Foregoing right to acquire equity shares is transfer and Compensation taxable

DCIT Vs. Natco Pharma Ltd (ITAT Hyderabad)

ITAT held that a right acquired by the taxpayer to convert advance given into equity shares falls under the definition of ‘Capital Assets’ as per Section 2(14) Income-tax Act,1961 (the Act). Accordingly, the compensation received for foregoing right to acquire equity shares is a transfer of ‘Capital Assets’ and is taxable as capital gain under the Act.

The Tribunal observed that the word ‘of any kind’ under the definition of ‘Capital Assets’ provided under Section 2(14) of the Act is of widest amplitude and therefore, any right which can be called property will be included within the definition of ‘Capital Assets’. Accordingly, the payment received towards the compensation for waiver of rights to receive the shares is taxable as capital gain.

FULL TEXT OF THE ABOVE JUDGMENT IS AS FOLLOWS:–

Income Tax Appellate Tribunal, Hyderabad

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