ACIT v. Safari Mercantile (P) Ltd. [ITA No.
4566/Mum/2013, dt. 7-10-2020] : 2020 TaxPub(DT) 4176 (Mum-Trib)
Shares loaned but not returned -- Sustainability as
transfer under capital gains
Facts:
Assessee an investment company had loaned 500,000 shares of
its group company GTL to one CCL which was to be returned back by CCL.
Subsequently two other group companies LIPL and GCCPL had sold 75000 shares a
piece of GTL resulting in a consideration of Rs. 15 crores (7.5 crores each).
Assessee requested that CCL adjust the 150,000 sold against the returnable
loaned shares of 500,000 and the balance shares of 350,000 alone be returned
which was not done by CCL. It was the case of the revenue that the 350,000
unreturned shares out of the loaned shares were transfer of shares and notional
capital gain was taxed in the hands of the assessee. On higher appeal in the
second round of appeal the Commissioner (Appeals) agreed with the contention of
the assessee that the said 350,000 was not a sale and the shares which were loaned
ought to have been returned and were never returned thus no capital gains arose
out of a transaction which did not constitute a transfer in the first place.
Aggrieved revenue went in higher appeal --
Held against the revenue that the 350,000 shares which were
loaned on returnable basis since were not returned could not be construed as a
transfer subject to capital gains as no consideration arose to the assessee.
Also to note that the 150,000 which was offset against the
500,000 loaned the plea of assessee was upheld that the consideration for this
was already received by the respective companies LIPL and GCCPL and thus cannot
be taxed again as capital gain in the hands of the assessee.
Applied:
CIT v. Mrs. Hemal Raju Shete (2016) 239 Taxman 176
(Bom-HC) : 2016 TaxPub(DT) 2102 (Bom-HC)
CIT v. Reliance Communication Infrastructure Ltd. (2012)
254 CTR 251 (Bom-HC) : 2013 TaxPub(DT) 0128 (Bom-HC)
Editorial Note: If
the shares were pledged and then they were not returned then the loan amount
obtained from their pledge would have to be read as consideration for transfer
subject to capital gains. As against in this case the shares were simply loaned
on returnable basis.