Particulars As per Companies Act, 2013 As per Companies Act, 1956

1 Section 56 108, 109, 110 & 113.

108- Transfer not to be registered except on production
Transfer and Transmission of of instrument of transfer 109- Transfer by Legal
2 Title
Securities Representative 110- Application for Transfer. 113-
Limitation of time for issue of Certificates.
3 Form SH - 4 Form 7-B
Section deals with transfer and
4 Scope transmission of all the securities Sections deal with transfer of Shares and Debentures
of the Company
In case of such transfer, the
company shall give a notice of
Transfer of
such application (in Form SH-5)
Partly - No such extant provision was present in the previous
5 to the transferee and the transferee
paid-up act.
should give a no-objection to
Shares
transfer within 2 weeks of the
receipt of notice.
Transfer of A legal representative can transfer
As per the old act, the Legal representative shall
Shares of the shares of the Deceased
6 transmit the shares on his own name and then he should
Deceased member directly without even
transfer the same in the name of the others.
Member holding those shares.
1. Properly executed Form-7B which is duly signed,
1. Properly executed SH-4 which
stamped and dated should be sent to company - In case
is duly signed, stamped and dated
of Listed Company, on or before closure of register of
should be sent to company within
members or within 12 months from the date of
60 days of its execution.
execution. - In all the other cases within 2 months of the
2. Form SH-4 should be
execution of transfer deeds. 2. Form-7B should be
accompanies with the securities
accompanied with the Share certificate and in the
certificate and in the absence of
Time Lines absence of that the letter of allotment. 3. In case the
that the letter of allotment. 3. In
7 with Certificate is lost the Company may transfer the share
case the Certificate is lost the
Documents after obtaining an Indemnity Bond. 4. Every transfer
Company may transfer the share
deed or instrument before being signed by the parties
after obtaining an Indemnity
shall be stamped, endorsed and signed by the Registrar
Bond. 4. The securities shall be
of Companies and thereafter the parties shall execute
transferred and Share Certificates
such document. 5. The Shares and Debentures shall be
shall be delivered within 1 month
transferred and Certificates shall be delivered within 2
of date of receipt by the Company
month of date of receipt by the Company of the valid
of the valid transfer deed.
transfer deed.
For Non-issuance of Certificates after transfer of Shares
For Company - Minimum - Rs.
-For Company and Officer in default shall be liable for a
25,000/- Maximum - Rs.
Penal penalty of Rs. 5,000/- per day till the default continues.
8 5,00,000/- For Officer in Default -
Provisions For transfer of Shares Any person who transfers shares
Minimum - Rs. 10,000/-
in contravention of the provisions shall be liable for an
Maximum - Rs. 1,00,000/-
imprisonment of 3 years or penalty up to Rs. 50,000/-.
Case Studies:

Income Tax Appellate Tribunal – Lucknow

Rajendra Singh vs Assistant Commissioner Of Gift ... on 24 April, 2003

Equivalent citations: (2003) 80 TTJ Luck 625

Bench: P Parashar, M Singh

ORDER P.N. Parashar, J.M.

1. This appeal has been filed by the assessee against the order of learned CGT(A) dt. 21st Nov.,
1997, for the asst. yr. 1991-92,
2. Shri A.A. Thakkar, advocate, along with Shri Kanchan Kaushal, F.C.A., appeared on behalf
of the appellant, whereas Shri D.K. Shrivastava, CIT Departmental Representative ITAT,
represented the Department.
3. This appeal was filed by the assessee on 23rd Jan., 1998. The Department moved an
application for early hearing of the appeal. The prayer of the Department was allowed vide
order dt. 24th May, 2002, passed on the order-sheet, Later on, the other appeals of this group
were also clubbed for hearing together with this appeal vide order dt. 18th Feb., 2003. The
arguments in this appeal were advanced on 18th Feb., 2003, and subsequently on 20th March,
2003. On 20th March, 2003, the parties agreed that the other connected appeals in which the
prayer for admission of additional grounds, etc. was to be considered and decided may be
released. In view of this position, the arguments were concluded in this appeal alone on 20th
March, 2003, and other appeals were released for listing for hearing in future. Hence, the
present appeal is being decided.
4. Before proceeding to adjudicate the grounds taken in this appeal by the assessee-appellant,
we consider it proper to record the relevant facts relating to this matter in brief. These facts are
as under:
(1) The assessee, Shri Rajendra Singh, sold 16,00,000 shares of M/s Jai Prakash Industries Ltd.
to M/s Peartree Electrical Industries (P) Ltd. @ 12.50 per share. In this regard, an agreement
was executed on 24th April, 1990. The AO noticed that the transfer of shares was registered in
the share transfer register of the company on 22nd Nov., 1990, and on this date, quoted rate of
shares of M/s J.P.I.L was at Rs. 24.50 share. In this view, since shares were transferred
otherwise than for adequate consideration, this transaction constituted a deemed gift within the
meaning of Section 4(1)(a) of GT Act.
(2) As the assessee had not filed any return of gift, the AO issued notice under Section 16 on
14th July, 1994, in response to which the assessee filed return on 4th Oct., 1994, declaring Nil
gift.
(3) The AO examined the entire matter and after discussing the issue relating to deemed gift,
he passed assessment order on 20th Feb., 1997. In doing so, the AO followed his order in the
case of Shri S.K. Dixit. The relevant observation of the AO in this regard is as under :
"The facts of this case are similar to that of Shri S.K. Dixit, 5, Park Road, Lucknow, which
have been discussed in detail in the assessment order dt. 29th March, 1996, passed under
Section 15(3) of GT Act for asst. yr. 1991-92"
(4) The computation of taxable gift of Rs. 1,92,00,000 as made by him in the assessment order
is as under :
"For the reasons discussed in the assessment order under Section 15(3) of Shri S.K Dixit, I hold
that the assessee transferred 16,00,000 shares of M/s Jai Prakash Industries Ltd. to M/s Peartree
Electrical Industries (P) Ltd. otherwise than for adequate consideration. The deemed gift under
Section 4(1)(a) is worked out as under:

Market value of Rs.16,00,000 shares on the date of transfer i.e., 22.11.1990 @ Rs. 24.50 per
share 3,92,00,000 Less : Value of consideration @ Rs 12. 50 per share of 2,00,00,000 Deemed
gift under s. 4(l)(a) of GT Act is Rs.1,92,00,000"
(5) The assessee had taken nine grounds before the learned CGT(A) to challenge the
assessment order. The learned CGT(A) has decided the appeal by following his order in the
case of Shri Ashok Sharma without considering the grounds taken before him, The relevant
part of his order is as under:
"4. In the case of Shri Ashok Kumar Sharma, I have dismissed the appeal vide my order dt.
28th Nov., 1996, in appeal No. 3/GT/Cir.2(1)/Lko/1996-97. Shri Ashok Kumar Sharma as well
as the appellant belong to the same group of persons. JA copy of the order passed by me in the
case of Shri Ashok Kumar Sharma is enclosed with this order also. For the detailed reasons
given in that order, I hold that the AO was justified in initiating the proceedings under Section
16 of the GT Act and taxing the appellant to deemed gift."
(6) Ground Nos. 3 & 7 : (6) The assessee has taken legal pleas in ground No. 3 for challenging
the validity of proceedings under Section 16(1) of the GT Act. Vide ground No. 7, it is averred
that the learned CGT(A) has not adjudicated grounds No. 2.1, 2.2, 2.3 of the grounds of appeal
taken before him. Thus, the contention of the assessee was that the issue relating to validity of
the initiation of escaped assessment proceedings has remained unadjudicated. Since ground
Nos. 3 and 7 relate to the same aspect of the matter we proceed to consider these grounds all
together.
(7) Before considering the arguments of the learned representatives of the parties on these
grounds, we think it proper to reproduce the reasons recorded by the AO for initiating
assessment proceedings. The statement of reason recorded by him is as under :
"During asst. yr. 1991-92 relevant to financial year 1990-91 assessee had shown sale of equity
shares of JIL @ Rs. 12.50 per share to M/s Essjay Enterprises (P) Ltd. The shares were
transferred in the register to the company on 22nd Nov., 1990, when the quoted price of share
was Rs. 24.50 per share. Thus, the transfer in question has been made otherwise than for
adequate consideration and is a case of deemed gift under Section 4(1)(a) of GT Act. I have
reason to believe that taxable gift of Rs. 1,92,00,000 escaped assessment for asst. yr. 1991-92.
Notice under Section 16 is hereby issued."
(8) On 31st Dec., 1996, the assessee noted the reasons for issuance of notice under Section 16.
Shri K.B. Agarwal, who attended on behalf of the assessee the proceedings on 31st Dec., 1996,
was required to explain and submit supporting evidence. The case was listed on 16th Jan., 1997,
Before that a letter dt. 1st Jan., 1997, was written to the Dy. CGT by the assessee in which the
entire position was explained. The relevant part of the version of the assessee regarding the
date of transfer and plea taken in support of his version is contained in para 2, which is as under
:
"2. The aforesaid 16,00,000 equity shares of JIL were actually transferred on 24th April, 1990,
when the transfer deed in respect of the shares in question was duly executed and physical
delivery of the share certificates along with the duly executed transfer deed were given to the
transferee, namely, M/s Peartree Electrical (P) Ltd. on that date. Photostat copy of the transfer
deed is furnished as Annexure 1. It is respectfully submitted that your view that the transfer of
shares takes place on the date on which the transfer is registered in the share transfer register
of the company, is erroneous and incorrect. It is established law that transfer of a movable
property is complete, when the delivery of the property is handed over to the purchaser,
irrespective of the fact whether the consideration for the transfer had passed or not. In this
connection, your kind attention is invited to Palkhivala's Commentary on Income-tax (Eight
Edition), Vol. 1, p. 765 extract from which is reproduced below :
Year of chargeability--For determining the year of chargeability, the relevant date is not the
date of the agreement to sell but the date of the sale, i.e., effective transfer of title as
contemplated by the parties. Capital gains are assessable as the income of the year in which the
transfer takes place, even though they may be realized later on or there may be no realization
at all as a result of a variation agreed upon in a subsequent year. But capital gains must "arise"
or accrue before they can be taxed.' (9) In subsequent letter dt. 27th Nov., 1997, also the
assessee explained the entire position in relation to market value of the shares, etc. It was again
asserted that the shares were transferred on 24th April, 1990, @ 12.50 per share. In para 4 of
this letter, it was pointed out that in the case of Shri S.K. Dixit and Shri D.G. Kadkade, the AO
has also referred to some discounted value of Rs. 10.96 on the date of sale.
5. The learned counsel for the assessee Shri Thakkar submitted that though the AO initiated
proceedings for escaped assessment by recording reasons, but he has not made the assessment
order on the basis of such reasons and rather he has followed the case of the other assessee viz.,
Shri S.K. Dixit, in whose case, the facts were totally different, inasmuch the date of transfer in
that case was taken to be 18th April, 1990, which was the date of agreement to sell the shares,
whereas in the notice issued under Section 16, in the case of present assessee, the date of entry
in the register of transferee company was taken as date of transfer. According to him, therefore,
there was no nexus between the reasons recorded and the assessment made. The learned
counsel also submitted that in the case of Shri S.K. Dixit, the AO had followed the decision of
Hon'ble Supreme Court of India in the case of V.R. Shelat v. P.J. Thakar (1999) 45 Comp.
Cases 43 (SC), which basis has not been adopted by him while passing assessment order in the
case of the present assessee. The learned counsel also submitted that only those reasons, which
were recorded by the AO can be seen while making the assessment and no other reason can be
considered. In this regard, he placed reliance on the decision of Allahabad High Court in Jamna
lal Kabra v. ITO and Ors. (1968) 69 ITR 461 (All) and also on the following decisions:
(i) Equitable Investment Co. (P) Ltd. v. ITO (1988) 174 ITR 714 (Cal)
(ii) CIT v. Agarwalla Brothers. (1991) 189 ITR 786 (Pat)
(iii) Vijayalakshmi Oil Industries v. ITO (1985) 155 ITR 748 (Kar)
(iv) East Coast Commercial Co. Ltd. v. ITO (1981) 128 ITR 326 (Cal)
(v) N.D. Bhatt, IAC v. I.B.M. World Trade Corporation (1995) 2161TR 8n (Bom)
6. Shri D.K. Shrivastava, the learned Senior Departmental Representative (CIT, ITAT), on the
other hand, justified the action of the AO. According to him, since consideration for
transferring the shares was found to be inadequate, the AO was fully justified in issuing notice
under Section 16. He also pointed out that the value of the shares was to be determined in
accordance with the Schedule II of IT Act, 1961, (sic-GT Act, 1958) and, thus, the AO was
fully entitled to proceed under Section 16(1) of the GT Act. He also pointed out that there is
no dispute about the quoted price of the shares, which goes to show that there was inadequacy
of the consideration. The other argument of the learned Senior Departmental Representative
was that the AO had shown that there was inadequacy of the consideration and the amount of
consideration was not in accordance with the market price of the share on the date of transfer.
The learned Senior Departmental Representative also pointed out that the AO is bound to act
in the interest of Revenue to take the possible view and if there are two possible views, he can
opt for any of the views. It was also pointed out by him that the assessee too had not challenged
the reasons recorded for initiating proceedings under Section 16 of the GT Act before the AO
during the assessment proceedings.
7. In support of his arguments the learned Senior Departmental Representative placed reliance
on the following decisions also ;
(i) S. Narayanappa and Ors. v. CIT (1967) 63 ITR 219 (SC)
(ii) Phool Chand Bajrang Led and Anr. v. ITO and Anr. (1993) 203 ITR 456 (SC)
(iii) Raymond Woollen Mills Ltd. v. ITO (1999) 236 ITR 34 (SC)
(iv) Grover Nursing Home v. ITO (2001) 248 ITR 493 (P&H)
8. We have carefully considered the facts and circumstances of the case, the material to which
our attention was invited and the rival submissions First of all, we would like to dispose of
ground No. 7 taken by the assessee in this appeal. According to this ground, the learned
CGT(A) has not adjudicated specific grounds taken before him for challenging the validity of
the proceedings under Section 16(1) of the GT Act.
9. We have gone though the order passed by the learned CGT(A). As referred to above, he has
followed his order in the case of Ashok Kumar Sharma. He has also held that the AO was
justified in initiating the proceedings under Section 16 of the GT Act and in taxing the appellant
to deemed gift. Thus, the grounds relating to initiation of proceedings under Section 16 have
been decided by the learned first appellate authority. We have also gone through the order of
Ashok Kumar, which is dt. 28th Nov., 1996. A perusal of the said order shows that in paras 5
to 10 of that order learned CGT(A) has considered the issue and rejected grounds No. 1 and 2
taken up by the assessee by upholding the approach of the AO. Since the learned GGT(A) has
followed his order in the case of Ashok Sharma, his reasons for upholding the order of the AO
in the case of Shri Ashok Sharma shall apply with equal force for upholding the approach of
the AO in initiating the proceedings under Section 16 in this case also.
10. In view of the above, it is, thus, clear that the learned CGT(A) has rejected the grounds
taken before him by the assessee. Hence, we do not find force in the plea taken by the appellant
through ground No. 7. Consequently, this ground is rejected.
11. So far as the pleas of the assessee taken in ground No. 3 are concerned, on merits also, we
find little force in the submission of the assessee. On the other hand, we find sufficient force in
the contention of the learned Senior Departmental Representative that since the AO had
sufficient material before him to come to the conclusion that there was inadequacy of
consideration while transferring the shares, hence it was a case of deemed gift and, thus, on the
basis of his conclusion, he was justified in initiating the proceedings for making assessment.
After going through the reasons recorded by the AO, it is found that the AO has considered the
rates as on 22nd Nov., 1990, on which date the rate was Rs. 24.50 per share. His conclusion
may not be upheld finally but for issuing notice under Section 16, in our view, the material
considered by him was sufficient. Hence, the validity of the notice under Section 16 cannot be
challenged. The other contention of the learned counsel for the assessee was that the assessment
has not been passed in consonance with the reasons recorded and there is no mention of the
reasons recorded in the assessment order. We do not find any force in such arguments also.
The reasons recorded are relevant for initiating the proceedings and if the reasons are not
reproduced in the assessment order, then the proceedings cannot be held to be invalid. In view
of the above, various pleas taken in the ground No. 3 stand rejected Ground Nos. 1, 2 & 6:
12. Through these grounds, the assessee has challenged the order of learned CGT(A) in
upholding the order of AO in determining the taxable deemed gift of Rs. 1,92,00,000.
13. We have narrated the relevant facts relating to determination of taxable gift in the case of
the assessee in the earlier part of this order in paras 4 and 3. However, since the detailed
arguments have been made by the learned counsel for the assessee by referring to other
connected cases for showing the contradictory approach of the Department, we consider it
proper to narrate some additional facts relating to determination of taxable gift in the other
connected cases of the group to which the assessee belonged, because in all these cases, the
assessees have transferred shares by entering into agreements and by executing the transfer
deeds, etc. and the issue in all these cases related to the ascertainment of the date of transfer
and the determination of the taxable gifts on account of transfer of shares. The factual position
as emerges from the material on record is as under:
Name of the Assessees Details Rajendra Singh D.G.Kadkade A.K. Sharma S.K. Dixit G.T.A.
No. 6/A/1998 9/A/1997 3/A/1997 Not Known Date of notice under s. 16 14.7.1994 1.2.1994
13.12.1993 21.3.1994 Date -of agreement to sell the shares 24.4.1990 24.4.1990 18.4.1990
18.4.1990 Agreed selling price per share ' Rs. 12.50 Rs. 12.50 Rs. 11.50 Rs. 11.50 No. of equity
shares of Jaiprakash Industries Ltd. agreed to be sold 16,00,000 4,25,000 90,000 2,00,000
Quoted price per share on the date (Sl. No. 5 of agreement to sell) Rs. 13.25 R s.
13.25 Rs. 12.75 Rs. 12.75 Date of transfer taken by the AO for the purpose of calculation of
gift under s. l(l)(a) 22-11-90 (i. e., date of registration of transfer of shares under s. 108) 24-4-
90 (i. e., date of agreement to sell the shares) 18-4-90 (i. e., date of agreement, to sell the shares)
18-4-90 (i.e., date of agreement to sell the shares)
14. On the basis of above chronology of dates and also on the basis of the fact sheets submitted
by the Department, it is found that the shares were transferred by four persons belonging to the
same group i.e., (1) Shri Rajendra Singh, (2) Shri D.G. Kadkade, (3) Shri Ashok Kumar
Sharma, and (4) Shri S.K. Dixit. It is found that in the case of the assessee, the AO as well as
learned CGT(A) has taken the date of entry in the register of the transferee company being
22nd Nov., 1990, as the date of transfer, whereas in the other three cases, although the
particulars relating to dates of agreement and date of entry under Section 108 of the Companies
Act, were available, the Department has not considered the date of entry in the register of the
transferee company, which was 22nd Nov., 1990, in all the four cases as date of transfer on
uniform basis. Whereas in three cases, the dates of agreement being 24th April, 1990, (in the
case of Shri D.G. Kadkade), and 18th April, 1990, in the cases of other two assessees (i.e., Shri
Ashok Sharma and Shri S.K. Dixit) have been taken as the date of transfer, in the case of the
present assessee a different approach is adopted.
15. The above aspect can be highlighted and illustrated by making reference to the assessment
orders and the appellate orders in the cases of different assessees referred to above.
16. So far as the case of Shri S.K. Dixit is concerned, a perusal of the assessment order, which
is available at pp. 38 to 52 of the paper book goes to show that the AO considered the date of
agreement (18th April, 1990) for transfer of the shares and by following the case of Shelat v.
P.J. Thakar (supra) he has taken the date of transfer as 18th April, 1990, i.e., the date on which
physical delivery of share certificates along with the executed transfer deed took place. The
relevant portion of his finding in this regard is as under :
"5. Now, the first question that arises is that what is the date of transfer of shares to be taken in
this case ? It has been submitted by the assessee in this regard that the date of transfer is 18th
April, 1990, when the agreement was entered into between the assessee and the purchaser,
transfer deed was duly executed, and the physical delivery of the share certificates along with
duly executed transfer deed was given to the purchaser namely, M/s Sequences Estates (P) Ltd,
It is established law that the transfer of movable property is complete when the delivery of the
property is given to the purchaser irrespective of the fact whether consideration for the transfer
had passed or not. It has been repeatedly held by the Courts that the transfer of shares in a
limited company is complete as between the transferor and the transferee as soon as the transfer
deed duly signed by the transferor is handed over to the transferee or his agent along with the
share certificates and the transferee or his agent along with the share certificates and the
transferee seeks transfer of such shares and the transfer is not refused by the company. Reliance
has been placed on a host of case law by the decision of Hon'ble Supreme Court of India in the
case of V.R. Shelat v. P.J. Thakar (1995) 45 Comp. Cas 43 (SC) On careful consideration of
the facts, circumstances of the case and the provisions of law, it is observed that the law on this
issue has been well-settled by the Hon'ble Supreme Court of India in its aforesaid decision
besides a number of other case laws. The date of transfer of shares in the present case which is
to be considered for working out the taxable gift is accordingly taken as 18th April, 1990, i.e.,
the date on which physical delivery of the share certificates along with the duly executed
transfer deed was given to the transferee."
17. On the basis of the rates of shares on 18th April, 1990, being Rs. 12.75 per share as against
rate of transfer shown by the assessee i.e., Rs. 11.50 per share, the AO has computed the taxable
gifts in the following manner :
"6. Now, we come to the issue of the value of the taxable gift on the date of transfer i.e., 18th
April, 1990. As mentioned earlier, market rate as on that date was Rs. 12.75 per share, whereas
the assessee transferred the share @ Rs. 11.50 per share meaning thereby difference of Rs. 1.25
per share. Thus, the market value of 2,00,000 shares transferred as on the date of transfer
exceeded the value of the consideration by Rs. 2,50,000 (Rs. 1.25 x 2,00,000) which is
accordingly deemed to be a gift made by the assessee under Section 4(1)(a) of the GT Act,
1958. The assessee was asked to furnish his explanation in this regard."
18. It may be pointed out that it could not be shown that these findings of the AO have been
reversed or modified by any superior authority. The Department has not filed any evidence to
show that any action under Section 263 was taken by the learned CIT in respect of this order.
19. So far as the case of Ashok Sharma is concerned, on the perusal of the appellate order, it is
found that the AO took the. date of transfer as on 18th April, 1990 and the learned CIT(A) has
upheld his approach. The taxable gift was also determined on the basis of such approach.
20. Thus, it is found that in other three cases out of four cases mentioned above, it is the date
of delivery of shares certificates and/or the date of agreement and not the date of entry in the
register of the transferee company, which was taken by the Department as the date of transfer
of shares and on that basis, the amount of taxable gift was determined, Thus, in the present case
a total different approach has been adopted by taking the date of entry of transfer of shares in
the register of the transferee company as the date of transfer of shares.
21. The learned representatives of the parties have made detailed and elaborate submissions on
various aspects relating to the issue. It is not possible to reproduce such detailed arguments in
the body of this order. We shall, therefore, consider only relevant arguments in brief.
22. According to the learned counsel for the assessee, the assessee had transferred 16 lakhs
shares @ Rs. 12.50 and in this regard, instrument of transfer was executed on 18th April, 1990,
on Form No. 7B, which is on prescribed form and in order to set out the modality of payment,
etc., a further agreement dt. 22nd April, 1990, was executed between the transferor and the
transferee. The learned counsel in this regard invited our attention to the document i.e., the
share transfer form (Form No. 7B) which is available on p. 27 of the paper book and also to
the agreement dt. 24th April, 1990, which is available on pp. 1 to 37 of the paper book.
23. Thus, the learned counsel for the assessee emphatically asserted that the date of transfer of
shares in the present case is to be taken as 24th April, 1990 only on which date the transaction
of transfer of shares was completed and delivery of shares was also made.
24. On the basis of the documents referred to above, it was argued that the date of transfer of
the shares cannot be determined on the basis of registration entry in the register of the transferee
company. The learned counsel also submitted that position relating to determination of the date
of transfer has been settled by the Hon'ble Supreme Court of India in the case of Shelat v.
Thakar (supra) which decision has been followed by various Courts.
25. The learned Senior Departmental Representative, on the other hand, submitted that the
transaction of transfer was completed only when the entry of transfer was made in the register
of the transferee company and not on the date of agreement. After referring to the document
i.e., share transfer form, he pointed that this deed was executed on 18th April, 1990, whereas
the agreement was subsequently executed on 24th April, 1990 and the perusal of the agreement
shows that the delivery of the shares, etc. was to take place subsequently.
26. The learned Senior Departmental Representative advanced detailed arguments on this point
and contended that the agreement deed dt. 24th April, 1990, cannot be taken to be the basis for
determining the date of transaction of transfer of shares by the assessee. He also submitted that
the transfer of shares or sale of shares is to be done in accordance with the provisions of the
Companies Act and the company shall not register the transfer of shares, unless transfer
instrument is duly executed by both the parties and duly stamped, etc. and the share are also
delivered. According to him, for making registration of shares in the transferee company, all
these conditions have to be satisfied.
27. The learned Senior Departmental Representative further made the following submissions :
(1) Sale deed in the present case was not executed on 24th April, 1990 and the deed dt. 24th
April, 1990, was only an agreement to sell.
(2) In the instant case, the delivery of shares is not proved from the instrument of transfer also.
It is not proved that the shares were actually transferred and delivered on that date or prior to
it or subsequent to it.
(3) The decision of the Hon'ble Supreme Court of India in the case of Shelat was on different
facts relating to a case of gift and the same has no application to the present matter.
28. Thus, the learned Senior Departmental Representative fully supported the view taken by
the learned CGT(A).
29. In reply, the learned counsel for the assessee pointed out that the decision of Hon'ble
Supreme Court of India in the case of V.R. Shelat v. P.J. Thakar (1995) 45 Comp. Cas 43 (SC)
is fully applicable. Regarding the proof of delivery of shares or transfer of share certificates, it
was pointed out by him that in its reply dt. 1st Jan., 1997, the assessee had specifically
submitted before the AO that the shares were actually transferred on 24th April, 1990, when
the transfer deed in respect of the shares in question was duly executed and the physical
delivery of the share certificate along with the duly executed transfer deed were given to the
transferee company namely, M/s Peartree Electrical (P) Ltd. on that date and this version of
the assessee was not, disputed by the Department, inasmuch as no further evidence or proof
was sought from the assessee regarding delivery of shares and transfer of share certificates.
According to the learned counsel, since the specific reply of the assessee was not doubted or
discarded and further since neither the AO nor the learned CGT(A) demanded any further proof
regarding delivery of the shares, the issue stood concluded and the assessee had discharged its
onus.
30. During the course of hearing of appeal, the Bench made query and required from the learned
counsel about the proof of date of delivery of the shares or execution of share certificates. In
reply, he submitted that all the formalities relating to transfer of shares were completed on 24th
April, 1990, after the execution of the agreement for sale. The learned counsel also offered to
produce the proof of delivery of shares and share certificates before the Bench, in case it was
so directed. However, the Bench did not ask the learned counsel to do so as it. would have
amounted to admitting fresh evidence at the appellate stage, which course was not found to be
proper.
31. Regarding the provisions contained under Section 108 of the Companies Act, it was
submitted by him that the entry in the register of the transferee company is a subsequent
formality, which presupposes the execution of the transfer deed in relation to transfer of shares
and delivery thereof and, therefore, the date of entry in the register of transferee company,
cannot be taken to be the date of transfer of shares.
32. Before dealing with the various arguments, we would like to set out the inconsistency in
the approach of the Department while dealing with the same issue in the case of various persons
belonging to same group. As pointed out earlier, on one hand the Department has taken the
date of transfer of shares, delivery of share transfer certificate and execution of the sale deed,
etc. as the date of transfer of shares in the case of S.K. Dixit, Shri Ashok Sharma and Shri
Kadkade, on the other hand, in the case of present assessee it is the date of entry in the register
of the transferee company, which has been taken to be the date of transfer. There is no
explanation to this inconsistency. As mentioned above, no proceedings under Section 263 have
been taken by the Department to set aside the assessment order in the case of other three
assessees and the assessment order in the case of Shri S.K. Dixit, perhaps, has even become
final. Since the Department has taken the date of execution of share transfer certificate, as the
relevant date for determining the transaction of transfer of shares in three other cases, the same
approach should have been adopted in the case of the present assessee, in order to maintain
consistency and uniformity. In view of the above referred discrepancy, the approach of the
Department is found to be self-contradictory and inconsistent. We cannot uphold such an
inconsistent approach, particularly when there are no justifying reasons for adopting a different
approach in the case of the present assessee.
33. There are other serious discrepancies also. On perusal of the assessment order and order of
learned CGT(A), it is found that while passing assessment order in the case of the present
assessee, the AO followed the assessment order in the case of S.K. Dixit, but the irony of the
situation is that the approach adopted in the case of S.K. Dixit has not been followed in this
case. To repeat, if that case was followed, then it was the date of execution of the transfer deed
and delivery of the shares, which was the relevant date and not the date of entry in the register
of the transferee company, which has been taken to be the date of transfer in the case of the
present assessee. The AO has not tried to explain this discrepancy.
34. The learned CGT(A) too has committed a similar error. Firstly, he did not examine the
mistake committed by the AO in making reference to the assessment order of Shri S.K. Dixit
and in acting differently, and secondly, he too followed the case of Ashok Sharma for
upholding the action of the AO without comparing the two cases. Here also, it may be pointed
out, at the cost of repetition, that in the case of Shri Ashok Sharma, the AO had determined the
date of transfer of share certificates as the date of transfer, as observed by the learned CGT(A)
in para 3 of his order in the case of Shri Ashok Sharma.
35. From the above, it is clear that in the case of Ashok Sharma also, the date of transfer of
share was not taken on the basis of entry of registration in the register of transferee company
and, therefore, if Sharma's case was to be followed as has been claimed by the learned CGT(A),
while deciding the appeal of the present assessee, then the action of the AO in taking the date
of entry in the register of transferee company, could not have been sustained.
36. Thus, we find the approach of two Departmental authorities not only inconsistent and self-
contradictory, but also paradoxical. There is no justification or reconciliation to such an
approach particularly when the same learned CGT(A) has decided the case of Ashok Sharma
and the case of the present applicant. He was expected to adopt a consistent approach in the
two cases decided by him.
37. In view of the above referred contradictions, we find little scope to sustain and uphold the
order of the learned CGT(A) in the case of the present assessee.
38. Now we proceed to examine the matter from legal point of view. The issue before us is as
to whether the date of execution of sale deed or the date of transfer of share certificates or the
date of actual delivery of shares are the relevant dates for deciding the date of transfer in the
case of sale of shares or it is the date of registration of transfer of shares in the register of
transferee company, which is the relevant date.
39. For adjudicating the above issue, we have to examine the nature of the property involved
the shares and have also to ascertain the mode of transfer of said property.
40. The shares are included in the definition of 'goods' as per Clause 7 of Section 2 of Sale of
Goods Act. This provision runs as under:
"(7) "goods" means every kind of movable property other than actionable claims and money;
and includes stock and shares, growing crops, grass, and things attached to or forming part of
the land which are agreed to be severed before sale or under the contract of sale ;"
41. Since the share is to be treated as goods or movable property, the transfer in such property
passes, when the transfer of property in the goods takes place i.e., by the delivery of goods.
42. The mode of transfer of goods is prescribed in Sections 4 and 5 of the Sale of Goods Act
i.e., by executing the contract of sale. However, since the transfer of shares involves acquisition
of certain rights and interest in such property by the purchaser of shares, the provisions of the
Companies Act, which regulate the mode of acquiring such rights also become relevant.
43. The issue relating to mode of transfer of shares came before the Hon'ble Supreme Court of
India in the case of Vasudeo Ramchandra Shelat (supra). In that case, by virtue of a will made
on 10th June, 1945, Shri J.M. Thakar made a will in favour of his wife, namely, Bai Rukmani.
She executed a registered gift deed purporting to donate the shares in various limited companies
of which details were given in the gift deed to her brother, namely, V.R. Shelat. Before her
death, she had signed several blank transfer forms to be filled in by the donee, so as to enable
him to obtain the transfer of donated shares in the register of the various companies and share
certificates in his own name, She had put her signatures in the correct places showing that she
meant to sign as a transferor of the shares. The shares could not, however, be transferred in the
registers of the various companies, in accordance with the relevant provisions of Company
Law before lady's death. Shri Shelat claimed that he was entitled to shares covered by the
registered gift deed, but the claim was disputed. The Single Judge of the Hon'ble High Court
held Mr. Shelat to be entitled to the shares, but the Division Bench of the Hon'ble Gujarat High
Court took a contrary view. The matter was agitated before the Hon'ble Supreme Court of India.
Their Lordships after considering the entire matter upheld the claim of the donee i.e., Shri
Shelat. While considering the matter, the Hon'ble apex Court made reference to the
observations of the Privy Council in the case of Maneckji Pastonji Barucha v. Wadilal Sarabhai
Co., which are as under:
" But, further, there seems to their Lordships a good deal of confusion arising from the
prominence given to the fact that the full property in shares in a company is only in the register
holder, That is quite true. It is true that what Barucha had was not the perfected right of
property, which he would have had if he had been the registered holder of the shares which he
was selling. The company is entitled to deal with the shareholder who is on the register, and
only a person who is on the register is in the full sense of the word owner of the shares. But the
title to get on the register consists in the possession of a certificate, together with a transfer
signed by the registered holder. This is what Barucha had. He had the certificates and blank
transfers, signed by the registered holders."
44. After referring to the above observations, the Hon'ble Supreme Court of India observed as
under:
"Thus, we find that in Barucha's case a distinction was made between "the title to get on the
register" and "the full property in the shares in a company". The first was held to have been
acquired by mere delivery, with the required intention, of the share certificate and a blank form
signed by the transferor. The second is only obtained when transferee, in exercise of his right
to become a shareholder, gets his name on the register in place of the transferor. The antecedent
right in the person to whom the share certificate is given with a signed blank transfer form
under a transaction meant to confer a right or title upon him to become a shareholder, is
enforceable so long as no obstacle to it is shown to exist in any of the articles of association of
a company or a person with a superior right or title, legal or equitable, does not appear to be
there. We think that Section 6 of the Transfer of Property Act justifies such a splitting up of
rights constituting "property" in shares just as it is well recognized that rights of ownership of
a property may be split up into a right to the "corpus" and another to the "usufruct" of the
property and then separately dealt with."
45. Hon'ble Court further proceeded to observe as under:
"The Companies Act of 1913 was meant "to consolidate and amend the law relating to trading
companies and other association". It is concerned with the acts and proceedings relating to the
formation, running and extinction of companies, with rights, duties and liabilities of those who
are either members or officers of such companies, and of these who deal with companies in
other capacities. Its subject-matter is not transfer of property in general. It deals with transfers
of shares only because they give certain rights to the legally recognized shareholders and
imposes some obligations upon them with regard to the companies in which they hold shares.
A share certificate not merely entitled the shareholder whose name is found on it to interest on
the share held but also to participate in certain proceedings relating to the company concerned.
It is for this purpose that Section 29 of the Act, of the title to a share. Section 34 of the Act does
not really prescribe the mode of transfer but lays down the provisions for "registration" of a
transfer. In other words, it presupposes that a transfer has already taken place. The manner of
transfer of shares, for the purposes of company law, has to be provided, as indicated by Section
28, by the articles of the company, and, in the absence of such specific provisions on the
subject, regulations contained in Table "A" of the First Schedule of the Companies Act apply.
Table "A" of the First Schedule to the Companies Act of 1913 gives regulation 19 as follows:
"19. Shares in the company shall be transferred in the following form, or in any usual or
common form which the directors shall approve : 1, A.B. of ...... in consideration of the sum of
rupees.... Paid to me by C.D. of ..... (hereinafter called 'the said transferee'), do hereby transfer
to the said transferee the share (or shares) numbered in the undertaking called the . ....Company
Limited, to hold upto the said transferee, his executors, administrators and assignees, subject
to the several conditions on which I held the same at the time of the execution thereof, and I
(the said transferee) do hereby agree to take the said share (or shares) subject to the condition
aforesaid. As witness our hands the .......day of........Witness to the signature of, etc."
46. The corresponding provisions of Companies Act, 1956, are similar.
47. In the case of Sheela Devi Chamaria v. Tarachand Saraogi and Ors. (1987) 163 ITR 406
(Cal), the Hon'ble Calcutta High Court has followed the decision of Hon'ble Supreme Court of
India in the case of V.R. Shelat (supra),
48. After quoting the observations of the Hon'ble Supreme Court of India in that case, the
Hon'ble High Court has observed as under:
" In the light of the observation made by the Supreme Court, it must be held that the gift of the
shares was complete as soon as the shares were handed over to the plaintiff along with the
blank transfer form duly signed by Motilal. The non-recording of the transfer in the books of
the company did not invalidate the gift in any way. Although the plaintiff would not be regarded
as a shareholder by the company until the transfer was recorded in the books of the company,
nonetheless, in the eye of law, it was the plaintiff who was the owner of the shares and the gift
was completed by the delivery of the share certificates along with the blank transfer form duly
signed by the transferor. The plaintiff has acquired a complete legal right to have the shares
registered in her name."
49. Thus, according to the Hon'ble High Court, a gift of share is complete as soon as the shares
are handed over to the donee along with blank transfer forms duly signed by the donor. The
non-recording of the transfer in the books of the company does not invalidate the gift in any
way. It was held in that case that although the donee will not be regarded as shareholder by the
company until the transfer is recorded in the books of the company, none the less in the eyes
of law, it is the donee, who is the owner of the shares and the gift becomes complete by the
delivery of share certificate along with the blank transfer form duly signed by the transferor
and the donee acquires a complete legal right to have the shares registered in his/her name. .
50. The issue was also considered in the case of R. Subba Naidu v. CGT (1969) 73 ITR 794
(Mad). In that case also, the Hon'ble Madras High Court held that the transfer of interest in the
shares from the transferor to the transferee is independent of the requirement of its registration
for the purposes of Companies Act., as without an interior transfer, there can be no question of
applying for registration of it. It was held by the Hon'ble Court that there should first be a
transfer properly made of shares, which should then be presented along with the share
certificates to the Board of Directors either by the transferor or transferee for change of
registration in respect of them.
51. In the case of CWT v. Babulal Jatia (1982) 137 ITR 540 (Cal), the Hon'ble Calcutta High
Court has followed the case of V.R. Shelat (supra) and upheld the approach of the Tribunal in
taking the view that by delivery of share certificates to donee as well as the execution of the
deed of transfer in favour of the donee, the shares stood transferred to the donee.
52. Thus, in view of the above referred decisions, it is clear that the transfer of property in the
shares to the transferee gets completed by the delivery of the share certificate and execution of
transfer deed, etc. Section 108 of the Companies Act, which deals with the transfer of shares
and debentures provides that transfer cannot be registered except on production of instrument
of transfer. Thus, Section 108 regulates registration of transfer of shares. For transfer of shares,
Form No. 7B has been prescribed. Hence, for registration of transfer of shares, a duly executed
Form No. 7B should accompany the certificate of shares and must be lodged with the company
within the prescribed period. For completing the formality of registration, the mode prescribed
under Section 108 is mandatory, but the procedure for registration of transfer in the transferee
company cannot be a relevant aspect for determining the transaction of transfer of shares, which
is an independent act and which has to be anterior in point of time. Section 112 of the
Companies Act lay's down the procedure for certification of transfer. Certification, in effect,
means a statement by the company, that certain documents have been delivered to the company
for the purposes of transfer of shares. It is a kind of receipt. Thus, for the purposes of affairs of
the transferee company, the entry in the register of members of the company is relevant. In the
case of Howrah Trading Co. Ltd. 29 Comp. Cas (SC) has explained the point by observing as
under:
"It, therefore, follows that the equitable right of the transferee gets metamorphosed into the
absolute right of a shareholder only When the names of the transferees after the recognition of
the transfer, are entered on the register. This can be viewed from another angle and it is this
when once the transferee does everything that he is required to do under law, to get his name
entered on the register by proper lodgement of the instruments of transfer and no other obstacles
remain in enforcement of the said right, the transfer becomes effective as against the company
also. Thereafter, the company cannot unilaterally alter its articles affecting the aforesaid right
of the transferee. Mere delay in the actual registration of the name of the transferee on the
register provided there is a proper lodgement of the instrument of transfer cannot affect the
above right of the transferee. If that be the position, the right of the transferee to get his name
entered on the register gets crystalized when proper lodgement is effected and the transfer from
the date of the proper lodgement becomes effective as against the company also, and such rights
cannot be affected by subsequent actions of the company like amendment of articles, etc.
Subject to what is stated above, the transfer, once the company after recognizing the transfer
enters the name on the register, relates back to the time when the transfer was first made "
Hon'ble Supreme Court of India further observed as under:
" that where the name of transferor is entered and he signs the transfer deed with the certificates
annexed to it and hands it over to the transferee, who, if he so chooses, may complete the
transfer by entering his name and then apply to the company to register his name in place of
transferor, such blank transfer will be valid."
53. In the case of Mollins Overseas Holdings Ltd. v. M.O.I. Engg. Ltd., it was observed that a
transfer of share becomes effective at the moment, the transfer documents are completed,
executed and handed over and after those only mutation of name of the buyer in company's
register of members is done, which may be done as per procedure laid down.
54. In view of the above referred decisions, the legal position is very clear and in view of the
same, the date of registration of transfers in the register of the company is not at all relevant
for deciding the transaction of sale of shares. The approach of the Departmental authorities in
adopting and taking the date of entry in the register of the transferee company as the date of
transfer of shares cannot, therefore, be legally upheld. In our considered view, the issue, in fact,
stands settled by the Hon'ble Supreme Court of India by its decision rendered in the case of
Shelat (supra). The contention of the learned Senior Departmental Representative that the case
of Shelat relates to transaction of gifts and, therefore, distinguishable, cannot be accepted,
because we are concerned with the mode of transfer of shares, which may be either by way of
sale or by way of gift, etc.
55. We, therefore, hold that it is the date of delivery of share certificates along with the
execution of the deed of transfer and not the date of entry of registration in the register of
transferee company, which is the decisive date for determining the date of transaction of 'sale'
in the case of transfer of shares.
56. So far as the case of present assessee is concerned, as referred to above, the assessee had
submitted before the Departmental authorities that the transaction of sale was completed on
24th April, 1990, on which date the share certificates were delivered and the transfer deed was
executed. Since the AO did not dispute this version of the assessee, in our view, the matter
stood concluded there. The learned first appellate authority too followed the same course. It
may also be pointed out that the assessee moved an application under Section 34 of the GT
Act, for rectifying the order of the learned CGT(A) and learned first appellate authority had
passed the order on 22nd March, 2002. A copy of this order is available on pp. 30 and 31 of
the paper book. The learned first appellate authority, although observed that there was no
evidence about the date on which the shares were actually lodged with the company for transfer,
but did not ask the assessee to file the proof of delivery of shares in the lodging of the transfer
certificates with the transferee company. The assessee cannot, therefore, be blamed for non-
production of the evidence to prove the actual delivery of the shares.
57. In the case of the assessee, the instrument of shares (Form No. 7B) (share transfer form)
prescribed under Section 108(1A) of the Companies Act, 1956, which is available at p. 27 of
the paper book was signed by the parties and executed on 18th April, 1990. In this document,
the number of shares i.e., 16,00,000 is mentioned in the relevant column and distinctive
numbers have also been given. The consideration is mentioned at 2,04,00,000 only. The name
of the recognized stock exchange is mentioned as Delhi. Thus, these documents contained all
the relevant information and value of stamps fixed has also been shown. The sale consideration
mentioned in this document was to be paid by the purchaser as per modalities set out in the
other deed, i.e., the deed of agreement dt. 24th April, 1990. In this deed, it has been mentioned
in clear terms that the seller has agreed to sell 16,00,000 equity shares of JIL to the purchaser
on spot delivery basis. The other conditions including the price of shares have also been given.
In para 3 of this deed, it is stipulated that the purchaser shall pay the entire sale consideration
of Rs. 2 crores, etc. immediately on the registration of transfer of shares. Further, in para 5, it
is stated that the seller shall deliver to the purchaser the share certificates in respect of the said
16,00,000 shares with duly executed share transfer deed in respect thereof and the purchaser
shall promptly acknowledge the receipt of the said certificate along with the duly signed
transfer deed.
58. As per the reply of the assessee reproduced above dt. 1st Jan., 1997, 16,00,000 equity shares
of JIL were transferred on 24th April, 1990, when the transfer deed in respect of the shares in
question was duly executed and physical delivery of the share certificates along with duly
executed transfer deed were given to the transferee company, namely, M/s Peartree Electricals
(P) Ltd. on that date. Thus, in view of the version of the assessee as set out in the above referred
reply, the delivery of share certificates, etc. was made on 24th April, 1990, after the execution
of the agreement. In view of the above stated facts, all the necessary requirement for
transferring the shares stood satisfied on 24th April, 1990. If in pursuance or in compliance to
the deed of agreement dt. 22nd April, 1990, the delivery of the share certificate was made on
that date i.e., on 22nd April, 1990, as asserted by the assessee, if that is done, nothing else
remained there for completing the transaction of sale of shares between the assessee and the
transferee (purchaser) and the property in the shares stood transferred to the purchaser.
59. Although, after considering the documents referred to above and the version of the assessee,
we should have held that the sale of shares was completed on 24th April, 1990 however, since
a doubt has been raised by the Department and arguments have been placed by making
reference to the Form No. 7B, which is dt. 18th April, 1990, and the deed dt. 24th April, 1990,
we consider it proper to decide the issue in the light of observations made above, subject to the
verification of the date of actual delivery of the share certificates by the transferor to the
transferee. The AO is directed to make this verification by asking the assessee to produce the
relevant documents to prove the deed of actual delivery of share certificates and execution of
the transfer deed.
60. In view of the above, we hold that if on verification, it is found that the share certificates
were actually delivered to the transferee company on 24th April, 1990, after execution of the
agreement, as alleged by the assessee, then the issue shall be decided in favour of the assessee
by taking the date of transfer of shares as 24th April, 1990. In case it is found that the share
certificates were delivered on any subsequent date, then such date shall be taken to be the date
of transfer/sale of shares. Thus, the above grounds are decided in favour of the assessee subject
to verification of the date of actual delivery of the share certificates and accordingly.
61. This ground is directed against the findings of learned CGT(A) that the sale of shares by
the assessee in the present case amounts to a deemed gift under Section 4(1)(a) of the GT Act.
62. The learned counsel for the assessee submitted before us that before, the AO, the assessee
had explained the circumstances and factors for taking the value of the shares at agreed rate of
Rs. 12.50 per share on 24th April, 1990. It was pointed out that the difference in the rate quoted
and rate at which the shares in questions were transferred was on account of the following
reasons :
"(i) The shares were sold ex-dividend, that is, the final dividend for financial year 1989-90 was
to be received by the seller and the purchaser had no right on such dividend declared by JIL, if
any, I have actually received final dividend of Rs. 8,00,000 on these shares (a) Rs. 0.50 per
share declared by the company in the meeting held on 12th Sept., 1990.
(ii) The shares were sold in bulk and without involvement of any broker which would have
entailed brokerage of at least Rs. 0.25 per share had the transaction been carried out through a
broker. This fully accounts for the difference in quoted value of shares and its actual sale price.
"
63. According to the learned counsel, in view of the above reasons, as advanced in the reply of
the assessee dt. 1st Jan., 1997, the difference stood explained. A reference was also made to
the reply of the assessee dt. 27th Jan., 1997, in which also the following plea was taken :
"2. It appears that in initiating the gift-tax proceedings, the quoted price of the share has been
taken to be the 'market value' for the purpose of Section 4(1)(a). Quoted price need not always
be the market value. In my case why it is not so has been fully explained by the following three
factors :
(i) that the shares were sold ex-dividend i.e., dividend @ 50 paise per share was received by
me even though the shares were sold before the date of declaration of dividend;
(ii) the transaction for sale was direct and no brokerage was paid in the deal;
(iii) the shares were sold in bulk. It is common knowledge that where the shares are sold in
bulk the price realized is always less than the quoted price;
On the above facts, the consideration passed is quite fair and reasonable and the same cannot
be considered to be inadequate. This point has not been given due consideration by the learned
D.C. while recording reasons for initiating the proceedings even though prior to recording of
reasons, these facts were furnished to him during the course of income-tax assessment
proceedings. The proceedings under Section 4(1)(a) have, therefore, not been validly initiated.
There was no other material before the then D.C. to come to a finding that the consideration
passed was inadequate. The present proceedings deserve to be dropped on this ground alone."
64. According to the learned counsel, the difference being nominal and insignificant, should
have been ignored and in view of the decision of Hon'ble Madras High Court in the case of
CGT v. Indo Traders and Agencies (Madras) (P) Ltd- (1981) 131 ITR 313 (Mad), unless the
difference in the price was such as to 'shock the conscience of the Court', it would not be proper
to hold that the transaction was otherwise than for adequate consideration.
65. The learned Senior Departmental Representative, on the other hand, argued that it was a
clear-cut case of deemed gift, because the market rate of shares was to be taken as the proper
and adequate consideration.
66. While deciding ground Nos. 1, 2 and 3, we have made it clear that the date of transfer of
shares shall be taken to be 24th April, 1990, if the delivery of the shares is proved by the
assessee. In case, it is done the rate of shares a son 24th April, 1990, is to be considered. There
is no dispute about these rates. From the Delhi Quotation List of Delhi Exchange Association
available at pp. 10 and 11 of the paper book also, it is found that as on 17th Feb., 1990, the rate
of Jaiprakash Industries Ltd, was at Rs. 13.25. This date is relevant, because Form No. 7B was
executed on 18th April, 1990.
67. If we consider the difference between the agreed rate and the quoted rates in the stock
exchange before the date of delivery of shares then the difference shall be found to be
insignificant.
68. We may also consider the legal position.
69. Section 4(1)(a) of GT Act runs as under :
"Section 4(1) For the purposes of this Act,--
(a) where property is transferred otherwise than for adequate consideration the amount by
which the value of the property as on the date of transfer and determined in the manner laid
down in Schedule II exceeds the value of consideration shall be deemed to be gift made by the
transferor."
70. The Hon'ble Madras High Court has observed in the case of CGT v. Indo Traders &
Agencies (Madras) (P) Ltd. (supra), that the provision of GT Act is designed to check evasion
of tax by persons transferring property for inadequate consideration. Thus, if a person had
effected a gift, which would be without consideration, he would be liable to be taxed under the
Act. The same person may, in order to avoid the tax, transfer the property for paltry
consideration, so as to get out of the operation of the Act, then he can be made liable under
Section 4(1)(a) of the GT Act. It is this attempt at evasion, which was sought to be parted by
enacting Section 4(1)(a) of the GT Act.
71. The decision of Hon'ble Madras High Court in the case of Indo Traders & Agencies
(Madras) (P) Ltd. (supra) was cited with approval by the Hon'ble Supreme Court of India in
the case of Reva Investment Ltd. v. CGT (2001) 249 ITR 337 (SC). Hence, it will be proper to
refer to the detailed reasons given by their Lordships of the Hon'ble Madras High Court. It has
been pointed out that the provision of Section 4 of the GT Act is similar to one in Section 16
of the IT Act, 1961, It was also pointed out that when transfer of property belonging to a minor
is challenged or the adequacy of consideration in a suit for specific performance of a contract
for sale is challenged, as held in English case, viz., Coles v. Trecothick 1804 9 Ves J. 234 :
"Unless the inadequacy of price is such as shocks the conscience, and amounts in itself to
conclusive evidence of fraud in the transaction, it is not itself a sufficient ground for refusing a
specific performance.
72. The Hon'ble Madras High Court has further observed as under :
The consideration, which weighed with the Courts in examining the adequacy of the
consideration in respect of the sale by a minor or in respect of a relief for specific performance
would also apply in the examination of transaction under Section 4(1)(a). Unless the price was
such as to shock the conscience of the Court that it cannot be reasonable consideration at all, it
would not be possible to hold that the transaction is otherwise than for adequate consideration,
In fact, in the Full Bench judgment of the Patna High Court, it is mentioned by the Chief Justice
Harries that the adequacy of consideration is a matter for party--Rai Bahadur H.P. Banerjee v.
CIT (1941) 9 ITR 137, 138 (Pat). The judgment of the Patna High Court has been approved by
the Supreme Court in the later decision, Tulsidas Kilachand v. CIT (1961) 42 ITR 1 (SC). Of
course, it is not enough if a transfer is for "good consideration." It should also be for adequate
consideration. An adequate consideration is not necessarily what is ultimately determined by
someone else as market value."
73. A similar view was taken by the same High Court in a subsequent case as cited by the
Hon'ble Supreme Court of India in Rewa Investment's case (supra) i.e., in the case of CGT v.
D. Surendra Nath Reddy (1998) 233 ITR 21 (Mad).
74. If we consider the difference between the quoted price and the agreed price i.e., Rs. 13.25-
12.50, the difference will be of 0.75 ps. per share only. For this difference, the explanation of
the assessee as referred to above in its reply dt. 27th Jan., 1997, was in our view sufficient. The
shares were transferred without or ex-dividend. The transaction was of large number of shares.
The transfer was not made through brokers.
75. Although in the case of S.K. Dixit, a similar explanation was rejected by the AO, but we
are not convinced with the reasons assigned by the AO while rejecting the explanation of the
assessee. In our view, all the three reasons assigned by the assessee certainly explained the
justification for the agreed rates.
76. It may also be pointed out that the approach of the AO in rejecting the explanation of the
assessee was contrary to the views of Hon'ble Supreme Court of India approving the decision
of Madras High Court in the case of Indo Traders (supra), at p. 322 wherein the following
observation was made :
"The relevancy of the market price as shown by the provision is only to fix the quantum of the
value of the gift after it is found that the transaction was for inadequate consideration. When
once the GTO assumes jurisdiction and is in a position to establish that the property has been
transferred otherwise than for adequate consideration then there is no option for him but to take
the market value of the property as on the date of transfer and compare it with the value of the
consideration as shown by the party. The difference will be deemed to be a gift made by the
transferor. If the legislature had contemplated as a universal rule that the market value should
alone be the criterion for testing the adequacy of the consideration, the provision would have
been differently worded. The wording would have been," where the property is transferred for
less than its market value, then the difference between the market value and the consideration
is stipulated, shall be deemed to be the gift made by the transferor."
77. In the case of Ashok Dixit, the AO has tried to minutely scrutinize the reasons for the small
difference of 75 ps. out of Rs. 13.25 i.e., less than six per cent. The assessing authorities have
totally misconceived their jurisdiction by acting as valuers instead of as adjudicators. Their
task was of adjudicating as to whether the consideration shown was so grossly inadequate as
to shock their conscience. No doubt different views could be taken by a willing seller and a
willing purchaser in regard to the three factors mentioned by the assessee, and it was not for
the AOs to decide which view would be more sound from the seller's point of view. For their
purposes it was sufficient to find that the explanations could not be rejected as outrageously
absurd. An explanation which requires such elaborate reasoning to reject cannot be said to fall
in that category. Whatever the reasoning for the minute and critical scrutiny of the explanations,
the fact remains that considerations which weigh with a transaction involving a lakh of rupees
cannot be the same that would weigh in respect of a transaction involving two crores of rupees.
The mere circumstances that the seller and the purchaser were closely related cannot alter this
basic fact.
78. In view of the above, we are of the considered opinion that the difference between the
quoted price and the agreed price is not as such as to shock conscience of the Court. Thus, the
approach of the Departmental authorities in treating the difference as deemed gift cannot be
upheld.
79. In the light of the above, these grounds are also allowed in favour of the assessee.
80. In the result, the appeal is partly allowed for statistical purposes.
Share Transfers: Can the Company Say No?
Share transfer restrictions come in various shapes and sizes and in so far as they relate to shares
of public companies, their validity has been a topic of hot debate. In several cases, Indian courts
have considered and opined on the legality of contractual restrictions on the transfer of shares
of public companies. The position in this regard now appears to be much clearer than before
with changes also being introduced in the Companies Act, 2013 (CA 2013). However, one
aspect of this debate that has hitherto gained lesser traction is the ability of a public company
to refuse registration of share transfers pursuant to section 58(4) of the CA 2013.

Section 58(2) of CA 2013 states that the securities of any member in a public company are
freely transferable, while under section 58(4) of CA 2013, it is open to the public company to
refuse registration of the transfer of securities for a ‘sufficient cause’. To that extent, section
58(4) of CA 2013 can be read as a limited restriction on the free transfer permitted under section
58(2) of CA 2013. However, the statute does not provide any guidance on what would
constitute ‘sufficient cause’ and leaves it open to the company itself to ascertain the same.To
analyse the historical background of the provision in question, it may be noted that the
provision contained in section 58(4) of CA 2013 mirrors the proviso contained in section
111A(2) of the erstwhile Companies Act, 1956 (CA 1956). Section 111A was introduced in
CA 1956 by the Depositories Act, 1996. Subsequently, since certain automatic transfers made
through the depository mode were causing a contravention of extant laws, the proviso to section
111A(2) and section 111A(3) were introduced by way of the Depositories Related Laws
(Amendment) Act, 1997. A review of section 111A of CA 1956 would indicate that while the
proviso to subsection (2) deals with the pre-registration issues, subsection (3) deals with the
post-registration scenario. Accordingly, section 111A(2) of CA 1956 deals with the refusal to
register a transfer of shares and section 111A(3) thereof deals with the rectification of the
register of members once registration has been done.
It is pertinent to note that while section 111A(2) of CA 1956 used the term ‘sufficient cause’
as a reason for refusal for registration, section 111A(3) set out an exhaustive list of three
instances where rectification of register could be undertaken, namely (i) where the transfer was
in violation of any provision of SEBI Act or regulations; (ii) where the transfer would violate
any of the provisions of The Sick Industrial Companies Act (SICA), or (iii) where the transfer
would violate any other law in force.

Tracing the precedents emerging out of Indian courts with respect to section 111A of CA 1956,
there appears to be a dichotomy in the views taken by various courts while evaluating the
meaning of ‘sufficient cause’ as used in section 111A(2) and 111A(3) of CA 1956. On the one
hand, some courts have held that section 111A(2) must be read homogenously with section
111A(3), so as to limit the scope of the term ‘sufficient cause’ to the grounds mentioned in sub-
section (3); on the other hand, some courts have opined that ‘sufficient cause’, especially as it
relates to unlisted public companies, would not be limited to the grounds set out in section
111A(3).[1] While adopting the latter approach, the High Court of Andhra Pradesh in the case
of Karamsad Investments Limited v. Nile Limited, (2002) 46 CLA 23(AP), took the view that
the expression ‘sufficient cause’ covers within its ambit not just the contravention of law, but
would also include other circumstances and reasons that might require the company to refuse
the registration of transfer of shares.
The position taken by the High Court of Andhra Pradesh has now been confirmed by the
Supreme Court of India in Mackintosh Burn Limited v. Sarkar and Chowdhury Enterprises
Private Limited, (2018) 5 SCC 575 (Mackintosh Case). In this case the Supreme Court held
that the registration of a share transfer may not only be refused on the ground of it resulting in
a violation of any law but also for any other sufficient cause.

The Mackintosh Case involved an unlisted public company, which had refused to register a
transfer of shares to its competitor. Here the Supreme Court noted “…The Company Law
Board, it appears, was of the view that the refusal to register the transfer of shares can be
permitted only if the transfer is otherwise illegal or impermissible under any law. Going by the
expression “without sufficient cause” used in section 58(4), it is difficult to appreciate that
view. Refusal can be on the ground of violation of law or any other sufficient case. Conflict of
interest in a given situation can also be a cause…”

While the Supreme Court ultimately left it to the National Company Law Tribunal (NCLT),
Kolkata to decide whether there was “sufficient cause” to refuse registration on the basis of the
facts of the given case, the decision of the Supreme Court in the Mackintosh Case significantly
enlarges the scope of the expression ‘sufficient cause’ used in Section 58(4) of CA 2013. In
this context it is worthwhile to mention an older landmark ruling on this issue by the Supreme
Court of India in the case of Bajaj Auto Ltd. v. NK Firodia AIR 1971 SC 321. In that case the
Supreme Court of India held that “the discretion of directors is to be tested as the opinion of
fair and sensible men in the interest of the company…”

Applying this to the present context it can be said that ‘sufficient cause’ would include matters
that are not in the best interests of the company. It would appear that the Mackintosh Case has
not only reiterated this principle and applied it in cases under section 58 of CA 2013, but has
also implied that acquisitions by competitors could be considered ‘sufficient cause’ as they
may give rise to a conflict of interest.

Based on the analysis above, what can be included within the meaning of ‘sufficient cause’?
Subject to the determination made by the NCLT in the Mackintosh Case, it can be argued that
the board may refuse registration, where the transfer of shares is being made to its competitors
on account of a conflict of interest. While the Andhra Pradesh High Court was wary of setting
out an exhaustive list of factors that may be covered within the meaning of ‘sufficient cause’,
it considered refusal on the grounds that the transfer would in any way be against the company’s
interests or would violate any of the company’s existing contractual obligations.

What does this analysis mean for transactions? Under the circumstances, while purchasing
shares of an unlisted public company, which is not a party to the transaction documentation,
the acquirer must exercise caution. In hostile scenarios, it may be advisable to ensure that the
documentation provides adequate protection to the acquirer in case the transfer of shares in its
favour is refused by the Board of the target.