Ownership not transferred; need not pay tax, notes HC

A popular Sandalwood film producer and his wife had sold their stake in Shailendra Techno Park for Rs 40 crore

NT Correspondent

Bengaluru: Popular Sandalwood producer Shylendra Babu and his wife Poornima Shylendra Babu are not liable to pay long term capital tax gains on the sale of their stake in Shailendra Techno Park for Rs.40 crore, the High Court has held. The Court noted that the ownership of the shares was not transferred in the assessment year that the Income Tax Department demanded tax.

The Commissioner of Income Tax had filed two appeals against Babu and Poornima challenging the Income Tax Appellate Tribunal’s order dated August 19, 2016. Justice PS Dinesh Kumar and Justice TG Shivashankare Gowda gave their judgment on the appeals recently. Babu and Poornima held 50% shares each in Ms. Shailendra Techno Park Ltd (STPL). On June 16, 2007, they entered into an Memorandum of Understanding to sell their shares in favour of G Somashekara Reddy for Rs.40 crore.

The Assessing Officer of the IT Department noticed that in the IT returns of Babu for 2008-09, a sum of Rs.13.50 crore was shown as advance consideration received from Reddy under the ‘sundry creditors’ column. The officer recorded that Babu received Rs.35 crores between June 8, 2007, and October 16, 2007, and he was liable to pay Long Term Capital Gains tax on the sale of STPL. In the case of Poornima, it was recorded that she had received Rs.17.5 crore for which she was liable to pay LTCG tax.

The matter reached the Income Tax Appellate Tribunal (ITAT) which held that “the share certificates were not delivered to the transferee during the previous year relevant to assessment year namely 2007-08” and therefore they were not liable to pay the tax. This was challenged before the Division Bench of the High Court.

The HC dismissed the appeals noting that “In view of the settled position of law and the factual matrix of the case recorded by the ITAT that Share Certificates were not delivered during the previous year of the relevant assessment year, no exception can be taken to the ITAT’s view. Resultantly, these appeals must fail.”