Law:

Section:

Section 45, read with section 264, of the Income-tax Act, 1961 - Capital gains - Chargeable as - Petitioners sold some of shares held by them - Transfer was conditional on obtaining permission of concerned authority for transfer of all shares and in event of failure to sell total shares, shares sold were to be resold to vendors - For want of sanction of concerned authorities, shares already sold were resold to vendors - Petitioners filed returns declaring capital gain but later assessees applied to Commissioner under section 264 contending that no capital gain arose as under aforesaid agreement shares did not pass to vendee - Whether Commissioner was justified in rejecting assessee's contention and petitioners were liable to capital gains tax - Held, yes FACTS The petitioners held a number of shares in a company. Some shares were sold before 31-3-1979. The agreement for sale had a provision by which the sale of shares was conditional upon the vendor obtaining necessary sanction of the Government of India, and other authorities. There was another provision that in the event of failure to sell the totality of shares 1,19,760 in number-the shares already sold had to be resold to the original vendor and the money had to be returned to the original vendee. Eventually, all the shares could not be sold for want of sanction of the concerned authorities. Consequently, the shares which had been sold were resold to the petitioners. The petitioners filed returns showing capital gain arising from the sale but later filed an application before the Commissioner under section 264 contending that it was a mistake as the shares which were purportedly sold had in fact not been sold and continued to be the property of the vendor as the sale was conditional and could not have taken place until the last part of the shares had been sold on obtaining the permission of the authorities. This argument of the assessees was rejected by the Commissioner as well as by the single Judge. On writ: HELD What had been provided in the agreement was that in the event of failure of transfer of the total number of shares, what had been transferred were to be retransferred and the money paid had to be…

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