Section 2(47) r.w.s. 48 – Redemption of preference shares amounts to transfer within meaning of section 2(47) – Held Yes – Assessee would be entitled to benefit of indexation

The assessee was engaged in business of share broking and also dealing in shares. It had purchased 4 lakh preference shares of Rs. 100 each from a company ‘E’. The preference shares were to carry a dividend of four per cent per annum and were redeemable after the expiry of ten years from the date of allotment. During the course of assessment year 2001-02, the assessee redeemed three lakh shares at par and claimed a long-term loss after availing of benefit of indexation. The Assessing Officer disallowed the claim of set off of long-term capital loss that arose on redemption against long-term capital gain on the sale of other shares on the grounds that – (i) both the assessee and the company in which the assessee held the preference shares, were managed by the same group of persons; (ii) that there was no transfer; and that the assessee was not entitled to indexation on the redemption of non-cumulative redeemable preference shares. On appeal, the Commissioner (Appeals) allowed the claim of the assessee. On further appeal, the Tribunal affirmed the view of the Commissioner (Appeals) holding that the genuineness and credibility of the capital transaction was not disputed for the previous ten years. It was further held that both the companies were juridical entities; that the fact that the companies were under common management would not indicate that the transfer was sham. It was also held that since redeemable preference shares were not bonds or debentures, the assessee would not be deprived of the benefit of indexation u/s. 48. The Hon’ble Bombay High Court Upheld the Order of Tribunal. On SLP being filed by Revenue, the same was dismissed.