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Judgment
PER MAHAVIR SINGH, VP
This appeal by the Revenue is arising out of the order of learned CIT(A)-27, New Delhi in appeal No.CIT(A), Delhi-31/10207/2019-20 dated 22nd May, 2023.
The assessment was framed by the ACIT, Central Circle-18, New Delhi for the assessment year 2011-12 under Section 147/143(3)/153A of the Income-tax Act, 1961 (hereinafter 'the Act') vide his order dated 17th December, 2018.
Brief facts are that the assessee was covered under the search and seizure operation under Section 132 of the Act conducted at the residential premises of the assessee along with AEC Group of cases on 17th August, 2011. During search, a MOU entered into between Shri D.K. Gupta and Shri Sanjeev Aeren dated 10th August, 2011 was seized, wherein the total value of the immovable property at 15/1, Prithviraj Road, New Delhi, which is under the equal ownership of 50% each in the hands of both the companies i.e., Shrey Properties Pvt.Ltd. and Snerea Properties Pvt.Ltd., was valued at ₹150 crores. The assessee is a shareholder in Shrey Properties Pvt.Ltd. and Snerea Properties Pvt.Ltd. holding 22,500 shares in each of these companies during the relevant financial year 2010-11 relevant to the assessment year 2011-12. Thus, shareholding of the assessee in both the companies is at 2.25%. During the year under consideration, Shrey Properties Pvt.Ltd. and Snerea Properties Pvt.Ltd. separately issued 30 lakhs shares each to AEZ Infratech Pvt.Ltd. (now name changed to ADTV Communications Pvt.Ltd.) and thereby the percentage holding of the assessee got rights to 0.562% as against the holding at 2.25%. Out of the allotment of shares to AEZ Infratech, it had transferred 20 lakhs of these shares in both the companies to one Om Shivay Real Estate Pvt.Ltd. The Assessing Officer, during the course of assessment proceedings, required the assessee as to why this allotment of shares by these two companies viz., Shrey Properties Pvt.Ltd. and Snerea Properties Pvt.Ltd. to AEZ Infratech and consequently transfer of 20 lakhs shares to Om Shivay Real Estate be not treated as de-facto transfer of the ownership and control of property No.15/1, Prithviraj Road, New Delhi. The Assessing Officer also noted that since the effective control of the above said property of the value of ₹75 crores in each of these companies has been transferred only for a sum of ₹5 crores each in the books of these companies on account of sale of 20 lakhs shares and therefore, Assessing Officer noted that the income chargeable to tax has escaped assessment and therefore, the assessee was show caused as to why an amount of ₹2,53,20,000/- should not be treated as capital gain and added to the declared income of the assessee.
The Assessing Officer reached to this amount of ₹2,53,20,000/- by observing that the stake of the assessee as a shareholder in each of these companies i.e., Shrey Properties Pvt.Ltd. and Snerea Properties Pvt.Ltd., which earlier stood at 2.25% as on 1st April, 2010, got reduced to 0.562% in each of these companies after issuance of shares in each of these companies to ADTV Communications. The Assessing Officer computed the proportionate value and noted that the ownership of the assessee in the property has been reduced to ₹84,30,000/- as against the value before issuance of shares at ₹3,37,50,000/- and thereby computed the differential amount as capital gain to ₹2,53,20,000/-. The assessee before the Assessing Officer contended that there is mere reduction in share capital of the subsidiary company and subsequent proportionate reduction in shareholding of the assessee would be squarely covered within the ambit of expression “sale, exchange or relinquishment of asset” used in the provision of Section 2(47) of the Act. Learned Counsel for the assessee also stated that this issue stands covered by the decision of Hon'ble Delhi High Court in the case of Snerea Properties Pvt.Ltd. Vs. ACIT – [2025] 176 taxmann.com 492 (Delhi), wherein Hon'ble High Court has considered this very issue and by holding that the transfer of sale and purchase of shares of assessee's companies would not result in an income in the hands of the assessee as the assessees have not transfer any of their properties during the relevant assessment year. Hon'ble High Court held that the incidence of tax, if any, would be confined to the transacting parties, i.e., the then existing shareholders of the assessee and the transferees to whom the shares have been allegedly sold at an undervalue. Learned Counsel stated that in the present case, there is no transfer of any shares or their properties by the assessee and hence, there is no question of any long term capital gain arising in the transaction. Learned Counsel for the assessee relied on the findings of the learned CIT(A) as noted in Paragraph No.5.2 and 5.3 as under:-
'5.2 Findings:
i.This is a matter of fact and even admitted by the Id. AO in his assessment order that appellant has not sold any share of M/s Shrey Properties Pvt.ltd. and M/s Snerea Properties Pvt.Ltd. during the year.
ii.However, there is reduction of % shareholding of appellant in these two companies on account of fresh issue of shares to M/s ADTV Communications Pvt.Ltd.
iii.It is not in the hands of minority shareholders to control the company in issuing of shares to the existing shareholder or to some new investor.
iv.This is the decision of the Board to whom to allot fresh equity shares in what quantity and at what price.
v.Whenever there is fresh issue of equity shares by any company in the form of ESOP (to employees), right issue, public issue, or preferential issue of shares to some strategic investors, the percentage shareholding of the existing shareholders always undergo change. This can never be construed as relinquishment of right as no such right was offered to them.
vi.As far as, Section 2(47) of the Income Tax Act, which defines "transfer" in relation to a capital asset, is concerned, the relinquishment of the right in the capital asset is also considered as one of the modes of the transfer of property/capital asset. However, before invoking this provision, the Id. has failed to appreciate that
A. Firstly, a person must have the right in the relinquished capital asset,
B. Secondly, he must relinquish his right in favour of some specific person/entity; and
C. Thirdly, this relinquishment should yield some tangible gains to him which can be determined in terms of money value.
vii.In the present case none of the above conditions is met as the appellant was never offered any share out of fresh issue of shares and therefore there is no case of relinquishment of any right. Since first condition itself was not met, the second and third condition become non applicable in his case. Just for the sake of clarity, had the appellant been offered some shares by the company and had he relinquished his right to these shares in favour of M/s ADTV Communications Pvt.Ltd. for some tangible gain which can be converted into monetary value, then that monetary gain could have been taxed in the hands of the appellant as Short Term Capital Gain which is not the case in present case.
5.3In view of the above discussion, it is held that there was no transfer of shares of M/s Shrey Properties Pvt.Ltd. and M/s Snerea Properties Pvt.Ltd. by the appellant as her shareholding in both the companies has remained unchanged during the year and further there is no relinquishment of right as envisaged by the Id. AO, the addition of Rs.2,53,20,000/- on account of Short-term Capital Gain is deleted and this ground of appeal is hereby allowed."
Now, before us, the only limited issue remains is whether there is any transfer of any immovable property of the assessee or transfer of shares by the assessee to the other party viz., ADTV Communications. There is no such fact recorded and actually, there is a reduction of percentage of ownership or stake which is depicted by the assessee in its chart, which is reproduced as under:-
Note: It only a graphical Presentation.
Abbreviation used above is explained as under.
- (1)* Owner of Prithviraj Road Property Means:- owner of property located on 15/1 Prithviraj Road New Delhi value perused.
- (2)* Shrey Mean:- Shrey Properties Pvt Ltd.
- (3)* Sherea Means:- Sherea Properties Pvt Ltd
- (12)* Sanjeev Means:- Sanjeev J. Aeren
- (13)* Shrey Means:- Shrey S Aeren
- (15)* Sunita Means:- Sunita S Aeranz
- (16)* Sanya Means:- Sanya S Aeren
- (14)* AEZ Means:- AEZ Infraction Pvt Ltd. Now known as ADTV Communication Pvt Ltd.
We noted that the Hon'ble Delhi High Court in this very transaction considered the issue in the case of Snerea Properties (P.) Ltd. (supra), and clearly held that once there is no transfer of any part of their interest or title in the Prithviraj Road property by the assessee to any third party, therefore, the income or deemed income had arisen in the hands of the transferor and not the assessee. Hon'ble High Court held in Paragraph Nos.14 to 18 as under:-
'14. There is no dispute that the Assessees have not transferred any part of their interest or title in the Prithviraj Road Property to any third party. The interest, if any, acquired by the Transferee in M/s Om Shivay Real Estate Private Limited is by virtue of acquiring the shares of the Assessee. The Assessees reiterated their contentions before the learned ITAT that no additions under Section 68 of the Act could be made on the basis of the estimation of the market value of the property that had neither been sold or transferred by the Assessees. The transaction in regard to the Prithviraj Road Property, if any, had taken place between the shareholders by transferring the shares to the Transferee. Therefore, the income or deemed income had arisen in the hands of the transferors and not the Assessees.
15.The fundamental error committed by the AO is proceeding on the assumption that the acquisition of indirect interest in the subject property by transfer of shares or allotment of shares of the Assessees results in the Assessees being divested of any interest or title held by them in the subject property.
16.Whilst the learned ITAT accepted the Assessee's contentions, the learned ITAT faulted the CIT(A) for not bringing in detail facts as to how the Prithviraj Road Property was held as stock-in-trade, and, accordingly, remanded the matter to the CIT(A).
17.Assuming that the facts, as found by the AO are correct, that is, the value of the Prithviraj Road Property is Rs.150 Crores, the transaction of sale and purchase of shares of the Assessee companies would not result in any income in the hands of the Assessees as the Assessees have not transferred any of their parties, that is, the then existing shareholders of the Assessees and the transferees to whom the shares have been allegedly sold at an undervalue.
18.The question whether the Prithviraj Road Property is held by the Assessees as stock-in-trade or any other asset is not relevant in considering whether any addition could be made to the income of the Assessees under Section 68 of the Act on account of the sale/purchase of the shares of the Assessee company by its shareholders or by otherwise acquisition of shares. The Assessees continue to hold the title and interest in the Prithviraj Road Property and had not alienated their interest or title in favour of any other person."
Respectfully following the aforesaid decision of Hon'ble Delhi High Court in the case of Snerea Properties (P.) Ltd. (supra), we confirm the order of learned CIT(A) and dismiss this appeal of the Revenue.
As we have already dismissed the appeal of the Revenue, the cross-objection of the assessee has become infructuous, and is also dismissed.
In the result, the appeal of the Revenue and cross-objection of the assessee are dismissed.