TaxTMI 
TaxTMI 
2011 (9) TMI 488
X X X X Extracts X X X X
X X X X Extracts X X X X
....". 2. The facts of the case are that the assessee is a promoter-director of the company, PLL, whose shares were not quoted or listed on any stock exchange. The company issued shares for public subscription through the initial public offer (IPO) as per SEBI guidelines. The guidelines permitted existing share-holders also to sell their share in the IPO for diluting their equity holding. The assessee offered 599693 shares for sale and received an amount of Rs. 39,78,86,740/- as sale consideration. No securities transaction tax (STT) was paid on the sale of the shares. The gains arising on the sale were claimed to be not includible in the total income u/s 10(38) of the Income-tax Act, 1961, ('the Act' for short), on the ground that the transaction was exigible to the levy of the STT. The AO held that the aforesaid provision is not applicable to the facts of the case of the assessee as the STT had not been paid. It was further held that the shares were not listed on any stock exchange on the date of sale and, therefore, the LTCG was liable to be taxed @ 20% as per the provision contained in section 112 of the Act. 2.1 The ld. CIT(Appeals) considered the findings furnished in the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the month of October, 2005, the company obtained approval of the SEBI for subscription of shares through the IPO. Along with the subscription, the assessee was allowed to partially sell his shareholding in the offer. He decided to sell 599693 shares held by him in the company. As a condition of the public issue, applications were made to the BSE and NSE for listing the share. The BSE granted in-principle approval on 04.11.2005 and the NSE allowed similar approval on 14.11.2005, valid for 90 days. For the sale of shares, an escrow account was opened with the Registrar of the issue and the shares were transferred to this escrow account. The issue opened on 05.12.2005. It is seen that as per page No. 51 of the paper book, it closed on 16.12.2005. Corporate action regarding credit of shares to the allottees was taken on 29.12.2005. The confirmation from the depository regarding credit of shares was received on 30.12.2005. The listing approval was obtained on 04.01.2006, and the trading approval was received on 05.01.2006. Actual trading on the stock exchange started on 06.01.2006 and on this date the assessee also received payment from the bankers to the issue in respect of sale procee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ate the ISIN was also activated. Therefore, the transfer of shares took place on 06.01.2006, when the shares had been listed. Accordingly, it is argued that the second condition has also been fulfilled in this case. In this very connection, reliance has been placed on the additional evidence that ISINs should be activated only on commencement of trading. At this stage, the ld. counsel was appraised of the legal position that property in shares, being movable property, stands transferred on the day when they are handed over along with requisite transfer memo, and the receipt of sale proceeds is not the crux of the matter. The case of the ld. counsel is that because of SEBI guidelines, the Registrar could not have transferred the shares to the accounts of the allottee. 4.3 In reply, the ld. CIT, DR distinguished between primary and secondary market in respect of transactions in shares. The public offer for subscription involves increase in capital by issuing fresh share. It may also involve off-loading the shares by the existing shareholders for diluting their holdings. The IPO involves a transaction in primary market. It does not take place through the recognized stock exchanges,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... date. Corporate action for credit of allottees' account was also taken on this date. This is also an admitted fact. This means that the shares were transferred to the account of allottees on 29.12.2005. This amounts to handing over the shares to the allottees on this date even if physical possession was not granted to them, which was not necessary also. The reason is that from this date onwards the Registrar held the shares on account of the allottees and the buyers. The confirmation of such credit was made by the depository on 30.12.2005. In other words, the assessee ceased to hold any property in the shares on 29.12.2005 as the shares passed on to the allottees and the buyers. As on this date the shares were not listed on any recognized stock exchange. The listing approval was obtained on 04.01.2006 and trading approval was received on 05.01.2006. The listing approval admittedly has been granted after transfer of property in shares. The trading approval is only for the facility of buyers, allottees, existing shareholders, and the directors in respect of shares not offered for sale. The listing approval on 04.01.2006 cannot be related back to 04.11.2005 or 14.11.2005 as provision....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e market. As mentioned earlier, this is for the facility of buyers, existing shareholders and directors in respect of shares not offloaded by them. Non-activation of ISIN does not mean that the shares of PLL could not have been sold prior to this date. The assessee had in fact sold his shares on 29.12.2005. The directive is only to protect the investors, especially retail investors, between the date of sale and the date of commencement of trading through stock exchange. Accordingly, it is held that the transaction undertaken by the assessee was not chargeable to STT. Consequently, the assessee is not entitled to exclude the gains from his total income. The result is that ground no. 1 is dismissed. 5. In regard to the rate of tax payable by the assessee, it has been submitted by the ld. Counsel that the listing approval should relate back to in-principle approval granted on 04.11.2005 and 14.11.2005 by the BSE and the NSE respectively. Thus, the tax is payable @ 10%. This date has been applied by the AO of another director. However, there is no evidence to this effect on record. As against the aforesaid, the ld. DR submitted that the shares were unlisted securities on the date of....