accounting policy of the company and proper disclosures were also made in the financial statements for the year under consideration. The appellant alleges that the Ld AO rejected the submission of the appellant merely on the fact that by reversing the expense in the subsequent year, the claim does not get reduced to its rightful amount by itself and the income does not get booked in the year to which it actually pertains. 4. In regard to addition of Rs. 2,16,13,021/- on account of capital gains arising out of sale of shares to Rathi Strategic Ventures P. Ltd. the appellant submitted that along with other group companies viz. NDTV Convergence Limited; and NDTV Ethnic Retail Limited had entered into a Share Purchase agreement-SPA dated 30th September 2013 with Rathi Strategic Ventures Private Limited, (hereinafter referred to as purchaser), wherein the purchaser has agreed to purchase the Equity shares of NDTV Ethnic Retail Limited from NDTV Worldwide Limited and NDTV Convergence Limited for a consideration of Rs 10 Crores. The appellant agreed to sell 2,980 equity shares of NDTV Ethnic Retail Limited for a consideration of Rs. 21.64 Mn. on the effective date i.e. the date of entering into SPA i.e. 30th September 2013. Under the aforesaid agreement, the purchaser undertook and acknowledged that irrespective of the contingencies, the sale shares shall be transferred to it upon the payment of the entire purchase consideration to the seller within 60 days of the effective date. Further, it was agreed vide this agreement that the seller shall deliver the share certificates upon receipt of the total purchase consideration. However, after payment of the initial amount which was shown as advance in the books of NDTV Convergence Limited, the purchaser failed to pay the balance consideration within the 60 days. On the balance sheet date i.e. 31st march 2014, the appellant on a prudent basis made provision for unrealized consideration since the Board of Directors of the ultimate holding company i.e. New Delhi Television Limited Expressed their concern towards Page | 3
ITA No. 1180/Del/2019 NDTV Worldwide Ltd continuing the agreement despite the inability of the purchaser to pay the balance amount. Subsequently, the purchaser expressed its inability to pay the entire consideration to the appellant. Thus, the appellant initiated steps to settle the transaction by cancelling the transfer of shares. Further, the appellant also returned the advance received from the intended purchaser under the aforesaid group deal. The share certificates which were transferred in the name of intended purchaser were kept in the custody of the appellant as per the terms of the SPA. Further, such shares were again transferred back in the name of the appellant as and when the purchaser expressed its inability to pay the consideration. Since neither the shares nor the rights in the shares got physically or beneficially transferred to the intended purchaser, thus, no capital gains were offered to tax in the return of income for the year under consideration. Further, the appellant had written off the provision for unrealized consideration as bad debts in the subsequent year in its books of accounts since no gain was realized in the year under consideration. The appellant had suo-moto disallowed such claim of bad debts in the return of income for the AY 2015-16. The appellant alleges that the Ld. AO observed that the capital gains accrued to the appellant the moment SPA was entered into irrespective of the covenants of the agreement under section 45 of the Act. Further the Ld. AO held that once the charging section is triggered on the facts of the case, it gets triggered on the date of the impugned transfer and no subsequent event can obliterate the taxability of the capital gains. 5. However, as with regard to excessive remunerations to the Directors, the Ld. CIT(A) dismissed the appeal holding in para 4.1.4 as follows:- "4.1.4 From the above it is apparent that the assessee was aware that the representation made for allowing remuneration in excess to that prescribed in Schedule XIII to the Companies Act had been rejected and hence the same should have been disallowed in the computation of taxable income irrespective of die accounting treatment given in its books of account. Further, from the computation of taxable income for AY 2015-16 which has been submitted at page 60B of the paper book, it has not been demonstrated how the excess has been reversed and Page | 4
ITA No. 1180/Del/2019 NDTV Worldwide Ltd added back to the income in the next year. Hence, the finding of the AO that by creating an entry of receivable and showing the amount was recoverable from the directors in the next financial year does not reduce the claim to its rightful amount by itself and die income does not get booked in the year under consideration to which it actually pertains, appears to be in line with opinion of the auditor in this regard. Therefore, the disallowance made by the AO is sustained. Grounds of appeal Nos. I to 3 are dismissed.” 6. In regard to addition on account of capital gains arising out of transfer of shares to Rathi Strategic Ventures Pvt. Ltd. Ld. CIT(A) observed in para 4.2.3 and 4.2.4 as below:- "4.2.3 From the details as given in non-current investments it is apparent that the shares were sold and both the number and value of the same was reduced in the books of account which shows that the shares were transferred. Further, gain from sale of investment amounting to Rs. 21.61 million was also disclosed in the profit and loss account under the head other income. It is also noted that Note 31 to the financial statements clearly record that 2980 equity shares of NDTV Ethnic Retail Ltd. were sold to an investor for a consideration of Rs. 21.64 million which shows that the shares were transferred for a consideration of Rs. 21.64 million on which the gain was computed at Rs. 21.61 million. Hence, there is no infirmity in thefinding of the AO that upon transfer of shares, the assessee had receivables in the shape of balance sale consideration after deducting advance amount and merely because the receivables did not appear to be recoverable, and that too in the subsequent year, the capital gains already triggered and arisen would not get obliterated. Accordingly, the finding of the AO that full value of consideration received or accruing means the amount which is received or in respect of which the right to receive his accrued. Hence, charge created by section 45(1) gets triggered immediately on transfer of the capital asset and is relevant for the year in which the transfer took place. In the case of the appellant it is clear that the shares were transferred since the non-current investment shown in the financial statements was produced both by the number as well as the value. It is also to be noted that the AO has recorded a finding that the purchaser, Rathi Strategic Ventures India Pvt Ltd. was duly shown as shareholder having 13769 shares constituting 22.94% shareholding in the balance sheet of NDTV Ethnic Retail as on 31/03/2014, a fact which has not been rebutted by the appellant in its submissions. 4.2.4 As regards the contention of the appellant that there was no consideration, it is to be noted that toe appellant itself recorded gain on sale of investment amounting to Rs. 21.61 million and hence the Page | 5
ITA No. 1180/Del/2019 NDTV Worldwide Ltd question of consideration not being received does not arise and toe AO has merely added the amount of Rs. 2,16,13,021/- which had been reduced by toe appellant itself in its computation of income after duly disclosing the same as income in the audited financial statements and the AO has not substituted the actual declared value by any hypothetical value. As regards the reliance of the appellant on the decision of the Hon'ble Supreme Court in the case of CIT vs. Balbir Singh Maini (supra), the said case is distinguishable on facts in as much as the issue under consideration in the case relied upon related to transfer under section 2(47) (v) pertaining to transaction involving the allowing of possession of an immovable property to be taken or retained in part performance of a contract of toe nature referred to in section 53A of the Transfer of Property Act, 1882. The case of the appellant is of transfer of shares in terms of a Share Purchase Agreement and where the transfer was apparent from the financial statements in as much as that both the number and toe value of shares stood reduced in toe balance sheet, gain from sale of investment was disclosed as other income in toe profit and loss account and toe purchaser was shown as a shareholder having 13,000 769 shares constituting 22.94% shareholding in NDTV Ethnic Retail Ltd, a finding which has not been rebutted by the appellant."
Now before this Tribunal the Assessee has raised the following grounds of appeal:- “1. That on the facts and circumstances of the case, the order dated 27.12.2018 passed by the learned Commissioner of Income Tax (Appeals) [‘CIT(A)’] is without judicious appreciation of the facts and position in law, and thus, erroneous insofar as the same upholds the order dated 23.12.2016 passed by the Assessing Officer [‘AO’]. 2. That the CIT(A) erred on facts and in law in confirming disallowance of Rs.60,36,201 being the excess Directors remuneration paid by the Appellant during the relevant year under consideration, without appreciating that such amount having been reversed and offered to tax in subsequent year, would amount to double taxation. 3. That the CIT(A) erred on facts and in law in alleging that the documents placed on record does not ‘demonstrate how the excess has been reversed and added back to the income in the next year without appreciating that the Appellant has, separately filed before the CIT(A), copies of the relevant voucher/ documents which establishes that the excess remuneration was netted off Page | 6
ITA No. 1180/Del/2019 NDTV Worldwide Ltd against the expenditure debited in the Profit and Loss Account of the next year (AY 2015-16). 3.1 That the CIT(A) erred on facts and in law in confirming the action of the AO in taxing Rs.2,16,13,021 under the head ‘capital gains’ on the ground that the alleged sale of shares of M/s. NDTV Ethnic Retail Ltd by the Appellant to M/s. Rathi Strategic Ventures India Pvt. Ltd, purportedly constitutes ‘transfer’ under Section 2(47) of the Income Tax Act, 1961 (‘the Act’). That the CIT(A) erred on facts and in law in not appreciating that the terms of Share Purchase Agreement (‘SPA’) clearly established that the same was a conditional agreement and was contingent upon complying with certain conditions laid down therein which, inter-alia, required that shares shall stand transferred only upon receipt of entire sales consideration, which, undisputedly never happened. Without prejudice, the CIT(A) erred on facts and in law in not appreciating that the action of the AO tantamount to taxing the Appellant on notional income, as against real income, for the reason that the SPA was subsequently cancelled, and the agreed consideration was never received by the Appellant. 1. That the CIT(A) erred on facts and in law in confirming the action of the AO in levying interest under Section 234 B of the Act.”
That the appellant seeks leave to add, alter, amend or withdraw any ground of appeal before or at the time of hearing of this appeal.”
Heard and perused the record. 9. On behalf of the appellant, arguments were raised primarily recapitulating the facts as narrated above. In regard to ground no 1 to 3, it was submitted that Ld. Tax Authorities below have failed to take into consideration the fact that assessee was pursuing bona fide application for approval of the excess remuneration and the excess remuneration have been reversed by the assessee in subsequent Assessment Year 2015-16. So, the dispute is now revenue neutral and the impugned orders making amount subject of double taxation. As with regard to the ground no. 3.1 it was
ITA No. 1180/Del/2019 NDTV Worldwide Ltd submitted that the terms of SPA establish there was a conditional agreement and no share certificate were transferred. It was submitted that there was no transfer of capital asset for the purpose of Section 45 r.w.s. 48 of the Act. It was submitted that the term used is 'full value of consideration received or occurring" in Section 48 describing mode of computation of capital gain and as such assessee had merely received advance Rs. 85 lakhs which were returned on cancellation of SPA in support of contentions. Ld. Counsel relied judgments:- 1. DCIT vs. G4S IT Services India Pvt. Ltd. (ITA No. 3897/Del/2015) 2. Synergy Art Foundation Ltd. Vs. ACIT (8)(2)(2) (ITA No. 767/MUM/2017) 3. ACIT Vs. Anil Kumar Saha (ITA No. 4745/Del/2012) 4. ACIT, Circle- 02 vs. Sh. Ijyaraj Singh (ITA No. 152/JP/2019)
The Bench has given its thoughtful consideration to the submission and gone through the matter before it. The ground wise findings are as below. 11. Ground no. 1 to 3; In regard to these issues giving thoughtful consideration to the matter on record based and on admitted facts and sequence of events what immediately strikes is the fact that the return of income was filed on 21.11.2014 declaring total income of 4,14,96,979/- and on page no. 20 of the paper book is copy of letter dated 10.10.2014 from Ministry of Corporate Affairs, Government of India informing the assessee that the application seeking permission of the Central Government u/s 310 of the Companies Act, 1956 has been rejected, closed and filed. There was a direction that the company needs to recover the excess remuneration paid to the appointee. Thus, on 21.11.2014, when ROI was filed, the state of affairs were that application of the company stood dismissed. The assessee wants to take advantage of letter dated 20.11.2014 which is on page no. 21 of the paper book by which a review was sought. The endorsement on it shows that Page | 8
ITA No. 1180/Del/2019 NDTV Worldwide Ltd on 21.11.2014 this application was received in the receipt and dispatch section of the Ministry of Corporate Affairs. The Ld. AO had taken this aspect of dismissal of application in it cognizance in para no. 3.3 of its order.It can be observed that at the time of passing of assessment order on 23.12.2016 even the subsequent review application was dismissed and the Ld.AO had taken into consideration that also in it’s observation in para no. 3.4. 12. But what is material is that in reply to the Ld. AO dated 11.11.2016, available at page no. 12 to 14 of the paper book, the assessee had not claimed any relief on the issue in the light of the pendency of application date 20.11.2014. The plea that was taken was that company has reversed that excess remuneration paid till March 31, 2014 during the year 31.03.2015 which is now being held in Trust by the respective Directors and accordingly shown as advance recoverable from Directors. The reply mentioned that the same shall be recovered from the directors in reasonable period of time not exceeding 36 months. However, the AO held that only because of making reverse entries in next Financial year the claim does not get reduced in the relevant year. The Ld. CIT(A has also taken into consideration the findings of Ld. AO while dismissing the grounds of challenge of disallowance of Directors remuneration. 13. The Bench is of considered opinion that when at the time of filing return of income the assessee was pursuing with second review application, so the assessee had bonafide, to the have taken it to be not final and return of income was filed accordingly. 14. Then it can be appreciated that as far as excess remuneration is concerned the Directors have liability to refund excess remuneration and Section 197(9) of the Companies Act 2013 stipulates that if any director draws or receives, directly or indirectly, by way of remuneration any such sums in excess of the limit prescribed or without approval required under this section, he shall refund such sums to the company, within two years or such Page | 9
ITA No. 1180/Del/2019 NDTV Worldwide Ltd lesser period as may be allowed by the company, and until such sum is refunded, hold it in trust for the company. The letter dated 10/10/2014 by which assessee’s application under section 310 of the Companies Act 1956 was disallowed, also has a direction to recover the excess remuneration. 15. So it is not a case of disallowance of expenses being excessive or unreasonable but a case where due to statutory threshold being violated and law provides the manner of refund. So the assessee company was justified to treat the amount as receivable. The law also provided for statutory responsibility to refund and therefore the Assessee company was right in letting the Directors refund excess remuneration in following year and to offer the refunds to the income in forth coming FYs. In the end, as rightly contended by Ld. AR, the matter of fact is that the issues is revenue neutral and disallowance may lead to double taxation. Thus the findings of Ld. Tax authorities cannot be sustained whereby creating an entry of receivable and showing amounts as recoverable from the directors in the next FY was not disallowed. The ground is decided in favour of the appellant. 16. Ground no. 3.1. The important piece of document is copy of share purchase agreement dated 30.09.2013 entered into by the assessee / appellant viz. M/s. Rathi Strategic Ventures P. Ltd. which is available at page no. 87 - 106 of the paper book. It can be observed that recital no. 2 deals with purchase of Sale Shares and manner of payment. Same is crucial for determination of the issue and they are reproduced as below:- 2. PURCHASE OF SALE SHARES AND MANNER OF PAYMENT 2.1 The Purchaser agrees to purchase the Sale Shares from the Sellers and the Sellers agree to sell the Sale Shares to the Purchaser, on the Effective Date for the Total Purchase Consideration of INR 100,000,000/- [Rupees Ten crores]. The shareholding pattern of the Company pursuant to the purchase of the Sale Shares by the Purchaser has been provided in Schedule I of this Agreement. The Parties agree Page | 10
ITA No. 1180/Del/2019 NDTV Worldwide Ltd that the Sale Shares will be transferred in the name of the Purchaser on the Effective Date. 2.2 The Purchaser undertakes and acknowledges that, irrespective of any contingencies, the Sale Shares shall be transferred to the Purchaser on the undertaking that it shall pay the Total Purchase Consideration to bank accounts ("Bank Accounts) of the Sellers within 60 days of the Effective Date. 2.3 The Purchaser agrees that the Sellers shall deliver the share certificate of the Sale Shares upon receipt of the Total Purchase Consideration." The Clause 1.1 in definitions defines 'effective date' that means the date of execution of this agreement which admittedly is 30.09.2013. Thus, at the time of agreement itself the parties to the agreement had agreed that the sale shares will be transferred in the name of the purchaser on the effective date i.e. 30.09.2013. However, same was subject to Clause 2.2 and 2.3 where share Certificates were to be delivered upon receipt of Total Consideration.
16.1 Further, a particular reference can be made to clause 8.1 which provides; 8.1 “The parties acknowledge tht the share certificate of the sale shares shall be delivered by the Sellers upon receipt of the Total Purchase consideration”
Thus, the sellers had retained share certificate it was due to lien they exercised over the share certificates pending receipt of total purchase consideration. Non- payment of balance sale consideration was implied condition or contingency agreed for termination of the agreement. Share being a movable property are transferable like any movable property. 18. Hon’ble Allahabad High Court in judgment dated 04.10.2012 in Rajat Lal vs The Commissioner Of Income Tax Income Tax Appeal No.6 of Page | 11
ITA No. 1180/Del/2019 NDTV Worldwide Ltd 2005 while dealing with similar controversy of sale and transfer of shares for the purpose of Capital Gains tax has taken note of the law and had benefitted the assessee relying following settled propositions of law; “14. Shri V.B. Upadhyay has relied upon CIT, Delhi (Central) v. Bharat Nidhi Ltd. (Delhi High Court), 1982 (133) ITR 447; CIT, Madurai v. M.Ramaswamy (Madras High Court), 1985 (151) ITR 122; Rajagiri Rubber and Produce Co. Ltd. v. Commissioner of Income Tax (Kerala High Court), 1993 (203) ITR 663 and Smt. Raj Rani Devi Ramna v. Commissioner of Income Tax, (Patna High Court), 1992 (201) ITR 1032 in support of his submissions.
In CIT, Delhi (Central) v. Bharat Nidhi Ltd. (Supra) the Delhi High Court held that shares are movable property in terms of Sale of Goods Act. When and at what time a property can pass on to the buyer is laid down in Chapter-III. Section 19 provides that where there is contract for the sale or specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred; and for the purpose of ascertaining the intention oft he parties to the contract, regard shall be had to the conduct of the parties. Sub-section (2) of Section 19 elaborates that the rules in ss.20 to 24 are to be looked at for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. Section 21 provides that where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state the property does not pass unless such thing is done and the buyer has notice thereof. The Delhi High Court relied upon Maneckji Pestonji Bharucha v. Wadilal Sarabhai & Co., AIR 1926 PC 38, 40 and Alfred William Domingo v. L. C. De'Souza, (1928) ILR 50 All 695=AIR 1928 All 481 in which it was held that only a person, who is on the register is in the full sense of the word the owner of the share. But the title to get on the register consists in the possession of a certificate together with a transfer signed by the registered holder. It further relied upon in holding that under Section 21 unless shares were specified by serial numbers, which can be identified it cannot be said to be a contract for sale of Page | 12
ITA No. 1180/Del/2019 NDTV Worldwide Ltd specified goods as contemplated by Section 21 of the Act, as they would remain unascertained. In Kuppiah Chetty v. Saraswathi Ammal, AIR 1941 Mad 769 it was held that an agreement to transfer shares in a company accompanied with the actual instrument of transfer which has not been completed so far as the transferor could complete it does not amount to a transfer deed sufficient to cause the title to pass. By itself it would be nothing more than an enforceable agreement to convey and until the transfer endorsement is signed the shares would be unascertained goods and would not be in a deliverable state. The Delhi High Court also cited Bank of India Ltd. v. Jamsetji A. H. Chinoy, AIR 1950 PC 90, 07 in which it is observed that in India a purchaser of shares (which under the Indian Sale of Goods Act come within the definition of ''Goods') does not acquire an equitable interest by virtue of the contract of sale. The Delhi High Court held that the ownership of the shares continues to be shown in the stock-in-trade of the assessee and the value of the shares included in its closing stock. They were never credited to the assessee's account in the relevant assessment year. The annual entries were made in the accounts and thus the Tribunal committed an illegality in holding that there was completed transaction of shares by the agreement amounting to a credit sale.
In CIT, Madurai v. M. Ramaswamy (Supra) it was held by the Madras High Court relying upon Shelat (V.R.) v. P.J. Thakar, (1975) 45 Comp Cas 43 (SC) that where as between the transferor and the transferee, all formalities have been gone through, such as the execution of a document of transfer and the physical handing over of the shares by the transferor to the transferee, the shares should be taken to have been transferred to the transferee, though until the transfer of shares is registered in the company's books in accordance with the company law, the transfer could not enable the transferee to exercise rights of a shareholder vis-à-vis the company, the shares should be taken to have been transferred to the transferee, where after completing all the formalities the doner dies, it was held that requirement of both Section 122 and 123 of the Transfer of Property Act were completely satisfied in a case of gift so as to vest the right in the donee to obtain share certificate in accordance with the provisions of the Page | 13
ITA No. 1180/Del/2019 NDTV Worldwide Ltd company law as the right to get the share certificate made out in the name of the donee became irrevocable and complete by registration of the deed as well as by delivery. The actual transfers in the register of the company concerned, which were necessary to enable the donee to exercise the rights of a shareholder, were mere enforcement of that right, and the mere fact that such transfers had to be recorded in accordance with the company law did not detract from the completeness of what was donated. The Madras High Court thus held that it is not necessary for actual registration of shares by the company in the name of the transferee to deny the rights to the transferee to have equitable rights in relation to his shares.
In Rajagiri Rubber and Produce Co. Ltd. v. Commissioner of Income Tax (Kerala High Court) (Supra) it was held that in the case of transfer of shares, for purposes of section 45 of the Income-tax Act, 1961, as between the transferor and the transferee, the transaction is complete when the share certificates are handed over. The mere fact that the company has not registered the transfers in its books would not justify the claim that the transfer took place only later.
In Smt. Raj Rani Devi Ramna v. Commissioner of Income Tax (Patna High Court) (Supra) it was held that properties do not necessarily pass as soon as the instrument is registered, for the true test is the intention of the parties. Registration is prima facie proof of an intention to transfer, but it is no proof of an operative transfer if there is a condition precedent as to the payment of consideration or delivery of the deed. Thus the seller may retain the deed pending payment of price and, in that case, there is no transfer until the price is paid and the deed is delivered. If the intention is that title should pass immediately, even though the consideration has not been paid, title passes, that is, failure to pay the consideration for a conveyance does not defeat the conveyance except where there is an agreement that it should take effect only if the consideration is first paid. Considering the provisions of Section 45 and Section 2 (47) it was held by the Patna High court that the word ''transfer' has been defined under Section 2 (47) of the Act which provides that in relation to a capital asset, transfer includes the Page | 14
ITA No. 1180/Del/2019 NDTV Worldwide Ltd sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law. The concept of sale of an immovable property which is included in the expression ''capital asset' as defined under Section 2 (14) of the Act, has to be gathered from Section 54 of the Transfer of Property Act, 1882. Where the transfer is to take effect only on payment of entire consideration amount, it has to be held that there was no transfer of land covered by the three sale deeds in question during the period under consideration making the assessee liable for capital gains tax under Section 45 of the Act.”
Thus, there is no doubt in the mind of this Bench that as for the purpose of Section 2(47) of the Act, the ‘transfer’ of shares was not complete in all respects and assessee deserves to be benefitted of subsequent cancellation of the contract. The tax is leviable on an income accrued or received by the assessee. Such an accrual is considered when a right is created in favour of the assessee to receive that income and the assessee has not waived that right. Here in the case the assessee enforced right to cancel the transaction so it cannot be presumed that the income has accrued and tax is to be levied. The definition of accrual cannot be stretched to tax a person of the income which he has not received or if received but refunded due to operation of law or termination of contract and treated as never paid or received. So, the real income theory as recognized under Direct Tax jurisprudence is applicable on the facts in hands. What income has really occurred is to be decided, not by reference to physical receipt of income, but by the receipt of income in reality. In the case of Godhra Electricity Co. Ltd. v. CIT, (1997) 225 ITR 746 (SC) it is observed by Hon’ble Supreme Court that assessee would be obliged to pay tax only on such income which has been received or accrued when it is based on and backed by any legal or contractual right to receive the amount at a subsequent date. Further judgments in this regards can be noted as CIT vs. Shoorji Vallabhdas & Co. 46 ITR 144 (SC), CIT vs. Chamanlal
ITA No. 1180/Del/2019 NDTV Worldwide Ltd Mangaldas & Co. 39 ITR 8 (SC), CIT vs. Virtual Soft Systems Ltd 404 ITR 409 (SC), CIT vs. Bokaro Steel Ltd 236 ITR 315 (SC). 20. In case in hand, taking from 30.09.2013, when agreement was executed, if the purchaser was required to make the payment of Total Consideration, in 60 days then only the advance amount was received and remaining may be considered to be accrued subject to contingency of receipt of total purchase consideration, which did not happen and transaction was scraped. Thus, by cancelling the transaction and reversal of share transfer by letter dated 20.05.2014 (page no. 109 of the paper book), before filing of return on 21.11.2014, the assessee deserves benefit of taxability of real income theory. As a consequence these grounds are sustained. 21. The appeal of assessee is allowed. Order pronounced in the open court on 29/07/2024. Sd/- Sd/- -Sd/- (G.S. Pannu) (Anubhav Sharma) Vice President Judicial Member Dated: 29/07/2024
dk Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi
