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12. Y.V. Ramana vs. CIT ITAT Visakhapatnam Bench, Visakhapatnam Before V. Durga Rao (J. M.) and G. Manjunatha (A. M.) I.T.A.No.: 177/Vizag/2015 A.Y.: 2010-11. Date of Order: 9th December 2016 Counsel for Assessee / Revenue: C. Kameswara Rao / G. Guruswamy

Jagdish D. Shah
Jagdish T. Punjabi
Chartered Accountants

Section 2(47) – Mere agreement for transfer of shares does not cause effective transfer of shares unless it is accompanied with delivery of share certificate and duly signed and stamped share transfer form.

FACTS

During the year under appeal, the assessee had sold 1,33,420 equity shares in Vijay Nirman Company Private Limited (VCPL) for a consideration of Rs. 199.98 lakh. The transfer was in pursuant to an investments agreement dated 12-08-2009 between transferee of the shares, VCPL and its shareholders. The said investment agreement had prescribed certain terms and conditions of share transfer and completion of statutory formalities by filing necessary forms under the Companies Act, 1956 with concerned authorities. As per the said agreement, the assessee received sales consideration on 10-09-2009 from the transferee of the shares. The assessee completed share transfer formality on 24-11-2009 by filing valid instrument of transfer in form no. 7B duly stamped and signed by transferor and transferee and presented to the company along with share certificates which was endorsed by the company on 24-11-2009. The assessee invested part of sale consideration of Rs. 50 lakh in NHAI bonds on 4-5-2010 and claimed exemption u/s 54EC. The assessee also deposited sum of Rs. 150 lakh on 24-07-2010 in a scheduled bank under Capital Gain Deposit Scheme (‘the Scheme’) before due date of filing return of income and proof of which was furnished along with return of income, and claimed exemption u/s. 54F of the Act. The assessee purchased a house property on 31-10-2011 out of the amount deposited under the Scheme. The assessment was completed u/s. 143(3) on 16-01-2013, determining total income as returned by the assessee.

According to the CIT to claim exemption u/s. 54EC and 54F, the assessee ought to have invested sale consideration within six months/2 years from the date of receipt of money and not the date of transfer of shares by signing share transfer form.  If the period of limitation is computed from the date of receipt of money, then investments in 54EC and 54F was beyond the time limit specified under the provisions, accordingly, the assessee was not eligible for exemption. Accordingly, he held that the order of the AO was erroneous in so far as it is prejudicial to the interest of the revenue.

According to the assessee, the A.O. had examined the issue of computation of capital gain towards sale of shares and exemption claimed u/s. 54EC and 54F of the Act, by specific questionnaire dated 13-12-2012 and 28-12-2012. The assessee had furnished complete details of shares transfer and proof of investment in 54EC and 54F of the Act. The A.O. having satisfied with details furnished by the assessee, had chosen to accept computation of capital gain and hence, the assessment order cannot be termed as erroneous within the meaning of section 263 of the Act.

According to the revenue, as per the investments agreement dated 12-08-2009, the transfer got crystallised on the date of payment of consideration towards transfer of shares by the purchaser to the seller and subsequent execution of share transfer form and filing such form with company is only a statutory requirement which is nothing to do with transfer. It also referred to section 19 of sale of Goods Act, 1930 and submitted that where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intended it to be transferred. The revenue also referred to CBDT. Circular No. 704, dated 28-04-1995 and argued that in the case the transactions take place directly between the parties and not through stock exchanges, the date of contract of sale as declared by the parties shall be treated as the date of transfer provided it is followed up by actual delivery of shares and the transfer deeds.

HELD

According to the Tribunal, once, the A.O. had called for details of the issue which is subject matter of revision proceedings and the assessee furnished details called for, it is the general presumption that the A.O. has examined the issue with necessary evidences, applied his mind and took a possible view of the matter before completion of assessment. The CIT cannot assume jurisdiction to review the assessment order by holding the A.O. has conducted inadequate enquiry and also not applied his mind. Thus, it held that that the assessment order passed by the A.O. is not erroneous within the meaning of section 263 of the Act.

To examine whether the assessment order is prejudicial to the interest of revenue – the Tribunal noted that the only dispute is with regard to date of transfer. The assessee contends that transfer had taken place on 24-11-2009, when valid instrument of share transfer in form no. 7B is duly stamped and signed by the both the parties and presented to the company along with original share certificates. According to the CIT, the effective transfer took place on 10-09-2009 when sale consideration is passed on to the seller.

According to the Tribunal, share transfer is governed by section 108 of the Companies Act, 1956. As per section 108 registration of transfer of shares is possible only if a proper transfer deed in form no. 7B duly stamped and signed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any of the transferee, has been delivered to the company along with share certificates and endorsed by the Company. In the case of shares of listed companies, effective transfer would take place when title to share is transferred from one person to another through demat account in recognised stock exchange. In the case of shares of unlisted companies, transfer would take place, only when valid share transfer form in form no. 7B is delivered to the company and endorsed by the company. Therefore, for effective transfer of shares, a mere agreement for transfer of shares is not sufficient, unless it is physically transferred by delivery of share certificate along with duly signed and stamped share transfer form. The agreement to transfer share can give enforceable right to the parties, but it cannot be a valid transfer unless it is followed up by actual delivery of shares. Thus, in the case of the assessee, the transfer as defined u/s. 2(47) took place on 24.11.2009 and not on the date of receipt of money from the buyer to the seller, i.e. 0n 10-09-2009. In view of the same, investments in NHAI bonds on 4-5-2010 and purchase of house property on 31-10-2011 is well within the period of six months and 2 years from the date of transfer as specified u/s. 54EC and 54F of the Act, and accordingly, the assessee is eligible for exemption and thus, there no prejudice is caused to the revenue from the order of the A.O. within the meaning of section 263 of the Act. Therefore, it was held that the assessment order passed by the A.O. u/s. 143(3) is not erroneous in so far as it is prejudicial to the interest of the revenue.