Page 19 - Banking Finance August 2023

LEGAL UPDATE

J Gurushanthappa and other appel- Rules, 2023 issued is effective from 1 adopted by trial courts and high courts
lants claimed that their grandfather G April. As per this rule change, any per- in cheating cases by which the accused
Siddappa had gifted land to Sri son receiving shares from a public sec- are directed to deposit the alleged
Tharalabalu Jagadguru Education Soci- tor company below their fair market cheated amount in court for getting
ety on June 13, 1977, for construction value is exempt from the purview of bail, the Supreme Court said the crimi-
of a hostel building, which was prefer- section 52 (2)(x) of the Income Tax Act nal proceedings cannot be converted
ably named after him. A rectification that makes such discounted share issues into process of recovery and court can-
deed was issued in 1980, incorporating taxable in the hands of the recipient. not act as recovery agent.
the correct survey number. However,
At present, this exemption applies to A bench of Justices S Ravindra Bhat and
on February 20, 1982, a registered gift
shares received by a person from the Dipankar Datta quashed the order of
cancellation deed was executed. A will
central or state government under stra- Delhi HC directing an accused in a
was also executed by G Siddappa, be-
tegic disinvestment. That covers only a
cheating case to deposit Rs 22 lakh in
queathing the properties, including the
share sale by the government and not court as a condition for anticipatory
land gifted to Tharalabalu Education
necessarily a fresh issue of shares by the bail. It also held that courts should not
Society, to his successors.
company. The amended provision
impose harsh conditions to frustrate
After Siddappa's death in 1988, his fam- makes the exemption applicable to "any
the very object of grant of anticipatory
ily moved the local court for declaration movable property, being equity shares,
bail under Section 438 of the Code of
and permanent injunction, citing the of a public sector company or a com-
Criminal Procedure and asked the HC
registered cancellation deed as well as pany, received by a person from a pub-
to decide the case afresh.
the will executed by their grandfather. lic sector company or the Central Gov-
"A disquieting trend emerging over the
ernment or any State Government un-
However, the principal civil judge,
der strategic disinvestment." The rule years which has gained pace in recent
Holalkere, rejected their claim in 2015.
change effectively expands the scope of times necessitates this opinion. It has
When they appealed against it, their
the tax exemption. been found by us in multiple cases in
plea was dismissed on December 13,
the past several months that upon
2016. Thereafter, they moved the high Section 56(2)(x) of the Income Tax Act
FIRs being lodged inter alia under sec-
court. pertains to the taxation of gifts and
tion 420 of the IPC, judicial proceedings
other items received without consider-
They argued that their grandfather
initiated by persons, accused of cheat-
ation or for inadequate consideration.
wanted the society to construct the ing, to obtain orders under Section 438
This can include money, property,
hostel for students and to make use of of the Code of Criminal Procedure are
shares, securities, and other assets.
the crops grown in the gifted lands for unwittingly being transformed into
When such assets are received for no
feeding them and when he found that
processes for recovery of the quantum
consideration or for consideration sig-
it was not done, the gift was cancelled.
of money allegedly cheated and the
nificantly less than their fair market
courts driven to impose conditions for
value, they may be taxable under this
CBDT amends income tax deposit/payment as pre-requisite for
section. The Income Tax Act also speci-
rules; to expand tax ex- fies the instances when this provision grant of pre-arrest bail," the bench
is not applicable. said.
emption for public sector
The Centre is working on strategic dis- The SC reminded the high courts and
shares
investment of several companies but is the sessions courts not to be unduly
The Central Board of Direct Taxes
not in a hurry to sell state-owned com- swayed by submissions advanced by
(CBDT) has amended the income tax
panies given that tax revenue receipts accused to deposit/repay any amount
rules to facilitate strategic disinvest-
have been buoyant. while seeking bail and not put it as a
ment of public sector companies by
condition for anticipatory bail. The
expanding the scope of a tax exemp- court, however, clarified that such a
Court can't act as recovery
tion on shares received below fair
condition could be imposed where
market value, showed an official order. agent in cheating case: SC
public money was siphoned by an ac-
The Income-tax (Eighth Amendment) Expressing disapproval of proceedings cused.
BANKING FINANCE | AUGUST | 2023 | 19