Capital gains timing principle: alleged share consideration for land transfer taxable in the year of transfer, not an earlier year

An addition for alleged gift in kind of equity shares was deleted where the Revenue treated the shares as part of the undisclosed sale consideration for land. The Tribunal followed the coordinate bench and jurisdictional High Court in holding that, even if linked to the land transfer, the value represented consideration from transfer of a capital asset and was taxable in the year of transfer, not in the earlier assessment year in which the shares were received. The deletion of the addition for the year under appeal was therefore upheld.

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Issues: Whether the addition made in assessment year 2008-09 on account of alleged gift in kind of equity shares was sustainable when the Revenue's case was that the gift represented part of the undisclosed sale consideration for land transferred in assessment year 2009-10.

Analysis: The addition was made on the basis that the shares received from an unrelated donor were not a genuine gratuitous gift but formed part of the consideration for the later transfer of Gotri land. The Tribunal followed the coordinate bench and the jurisdictional High Court in holding that the alleged gift, even if treated as linked to the land transaction, represented consideration arising from transfer of capital asset. Such consideration was taxable in the year in which the transfer took place, namely assessment year 2009-10, and not in assessment year 2008-09. The Tribunal therefore found no infirmity in the deletion of the addition in the year under appeal.

Conclusion: The addition was not liable to be taxed in assessment year 2008-09 and the deletion was upheld in favour of the assessee.

Ratio Decidendi: Where alleged consideration linked to a transfer of land accrues in a later assessment year, it is taxable in the year of transfer and cannot be brought to tax in an earlier year merely because it was received in another form.

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