Capital gain

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santhosh sadanandan (Querist)
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05 August 2012
A Private Limited company sold its agricultural land to another private limited company. To execute the land sale, the 1st co. transferred its shares to the 2nd co i.e transferring the title of land without deed registration with the Registrar. Truly the share transfer is made to save the stamp duty to the purchaser of land.
The 1st co. was formed with an object of producing crushed granite metal. The land purchased by the 1st co. to erect the crushing plant was of agricultural nature/type situated in Panchayat area and not in Municippal, Corporation at the time of executing the land sale.

The 1st co. allotted its shares on 28.08.2010 and transfer of shares to the 2nd co. made on 30.09.2010 with a matching sale consideration to the existing land fare value. I think it is exempted from capital gain as the transfer of shares is made against agricultural sale value consideration that the transferror should get from the transferee.
In this case whether the transfer of shares attracts short term capital gain?

Kindly clarify my doubt and if it is exempted from capital gain be kind enough to furnish the evidences/case laws, if available, in this connection.

Amol S Joglekar

Amol S Joglekar (Expert)
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05 August 2012 Let us try to find out what is trnsferred. You are the best judge and i think you only say that it is the shares which are transferred. The next question is Is it capital Asset? The answer is YES. Now the confusion is if the shares of 1st company are trnsferred to 2nd company.... who is the TRANSFEROR? the capital gain will go to TRANSFEROR. (In most of the cases it is share holder. Please clarify the intrecacies.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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05 August 2012 In this episode, what had been intended, is not the issue, to be observed from the legal point of view. Practically what has happened has to be seen.
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The event which took place can briefly be narrated in 4-5 lines.
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Taxable Short term capital gains will arise, not to any of the companies, but to the share holders of the company 1, who had transferred the shares to the shareholders of company 2, to hand over the controlling power, or ownership of Co. 1.
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