By 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.
