9911796707
TMI Blog2012 (7) TMI 283X X X X Extracts X X X X X X X X Extracts X X X X ..... of allocation of the shares was approved by the BSE on 28.12.2005 and on the same date, the money was transferred from the account of the bankers to the public offer account. On the very same date, the shares were also transferred from promoter's demat account to the account of the Registrar to the issue. On 30.12.2005, the company filed an application for listing and trading approval, after it had completed all formalities, including the commencement of dispatch of the refunds of excess bid amount to the applicants. The Listing Approval by the NSE and BSE was granted on 04.01.2006, whereas the Trading Approval from both the Stock Exchanges was received on 05.01.2006. The trading in the Stock Exchange commenced on 06.01.2006, followed by transfer of money to the bank account of the sellers. 2. The main issue involved in this appeal is as to whether capital gains tax is payable by the assessee or not, on the income earned by him from sale of SEBI shares which he sold through the public offer, and if payable, whether at lower rate of 10% or at the normal rate of 20%. 3. Section 10(38) of the Income Tax Act exempts, from payment of tax, any income which arises from transfer of equi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urities' at the time of transaction, the tax was payable at normal rate and not at the lower rate. 5. The learned senior counsel for the appellant has assailed the order of the Tribunal primarily on the following grounds:- (i) The sale price of the shares having been transferred to the account of the appellant only on 06.01.2006, it cannot be said that the sale transaction was complete before 06.01.2006 and since the trading commenced in the stock exchange, in the morning of 06.01.2006, it cannot be said that the transaction did not take place in a recognized stock exchange. (ii) As per the Escrow Agreement signed between the company, selling shareholders on the one hand and bankers to the issue, Registrars to the issue and managers to the issue on the other hand, the money in the account of the appellant could not have been transferred without completing the prescribed procedure and in view of the provisions contained in Section 73(2) of Companies Act, 1956, in the event of the company not applying or being refused permission for trading of shares in the stock exchange, the company was required to refund the money received from the applicants and since the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istrar to the issue and then to the demat against of the applicants, by 05.01.2006, it is difficult to dispute that at the time of commencement of trading on 6.1.2006, the ownership in the shares vested in the applicants/allottees, and not in the appellant. The applicants alone could have sold these shares in the stock exchange, on commencement of trading in the morning of 06.01.2006. Credit of the sale consideration in the bank account of the appellant on 06.01.2006 would in such circumstances be wholly irrelevant, since after credit of shares in the demat account of the applicants, the bankers were holding the share money for the benefit of the appellant and not for and on behalf of the applicants. Once the listing as well as trading approvals had been received from BSE and NSE and the shares were transferred to the demat account of the applicants on 05.01.2006, the applicants in the public issue had no right or lien over the money which they had paid for acquiring these shares. Similarly, after transfer of shares from his demat account, the appellant had no dominion or control over them. Therefore, it would be immaterial whether the sale consideration, to the bank account of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... putting them into a deliverable state, the property does not pass until such thing is done and the buyer had notice thereof. 10. In the case before us, once the shares were transferred from the demat account of the appellant to the demat account of Registrar to the issue, they were in a deliverable state and, therefore, on allotment of shares to the applicants in the public issue, or in any case on credit of shares in their demat account, the property i.e. ownership rights in the shares stood transferred to the applicants in the public issue. The fact that transfer of money which the applicants in the public issue had already paid alongwith the share application, to the bank account of the appellant took place on 06.01.2006 was wholly irrelevant as far as passing of property in the shares was concerned. The fact that the sale consideration had not been transferred to the bank account of the appellant by 05.01.2006 did not have the effect of postponing the passing of property in the shares to the applicants in the public issue. 11. Since the trading in the stock exchange commenced only in the morning of 06.01.2006 and the property in the shares had already passed to the applicants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing upon the circular issued by SEBI on 19.1.2006, whereby, it was directed by SEBI that ISIN would be activated only on the day of trading, the learned Senior Counsel for the appellant contended that since the shares could not have been sold prior to the activation of the ISIN, it cannot be said that the transaction was complete by 5.1.2006. We find no merit in this contention. Firstly, the circular relied upon by the learned Senior Counsel for the appellant has been issued much after the trade in the shares of Punj Lloyd Limited commenced on 6.1.2006. We do not know when the ISIN was actually activated in this case. Secondly, the activation of ISIN is required only for trading through the system of the stock exchange. There was no legal bar on sale of the shares, without using the system of stock exchange, between receipt of listing and trading approval on 5.1.2006 and commencement of trading in stock exchange in the morning on 6.1.2006. No ISIN was necessary for such a transaction. 15. Indisputably, some of the allottees would have actually sold shares, on commencement of trading on 6.1.2006. It cannot be said that the ownership in the shares, immediately prior to commencement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, by any stretch it cannot be said that the shares to the allottees/applicants in the Public Issue were sold in the stock exchange. 17. The learned Senior Counsel for the Appellant has relied upon the decision of the Supreme Court in M/s Rishyashringa Jewellery Ltd. And Anr. v. The Stock Exchange Bombay And Ors.: AIR 1996 SC 480, where the Supreme Court referring to the provisions of Section 73(1A) of the Companies Act, held that if the application for permission to deal in the shares is made to more than one stock exchange, the permission has to be obtained from each of such stock exchange and in the event of such permission not being granted by all the stock exchanges from which it was sought, the entire allotment would be void. The requirement of obtaining listing permission from the stock exchanges does not mean that the sale of these shares to the applicants in the Public Issue on 30.1.2005 or on 5.1.2006 was void ab initio. The transaction would have become void only in case the requisite permission was not granted. But, since requisite permission was granted by both, NSE as well as BSE by 5.1.2006, the event which would have rendered the transaction void never took place ..... X X X X Extracts X X X X X X X X Extracts X X X X
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