TaxTMI 
TaxTMI 
TaxTMI 
2018 (12) TMI 317
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.... 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, based on the powers confirmed on them." 3. The ld. AR of assessee submitted that the copy of written submissions f....
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....nding 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 invested in total equity shares of 153340900 at face value (Rs. 10) on different dates, in its subsidiary company, Asianet News Network Private Limited. The total number of shares, of Asia....
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....o 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 short term capital loss with due regard, the facts and circumstances of the case are different hence not applicable. Conversely it is seen in the case of Bennett Coleman & co. Ltd V ALIT (TS-580-ITAT-2011 (Mum) had accepted the revenue's contention that there is no transfer and....
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....pellant 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 fully paid. There is no reduction of face value of the shares but only a reduction in number of outstanding equity shares. This would result in value of investment of Jupiter Capital in ANNPL, reduction in value of such assets is reflected as a loss. Section 45 is the charging section, Under section 45(1) of the Act, profits and gains arising from the transfer of a capital asset effected in the previous year is chargeable to tax. ....
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....s 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 capital. Such reduction of the right in the capital asset would clearly amount to a transfer within the meaning of that expression in section 2(47) of the Income Tax Act,1961. "Section 2(47) of the act provides that relinquishment or extinguishment of any right in the capital asset amounts to transfer of a capital asset. In the instant case, the assessee has received case in lieu of 150 shares and on receipt of that cash, there is extinguishment of the rights of the assessee in those shares. Same is one o....
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....apital 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 and independent of such extinguishment consequent upon transfer thereof The court further observed that the expression "extinguishment of any right there in" can be extended to mean extinguishment of right independent of or otherwise than on account of transfer. Thus, even extinguishment of right in a capital asset would amount to transfer and in the case before us since the assessee 's right got extinguished proportionately, to the reduction of capital, it would amount to transfer. It was held that reduction of capital amount to transfer and accordingly capital loss was held to be allowable in the following deci....
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....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 share capital of ANNPL under a duly approved capital reduction scheme. The scheme provides for setting-off losses incurred by the company against its paid up equity share capital. It is contended that the number of shares stood reduced, even while the face value of the shares continued to remain at Rs. 10 each fully paid. The assessee claims that since the scheme resulted in decrease in value of investment of Jupiter Capital in ANNPL, such reduction in value of assets was accordingly claimable as a loss. * The Assessee has made reference to the relevant sections of the I.T. Act. It is explained that, section 45 being the charging section, under the said section, profits and gains arising from the transfer of a capital asset ....
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....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 been distinguished by the AO, in her impugned-order. (ii) The factual position and the applicability of the judicial decisions in the present case, clearly reveals that the Assessee's claim of capital loss, is not acceptable in view of certain crucial questions, emerging for consideration in the present case. The AO has analysed the Assessee's shareholding pattern, in the impugned order, which has been perused. A comparative-analysis of the opening / closing balances of ANNPL shares and the consequent reduction in numbers / face value and the percentage ratio of share-holding, reveals a clear position that, there was no effective transfer, resulting in Long Term Capital Loss. It would be appropriate in this regard, to extract the chart, from the impugned-order, which reveals the position as u....
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....ny 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 present case, the appellant has neither parted with nor sold the shares, as there was no change in the overall percentage of total-shareholding which remained at 99.88% i.e. the same percentage held prior to the implementation of the sharereduction scheme. There is also no extinguishment of rights in as much as the reduction was only in the number of shares and not the face value. I am in agreement with the AO in her finding that. there is no real-transfer as envisaged under section 2(47) as there was no effective relinquishment / extinguishment of rights as claimed by the appellant. In background of above detailed discussion and facts & circumstances of the case. I am of the considered view that the Long Term Capital Loss claimed does not fall within the purview of capital-gains provisions envisaged under the I.T. Act. The AO's action therefore cannot be int....
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....s; 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 rights, as envisaged in the judgment of the Hon'ble Supreme Court (cited supra). In these facts & circumstances, the said ratio does not squarely apply to the case under adjudication. 7.2 The Assessee has further drawn attention to the decisions of Gujarat High Court in the cases of CIT v Jayakrishna Harivallabha das (1998) 231 ITR 108 (Guj); and Mumbai High Court in the case of CIT v Surat Cotton Spinning & Weaving Mills Pvt. Ltd; wherein it was observed that in a scheme of similar transfer full value of consideration could be nil. contending that the assessee's case involved real transfer u/s 2(47) of the I.T. Act. The assessee has also referred to the judgments of Vania Silk Mills P Ltd v CIT 191 ITR 647and that of DCIT v BPL Sanyo Finance Ltd 312 ITR 63 (Kar). The assessee's core contention raised in this regard is that irrespective of the amount of consideration involved (even i....
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....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 resultant shares into 1 equity share and to issue a fresh share of Rs. 10 each. The revenue had raised a similar ground that no shares were parted-away to anyone else and that even post-conversion, the cost of acquisition of shares had to be considered with reference to the cost of original shares. This is quite akin to the present case, where even after the share-reduction, (between the group entities), the effective shareholding percentage remained the same. The assessee's primary argument or distinguishment from the present case, is that a certain consideration was passed on to M/s ANNPL, as against the case of Bennett Coleman & Co. Ltd. This argument however, does not hold ground in view of the fact that the questions of share-valuation and adequacy of consideration have not been examined by the AO, eventhough, the scheme was essentially an intra-group arrangement between the subsidiary and a holding company. In this v....
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....er 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 this judgment of Hon'ble Apex Court rendered in the case of Kartikeya V. Sarabhai Vs. CIT (supra). The same is as under. "5. Sec. 2(47) which is an inclusive definition, inter alia, provides that relinquishment of an asset or extinguishment of any right there in amounts to a transfer of a capital asset. While, it is no doubt true that the appellant continues to remain a shareholder of the company even with the reduction of a share capital but it is not possible to accept the contention that there has been no extinguishment of any part of his right as a shareholder qua the company. It is not necessary that for a capital gain to arise that there must be a sale of a capital asset. Sale is only one of the modes of transfer envisaged by s. 2(47) of the Act. Relinquishment of the asset or the extinguishment of any right in it, which may not amount to sale, can also be considered as a transfer and any profit or gain which arises from the transfer of a capital asset is ....