india

Updated: Jan 05, 2019 08:53 IST

The Congress on Friday said a purported Central Board of Direct Taxes (CBDT) circular of December 31 had vindicated the party’s position in the Associated Journals Limited (AJL) case pending before the Supreme Court, and exposed the government’s intention to mislead the judiciary and make fake cases against its political rivals.

AJL is the publisher of National Herald newspaper, a mouthpiece of the Congress party, and party president Rahul Gandhi and his mother and predecessor Sonia Gandhi are among the accused in a case related to alleged financial regularities.

Last month, a Delhi high court bench said the manner in which a company named Young Indian (YI) had acquired 99% of the shares of AJL was “questionable”. Rahul Gandhi and Sonia Gandhi are majority shareholders in YI.

In the circular, CBDT had 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 sharest.

“We welcome the latest CBDT circular dated December 31. 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,” Congress’ legal department chairman Vivek Tankha said. The clarification, according to Tankha, shows that a HC verdict reopening the AJL case waswrong. He added that fresh facts will be placed before the Supreme Court now.

“We thank the CBDT for this clarification,” he told reporters.

According to a person in the revenue department, the CBDT had issued an internal circular on December 31, 2018 that clarified section 56(2)(viia) of the Income Tax Act, 1961 for issuance of shares by a company in which the public is not substantially invested.

The section is related to the prevention of laundering of income under the garb of gifts.

“The particular section provides for taxation of income where a company in which public are not substantially interested or a firm receives sharers of a specified company from a person for no or inadequate consideration,” the circular read. The person in the revenue department, who requested anonymity, said, “This appears to be an internal circular issued for clarity. Its interpretation by the Congress may not be correct.” The person declined to elaborate, saying the subject matter was “subjudice”.

Tax expert and chartered account Satyendra Jain clarified the legal position. “If the company has directly issued its shares at a discount to its book value then the section will not be applicable. If a shareholder transfers or sells shares to another person then the section is applicable”.