Tribunal rules in favor of assessee on tax treatment of CCPS sale, deems gain as long-term capital gain.

The Tribunal ruled in favor of the assessee in the case concerning the taxability of capital gain on the sale of compulsory convertible preference shares (CCPS). The Tribunal held that the gain should be treated as long-term capital gain, not short-term as determined by the Assessing Officer. The Tribunal also noted that interest under section 234B may not be leviable due to tax withholding on the gain. The assessee was directed to provide a bank guarantee to secure the Revenue's interest, and the recovery of the outstanding demand was stayed for 180 days or until the appeal's disposal.

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Issues:
The issues involved in the judgment are the stay on recovery of outstanding demand and the taxability of capital gain on the sale of compulsory convertible preference shares (CCPS).

Stay on Recovery of Outstanding Demand:
The assessee sought a stay on the recovery of an outstanding demand of Rs.152,18,89,516 for the assessment year 2017-18. The disputed demand arose due to the treatment of the gain derived from the sale of CCPS as short-term capital gain by the Assessing Officer. The assessee, a non-resident individual, received fully vested CCPS as part of employment compensation, which were later sold. The Assessing Officer considered the gain as short-term capital gain, leading to the disputed demand. The assessee contended that the gain should be treated as long-term capital gain as the shares were held for over 24 months, and the ownership vested with the assessee upon assignment, not upon transfer in the name. The Assessing Officer also did not allow deduction of the cost of acquisition, further disputing the tax liability.

Taxability of Capital Gain on Sale of CCPS:
The dispute revolved around the taxability of the capital gain on the sale of CCPS. The assessee claimed the gain as long-term capital gain, while the revenue treated it as short-term capital gain. The Assessing Officer's actions not only eliminated a refund claimed by the assessee but also created a disputed tax demand, including interest charged under section 234B. The Tribunal noted that the interest under section 234B may not be leviable as tax was withheld on the gain derived, reducing the balance tax demand. Considering that the assessee had already paid more than 50% of the disputed tax liability through TDS, the Tribunal directed the assessee to furnish a bank guarantee to secure the interest of the Revenue. The recovery of the balance outstanding demand was stayed for 180 days or until the disposal of the corresponding appeal, subject to the submission of the bank guarantee.

Separate Judgment by Judges:
The order was pronounced by Shri Saktijit Dey, Judicial Member, and Shri G.S. Pannu, President, on 19/05/2023.

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