Capital Gain

Tax queries 489 views 4 replies

If a Central Govt. Co. redeems the Redeemable Prefrence shares then what is the nature of "TRANSFER"????

a) Sale

b) Relinguishment

c) Extinguishment of Rights or

d) Compulsary Acquisition.

Plz give me the cross refrence of Section as well as the Best Judgement

Replies (4)

Dear friend Dhruvesh,

 

Below given is the relevant text of Anarkali Sarabhai v. CIT (SC) 224 ITR 422

" Here, a regular 'sale' itself has taken place. That is the ordinary concept of transfer. The company paid the price for the redemption of the 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'. "

It may be considered sale, relinquishment and extinguishment... and therefore there is transfer...

Regards,

Chintan

Good reply Mr.Chintan Shah............

 

Originally posted by : Chintan Shah

Dear friend Dhruvesh,

 

Below given is the relevant text of Anarkali Sarabhai v. CIT (SC) 224 ITR 422

" Here, a regular 'sale' itself has taken place. That is the ordinary concept of transfer. The company paid the price for the redemption of the 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'. "

It may be considered sale, relinquishment and extinguishment... and therefore there is transfer...

Regards,

Chintan

 But chintan y cant it b compulsaryt acquisition as the same is redeemed compulsary. Altough the holder is not willing to redeem he has to compulsarily redeem the shares. He has no other option

Dhruveshbhai,

First of all, it needs to be determined whether there is transfer or not irrespective of whether its a compulsory acquisition or not. There are no special provisions in respect of cumpolsory acquisition which make an exception to the definition of transfer. Therefore if its a transfer, as explained above, capital gains would be computed, the manner of computation is as per Section 48 & 49. However, in respect of compulsory acquision of assets, Section 45(5) provides that the capital gains so computed will be charged to tax in the year in which the consideration is received. further it needs to be seen whether the cumpolsory acquisition is under any law for the time being in force? If its buyback or redeemption of preference shares under the normal provisions of companies Act, it won't amount to cumpolsory acquisition. Also it needs whether the consideration is determined by CG. CG does not include the board of the government company, hence if the consideration of the pref. share is determined by board of govt. co. Section 45(5) is not applicable.

 

Regards,

 

Chintan


CCI Pro

Leave a Reply

Your are not logged in . Please login to post replies

Click here to Login / Register