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TMI Blog2025 (1) TMI 579X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee as required under section 2(47) of the Act and there is no reduction in the face value of share." 4. It appears from the materials on record that the respondent-assessee is a company engaged in the business of investing in shares, leasing, financing and money lending. The assessee had made an investment in Asianet News Network Pvt. Ltd., an Indian company engaged in the business of telecasting news, by purchasing 14,95,44,130 shares having face value of Rs 10/- each. Thereafter, the assessee purchased 38,06,758 shares from other parties, thereby increasing its shareholding to 15,33,40,900 shares which constituted 99.88% of the total number of shares of the company, i.e., 15,35,05,750. 5. The said company incurred losses, as a result of which the net worth of the company got eroded. Subsequently, the company filed a petition before the Bombay High Court for reduction of its share capital to set off the loss against the paid-up equity share capital. The High Court ordered for a reduction in the share capital of the company from 15,35,05,750 shares to 10,000 shares. Consequently, the share of the assessee was reduced proportionately from 15,33,40,900 shares to 9,988 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration 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 shareholding, reveals a clear position that there was no effective transfer, resulting in Long Term Capital Loss... (iii) [...] It clearly emerges, that there was no effective transfer, which could result in any real Long Term Capital Loss as claimed by the appellant in the present case. It transpires that the appellant company invested in total equity share of Rs. 153340900/- at face value of (Rs. 10) on different dates, in its subsidiary company (ANNPL). The total number of shares of ANNPL was 153505750 out of which the assessee's shareholding was 99.88%. Pursuant to the share reduction scheme there was reduction in share capital of ANNPL from 153340900 to 10000 and thus the shares of the Assessee were reduced from 153505750 to 9988. The face value of the shares-reduced remained unchanged at Rs. 10, even after the reduction. The shareholding ratio of the assessee company also remained consta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is significant to note that the face value of the share has remained same at Rs. 10/- even after the reduction. The AO's view that the voting power has not changed as the percentage of assessee's share of 99.88% has remained unchanged is untenable because if the shares are transferred at face value, the redeemable value would be Rs.99,880/- whereas the value of 14,95,44,130 number of shares would have been Rs.1,49,54,41,300/-. In our considered view, the ITAT has rightly followed authority in Kartikeya V. Sarabhai v. The Commissioner of Income Tax : 1998 2 ITR 163 SC with regard to meaning of transfer by holding that there was no transfer within the meaning of that expression contained in Section 2(47) of the Income Tax Act, 1961." 10. Having heard Mr. N. Venkataraman, learned ASG appearing for the Revenue, and having gone through the materials on record, we are of the view that no error, not to speak of any error of law, could be said to have been committed by the High Court in passing the impugned order. 11. Whether reduction of capital amounts to transfer is no longer res integra in view of the decision of this Court in Kartikeya V. Sarabhai (supra) wherein this C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital asset. Sale is only one of the modes of transfer envisaged by Section 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 liable to be taxed under Section 45 of the Act. 12. When as a result of the reducing of the face value of the shares, the share capital is reduced, the right of the preference shareholder to the dividend or his share capital and the right to share in the distribution of the net assets upon liquidation is extinguished proportionately to the extent of reduction in the capital. Whereas the appellant had a right to dividend on a capital of Rs 500 per share that stood reduced to his receiving dividend on Rs 50 per share. Similarly, if the liquidation was to take place whereas he originally had a right to Rs 500 per share, now his right stood reduced to receiving Rs 50 per share only. Even though the appellant continues to remain a shareholder his right as a holder of those shares clearly stands reduced with the reduction in the share capital. 13. The Gujarat High Court had in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is applicable in the instant case. The only difference in the present case and Anarkali case [(1997) 3 SCC 238 : (1997) 224 ITR 422] is that whereas in Anarkali case [(1997) 3 SCC 238 : (1997) 224 ITR 422] preference shares were redeemed in entirety, in the present case, there has been a reduction in the share capital inasmuch as the company had redeemed its preference shares of Rs 500 to the extent of Rs 450 per share. The liability of the company in respect of the preference share which was previously to the extent of Rs 500 now stood reduced to Rs 50 per share." 12. The following principles are discernible from the aforesaid decision of this Court: a. Section 2(47) of the Income Tax Act, 1961, which is an inclusive definition, inter alia, provides that relinquishment of an asset or extinguishment of any right therein amounts to a transfer of a capital asset. While the taxpayer continues to remain a shareholder of the company even with the reduction of share capital, it could not be accepted that there was no extinguishment of any part of his right as a shareholder qua the company. b. A company under Section 66 of the Companies Act, 2013 has a right to reduce the share capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income Tax Act, 1961. 16. A Division Bench of the Gujarat High Court in the case of Commissioner of Income-Tax v. Jaykrishna Harivallabhdas reported in (1998) 231 ITR 108 further clarified that receipt of some consideration in lieu of the extinguishment of rights is not a condition precedent for the computation of capital gains as envisaged under Section 48 of the Income Tax Act, 1961. The relevant observations made by the High Court are reproduced hereinbelow: 28. 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 to say on receipt of some cost, however insignificant it may be, the entire gamut of computing capital gains for the purpose of compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shares out of its fund to the assessee and the transaction was clearly a purchase. As rightly observed by the Tribunal, if the company had purchased a valuable right, the assessee had sold a valuable right. 'Relinquishment' and 'extinguishment' which are not in the normal concept of transfer but are included in the definition by the extended meaning attached to the word are also attracted in the transaction. The shares were assets and they were relinquished by the assessee and thus relinquishment of assets did take place. The assessee by virtue of his being a holder of redeemable cumulative preference shares had a right in the profits of the company, if and when made, at a fixed rate of percentage. Quite obviously, this was a valuable right and this right had come to an end by the company's redemption of shares. Thus, the transaction also amounted to 'extinguishment' of right. Under the circumstances, viewed from any angle, there is no escape from the conclusion that Section 2(47) was attracted and that the amount of Rs 50,000 received by the assessee was liable to be taxed under the head 'Capital gains'. " 22. The view taken by the Bombay High Court accords with the view t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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