TaxTMI Login
AI OCR ✕Convert scanned orders, printed notices, PDFs and images into clean, searchable, editable text within seconds. Starting at 2 Credits/page
Try Now →Just a moment...
AI OCR ✕Convert scanned orders, printed notices, PDFs and images into clean, searchable, editable text within seconds. Starting at 2 Credits/page
Try Now →
Press 'Enter' to add multiple search terms. Rules for Better Search
Use comma for multiple locations.
---------------- For section wise search only -----------------
Accuracy Level ~ 90%
of 
Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of Press 'Enter' after typing page number.
Issues: Whether conversion of preference shares into ordinary shares amounted to an exchange within the meaning of section 45 of the Income-tax Act, 1961, and whether the resulting gain was taxable as capital gains on that basis.
Analysis: Section 45 taxes profits or gains arising from transfer of a capital asset, and section 2(47) gives an inclusive meaning to transfer by including exchange. The expression exchange is not defined in the Act, but its ordinary meaning, read with section 118 of the Transfer of Property Act, is a mutual transfer of ownership in kind and not a transaction resting on money consideration. On the facts, the conversion of preference shares into ordinary shares under the issue terms was treated as a reciprocal substitution of one security for another. The reasoning was supported by the distinction between sale and exchange and by the principle that where property is swapped for another property, the transaction is a barter or exchange.
Conclusion: The conversion of preference shares into ordinary shares was an exchange and therefore a transfer within section 45 of the Income-tax Act, 1961. The first question was answered in the affirmative and in favour of the assessee.
Ratio Decidendi: A reciprocal conversion of one class of shares into another class of shares, effected under the terms of issue and not for money consideration, constitutes an exchange and hence a transfer for the purposes of capital gains taxation.
TaxTMI 
TaxTMI 
