By Jagdish D. Shah / Jagdish T. Punjabi
Chartered Accountants
8. Jupiter Capital Pvt. Ltd. vs. Assistant
Commissioner of Income Tax (Bangalore) Members: Sunil Kumar Yadav (J. M.) and Arun Kumar
Garodia (A. M.) ITA
No.:445/Bang/2018 A.Y.: 2014-15. Dated: 29th
November, 2018 Counsel for
Assessee / Revenue: S. Parthasarathi /
D. Sudhakara Rao
Section
2(47) – Reduction of share capital, even where there is no change in the face
value of the share or the shareholding pattern,
results in extinguishment of right in the shares amounting to transfer
of shares.
FACTS
The
assessee had invested in 15,33,40,900 equity shares at face value of Rs. 10 on
different dates in its subsidiary company, Asianet News Network Private Limited
(‘ANNPL’). The total number of shares of ANNPL was 15,35,05,750 out of which
the assessee’s share was 99.89%. As a result of the Order of High Court of
Bombay, there was a reduction in share capital of ANNPL to 10,000 nos., and
consequently the share of the assessee was reduced proportionately to 9,988
nos. The Court also ordered for payment of Rs. 3.18 crore as a consideration
for reduction in share capital. The face value of the shares remained the same
at Rs. 10 after the reduction.
The assessee claimed Rs. 164.49 crore as Long Term
Capital loss. According to the assesse, this loss had accrued on account of
reduction in share capital of ANNPL. According to the AO, the reduction in
shares of ANNPL did not result in transfer of capital asset as envisaged u/s.
2(47). The AO came to this conclusion, in light of the finding that, even though
the number of shares had reduced, the face value of Rs. 10 as well as the
percentage of assessee’s share at 99.89% remained at the same level as it was
before the reduction of share capital. He didn’t agree with the assessee 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). The AO held that the decision of
the Supreme court in the case of Kartikeya V. Sarabhai vs. CIT (228 ITR 163) relied on by the assessee
cannot be applied as the facts of the case are contrary to the case as there
was no reduction in the face value of the shares in the case of the
assessee. On appeal, the CIT(A) agreed
with the AO and upheld her order.
HELD
The Tribunal noted
that in the case of the assessee, on account of reduction in number of shares
in ANNPL, the assessee extinguished its right of 15,33,40,900 shares and in
lieu thereof, it received 9,988 shares at Rs. 10/- each along with an amount of
Rs. 3.18 crore. According to the
tribunal, the basis adopted by the CIT(A) to hold that the judgment of the
Supreme Court in the case of Kartikeya V. Sarabhai was not applicable in
the present case was not proper as the Supreme court had not made any reference
to the percentage of shareholding prior to reduction of share capital and after
reduction of share capital. According to
the tribunal, the judgment of the Apex Court was squarely applicable to the
case of the assessee, therefore, following the same the Tribunal held that the
assessee’s claim for capital loss on account of reduction in share capital in
ANNPL was allowable.
