Colorable Transactions of sale of shares of a closely held company can be regarded as transfer of land and hence, short term capital gain is payable.

Bhoruka Engineering Inds. Ltd. v. DCIT (ITAT Bangalore)-

In this case, Bhoruka Steel Ltd sold its land to Bhoruka Financial Services Ltd (BFSL) for a meager value of Rs 3.75 Crores. Immediately after that, the appellant company and BFSL sold their share holding of 98.73% to DLFCDL for Rs 89.28 Crores. The appellant company has not paid any tax for the above by devising a strategy. They moved to Magadh stock exchange from Bangalore stock exchange by paying STT and claimed exemption under Long Term Capital Gains. (LTCG) under u/s. 10(38) of the IT Act, 1961.

Bhoruka Engineering Inds. Ltd and its group have on the face of it sold their entire share holding in BFSL, but in fact, sold land itself to DLF-CDL and at the same time giving a colour of exempted long-term capital gains against the short-term capital gains arising on the transfer of the landed property. In the circumstances s and fact of the case, that this is a clear case of colourable device to escape payment of taxation on short-term capital gains. By selling the shares to DLF-CDL, the assessee company and its associates have in fact sold the assets and properties of BFSL which included the land as well, which if sold in the normal course, would be answerable to levy of short-term capital gains taxation.