TaxTMI 
TaxTMI 
2024 (1) TMI 1036
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.... 2013 as erroneous and prejudicial to the interests of the Revenue, based upon a different opinion formed by him. c) The CIT failed to confirm, though raised by the appellant, that the proceedings u/s 263 were not based on a suggestion from audit and hence the Order is bad in law and requires to be quashed. 2) Computation of Income from Capital Gains a) The CIT erred in concluding that the Scheme of Arrangement and Reconstruction was not a case of Reduction of Capital. b) The CIT erred in concluding that the computation mechanism under section 48 fails by holding that to compute capital gains there must be an element of consideration received or accruing to the assessee. The CIT erred in ignoring that the Supreme Court in CIT v D. P. Sandu Bros. Chembur P Ltd 273 ITR 1 has held that, for S 48 to apply, consideration should be capable of being determined. 3) Cost of Acquisition of remaining shares. The CIT erred in failing to note the provisions of S 55(2)(v)(b) and in not confirming that the cost of remaining shares would include the cost of the shares cancelled on Reduction." 2. The assessee has also raised an additional ground which....
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.... (d) the Scheme was to become effective on the happening of the events set out in para 7.2 of the Scheme. The Effective Date of the reduction of capital was 04-12- 2008; (e) in terms of this particular Scheme, no consideration was payable to the shareholders in respect of the shares which were to be cancelled. 5. Thus, as a result, assessee's shareholding of 288,13,17,286 equity shares in TTSL was reduced to half, i.e., 144,06,58,643, that is, equity shares were cancelled as a result of reduction of capital pursuant to the scheme of arrangement u/s. 100 and 391 of the then Companies Act, 1956. The said scheme was approved by the Hon'ble Delhi High Court vide judgment and order dated 07/11/2008 and this resulted in cancellation of interalia certain shares of TTLS as specified in the scheme. The scheme of arrangement and restructuring has been placed before us during the course of the hearing. The relevant portion of the said scheme duly approved by the Hon'ble High Court reads as under:- 4.1.2 The paid up equity share capital of TTSL be reduced by way of reduction in the number of equity shares of Rs 10/- each from 634,71,52,316 shares to 317,35,76,158 shares re....
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....O in response to his notice u/s. 142(1) dated 04/06/2011. It has been pointed out before us that during the course of assessment proceedings u/s. 143(3), AO has specifically raised this issue in connection with the assessee's claim for allowability of long term capital loss of Rs. 2046.97 Crores. It has been stated that in response to the specific query raised in the notices by the ld. AO assessee has given the details, the computation of income and working of its capital gain providing necessary details before the ld. AO and also how the claim of the assessee for long term capital losses is allowable in view of the decision of the Hon'ble Supreme Court in the case of Kartikeya Sarabhai reported in 228 ITR 163 (SC); CIT vs. G. Narasimhan reported in 236 ITR 327 and also the judgement of Hon'ble Supreme Court in the case of D.P. Sandhu Brothers Chembur Pvt. Ltd. reported in 273 ITR 1(SC). It was specifically pointed out that reduction of capital, i.e., loss of shares tantamount to transfer u/s. 2(47) of the Act and it was held that computation provision can only be passed only if it was not possible to conceive of any element of cost. After the assessee's reply, ld. AO again issued ....
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....l loss on the above transaction and that the same should have not been set off against long term capital gains on shares earned. iv) The Assessing Officer has failed to consider that the Gujarat High Court decision in the case of CIT vs Mohanbhai Pamabhai 1971(9) TMI - wherein the High Court has held that section 45 is the charging section and it undoubtedly provides that any profits or gains arising from the transfer of a capital asset shall be chargeable to income tax under the heading 'Capital Gains". But, section 48 shows that the transfer that is contemplated by Section 45 is a transfer, if consideration is received by the assessee or accrues to the assessee. (v) The Assessing Officer has failed to consider the decision of Mumbai ITAT Bench, in the case of Bennett Coleman and Co. Ltd. Vs. Addl.CIT 2011(9) TMI-ITAT, Mumbai, Special Branch, wherein the ITAT had considered the judgments given by the Supreme Court in the case of Kartikeya V Sarabhai and CIT vs G. Naralmhan for computation of capital gain on reduction of capital and held that if the earlier shares have been replaced or substituted by new shares then the same would not amount to transfer at all....
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....e assessee in respect to TTSL shares is not allowable. In the Scheme of Arrangement and Restructuring between Tata Teleservices Limited and its Shareholders and creditors that was approved by the Hon Delhi High Court in para 4.1.2 it is mentioned that the paid up equity share capital of TSSL be reduced in the number of equity shares of Rs 10/- each from 634,71,52,316 shares to 317,35,76,158 shares resulting in total reduction of the paid up equity share capital of TTSL from 6347,15,23,160/- comprising of 634,17,52,316 equity shares of Rs 10/- each to 317,35,76,158 equity shares of Rs 10/- each to Rs 3173,57,61,580. Therefore an amount Rs. 3173,57,61,580 would be reduced from the accumulated debit balance in profit & loss account and unabsorbed depreciation of TTSL from the (of Rs 1967,7161645 tem available balance in Share premium Account) mentioned in clause 4.11 in the following manner. Amount available from extinguishment of Share Capital Rs 3173,57,61,580/- Less: Write off against book loss Rs.1586,78,80,790/- Less Write off against unabsorbed depreciation Rs 1586,78,80,790/- Balance available Nil 6.1 Thus amount Rs 3173,57,61,580 available from....
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....right in corresponding asset. Where transfer consists in extinguishment of a right in the capital asset there must be an element of consideration for such extinguishment to compute capital gains. But in case the capital asset has been effaced, how there can be rights in it? Once rights cannot be there, there cannot be extinguishment of rights? And further, how there can be consideration on extinguishment of rights? In case of effaced capital asset the consideration received or accrued will be nil (non existing consideration) and not 'zero'. The AO has committed a mistake because in the case of assessee there cannot be two views on the issue of computation of LTCL. There is only one view one can hold in given facts and circumstances of the case and it is that no consideration is received or receivable Since consideration is neither received nor receivable as the balance sheet of TTSL is shrunk by reduction of book loss and unabsorbed depreciation on asset side and share capital on the liability side, the assessee cannot expect any consideration on accrual basis on effacement of shares. Therefore, computation provisions u/s 48 of the Act 6.2 The AO in the case of Tat....
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..... 14. Before us, ld. Sr. Counsel for the assessee, Mr. J.D. Mistry, first of all, submitted that in this case on the same very issue, the Assessing Officer has raised query and asked for the details which were duly replied and explained before the ld. AO alongwith the details of computation of long term capital gain and also explaining the law in light of various Hon'ble Supreme Court judgments stating that in the case of reduction of the capital, amounts to transfer and not only that the claim of capital loss is also allowed. Once, the AO after considering these facts and the proposition of law laid down by the various statements of the Hon'ble Supreme Court has accepted the long term capital loss, then ld. PCIT cannot take a different view holding that view of the ld. AO is incorrect. He referred to various judgments on this proposition that if AO has taken one view which is possible view in law then CIT cannot revise or cancel the assessment order within the scope of section 263. 15. Mr. Mistry further submitted that, ld. PCIT has clearly erred and failed to consider that it is possible in law for schemes of reduction of capital, similar to the scheme in the present case, ....
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....er has set out and based his decision on an entirely incorrect legal principle that the provisions of section 48 fail and therefore no capital loss can be determined in a case where no consideration is received/ accrues to the transferor of the capital asset. No basis has been set out for this erroneous conclusion/assertion of the ld. PCIT. Further, this is contrary to well-settled law laid down by the Supreme Court in the matter of inter alia Srinivasa Setty (B.C.) 128 ITR 294 and D. P Sandu Brothers Chembur Pvt. Ltd. 273 ITR 1 (SC), wherein the correct principle laid down by the courts is that the capital gain computation provisions may be held not to apply, if and only if, any part thereof cannot conceivably be attracted. The correct principle is that if it is impossible to conceive of consideration as a result of the transfer (here the reduction in the capital under the Scheme), then perhaps, it could be urged that the provisions of section 48 of the Act do not apply. However, in the instant case, although no consideration has been received by or has accrued to the appellant, it is certainly possible to conceive of consideration being received or receivable in such cases. 17....
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....ital asset/(s) has taken place: (c) the provisions of section 45 of the Act are clearly attracted as the said number of shares of TTSL being capital assets of the assessee have been transferred. (d) the provisions of section 48 of the Act are also clearly attracted which prescribe the mode of computation of any income/loss which arises under the head "capital gains by deducting from the full value of the consideration received/accrued as a result of the transfer, the cost of acquisition of the asset so transferred. (e) On a plain reading of the provisions, it is indisputable that a capital loss of Rs 2046.97 crores has arisen as a result of the transfer of the said shares in TTSL and consequently, allowability of the said capital loss is certainly a possible view and accordingly, the provisions of section 263 of the Act could not be invoked by the ld. PCIT, (f) That the view of the ld. PCIT that, since in the present case, no consideration was received by the assessee on the reduction of capital under the Scheme, the provisions of sections 45 to 48 could not be applied - cannot be termed to be a correct, irrefutable or definitive view, and the sa....
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....Harivallabhdas (1997) 231 ITR 108 has held that a capital loss is sustained by an assessee, when shares of a company which had gone into voluntary liquidation are extinguished and no consideration is received by the assessee. In such a case, a capital loss should have been computed u/s 46(2) r.w.s. 48 of the Act despite the fact that "zero" or no consideration is received or receivable. 21. Further, when there is a reduction by way of cancellation of shares, the same constitutes transfer u/s 2(47) and therefore the consequential capital loss is allowable whether or not any consideration is received /receivable by the shareholder is supported in the matter of Jupiter Capital Pvt. Ltd Vs. ACIT (Bangalore ITAT) (ITA No. 445/Bang/2018) and Ginners & Pressers Ltd. Vs. ITO (Mumbai Tribunal) (ITA No 398/Mum/2007). 21. In so far as reliance placed by the ld. PCIT on the decision of the ITAT Special Bench in the case of Bennett Coleman & Co. Ltd. reported in (2011) 12 ITR(T) 97, Mr. Mistry submitted that same is not applicable in the following reasons:- a) the present case is one where section 263 of the Act has been invoked. The provision cannot be applied where a possible v....
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....e cancelled shares if not allowed in the year of cancellation, will never be allowed; secondly, it is indisputable that shares of TTSL which it owned were acquired at a cost. The said shares have now been cancelled and extinguished. It has undoubtedly suffered a loss. The view set out above is also upheld by the Mumbai Tribunal in the case of Carestream (supra). 24. On the other hand, ld. CIT DR submitted that here in this case ld. AO has not examined the correct principle of law on the facts of the case as earlier pointed out by the ld. PCIT in his order at various places. The judgments which have been relied upon by the assessee before the PCIT and by the ld. Sr. Counsel are not applicable in the facts of the case, because none of the case pertains to loss on reduction of capital. Even if it tantamount to transfer u/s. 2(47), then also the computation mechanism fails because there is no cost. Section 48 provides that transfer as contemplated u/s. 45 applies only if consideration received by the assessee or accrues to the assessee. Here in this case, ld. AO has failed to consider that assessee did not receive nor it showed accrual of any such consideration in its books of accou....
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....e Supreme Court in the case of CIT v. Rasiklal Maneklal (HUF) [1989] 177 ITR 198/ 43 Taxman 259. In that case, the assessee was holding 90 shares in one S. company of face value of Rs. 100/- each. Pursuant to the scheme of amalgamation sanctioned by the High Court, the holders of the shares in S. company were to be allotted one share of Rs. 125/-each of NS Company for two shares in S. company and S. Company was to be dissolved. The assessee in that case was allotted 45 shares in N.S company. A question arose, whether this would amount to transfer and the Hon'ble Supreme Court held that there was neither an 'exchange' nor a 'relinquishment' in this transaction. The Hon'ble Supreme Court observed as under: "An "exchange" involves the transfer of property by one person to another and reciprocally the transfer of property by that other to the first person. There must be a mutual transfer of ownership of one thing for the ownership of another. A "relinquishment" takes place when the owner withdraws himself from the property and abandons his rights thereto. It presumes that the property continues to exist after the relinquishment. Where, upon amalgamation....
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....sfer had taken place in terms of sec.2 (47), no tax could be imposed. When the matter travelled to Hon'ble Supreme Court it was held that definition of transfer u/s. 2 (47) was inclusive and would include relinquishment of an asset or extinguishment of any right therein. It was further observed that even preference shareholders have right to vote on resolutions which would effect the right of preference shareholder u/s. 87(2)(a), 87(2)(b) and 87(2)( c). Therefore the rights of preference shareholders are curtailed to that extent. A careful analysis of the above decision indicates that whenever there is reduction of shares and upon payment by company to compensate the value equivalent to reduction, apart from the effect on shareholders' rights to vote etc., a transfer can be said to have taken place. However, the question is whether the same can still attract sec.45? The answer is given by the Hon'ble Gujarat High Court in the case of Mohanbhai Pamabhai (supra). In this case the issue was whether there is a transfer if a particular partner retired from the firm and his share in the partnership was worked out by taking the proportionate value of his share in the net partn....
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....be wholly inapplicable and it would not be possible to compute profits or gains arising from the transfer of the capital asset. The transaction in order to attract the charge of tax as capital gains must, therefore, clearly be such that consideration is received by the assessee or accrues to the assessee as a result of the transfer of the capital asset. Where transfer consists in extinguishment of a right in the capital asset, there must be an element of consideration for such extinguishment, for then only it would be a transfer exigible to capital gains tax. Thus, it becomes absolutely clear that even if a transfer had taken place, unless and until some consideration is received, the transfer of such asset would not attract the provisions of sec.45. The Revenue has challenged this position in appeal before the Hon'ble Supreme Court and the court dismissed the appeal of the Revenue in Addl. CIT v. Mohanbhai & Pamabhai [1987] 165 ITR 166 (SC) in view of the decision of Hon'ble Supreme Court in the case of Sunil Siddharthbhai v. CIT [1985] 156 ITR 509/23 Taxman 14W. Decision of Hon'ble Gujarat High Court was not approved by the Hon'ble Supreme Court, while ad....
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....either under the general law or within the definition in clause (47) of section 2 of the Income-tax Act. 2. Consideration must be received or must accrue as a result of the transfer and the consideration must be capable of being determined in monetary terms in order that the computation of capital gains may be made as required by section 48. 3. Profits or gains must arise from the transfer and must be embedded in the consideration. Since the point raised in the first argument is not material regarding the issue involved before us, therefore, it would suffice to point out that the Hon'ble court held that such contribution of the capital by way of transfer of personal capital assets into the firm would constitute transfer. In respect of the 2nd and 3rd arguments the Hon'ble Supreme Court observed at pages 520 to 522 as under: "On the basis of that proposition learned counsel for the assessee has urged that s.45 is not attracted in the present case because to compute the profits or gains under s.48 the value of the consideration received by the assessee or accruing to him as a result of the transfer of the capital asset must be capable of as....
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....5 are real capital gains computed on the ordinary principles of commercial accounting and that the capital gains must be embedded in the capital asset. In Miss Dhun Dadabhoy Kapadia v. CIT [1967] 63 I.T.R. 651, the appellant held by way of investment some ordinary shares in a limited company. An offer was made by the company to her by which she was entitled to apply for an equal number of new ordinary shares at a premium with an option of either taking the shares or renouncing them in favour of others. The appellant renounced her rights to all the shares and realised Rs. 45,262.50. When this amount was sought to be wholly taxed as a capital gain the appellant claimed that on the issue of the new shares the value of her old shares depreciated and that as a result of the depreciation she suffered a capital loss in the old shares which she was entitled to set off against the capital gain of Rs. 45,262.50. In the alternative she claimed that the right to receive the new shares was a right which was embedded in her old shares and consequently when she realised the sum of Rs. 45,262.50 by selling her right, the capital gain should be computed after deducting from that amount the value of....
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....rd he relied on the decision of the Hon'ble Bombay High Court in the case of Cadell Wvg. Mill (P.) Ltd. (supra) and, in particular, referred to the observations at pages 284 and 285 of the report wherein it was observed that whole of the value of the capital asset transferred could not be brought to tax because that would amount to taxing the value of asset and not profit as contemplated in sec.45. In this case the issue involved was whether the compensation received on surrender of statutory tenancy rights is chargeable as casual income u/s. 10(3) or it should be charged u/s. 45. The court, after examining the issue in detail, held that amount received on such surrender is chargeable only u/s. 45. The court observed that whole value of the compensation could not be charged u/s. 56 because same was chargeable u/s. 45 and the decision of the Hon'ble Supreme Court in the case of B.C. Srinivasa Setty (supra) was applied. It was also noted that, in fact, sec.55 (2)(a) itself was amended by Finance Act, 1994 w.e.f. 1-04-1995 and the cost of acquisition of tenancy rights was to be taken at nil, therefore, this provision could not be applied retrospectively. Thus, it is clear that....
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....of the Hon'ble Supreme Court in the case of B.C. Srinivasa Setty (supra). Perhaps legislature intended to exempt only gifts from subject matter of capital gains and that is why clause (iii) to sec.47 must have been put in the statute. In any case, the decision of the Hon'ble Bombay High Court in the case of The Bombay Burmah Trading Corpn. Ltd. (supra) is directly on the issue wherein third question referred before the Court reads as under: "3. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that where in a case of compulsory acquisition by Government without compensation no capital loss will ensure?" This question was answered by the Hon'ble court vide para which reads as under: "4. So far as the third question is concerned, the same is covered by the ratio of the decision of the Supreme Court in B.C. Srinivasa Setty [1981] 128 ITR 294. The answer to the question is, therefore, self-evident. Questions Nos. l, 2 and 3 are not preferable questions of law." Thus, from the above it is clear that when no consideration is received, no loss can be allowed in view of the principles laid down by the ....
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.... losses of the company which have been adjusted by reducing the capital cannot be allowed. 24. ............................................................................... 25. ................................................................................. 26. The Ld. Counsel of the assessee had also relied on the following decisions of the Tribunal- (a) Zyma Laboratories Ltd.'s case (supra) (b) Polychem Ltd.'s case (supra ) (c) Ginners & Presser Ltd.'s case (supra) But in all these cases the principle laid down by the Hon'ble Supreme Court in the case of B.C. Srinivasa Setty (supra) was neither cited, nor considered and, therefore, these decisions are distinguishable and in any case, not binding on the Special Bench. In fact such profit or loss arising out of issue of bonus shares or reduction of capital is only a notional profit or notional loss and this concept has been approved by the Hon'ble Supreme Court in the case of Miss Dhun Dadabhoy Kapadia (supra) and further confirmed by the Hon'ble Supreme Court in the case of Sunil Siddharthbhai (supra). In the case of MissDhun Dadabhoy Kapadia....
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....ds. The intervening days, 2nd and 3rd June, being official holidays, there were to be no transactions on those days. The market quotation of the old Tata ordinary shares was Rs. 253 per share on 1st June, 1956, and fell to Rs. 198.75nP. On 4th June, 1956. There was, thus, a fall in the market quotation of old shares of Rs. 54.26P. per share. It was claimed by the appellant that, as a result of this depreciation in the price of her old ordinary shares, she suffered a capital loss in those shares to the extent of Rs. 37,630, and she was entitled to set off this loss against the capital gain of Rs. 45,262.50P. which she realised on selling her right to take the new ordinary shares. In the alternative, the case was put forward on the basis that the right to receive these new ordinary shares was a right which was embedded in her old ordinary shares, and, consequently, when she realised the sum of Rs. 45,262,50P by selling her right, the capital gain should be computed after deducting from this amount realised the value of the embedded right which became liquidated. The value of that right, according to the appellant, should be calculated in accordance with the principles of accountancy,....
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.... favour of some other person. As we have indicated above, the value of the capital asset, after renouncement, would be 710 multiplied by Rs. 198.75P. Plus the sum of Rs. 45,262.50P while the value of the asset, immediately before the renouncement, would be 710 multiplied by Rs. 253, there being no cash value at that time of the right to be taken into account. Thus, the capital gain or loss would be worked out at Rs. 45,262.50P. after deducting from it the sum worked out at 710 multiplied by the difference between Rs. 253 and Rs. 198.75P. This last amount comes to a little more than the sum of Rs. 37,630 which the appellant claimed should be deducted from Rs. 45,262.50P. in computing her capital gain. The claim made by the appellant was thus clearly justified because the net capital gain by her in the transaction, which consisted of issue of new shares together with her renouncement of the right to receive new shares and make some money thereby, could only be properly computed in the manner indicated by us above. In the alternative, the use can be examined in another aspect. At the time of the issue of new shares, the appellant possessed 710 old shares and she also got the ....
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....mber of shares the assessee's proportionate share in such assets remained the same. In the case before us also the value of assets even after reduction of capital remained the same and, therefore, loss, if any, at best can be called notional loss which cannot be allowed as observed by the Hon'ble Supreme Court in the case of Sunil Siddharthbhai (supra) at pages 521 & 522 which we have reproduced earlier. .. It was noticed that perhaps during the earlier hearing of this case, reliance has been placed by the department on the decision of the Ahmedabad Bench of the Tribunal in the case of Ajay C. Mehta v. Dy.CIT [2008] 305 ITR (AT) 155/ 114 ITD 628. In that case also assessee had claimed short term capital loss. The assessee had applied for 2,00,000 warrants and paid Rs. 2.70 per warrant as upfront payment. Later on, assessee exercised the option only in respect of 40,000 warrants and the right with respect to 1,50,000 warrants was extinguished, which was claimed as short term capital loss. This claim of loss was rejected by the Tribunal because no consideration was received by following the decision of the Hon'ble Supreme Court in the case of B.C. Srinivasa Setty....
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....#39;ble Bombay High Court is binding and has to be applied. 27. .................................................................................... 28. We also find force in the submissions of the Ld. DR that as per sec.55(v) the cost the cost of acquisition of shares even after conversion etc. has to be taken with reference to the cost of original shares. Therefore, after reduction of share capital the cost of acquisition of the remaining shares would be reckoned with references to the original cost. Though at this stage assessee has not obtained any benefit because loss has been computed with reference to the actual cost, but, in future, if assessee decides to sell its shareholding in TGL then assessee has the right, U/s 55(v), to substitute the cost of acquisition with reference to the original shareholding and in that case it may amount to double benefit later on which is not permissible under the law. 29. Therefore, in the light of the above discussion, we are of the opinion, that the loss arising on account of reduction in share capital cannot be subjected to provisions of sec.45 r.w.s. 48 and, accordingly, such loss is not allowable as capital los....
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....holders in respect of the shares which were to be cancelled. Consequently, the shareholding of the assessee was also reduced to half, i.e., 144,06,58,643 from 288,13,17,286 equity shares. The relevant portion of the scheme has already been incorporated above. Now, such a reduction of capital has been claimed as long term capital loss by the assessee in the computation of capital gain and has been set off against other long term capital gain as per the working incorporated in para 6 of the order. The entire case of the ld. PCIT hinges upon the fact that, since no consideration has been received or accrued to the assessee by way of reduction of capital and therefore, computation mechanism provided u/s. 48 fails and consequently, long term capital loss cannot be worked out. According to him, Section 48 provides mode of computation of capital gains which is computed by deducting from the full value of consideration received or accruing as a result of the transfer of the "capital asset" including expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the capital asset and if there is no consideration received or accruing to the assess....
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....ion of capital or consideration is not paid at all. Whether in such circumstances, can two views be taken in the reduction of capital, one where certain consideration is paid and in another where no consideration is paid. For example, if the share capital of the assessee was reduced from 288.13 Crore shares to 144.06 Crore share and if assessee would have received some amount, say Rs. 1 Crore, then as per the ld. PCIT, assessee would be entitled to compute long term capital loss of Rs. 2045,97,54,090/-, because there is some consideration received. If assessee has not received the consideration then, whole computation mechanism fails. We are unable to accept such reasoning or view taken by the Ld. PCIT. 30. There cannot any divergent view that a "capital asset" is subject to tax if there is a "transfer" within the scope and meaning of Section 2(47) of the Act. Now, whether the reduction of face value of shares amounts to transfer or not, has been settled by the Hon'ble Supreme Court in the case of Kartikeya Sarabhai reported in 228 ITR 163 (SC) wherein the issue was whether reduction of face value of the shares will be subject to levy of capital gains, whether reduction of the f....
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.... transfer within the meaning of that expression in section 2(47) of the Income Tax Act, 1961. Thus, reduction of capital has been treated as a transfer within the meaning and expression of Section 2(47). 31. In the case of DCIT vs. BPL Sanyo Finance Ltd. reported in 312 ITR 63 (KAR), the Hon'ble Karnataka High Court dealing with the case where loss on account of forfeiture of share application money, amounts to short term capital loss or not. The Hon'ble High Court held that consequent to assessee's default in not paying the balance of money on allotment, its right in the shares stood extinguished on its forfeiture and the loss suffered by the assessee, i.e., non-recovery of share application money is consequent to the forfeiture of its right in the shares and the same is to be understood to be within the scope and ambit of transfer and therefore, the Tribunal was justified in holding that it would amount to short-term capital loss to the assessee. Thus, the loss was allowed even if share application money paid by the assessee was forfeited due to default in payment and balance money of allotment. The relevant observation of the High Court reads as under:- "10. On accou....
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....s, we are of the considered opinion that the questions posed have to be answered in favour of the assessee and against the Revenue. The appeal accordingly stands disposed of." 32. In case of CIT vs. Mrs. Grace Collis And Others reported in 248 ITR 323, Hon'ble Supreme Court had observed and held as under:- "15. We have given careful thought to the definition of 'transfer' in section 2(47) and to the decision of this Court in Vania Silk Mills (P.) Ltd.'s case (supra). In our view, the definition clearly contemplates the extinguishment of rights in a capital asset distinct and independent of such extinguishment consequent upon the transfer thereof. We do not approve, respectfully, of the limitation of the expression 'extinguishment of any rights therein' to such extinguishment on account of transfers or to the view that the expression 'extinguishment of any rights therein' cannot be extended to mean the extinguishment of rights independent of or otherwise than on account of transfer. To so read, the expression is to render it ineffective and its use meaningless. As we read it, therefore, the expression does include the extinguishment of rights ....
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.....C. Srinivasa Setty's case (supra) held that all transactions encompassed by section 45 must fall within the computation provisions of section 48. If the computation as provided under section 48 could not be applied to a particular transaction, it must be regarded as "never intended by section 45 to be the subject of the charge". In that case, the Court was considering whether a firm was liable to pay capital gains on the sale of its goodwill to another firm. The Court found that the consideration received for the sale of goodwill could not be subjected to capital gains because the cost of its acquisition was inherently incapable of being determined. Pathak J. as his Lordship then was, speaking for the Court said : "What is contemplated is an asset in the acquisition of which it is possible to envisage a cost. The intent goes to the nature and character of the asset, that it is an asset which possesses the inherent quality of being available on the expenditure of money to a person seeking to acquire it. It is immaterial that although the asset belongs to such a class it may, on the facts of a certain case, be acquired without the payment of money..." (p. 300) ....
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....000/-. What if for reduction of 50 shares instead of getting Rs. 10/- per share had assessee received Rs. 1/- per share on reduction, can still be said there was no consideration received or consideration is inconceivable; and if assessee has received "Zero" consideration, then can it be held that there is no conceivable consideration at all or "Zero" is not a consideration. This precise issue had been answered by the Hon'ble Gujarat High Court in the case of CIT vs. Jaykrishna Harivallabhdas reported in 231 ITR 108. In that case assessee has claimed loss on shares of particular companies under the head "capital gains" and the case of the assessee was that the company with respect to whose shares of loss had been claim had gone into voluntary liquidation and nothing was distributed by those companies to its members, therefore, the assessee received "Nil" consideration for his holdings in the companies. The claim of the assessee was that capital loss should have been computed under section 46(2) read with section 48. The Hon'ble High Court observed as under:- Thus assuming the extinguishment of the shareholder's interest on liquidation in the shares held by him as trans....
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.... transfer has to be worked out or computed as per section 48. If the result of such computation under the head "Capital gains" is a positive balance, it is to be added in the total income chargeable to tax augmenting the same. If the balance is negative, it has to be treated under the Chapter titled, "Set off and carry forward losses" in accordance with the provisions to the extent the same are permissible. Section 48 provides for the mode of computing income under the head "Capital gain". The mode of computation shorn of all technicalities and other complexities is to deduct from the full value of the consideration received or accruing as a result of the transfer of the capital asset, the cost of acquisition of the asset. It does not envisage that in all cases such computation must result in surplus or gains. Section 4 of the Act makes the income computed in accordance with the provisions of the Act subject to tax. Section 46(2) which has also been held to be the charging section for bringing the result of receipts by member of a company on its liquidation too provides for computation of capital gains in accordance with section 48, for which receipt or value of asset afte....
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....emed transfer of his capital asset, as a result of extinguishment of all rights has to be deemed to be resulting in capital gain or loss, as the case may be, as per the result of computation made under section 48 of the Act. Though the value of the asset has to be taken at its market value as on the date of actual receipt as a result of joint reading of section 46(2) and section 55(2)(b)(iii) of the Act which provides for determination of cost of acquisition in the hands of the recipient for determination of capital gains in his hands whenever he transfers such asset after its receipt by him. The contention that this provision should apply to actual receipts only also cannot be accepted for yet another reason, because acceptance of that would lead to an incongruous and anomalous result as will be seen presently. The acceptance of this view would mean whereas even in a case where a sum is received, howsoever negligible or insignificant it may be, it would result in the computation of capital gains or loss, as the case may be, but in a case where nothing is disbursed on liquidation of a company the extinction of rights, would result in total loss with no consequence. That is....
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.... is clearly applicable on the facts of the present case also because there could be no distinction where assessee receives some negligible or insignificant consideration and where assessee had received "Nil" consideration. This judgment and the ratio clearly clinch the issue in favour of the assessee. 38. Thus, in view of the ratio and principle laid down in the aforesaid judgments, we hold that: * firstly, in this case the reduction of capital is extinguishment of right on the shares and it amounts to transfer within the meaning and scope of section 2(47); * secondly, the loss on reduction of shares is a capital loss and not notional loss; and * lastly, even when assessee has not received any consideration on reduction of capital but its investment has reduced to loss resulting into capital loss and while computing the capital gain, capital loss has to be allowed or set-off against any other capital gain. 39. The entire case of the Revenue is hinges upon the judgment of ITAT Special Bench in the case of Bennett Coleman & Co. Ltd. (supra). In the facts of that case assessee was holding investments in equity shares of another company wherein the paid....
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....the capital asset would attract the applicability of section 45. The ratio of B. C. Srinivasa Setty would have no role to play, in other words, the charge under section 45 shall be attracted in all in which the cost of acquisition or full value of consideration is conceivable or ascertainable but is nil. On the reduction of capital, TGL did not pay anything to the assessee. Thus, the assessee received nil consideration it was not a case in which the full value of consideration is incapable of ascertainment. The full value of consideration was fully ascertained and identified as nil and was liable to be taken into consideration for the purposes of computing loss under section 45 at Rs. 22.21 crores. However, the ratio of the majority judgement can be interpreted against the assessee as it clearly held that reduction of shares where no consideration is received computation of capital gain and loss cannot be made, even though facts were different in that case. 41. However, we are not relying upon the minority judgment but we have to bear in mind that this is a case under revisionary jurisdiction u/s. 263 wherein the ld. PCIT has cancelled the order of the ld. AO who has accepted th....