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2010 (11) TMI 718 - AT - Income TaxPledge and loan transaction - RCIL borrowed interest free loan from the chairman and Managing Director - Whether pledging of the shares as against the loan is regarded as transfer in dematerialised form - According to the AO, there was a transfer of ownership in shares by way of sale when the Assessee was recognized as beneficial owner by the Depository participant - There is no material brought on record to show that the claim of the Assessee in this regard is not true. The revenue has further relied on the fact that the transaction of pledge is not grounded on commercial reality because the pledge was taken after disbursement of the alleged loan and the value of security were disproportionate to the amount of loan - he documents on which the Assessee has placed reliance were collected in the course of Investigation by the Investigation Wing of the IT Department in Mumbai on its own - The meeting of the Board of Directors of RCIL and resolution passed on 13.3.2004 as recorded therein authorizing the borrowing of monies by RCIL from the Assessee have therefore to be presumed to be true and there is no material brought on record to show that they were not true whether the entry of the Assessee as beneficial owner of shares in the Depository/Participants register is conclusive that the transaction in question was a sale - It is similar to the presumption of prima facie evidence of title to the shares as contained in Sec.84 of the Companies Act, 1956 regarding certificate of shares and name of the person found on such certificate - It is now well settled that the question as to whether the title from the vendor to the vendee passed entirely depends upon the intention of the parties - In the present case, the parties to the transaction viz., the Assessee and RCIL both of them agree that the shares were given as security by way of pledge for loan given by the Assessee to RCIL and not by way of sale - It can still be shown that no property was intended to pass and that the transaction was really a pledge/bailment Held that: it is not possible to have physical delivery of shares after the DPA but parties are at liberty to show that the delivery of shares by the pawnor to the pawnee by treating the pawnee as beneficial owner in the register of the depository was only by way of a pledge and as security and not to constitute such beneficiary as the real owner of the shares - Decided in favor of the assessee
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