TaxTMI 
TaxTMI 
2018 (12) TMI 317
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is an extinguishment and relinquishment by the appellant when the investment it had made stands reduced. 4. The CIT erred in holding that as there is no change in the shareholding of Asianet News Network P Ltd, the investee company, there is no transfer within the meaning of section 2(47) of the Act. 5. The CIT has made a gross mistake in assuming that the "word "extinguished" is mentioned in the petition or court order, it does not amount to translate the meaning of the word "extinguishment of rights" as per section 2(47) of the Act". 6. The assumption made is contrary to the provisions of law and the findings of the Apex court. 7. For these and other grounds that may be urged at the time of hearing, the appellant prays that the honorable Commissioner of Income Tax (Appeals) may kindly: a. Allow the claim of capital loss made by the appellant amounting to Rs. 164,48,55,840. b. Any other relief that the Honorable Commissioner of Income Tax (Appeals) deem fit. The appellant further prays that the Commissioner of Income tax (Appeals) pass necessary order to stay the collection of demand till the disposal of this appeal, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llant have been taken into due consideration, in the given factual matrix of the present case. The appraisal of the rival contentions and finding on the issue at hand is accordingly discussed as hereunder: 6.1 AO's observation:- The AO has discussed the relevant issues and recorded her findings, in a succinct manner, in the order under consideration. The relevant portion of the AO's order on this point is reproduced as under:- "8. The issue of contention here is whether a reduction in share capital, by reducing the number of shares, without reducing the face value. amounts to a transfer of a capital asset. Further, whether such reduction amounts to transfer of Rights? The issue is analysed a follows. An analysis of the assessee's shareholding pattern is shown as under: Shareholding pattern as per assessee's submission: Particulars No. of shares Amount Opening balance of investment in ANNPL 149544130 1495441300 Purchase of ANNPL shares from other parties 3806758 38067585 Loss on extinguishment of shares 153340900 1533409000 Closingbalanceason31.03.2014 9988 99885 9. The Assessee Company ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The extinguishment of any rights therein; or (iii) The compulsory acquisition thereof under any law; or (iv) In a case where the asset Extinguishment of Rights would mean that the assessee has parted with those shares or sold off those shares to a second party. Here, the assessee has not sold off any shares or has not parted with the shares as the it still holds the proportionate percentage which he initially held is still shown as an investment. The AR has referred to the case of Kartikeya V. Sarabhai' -1997(9) TMI 2 - Supreme Court wherein it was held that, the reduction in the face value of shares amounted to 'extinguishment' within the meaning of section 2(47) and hence the amount received on such reduction was taxable as capital gain. However, with due regard, the facts of the case are contrary to this case as there was no reduction in the face value of the shares. 11. The AR also referred to the case of DCIT v BPL Sanyo Finance Ltd 312 ITR 63 (Kar) wherein it was held that the cancellation of allotment of shares leading to forfeiture of share application money on the taxpayers failure to deposit call money resulted into....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The AO has in Para 8 has observed that "the issue of contention here is whether a reduction of share capital by reducing the number of shares, without reducing the face value, amounts to a transfer of capital asset. Further, whether such a reduction amounts to transfer of rights? The AO has observed in Para 9 that the share holding pattern continues to be same and the appellant did not relinquish its voting rights or extinguish its right in the shares. Our submission is that Details of Share Capital of ANNPL Particulars No. of shares Amount Opening balance of investment in ANNPL 149,544,130 1,495,441,300 Purchase of ANNPL Shares from other Parties 3,806,758 38,067,585 Loss on Extinguishment of Shares 153,340,900 1,533,409,000 Closing Balance as on 31-03-2014 9,988 99,885 There is reduction in share capital of ANNPL under capital reduction scheme. The scheme provides for setting of losses incurred by the company against its paid up equity share capital. The courts have ruled that the number of shares shall be reduced, while the face value of the shares continue to remain at Rs. 10 each....
X X X X Extracts X X X X
X X X X Extracts X X X X
....right in it, which may not amount to a sale, can also be considered as a transfer and any profit or gain which arises from the transfer of a capital asset is liable to be taxed under section 45. A company, under section 100(1) (c) of the Companies Act, 1956, has a right to reduce the share capital and one of the modes which can be adopted is to reduce the share capital and one of the modes which can be adopted is to reduce the face value of the preference shares. Section 87(2)(c) of the Companies Act, inter alia, provides that "where the holder of any preference she has a right to vote on any resolution in accordance with the provisions of this subsection, his voting right on a poll, as the holder of such share, shall, subject to the proportion of section 89 and sub section (2) of section 92 be in the same proportion as the capital paid up in respect of the preference share bears to the total paid-up equity capital of the company". Hence, when as a result of the reducing of the face value of the Share, the share capital is reduced, the right to share in the distribution of the net assets upon liquidation is extinguished proportionately to the extent of reduction in the cap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ffect of section 46(2) read with Sec 71 and 74 of the act and be put to a perpetual loss. Therefore even where receipt is nil on the date of distribution on the liquidation of the company, the case of such shareholder will fall u/s 46(2) and the deemed full value of the consideration for the purpose of sec 48 will be regarded as nil and on that basis the income chargeable under the head capital gains has to be computed u/s 48. The Sentiments emerging from the aforesaid observations of High Court is applicable to the assessee to conclude that even a nil consideration on capital reduction cannot defeat the computation mechanism u/s 48. We also draw your attention to the following judgments: CIT v G. Narasimhan & other 236 ITR 327 (SC) Anarkali Sarabhai v CIT 224 ITR 422 Shishir Kumar R Mehta v CIT 154 CTR 70 We also draw your attention to the decision of the Hon'ble Supreme Court in the case of CIT v Grace Collis & others 248 ITR 323 and Vania Silk Mills P Ltd v CIT 191 ITR 647. The Hon'ble bench has observed that the definition of transfer clearly contemplates extinguishment of rights in a capital asset distinct ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e is accordingly adjudicated as under: 6.4. The appellant claimed an amount of Rs. 1,64,48,55,840/- as Long Term Capital loss from sale of shares. This loss was stated to accrue against the reduction in share capital of M/s Asianet News Pvt. Ltd (ANNPL) effected under a capital reduction scheme. The AO disagreed with the assessee's claim of Long Term Capital Loss, contending that, the reduction in shares of ANNPL, did not result in transfer of capital asset as envisaged u/s 2(47) of the I.T. Act. The AO come to this conclusion, in light of the finding that, even though the number of shares has reduced. the face value as well as the shareholding pattern remained the same. The assessee on the other hand, has argued that there was real transfer of asset. as the scheme resulted in extinguishment / relinquishment of part of the Assessee's rights, in the shares of ANNPL, and therefore the transaction fell within the purview of section 2(47) of the I.T. Act, resulting in consequent claimable Long Term Capital Loss. 6.5 The core arguments of the appellant in a nutshell are as follows: * The Assessee has highlighted the fact that, there is reduction in sha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncials. The Assessee therefore contends that, the loss so incurred have been correctly claimed as a capital loss. * Reliance has also been placed on following judicial decisions: Kartikeya V. Sarabhail v. CIT (1998) 1 DTC 219 (SC); (1997) 288 ITR 163(SC); DCIT v BPL Sanyo Finance Ltd 312 ITR 63 (Kar); CIT v Surat Cotton Spinning & Weaving Mills Pvt. Ltd; CIT v Jayakrishna Harivallabha das (1998) 231 ITR 108 (Guj); 6.6 Having considered the rival submissions and the judicial position in light of the factual matrix of the present case. I do not find myself in agreement with the Assessee's case in view of the following discussion and for reasons summarized as under: (i) It is seen from the impugned order of the AO that, the contentions of the Assessee on both questions of fact as well as the judicial position have been adequately addressed. The AO after having analysed the share-reduction scheme, and the shareholding pattern (prior and subsequent) to this event, concluded that, there was no effective share-reduction, as envisaged in the section 2(47) of the I.T. Act. The cases relied upon by the appellant have also bee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e analysis that, the total shareholding of the assessee's company remaining the same, did not effectively result in any relinquishment or extinguishment of the appellant's rights in the aforecited shares in ANNPL. In these facts & circumstances, the AO has held that there was no question of transfer of rights and that. the scheme only resulted in extinguishment of number of shares and not the relinquishment in the real degree / or quantum of the rights, of the shareholding company, as a whole. The AO has reasoned that, for a validly acceptable 'transfer' as per the letter and spirit of section 2(47), the transaction ought to invariably involve the sale, exchange or relinquishment of the asset; or the extinguishment of any rights therein; or the compulsory acquisition thereof under any law; / others. The assessee's does not squarely fall into any one out of these conditionalities. * Having considered the peculiar factual position and in background of the requirements of law laid down in section 2(47), it is clear that. Any extinguishment of rights would involve parting I sale of percentage of shares to another party or the divesting of rights therein, In the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fer and scope of section 2(47) that, 'transfer' in relation to a capital asset, was an inclusive-definition, which inter-alia provides that 'relinquishment of an asset or extinguishment of any right there in amounts to a transfer. According to the appellant, it is not therefore necessary for a capital gain, to arise, that there must be sale of a capital asset, as sale is only one such mode of transfer. The Assessee's contentions have been duly considered. The facts of the present case have been elaborated in the preceding paras. The distinguishing factors have been clearly brought out, by way of a comparative analysis of the shareholding pattern as extracted as para-6.6 above. In the peculiar facts & circumstances of the present case even though there was a certain reduction in 'number of shares' yet there was no effective reduction in the face value of the shares; and more importantly the overall share-holding percentage of the assessee company in M/s ANNPL remained at 99.88% being the same figure of shareholding, prior to the implementation of the impugned-scheme. In this factual background there was no effective transfer or extinguishment of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... situation and do not correspond to the facts & circumstances in which the above cited judgments were passed. It is therefore held that, the said judicial pronouncements do not squarely apply to the case presently, under consideration. 7.3. The AO in the impugned-order has placed reliance on the ratio of judgments in the case of Bennett Coleman & Co. Ltd V ACIT (TS-580-ITAT-2011) (Mum) and CIT vs. RasiklalManeklal (HUF) 1989 (3) TMI 3- (SC). * The assessee in its written submission dated 25/10/2017 has attempted to distinguish the aforesaid case of Bennet Coleman & Co. Ltd., by relying on the observations of the dissenting member of the 3-Member Bench. Having perused the ratio of the judgment, I am agreeable to the contention of the AO that, the appellant's case under adjudication is fairly covered to a large extent, in view of the similarity of the facts & circumstances under consideration in the present case. The core arguments of the revenue in this case (Bennet Coleman & Co. Ltd.) was that the scheme approved by the Hon'ble High Court in that case was on account of reduction of face value of shares for Rs. 10 to Rs. 5 and later consolidating 2 of the r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is not applicable are noted in Para 6.6 of his order. In Para 6.6 of the order of CIT(A), it is noted by CIT(A) that as per scheme of reduction of share capital approved by Hon'ble Bombay High Court, although total number of shares held by the assessee in M/s. Asianet New Network P Ltd. (ANNPL) has been reduced from 153340900 number of shares to 9988 number of shares but the percentage of holding remains unchanged which was noted to be 99.88% prior to reduction as well as after reduction. Because of this, ld. CIT (A) came to the conclusion that though there was a certain reduction in number of shares yet there was no effective reduction in the face value of the shares and more importantly, ratio of share holding of the assessee company in ANNPL remains 99.88% at the same figure of share holding prior to the implementation of the share-reduction scheme approved by Hon'ble Bombay High Court. He has held that in this factual background, there was no effective transfer or extinguishment of rights as envisaged in the judgment of Hon'ble Apex Court. On this basis, he held that this judgment is not applicable in the present case. Now we reproduce the relevant Para i.e. Para no. 5 from th....