The Income Tax Appellate Tribunal (ITAT) has ruled in favour of Reliance Industries chairman Mukesh Ambani in a tax case involving income of over Rs2,000 crore.

In a significant ruling, the Mumbai bench of ITAT has held that pledge of equity shares of Reliance Infocomm Ltd with Mukesh Ambani as a security for the loan given by him to Reliance Communications Infrastructure Ltd (RCIL) in 2004 does not amount to transfer of shares even though Ambani is treated as beneficial owner with the depository participant and appropriate filings as per section 187C of the Companies Act have been filed with the Registrar of Companies.

In March 2004, Mukesh Ambani was appointed director of RCIL and gave a loan of Rs50 crore to the company.

RCIL in turn pledged 50 crore shares of face value Re 1 of its subsidiary Reliance Infocomm with Mukesh Ambani.

In May 2004, Reliance Communications repaid the loan amount and Mukesh Ambani released the shares back to the company.

The income-tax department argued that the shares of the value of Rs2,685 crore were acquired by Mukesh Ambani for just Rs50 crore.

The I-T department contested that transaction of pledge was not grounded on commercial reality because the pledge was taken after disbursement of the loan and the value of security was disproportionate to the amount of loan.

But the ITAT held that these are matters lying within the realm of consent of parties to an agreement and cannot be the basis to conclude that there was in fact a sale of shares by RCIL to Ambani.

The ITAT also stressed on the fact that after due repayment of the loan RCIL was again recognised as the beneficial owner of the shares. The tribunal observed that all the proceedings relating to loan and pledge were recorded in the board meetings of the companies.