Case Law Details
Recently ITAT Mumbai in the case of Mrs. Hami Aspi Balsara (Taxpayer) v ACIT. [2009-TIOL-789-ITAT-MUM] held that where a transfer of shares is made conditional upon fulfilment of certain covenants by the parties, the transfer can be regarded as complete only upon the fulfilment of such covenants. In the facts of the present case where the Taxpayer entered into an agreement to sell the shares that were held, the ITAT held that the transfer by way of extinguishment of rights did not arise on mere execution of the agreement to sell.
This was because the Taxpayer had the right to revoke the transaction on non- fulfilment of certain covenants by the buyer of the shares. The ITAT held that it was not relevant that the Taxpayer was restricted from exercising any rights over the shares, post the date of agreement to sell, and the transfer took place only when the sale became irrevocable from the Taxpayer’s perspective.
Background and facts of the case
- Under the Indian Tax Law (ITL), profits or gains arising from transfer of a capital asset is chargeable to tax under the head ‘capital gains’. The term ‘transfer’ is defined to include, inter alia, sale, exchange or relinquishment of a capital asset or the extinguishment of any rights therein.
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