INCOME TAX ACT, 1961

Section 14A

Head of income - Business income or Capital gains - Profit on sale of shares of wholly owned subsidiaries - AO treating sale of shares as trading of underlying assets

Assessee engaged in construction and development of real estate projects entered into share purchase agreement with various buyers in respect of shares of all the wholly-owned subsidiaries who were carrying land and whose land development rights were transferred to assessee. AO held that what was being transferred through apparent to transfer of shares in those companies, were properties held by wholly owned subsidiary company and transactions of sale of shares were in fact carried out in a manner which indicated systematic and organised activity with profit motive and, therefore, profit on sale of shares of wholly onwed subsidiaries was infected business profit and not capital gain. as declared by assessee as intention of assessee was not to earn dividend but again profit by sale of shares.Held: AO's stand that there was trading of underlying assets of subsidiary companies, could not be upheld in law as shareholder does not have right to assets of company but only share in profit. The company alone can with the approval of board of directors sell its assets. Hence, there was no reason to treat sale of shares as trading in land and income from sale of shares had to be taxed as capital gain.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2007-08 & 2012-13

INCOME TAX ACT, 1961

Section 36(1)(iii)

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