TaxTMI 
TaxTMI 
1997 (9) TMI 2
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....by reducing the face value of each share from Rs. 1,000 to Rs. 500 and by paying off Rs. 500 in cash. As a result thereof the appellant became a holder in respect of 90 non-cumulative preference shares of the value of Rs. 500 per share, in place of being the holder of shares of the face value of Rs. 1,000 per share. In the present case, we are concerned with the further reduction of the face value of the shares which took place in the year 1966. In the extraordinary general meeting of Sarabhai Limited held on January 10, 1966, a special resolution was passed by the company by virtue of which it reduced its liability on the preference shares from Rs. 500 per share to Rs. 50 per share by paying off in cash a sum of Rs. 450 per share. Thus, the share held by the appellant which was originally of the face value of Rs. 1,000 became a share of the face value of Rs. 50 only. This reduction had taken place in two stages, firstly, when the face value was reduced from Rs. 1,000 to Rs. 500 per share and, secondly, when the face value was reduced from Rs. 500 per share to Rs. 50 per share. The appellant had originally purchased the preference shares of the face value of Rs. 1,000 per sha....
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....ere can be no transfer where shareholders get back money from the company and in this connection, he relied upon the decision in the case of CIT v. R. M. Amin [1977] 106 ITR 368 (SC). Lastly, it was submitted that section 45 of the Act was not applicable as the appellant had not made any sale. It was submitted that as a result of the company's special resolution, the appellant got the money against surrender of shares and this would not amount to a sale. It is not possible to accept the contention of Shri Ganesh, learned counsel, that reduction does not amount to a transfer of the capital asset. Section 2(47) of the Act reads as follows : " 2. (47) ' transfer ', in relation to a capital asset, includes,--- (i) the sale, exchange or relinquishment of the asset ; or (ii) the extinguishment of any rights therein ; or (iii) the compulsory acquisition thereof under any law ; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; or (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in p....
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....iquidation were to take place, whereas he originally had a right to Rs. 500 per share, now his right stood reduced to receiving Rs. 50 per share only. Even though the appellant continues to remain a shareholder his right as a holder of those shares clearly stands reduced with the reduction in the share capital. The Gujarat High Court had in another case in Anarkali Sarabhai v. CIT [1982] 138 ITR 437 followed the judgment under appeal. That was a case where there had been redemption of preference share capital by the company and money was paid to the shareholders. It was held therein that the difference between the face value received by the shareholder and the price paid for the preference share was exigible to capital gains tax. In coming to this conclusion, the Gujarat High Court had followed the judgment under appeal in the present case. The aforesaid decision of the Gujarat High Court in Anarkali's case [1982] 138 ITR 437 was challenged and this court in Anarkali Sarabhai v. CIT [1997] 224 ITR 422 upheld the High Court's decision. It had been contended in Anarkali's case [1997] 224 ITR 422 (SC) on behalf of the assessee that reduction of preference share was not a sale or....
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...., here the right as a preference shareholder of the appellant stands reduced from Rs. 500 to Rs. 50 per share. A sum of Rs. 450 per share has been paid by the company to the appellant on account of the extinguishment of his right to the aforesaid extent. Yet another right which is apparently effected as a consequence of this reduction is with regard to the voting right. According to section 87(2)(a) of the Companies Act, a holder of a preference share has a right to vote only on resolutions placed before the company which directly affect the rights attached to his preference shares. In the case of cumulative preference share, if dividend remains unpaid for not less than two years preceding the date of commencement of the meeting, then even a preference shareholder, by virtue of section 87(2)(b) of the Companies Act, gets a right to vote on every resolution placed before the company at any meeting like a member holding equity shares. What is important for our purposes is the provisions of section 87(2)(c) which, inter alia, provides : " Where the holder of any preference share has a right to vote on any resolution in accordance with the provisions of this sub-section, his voti....