NIKESH ARORA,GURGAON vs. DCIT, INTERNATIONAL TAXATION, GURGON

PER SAKTIJIT DEY, VICE-PRESIDENT

Captioned appeal has been filed by the assessee challenging

the final assessment order dated 14.03.2022 passed under

section 143(3) read with section 144C(13) of the Income-tax Act,

1961 (in short ‘the Act’), pertaining to assessment year 2017-18,

ITA No.1008/Del/2022 AY: 2017-18

in pursuance to directions of learned Dispute Resolution Panel

(DRP).

in the appeal, it is necessary to observe, a complaint dated

07.04.2023 addressed to the President, Income Tax Appellate

Tribunal was received from one Sh. Babloo Chawhan, wherein, he

has alleged bogus evasion and fraudulent transaction by the

assessee concerned and bogus refund claimed on

misrepresentation of facts. Copy of the complaint was handed

over both to the assessee and the Revenue to offer their

comments. While the assessee has completely denied the

allegations made in the complaint, the Assessing Officer has

furnished a report through letter dated 22.05.2023 addressed to

learned CIT(DR). The report furnished by the Assessing Officer is

in two parts. The first part contains the details of assessment

proceedings, whereas, in the second part, the Assessing Officer

has offered para-wise comments on the complaint, which read as

under:

”Bogus refund claim of Rs.102 crores and misrepresentation of facts by Nikesh Arora:- In this para the applicant stated the brief history of Sh. Nikesh Arora, his employer and transactions related to shares of M/s

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Jasper Infotech Pvt. Ltd. (SNAPDEAL) and ANI Technologies Pvt. Ltd. (Ola). Therefore, no comments are required.

ITA No.1008/Del/2022 AY: 2017-18

we are of the view that no further action needs to be taken on the

complaint. Accordingly, we proceed to dispose of the appeal on

merits.

assessee, it is observed that the following two core issues arise for

consideration:

(i) What is the nature of capital gain, whether long term or

short term.

(ii) Whether the capital gain is taxable in India.

(iii) Whether the deduction on account of cost of

acquisition in relation to transfer of capital asset is

allowable or not.

facts. Briefly stated, the assessee is a Non Resident Indian(NRI)

individual and a resident of United States of America (USA). For

the assessment year under dispute, the assessee filed his return

of income on 31.07.2017 declaring total income of

Rs.431,21,34,020/- and claiming refund of Rs.102,14,67,220/-.

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Assessee’s case was selected for scrutiny. In course of assessment

proceedings, the Assessing Officer made a reference to FT & TR

Division seeking further information. After receiving such

information as well as other details called from the assessee, the

Assessing Officer proceeded with the assessment proceedings.

While verifying the return of income filed and other details

furnished by the assessee, he noticed that the assessee has

offered long term capital gain from transfer of Compulsorily

Convertible Preference Shares (CCPS) of two Indian companies,

viz., Jasper Infotech Pvt. Ltd. (in short “Snapdeal”) valued at USD

25,005,379 and ANI Technologies Pvt. Ltd. (in short “Ola”) at USD

15,005,296. He further noticed that these shares were received by

the assessee through a share transfer agreement executed on 17th

December, 2014. He observed that the assessee has treated the

capital gain as long term by considering the period of holding

exceeding 24 months from December, 2014 to 1st February, 2017.

Accordingly, he has computed the capital gain and resultant tax

liability in accordance with section 112(1)(c)(iii) of the Act read

with Rule 115.

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the assessee has computed the period of holding by taking into

consideration the Second Amended and Restated Executive

Employment Agreement dated 17.12.2014 and Termination

Agreement dated 1st February, 2017. On perusing the

agreements, the Assessing Officer observed that the Second

Amended and Restated Executive Employment Agreement dated

17.12.2014 is only a draft agreement, hence, cannot be

considered as final agreement for transfer of shares. He further

observed that the actual transfer of shares happened by a Third

Amended and Restated Executive Employment Agreement dated

20th May, 2015.

holding of shares was less than 24 months. Hence, the gain

derived from the transfer of shares has to be treated as short term

capital gain. In similar lines, he issued a show-cause notice to the

assessee to explain, why the gain derived from transfer of shares

should not be taxed as short term capital gain. In response to the

said show-cause notice, the assessee furnished a detailed reply

reiterating its position that the period of holding of the assets

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being more than 24 months, the gain derived has to be treated as

long term capital gain. The Assessing Officer, however, did not

accept assessee’s submission. He observed that the agreement

dated 17.12.2014 is merely a draft agreement, hence, cannot be

considered as final agreement. Thus, he observed that the

assessee did not acquire the shares through agreement dated

17.12.2014.

December, 2014, even assessee’s employer company SB Internet

and Media Inc., USA (in short “SIMI US”) did not have ownership

of the shares as the shares were transferred to SIMI US on 27th

December, 2014 by its sister concerns SIMI PACIFIC and

Starfish1. He observed, the third agreement between SIMI US and

the assessee executed on 20.05.2015 is the last and final properly

executed agreement. Hence, is applicable to the transaction for

grant of shares. He observed, the transfer of right over the shares

to the assessee was given after agreement dated 20.05.2015.

While coming to such conclusion, the Assessing Officer alleged

that the assessee has not produced any share transfer certificate

to demonstrate that shares were transferred to him in December,

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2014. In this context, he observed that in response to the notices

issued under section 133(6) of the Act, the Indian companies have

confirmed that the assessee was not a registered shareholder

during the period December, 2014 to May, 2015. He observed, no

document evidencing transfer of shares w.e.f. 29.12.2014 has

been produced by the assessee. Thus, ultimately the Assessing

Officer concluded that the gain derived from sale of shares has to

be treated as short term capital gain.

acquisition can be allowed while computing capital gain in view of

the provisions contained under section 49(2AA) read with section

17(2)(vi) of the Act. According to the Assessing Officer, the salary

compensation received by the assessee amounting to USD

40,009,677 from SIMI US was offered to tax in the tax return in

US, whereas, no tax has been offered in India. Thus, he held that

there is no tax base in India for claiming cost of acquisition. He

observed, as per section 49(2AA) of the Act, for claiming cost of

acquisition of shares, the value should be fair market value,

which has been taken into account as per section 17(2)(vi) of the

Act under the head ‘income from salary’. Referring to section 15

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read with section 17 of the Act, the Assessing Officer observed

that salary includes perquisites for taxation in India. He observed,

the salary income of the assessee has been taxed in USA.

Therefore, it has no tax base in India.

assessee has not offered any tax in India, as per section 17(2)(vi)

of the Act. Hence, it cannot claim benefit of cost of acquisition as

per section 17(2)(vi) read with section 49(2AA) of the Act. Thus, he

disallowed cost of acquisition claimed by the assessee to the tune

of Rs.267,86,47,829/-. Accordingly, he framed the draft

assessment order. Against the draft assessment order, the

assessee raised objections before learned DRP. However, learned

DRP did not interfere. Accordingly, the Assessing Officer passed

the final assessment order.

submitted that the Employment Agreements dated 16.07.2014,

17.12.2014 and 20.05.2015 merely record the terms of

employment and do not record acquisition of any asset by the

assessee. He submitted, the agreements contain a promise by the

employer to assessee for employment compensation and do not

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establish the transfer of any consideration either by cash or

through shares. He submitted, it is the assignment deed dated

29.12.2014 with SIMI US which creates certain rights in favour of

the assessee. Therefore, he submitted, whatever capital assets

acquired by the assessee, whether shares or rights in the shares,

were acquired by the assessee on 29.12.2014. He submitted, the

Employment Agreement dated 20.05.2015 was entered into for

assigning duty to the assessee with regard to UK affiliated

company. He submitted, other clauses of the Agreement including

the clause pertaining to shares of Indian Companies were merely

copied from the earlier employment agreements. He submitted,

since, there are no other agreements transferring any right to the

assessee before or after 29.12.2014, it cannot be said that date of

acquisition of shares was 20.05.2015 or thereafter.

account of transfer vide Agreement dated 01.02.2017 has not

been disputed by the departmental authorities. He submitted, the

agreement dated 01.02.2017 clearly says that the assessee has

relinquished his rights being interest, which has been defined as

right to acquire the legal title of shares. He submitted, the right to

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acquire the legal title over shares was acquired by the assessee

vide assignment deed dated 29.12.2014, which is specifically

mentioned in the Termination Agreement dated 01.02.2017.

Thus, he submitted, once it is accepted that the capital gain has

arisen on account of transfer of rights in respect of shares, the

date of acquisition has to be 29.12.2014, as there is no other

date, event or document correlating the acquisition.

a short term capital asset is an asset held by an assessee for not

more than 36 months immediately preceding the date of its

transfer. However, he submitted, as per the third proviso to

section 2(42A) of the Act, in respect of unlisted security, asset will

qualify as short term capital asset if it is held for less than 24

months. He submitted, the expression ‘held’ used in section

2(42A) of the Act does not refer to legal ownership of the capital

asset. He submitted, as per the meaning of the expression ‘held’,

the date on which the assessee acquired the interest in the capital

asset would be reckoned as the starting point for determining the

period of holding, notwithstanding that the assessee may not

have acquired prefect legal title over the capital asset in the

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absence of registration/conveyance in favour of the assessee, as

required under the applicable law. In support of such contention,

he relied upon a decision of the Hon’ble Bombay High Court in

case of CWT v. C. Rai [1979] 119 ITR 553. In this context, he also

relied upon a decision of Special Bench of the Tribunal in case of

Des Raj Nagpal Vs. ITO, 13 ITD 800. He submitted, the

expression ‘held’ cannot be equated with ownership. In this

context, he relied upon a decision of the Hon’ble Supreme Court

in case of Mysore Minerals Ltd. Vs. CIT, 239 ITR 775. Learned

counsel submitted, the assessee enjoyed complete bundle of

rights attached to the CCPS. He submitted, SIMI USA/Singapore

entities merely held the shares in their names. However, they

could not have alienated the shares to others. Therefore, the

assessee, being the beneficial owner of the shares, should be

construed to have held the capital asset from 29th December,

2014 till the date of its transfer, which exceeds the period of 24

months.

nature of capital asset transferred by the assessee needs to be

examined. He submitted, the fact that the capital asset was

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transferred by virtue of Termination Agreement dated 01.02.2017,

thereby giving rise to capital gain, has not been disputed either by

the assessee or by the Assessing Officer. The Termination

Agreement dated 01.02.2017 clearly says that assessee’s interest

in the direct investment equity award will be fully and completely

extinguished in exchange for cash payment from the Soft Bank

group. Thus, he submitted, the Termination Agreement clearly

speaks of payment towards extinguishment of interest and not

sale or transfer of shares. Thus, he submitted, the assessee had

not acquired any ownership of the shares, nor he has acquired

any rights in the shares or right to proceed against the Indian

companies.

proceed against the non-resident US company, which arises out

of agreements entered into outside India. He submitted, as per

section 9(1) of the Act, capital gain through the transfer of a

capital asset situated in India is deemed to accrue and arise in

India. He submitted, all the Employment Agreements pursuant to

which assessee’s right to acquire or right to obtain shares arose

were entered outside India and were subject to the US

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jurisdiction. Therefore, situs of assessee’s interest or rights to

acquire shares, which is a capital asset, is outside India. He

submitted, since, the assessee has transferred his interest/rights

over the shares, which is situated outside India, capital gain is

not taxable in India. In support of such contention, he relied upon

the following decisions:

(1) Vodafone International Holding B.V. Vs. Union of India

[2012] 17 taxmann.com 202 (SC)

(2) A & F Harvey Ltd. Vs. CWT (107 ITR 326)

(3) CWT Vs. O.M.M. Kinnison [1986] 161 ITR 824 (SC)

Assessing Officer has held, the assessee does not have any

objection to suffer tax liability of long term capital gain arising out

of sale of shares.

counsel submitted, the purpose of section 49(2AA) read with

section 17(2)(vi) is to restrict the quantum of deduction to the

amount taxed under the Act at the time of receipt of specified

security. However, it is not the purpose that the cost of

acquisition has to be denied completely. He submitted, the

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assessee, being a non-resident at the time of acquisition of shares

and the acquisition having taken place outside India, is not

taxable, at all. Accordingly, the cost of acquisition, being

consideration paid by him in terms of the Employment

Agreement, is allowable to the assessee as per the provisions of

section 48 of the Act. He submitted that since the value of shares

was not taxable at all, the question of finding out the correct

amount of deductible cost based on section 49(2AA) and section

17(2)(vi) of the Act is futile.

acquisition of shares cannot be taken to be the Second

Employment Agreement executed on 17.12.2014 as it is merely a

draft agreement. He submitted, from the Third Employment

Agreement executed on 20.05.2015 till the date of its transfer on

01.02.2017, the period of holding is less than 24 months.

Therefore, the gain derived from sale of such asset has to be

treated as short term capital gain. Without prejudice, learned

Departmental Representative submitted, the assessee never had

any legal ownership right or title over the share. He submitted,

the shares were never transferred to the name of the assessee. He

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submitted, in the records of the Indian companies, whose shares

the assessee claims to have acquired; the assessee has never been

registered as a shareholder. He submitted, the assessee has not

furnished any evidence to demonstrate that the shares were

transferred to assessee’s name. Thus, he submitted, the claim of

the assessee that it had acquired the shares is totally

misconceived. He submitted, what the assessee had acquired

through the employment agreement and assignment deed is a

certain right in shares, which stood extinguished on transfer of

such rights through the termination deed. He submitted, though,

such right is a capital asset, however, it cannot be equated to

share/security of a company. Therefore, it has to be treated as

short term capital asset if it is not held for a period exceeding 36

months immediately preceding the date of transfer. He submitted,

in the facts of the present case, admittedly, the capital asset held

by the assessee, being certain rights and interest in the shares,

were held by the assessee for a period less than 36 months.

Therefore, the asset has to be treated as short term capital asset.

assessee has transferred is merely interest/right in shares and

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not the shares itself, therefore, situs of such interest/right over

the shares being situated outside India is not taxable in India,

learned Departmental Representative drew our attention to

Explanation-2 to section 2(47) of the Act and submitted, since the

underlying assets are shares of Indian companies, the capital gain

is taxable in India. So far as the issue of deduction of cost of

acquisition, learned Departmental Representative relied upon the

observations of the Assessing Officer and learned DRP.

writing, in the light of decisions relied upon and perused the

materials on record. Undisputedly, the assessee is a NRI and a

resident of USA. On 16.07.2014, the assessee entered into an

Employment Agreement with Soft Bank Corp., a Japanese Co.

and was employed with one of its group entities in USA, being

SIMI US, as President and Chief Executive Officer and most

Senior Executive Officer. On 17.12.2014, the assessee entered

into a Second Amended and Restated Executive Employment

Agreement with Soft Bank Corp. As per clause (2) of the said

agreement, in addition to base salary of USD 9 Million, the

assessee, amongst others, was to receive some other

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award/benefits including USD 55 million in the form of cash and

equity comprising of USD 15 million in lump sum cash payment

and fully vested shares of Jasper Infotech Pvt. Ltd. (Snapdeal)

having aggregate value of USD 25 million and fully vested shares

of ANI Technologies Pvt. Ltd. (Ola) having aggregate value of USD

15 million with number of shares determined based on USD per

shares purchase price of those shares originally paid by the

company or its affiliates. On 29.12.2014 SIMI US assigned the

rights and benefits of Snapdeal and Ola shares in favour of Arora

Trust, a pass through entity whose sole beneficiary is the

assessee.

Agreements and the Assignment Deed of SIMI US, the shares of

Snapdeal and Ola were held through investment by two other Soft

Bank Group companies located in Singapore, viz., Starfish 1 Pte

Ltd. and SIMI Pacific Pte Ltd. Starfish 1 Pte Ltd. undertook to

hold 2905 CCPS of Snapdeal in Escrow account for the benefit of

SIMI US. Similarly, SIMI Pacific Pte Ltd. undertook to hold 1679

G series CCPS of Ola cabs in an Escrow account for the benefit of

SIMI US. As per the terms of the Employment Agreement between

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SIMI US and the assessee executed on 17th December, 2014, the

assessee was to get certain benefits in addition to salary, which

include CCPS of Snapdeal and Ola aggregating to USD 40 million.

In December, 2014, SIMI US acquired the CCPS from Singapore

entities at the same price at which investment was made by

Singapore entities. On 29th December, 2014 SIMI US assigned the

rights and interest in CCPS of Snapdeal and Ola to Nikesh Arora

trust at the same price at which it was acquired by SIMI US.

compensation value of CCPS in its US tax return. Subsequently,

the assessee entered into a Third Employment Agreement with

Soft Bank Corp. on 20.05.2015 modifying certain terms of

Employment. However, the terms of allotment of shares of Indian

companies remained unchanged. Finally on 01.02.2017, the

assessee entered into a termination agreement with SIMI US for

termination of his Employment. Pursuant to which, the assessee

was paid USD 50.32104 million, subject to which, assessee’s

interest in the CCPS would stand fully extinguished. It is a fact on

record that the assessee has offered the compensation received on

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extinguishment of his interest in the CCPS as long term capital

gain in the return of income filed in India.

capital gain, whether short term or long term. While the assessee

has claimed the gain as long term capital gain pleading that the

period of holding of interest in CCPS was more than 24 months,

the Assessing Officer has treated it as short term capital gain by

holding that the assessee had acquired the shares or rights in the

shares on or after 20.05.2015, the date on which the Third

Employment Agreement was executed. While coming to such

conclusion, the Assessing Officer has held that the Second

Employment Agreement dated 17.12.2014, being a mere draft

agreement does not vest any right in the assessee, hence, cannot

be considered for the purpose of period of holding of CCPS.

entered into an Employment Agreement with Soft Bank Corp on

certain terms and conditions. Subsequently, the assessee entered

into a Second Employment Agreement with Soft Bank group on

17.12.2014, wherein, certain terms of employment were modified

including terms of financial benefits. Financial benefits to the

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assessee include, in addition to lump sum cash payment, vesting

of certain shares of two Indian companies, Snapdeal and Ola cabs

on or before 31st December, 2014. Thus, the Agreement dated

17.12.2014 is the starting point of financial benefits by way of

shares of Jasper Infotech Pvt. Ltd. and ANI Technology Pvt. Ltd.

Agreement with Soft Bank Corp on 20.05.2015, however, on

careful perusal of the said agreement, it is observed that the

terms and conditions relating to the receipt of CCPS of Jasper

Infotech Pvt. Ltd. and ANI Technology Pvt. Ltd. on or before 31st

December, 2014 remained identical to similar terms and

conditions mentioned in Second Employment Agreement dated

17.12.2014. The modifications in the third Employment

Agreement were only in respect of some other terms and

conditions not affecting the terms relating to allotment of shares

of Indian companies.

agreements merely speak of certain financial benefits to the

assessee and do not by themselves vest any right or interest in

such shares, nor they record acquisition of shares by the

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assessee. It is only in the nature of a promise by the employer to

the assessee to pay employment compensation. Rights/interests

of the assessee in the shares flow from the assignment deed dated

29.12.2014, in terms of which, SIMI US assigned the rights and

interests in the CCPS in favour of the assessee through Arora

Trust. Thus, according to us, whether the Second Employment

Agreement Dated 17.12.2014 is a draft or a final agreement has

no relevance at all for reckoning period of holding as neither has

it conferred any right or interest in CCPS to the assessee, nor

through the said agreement the assessee has acquired any

shares. For the very same reason, the Third Employment

Agreement Dated 20.05.2015 cannot be reckoned to be the

agreement based on which the assessee acquired the shares or

right and interest in the shares.

Third Employment Agreement to restrict the period of holding of

asset to less than 24 months. Paragraph 3 of clause (B) of part 2

of the agreement dated 20.05.2015 not only incorporates similar

terms as mentioned in the Second Employment Agreement dated

17.12.2014, but also says that on or prior to December 31st, 2014

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the assessee shall receive the CCPS. In fact, the preamble of the

Third Employment Agreement refers to the Second Employment

Agreement dated 17th December, 2014. The chain of events

starting from the first Employment Agreement and ending with

the Termination Agreement dated 01.02.2017 do establish that

the assessee did not acquire the shares physically but acquired

certain rights and interest in the shares by virtue of assignment

deed dated 29.12.2014

be said that the shares or right and interest in the shares were

acquired by the assessee on 20.05.2015 or thereafter. In our view,

the Assessing Officer has misdirected himself by placing much

reliance on the Third Employment Agreement dated 20.05.2015.

Whereas, the said document neither confers any right or interest

on the assessee qua the CCPS, nor the assessee can be said to

have acquired the CCPS pursuant to that agreement. In fact, the

said agreement itself makes it clear that shares have to be

delivered to the assessee by 31st December, 2014. Thus, in our

considered opinion, whatever rights and interests in respect of

CCPS accrued to the assessee was by virtue of the assignment

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deed dated 29.12.2014. In fact, the termination agreement dated

01.02.2017 makes it absolutely clear that the shares were never

physically transferred to the assessee. By virtue of the

termination agreement, the rights and interests in CCPS accrued

to the assessee got transferred and extinguished in terms of

section 2(47) of the Act.

the assignment deed was offered to tax by the assessee in his US

tax return. This is evident from the copies of the US tax return

filed before us. We, therefore, have no hesitation in holding that

the rights and interests in the CCPS of Snapdeal and Ola cab

were acquired by the assessee by virtue of assignment deed dated

29th December, 2014.

by the assessee. Whether the capital asset held by the assessee

and subsequently transferred is any share/security of an Indian

company or some other asset. Though, in the return of income

filed as well as in course of assessment proceedings, the assessee

had claimed that he has derived long term capital gain from sale

of shares of two Indian companies, however, factually it is not so.

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In course of assessment proceedings, the Assessing Officer has

called upon the assessee to prove legal ownership of the shares.

The Assessing Officer has recorded a categorical factual finding

that assessee was unable to furnish any documentary evidences

to prove the legal ownership of these shares. In fact, inquiry

conducted by the Assessing Officer under section 133(6) of the

Act with the Indian companies, viz., Snapdeal and Ola Cab,

elicited response indicating that asssesse’s name neither appears

as shareholder in the records of the company, nor any dividend

has been issued to the assessee. Even, learned DRP has also

recorded a categorical finding that the assessee failed to prove

that shares of the Indian companies were transferred to his name.

before us. The facts discussed elsewhere in the order do indicate

that in terms with second amended employment agreement dated

17th December, 2014, the assessee as part of its employment

benefit was supposed to receive certain lump sum amount in

money terms and some further amount by way of fully vested

equity shares of two Indian companies. However, it is a fact that

the shares of Indian companies were never transferred in the

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name of the assessee. By virtue of assignment agreement dated

29th December, 2014, what the assessee acquired was certain

rights and interests of SIMI US in the shares of the two Indian

companies. From the date of assignment deed dated 29th

December, 2024 till the Termination agreement dated 1st

February, 2017, under which the assessee transferred its rights

and interests in the shares, the ownership of the shares never

stood in the name of the assessee. Even, the assessee never

appeared as a shareholder in the records of the two Indian

companies. In fact, in submission dated 29.12.2023 filed before

the Tribunal, the assessee has conceded to the aforesaid factual

position.

learned DRP, despite observing that no evidence has been

brought on record by the assessee to establish that he is the legal

owner of the shares, however, they have proceeded to treat the

gain derived as short term capital gain from sale of shares.

never became the legal owner of the shares as the shares were

never transferred in assessee’s name. The assessee also accepts

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the fact that he could not have instituted any actionable claim

against the two Indian companies, viz, Snapdeal and Ola had

SIMI USA not transferred the shares in his name. Thus, what the

assessee held is certain rights and interests in the shares, which

got extinguished by virtue of termination agreement. Considered

in the aforesaid context, the contention of learned Senior Counsel

for the assessee that the argument made by learned Departmental

Representative that the asset transferred is not share but some

other asset, cannot be accepted at this stage, in our view, is

unacceptable. This is so because, the Tribunal, being the last fact

finding authority, has to examine all the facts and materials on

record and record a correct finding of fact.

alternative contention, the assessee did submit that if the asset

transferred is held to be not share but certain rights and

interests, then the situs of asset is outside India, hence, not

taxable in India under Article 9(1). Though, learned DRP has side-

stepped the issue stating that it did not arise out of draft

assessment order, however, we intend to deal with at a later

stage.

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appearing for the assessee has submitted that the expression

‘held’ appearing in section 2(42)A, does not mean legal ownership.

In this context, he has relied upon a decision of the Hon’ble

Bombay High Court in case of CWT Vs. C. Rai (supra). However,

on carefully going through the judgment, we are of the view that it

is factually distinguishable, hence, would not apply to assessee’s

case. In the facts of the case before the Hon’ble Bombay High

Court, the assessee has transferred certain shares to the name of

wife. However, in the return of wealth, the assessee claimed

exemption under section 5(1)(xx) of the Act in respect of such

asset. The issue which arose for consideration before the Hon’ble

Court was whether in respect of shares transferred in the name of

wife, the assessee can claim exemption under section 5(1)(xx) of

the Act. After interpreting the provisions of sections 4(1) and 5(1)

of the Wealth Tax Act, the Court concluded that the assessee can

claim exemption in respect of shares transferred in the name of

the wife. This is so because, section 4(1) provides for clubbing of

wealth transferred directly or indirectly otherwise than for

adequate consideration to the name of the spouse of the

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individual, who is assessed to wealth tax. Thus, by operation of

such specific provision permitting clubbing of wealth, the Hon’ble

High Court allowed assessee’s claim of exemption.

other decisions relied upon by the assessee including that of the

Hon’ble Supreme Court in case of Mysore Minerals Ltd. Vs. CIT

(supra) are factually distinguishable and do not fit into the facts

of the present case.

28.04.1995 issued by the Central Board of Direct Taxes (CBDT) to

explain the meaning of period of holding under section 2(42A) of

the Act. It has been clarified by the Board that the date of broker

note or date of contract of sale shall be relevant for determining

period of holding subject to actual delivery of share subsequently.

Since, in the facts of the present appeal the shares were never

delivered in the name of the assessee, it cannot be said that the

assessee had held any capital asset in the nature of share or

security of an Indian company so as to get the benefit of the third

proviso to section 2(42A) of the Act. In our view, the capital asset

held by the assessee, which is subject to capital gain, would not

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fall within the exceptions provided under section 2(42A) of the Act

at all. Therefore, to qualify as long term capital asset, the

assessee should have held it for a period exceeding 36 months.

Factually, the rights and interests acquired by the assessee under

the assignment deed were held for a period less than 36 months.

Therefore, the capital asset transferred by the assessee has to be

treated as short term capital asset.

is the taxability of such asset in India. As discussed elsewhere in

the order, before learned DRP the assessee has pleaded that

capital asset transferred, being certain rights and interests and

not any shares and securities, situs of such asset lies outside

India as the assessee has acquired such right by virtue of the

assignment agreement entered with SIMI US outside India. It is

the case of the assessee that as per section 9(1)(i) of the Act,

which is a deeming provision, income accruing or arising whether

directly or indirectly through the transfer of capital asset situated

in India has to be taxed in India.

asset transferred by the assessee is certain rights and interests

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arising/accruing to the assessee in respect of shares of two India

companies and not shares per se. Even the termination

agreement acknowledges the aforesaid position while recording

the following facts:

“WHEREAS, Mr. Arora resigned his employment with SBG US effective as on June 30, 2016, and as part of separation discussions SBG US, SBG Corp. and Mr. Arora contemplated a settlement of Mr. Arora’s interests in the Directed Investment Equity Awards in exchange for a cash payment from SBG Corp., but no such transaction was consummated as the parties continued to negotiate regarding the appropriate form and terms of a transaction to extinguish such interests.

NOW, THEREFORE, for good and valuation consideration, the receipt and sufficiency of which are hereby acknowledged, SBG US, Starfish I, SIMI Pacific, Mr. Arora and the Trust hereby agree as follows:

(a) Subject to the terms and conditions of this Agreement. (i) Starfish I shall make a lump sum payment to the Trust of USD 50,320,177.60 (the “Starfish I Payment”), and (ii) SIMI Pacific shall make a lump sum payment to the Trust of USD 54,078,761.57 (the “SIMI Pacific Payment”, and together with the Starfish I Payment, the “Cash Payments”), subject in each case to applicable Indian tax and withholdings as provided in Section 2(a) Starfish I and SIMI Pacific shall make the Cash Payments no later than February 9, 2017.

(b) Effective on completion of the Cash Payments, all of the Trust’s (and, as applicable, Mr. Arora’s) Interests will be fully and completely extinguished, and Mr. Arora, on his

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own behalf and on behalf of the Trust, agrees not to assert to the contrary.”

transferred by virtue of the termination agreement is a capital

asset in the nature of certain rights and interests and not any

shares of Indian companies. This is so because, at no point of

time the assessee was holding any shares of Snapdeal or Ola Cab.

Therefore, it cannot be said that the capital gain derived by the

assessee was through transfer of capital assets situated in India.

Patently, the capital asset in the nature of rights and interests

accrued to the assessee as part of employment benefit and was

acquired by him through assignment deed dated 29th December,

2014. Thus, the source of assessee’s rights and interests

constituting a capital asset was through aforesaid agreement,

executed in USA. It is further relevant to observe that the

amended employment agreement dated 16.07.2014 says that any

legal action or suit related in any way to the agreement shall be

brought exclusively in the Federal State Court of California.

asset in the nature of rights and interests acquired by the

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assessee, which were subsequently transferred and subjected to

capital gain, was in USA and not located in India. Therefore, in

terms of section 9(1)(i)(a) of the Act, the income derived from

transfer of such capital asset is not taxable in India. While coming

to such conclusion, we have drawn support from the following

decisions:

[1977] 107 ITR 326 (Madras)

the asset transferred by the assessee, being situated outside

India, the capital gain derived would not be taxable in India.

However, it is a fact that the assessee had filed a return of income

in India voluntarily offering to tax the capital gain derived by

treating it as long term capital gain. In fact, before the Assessing

Officer as well as before learned DRP, the assessee had pleaded

for treating the gain derived as long term capital gain taxable in

India. Therefore, the alternative contention made by the assessee

for the first time before learned DRP and before us as well, to the

effect that the asset transferred, being certain right and interest

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located outside India, is not taxable in terms of section 9(1)(i)

would be available to the assessee only as a defense to support

the claims made by him in the return of income and not for

claiming any extra benefit beyond the return of income.

agreement dated 1st February, 2017, a copy of which is placed at

page 293 of the paper-book, it has been clearly stipulated that the

payments to be received by the assessee towards transfer of his

right and interests will represent capital gain taxable under the

domestic law of India and has to be offered to tax by the assessee

by filing a return of income in India. The return of income filed by

the assessee offering to tax the long term capital gain is strictly in

compliance with the terms of termination agreement. Therefore,

the assessee is entitled for relief only to the extent of claims made

in the return of income.

accept the capital gain offered by the assessee in the return of

income filed for the impugned assessment.

claim of cost of acquisition has become academic.

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Order pronounced in the open court on 18th July, 2024

Sd/- Sd/- (G.S. PANNU) (SAKTIJIT DEY) VICE-PRESIDENT VICE-PRESIDENT Dated: 18th July, 2024. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi

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