M/s. Jupiter Capital Pvt. Ltd. Vs ACIT (ITAT Banglore)
Section 2(47) is containing an inclusive definition and inter alia, it provides that relinquishment of an asset or extinguishment of any right there in amounts to a transfer of a capital asset.
No doubt true that the assessee continues to remain a shareholder of the company even after 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
The reduction of share capital of a company by way of reducing the face value of each share from Rs. 1,000 to Rs. 500 amounts to “extinguishment of rights” and is a “transfer” u/s 2(47) of the Act. The assessee is eligible to claim a capital loss therefrom.
FULL TEXT OF THE ITAT JUDGMENT
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee and the same is directed against the order of CIT (A)-4, Bangalore dated 14.12.2017 for Assessment Year 2014-15.
2. The grounds raised by the assessee are as under.
“1. The learned Commissioner of Income Tax (Appeals) (CIT) erred in upholding the order of the Assessing officer and not allowing the claim of capital loss incurred by the appellant due to reduction of capital by the investee company.
2. The CIT erred in holding that the there is no transfer of assets in due to reduction of capital based on the order of the court.
3. The CIT ought to have appreciated the fact that there 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, based on the powers confirmed on them.”
3. The ld. AR of assessee submitted that the copy of written submissions filed before CIT(A) is available on pages 50 to 69 of paper book and out of that, the relevant portion is available on pages 64 to 69 of paper book. He further submitted that reliance has been placed by assessee on the judgment of Hon’ble Apex Court rendered in the case of Kartikeya V. Sarabhai Vs. CIT as reported in 228 ITR 163. But this judgment was not followed by CIT(A) on some invalid reasons given by him. He submitted that the issue in the present case is squarely covered in favour of the assessee by this judgment of Hon’ble Apex Court. The ld. DR of revenue supported the orders of authorities below.
4. We have considered the rival submissions. We find that on this issue, Para nos. 6 to 7.3 of the order of CIT(A) are containing entire facts, decision of the AO, submissions of the assessee before CIT(A) and the final decision of CIT(A) and therefore, these paras are reproduced herein below for the sake of ready reference.
“6. Disallowance of Capital loss of Rs. 164,48,55,840/- :-
The brief facts of the case are that, 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 came 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.
The observations / findings of the AO and the Assessee’s detailed written submissions have been duly perused. The judicial position on the issue under consideration and the judgments highlighted by the AO as well as the appellant 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:
