Occupancy rights attached to shares: gain taxed in shareholders' hands, not in the company's hands.

Occupancy rights contractually attached to shares were transferred with those shares, and the resulting gain was held taxable in the hands of the shareholders rather than the company. The company had received only construction cost, while the shareholders had offered the income to tax and the transaction was supported by registered agreements and the applicable statutory approvals. As no material showed the arrangement to be a sham or colourable device, the company's legal title to the land did not make the gain assessable in its hands. The first appellate authority's finding was upheld in favour of the assessee.

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Issues: Whether the income arising from the sale of shares carrying occupancy rights in the constructed flats could be assessed in the hands of the assessee company.

Analysis: The occupancy rights were attached to the shares under the company's articles of association, and the shareholders transferred those shares along with the attached rights. The company received only the construction cost, while the gain on transfer accrued to the shareholders, who had also offered the income to tax. The transaction was supported by registered agreements and approval under the applicable statutory framework, and no material was brought to establish that it was a sham or a colourable device. The facts also showed that the Revenue had accepted taxation of the same transaction in the hands of the shareholders, and the company's legal ownership of the land did not displace the shareholder's beneficial and occupancy rights for this purpose.

Conclusion: The income from sale of shares and occupancy rights was not assessable in the hands of the assessee company and the finding of the first appellate authority was upheld in favour of the assessee.

Ratio Decidendi: Where occupancy rights in immovable property are contractually attached to shares and the shareholders transfer those shares along with the attached rights, the resulting gain is taxable in the hands of the shareholders and not in the hands of the company that merely holds legal title to the property.

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