Facts of the Case

  • HEICL acted as a trustee to sell 12,70,000 shares of HCL Ltd., originally held by promoters of Microcomp Ltd., to employees and others. The sale was made at varying rates below market price.
  • ATPPL purchased 77,929 shares of HCL Ltd. from HEICL at Rs.6.02 per share, while the market price was Rs.41 per share (as of December 16, 1988).
  • Revenue alleged that the difference between market price and declared sale price (Rs.2,39,86,572/- for HEICL) should be treated as taxable income under Section 69B.
  • HEICL contended that they only acted as trustees, had no ownership interest, and received only a trusteeship fee. ATPPL claimed that the transaction price paid was correct and no additional consideration was involved.
  • Multiple promoters and intermediaries, including SBI Capital Markets and Citi Bank, were involved to facilitate payments and share transfers.

Issues Involved

  1. Whether the ITAT was correct in deleting the addition of Rs.2,39,86,572/- in HEICL’s case.
  2. Whether Section 69B applies to ATPPL for the purchase of shares at below market price.
  3. Whether HEICL acted as a genuine trustee or the transaction constituted a sham.
  4. Whether the Revenue could claim notional income based on difference between market and declared prices.

Petitioner’s Arguments (Revenue)

  • HEICL and ATPPL transactions undervalued the shares, creating a tax liability under Section 69B.
  • HEICL could have been considered as the person liable to pay tax because they executed the transactions.
  • The oral trust was alleged to be a façade for promoters to gain personal advantage.
  • Suspicion that ATPPL purchased shares at undervalued prices to avoid taxes, possibly resulting in deemed dividends. 

Respondent’s Arguments (HEICL / ATPPL)

  • HEICL acted only as a trustee; title and ownership of shares never vested with them.
  • Sale consideration received was genuine; no excess funds passed hands.
  • ATPPL paid the actual sale consideration; Section 69B cannot be invoked without evidence of undisclosed payments.
  • Transactions were documented with tripartite agreements, and intermediaries ensured legal compliance.

Court Findings / Order

  • Tribunal correctly held that HEICL was a trustee, had no ownership, and thus no addition could be made in their hands.
  • Addition under Section 69B for ATPPL was to be examined because 77,929 shares were transferred from HEICL to ATPPL, and facts regarding date and consideration were unclear.
  • Revenue’s suspicion without evidence was insufficient for remand.
  • Substantial questions of law partly answered:
    • HEICL: Revenue appeal dismissed; Section 69B addition not applicable.
    • ATPPL: Appeal remitted to tribunal for factual clarification regarding transfer of 77,929 shares; other issues resolved in favor of Revenue.
  • Reliance on K.P. Varghese vs Income Tax Officer (1981) 131 ITR 597 (SC) regarding proof required for additions under Section 69B.

Important Clarifications

  • Actual title and ownership of shares is crucial to invoke Section 69B.
  • Mere difference between market and declared price does not automatically create taxable income unless evidence of undisclosed consideration exists.
  • Trustees acting on instructions of promoters cannot be held personally liable if no ownership is transferred.

Sections Involved

  • Section 69B, Income Tax Act, 1961 – Taxation of unexplained investment
  • Section 143(1)(a), 148, 131 – Assessment and inquiry provisions

Link to download the order: https://delhihighcourt.nic.in/app/case_number_pdf/2013:DHC:6002-DB/SKN21112013ITA202000.pdf  

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