Genuine share transfer prevails over colourable device allegation when no evidence of sham consideration or undisclosed payment exists

A genuine share transfer cannot be treated as a colourable device merely because the sale price is below an earlier rights-issue price. The Delhi HC noted that the rights issue was a capital-raising exercise in a loss-making company, while the transfer involved a different transaction between shareholders. Absence of common control, common management, or evidence of undeclared or secondary consideration supported the declared sale price. Regulatory approvals based on the valuation report also weighed against the allegation of sham consideration. The capital loss was therefore not disallowed, and the Revenue's appeals failed.

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Issues: Whether the sale of shares by the assessee at Rs. 2.02 per share was a colourable device or sham transaction so as to justify disallowance of the capital loss claimed.

Analysis: The transaction was a real transfer of shares and was not shown to be a mere cover or device for a different underlying arrangement. The difference between the rights-issue price and the transfer price did not by itself establish that the declared sale consideration was false, because the rights issue was a capital-raising exercise in a loss-making company and could not be equated with a transfer between shareholders. The assessee's financial difficulty, the lack of evidence of common control or common management, and the absence of material showing any undeclared consideration or secondary payment supported the genuineness of the declared price. The approvals granted by the concerned authorities under exchange control regulations, on the basis of the valuation report, also weighed against the allegation that the consideration was sham.

Conclusion: The sale consideration was accepted as genuine, the allegation of colourable device failed, and the capital loss could not be disallowed.

Final Conclusion: The Revenue's appeals were rejected because no substantial question of law arose from the findings that the share transfer was genuine and the declared consideration was not shown to be untrue.

Ratio Decidendi: A genuine share transfer cannot be disregarded as a colourable device merely because the sale price is lower than a prior rights-issue price, unless there is evidence that the transaction was sham or that additional unaccounted consideration passed.

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