AJL case: Cong says CBDT circular on share taxation vindicates its stand

The Congress party Friday welcomed the December 31 circular of the Central Board of Direct Taxes clarifying that fresh issuance of shares are not taxable, and said this "vindicates" the party's stand in the Associated Journals Limited (AJL) case pending before the Supreme Court.

Addressing a press conference, Congress leaders Ahmed Patel and Vivek Tankha said the party would place these facts before the court.

Tankha said with this clarification, the high court judgement in reopening the AJL case is wrong and fresh facts will be placed before the Supreme Court now.

"We welcome the latest circular of the Central Board of Direct Taxes, Department of Revenue, Ministry of Finance Government of India, Circular No. 10 of 2018, dated December 31, 2018.

"This vindicates our position that there never was an issue about issuance of such shares as a taxable event as it was being projected by way of harassment. We thank the CBDT for this clarification," he told reporters.

He said that by way of this circular, the CBDT has clarified that the provisions of Section 56(2)(vii)(a) of the Income Tax Act, 1961 shall not be applicable in cases of receipt of shares by a specified company as a result of fresh issuance of shares by the specified company.

The Congress party had taken a stand that the fresh shares issued by AJL are not taxable and they do not capture at a taxable event and this vindicates our position.

"It vindicates our position and the years of harassment meted out on National Herald case that the shares issued by it were a taxable event, that has been clarified by the CBDT," he said.

"Maybe, they had to clarify as the entire country's businesses were being adversely affected and they realised that they had taken an unreasonable stand taken to harrass a Congress family. This had created a financial crisis in the entire country," he said.

Asked if this would affect the AJL case, Tankha said, "This has been the position right across. This is the understanding of the existing of law. So it should directly impact the case."

The CBDT clarification states that "it is apparent from the legislative intent that clause (viia) was inserted in section 56(2)of the Act as an anti-abuse provision to prevent the practice of transferring shares of a specified company for no or inadequate consideration. Thus the intention was never to apply these provisions of the said clause (viia) to the fresh issuance of shares...by the specified company.

"Keeping in view the legislative intent to apply anti-abuse provision contained in section 56(2)(viia) to transfer of shares for no or inadequate consideration, it is hereby clarified that section 56(2)(viia) of the Act shall apply in cases where a specified company or firm receives the shares of the specified company through transfer for no or inadequate consideration. Hence, the provisions of section 56(2)(viia) of the Act shall not be applicable in cases of receipt of shares by the specified company or firm as a result of fresh issuance of shares...by the specified company," the circular said.