December 2011
Section 48 of the Income-tax Act, 1961 — Benefit of indexation is available in respect of preference shares.Section 48 of the Income-tax Act, 1961 — Benefit of indexation is available in respect of preference shares.
By C. N. Vaze
Shailesh Kamdar
Jagdish T. Punjabi
Bhadresh Doshi
Chartered Accountants
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(2011) 47 SOT 62 (Mum) G. D. Metsteel (P.) Ltd. v. ACIT A.Y. : 2005-06. Dated : 8-4-2011
Section 48 of the Income-tax Act, 1961 — Benefit of indexation is available in respect of preference shares.
For the relevant assessment year, the Assessing Officer declined to grant indexation benefit in terms of second proviso to section 48, to the assessee on the ground that since prices of preference shares do not fluctuate, and these shares cannot be treated at par with equity shares, indexation benefits cannot be granted in respect of the same. The CIT(A) confirmed the action of the Assessing Officer. The Tribunal allowed the benefit of indexation to the assessee.
The Tribunal noted as under:
(1) The only exception to the second proviso to section 48 is that it shall not apply to the long-term capital gain arising from the transfer of a long-term capital asset being bond or debenture other than capital indexed bonds issued by the Government.
(2) Once shares are specifically covered by indexation of cost, and unless there is a specific exclusion clause for ‘preference shares’, it cannot be open to the Assessing Officer to decline indexation benefits to preference shares.
