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Quoted or unquoted shares as per income tax act

Kritika (CA) (26 Points)

12 October 2021

No trading of shares of the company has taken place on stock exchange since last 5 years but the shares of company are listed.

My question is : For the purpose of valuation, whether these should be treated as Quoted shares or unquoted shares?

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4 Replies

Rammohan (NA) (255 Points)
Replied 12 October 2021

A listed share is one which is listed in a recognised stock exchange for purposes of trading. There may not be any quotation available for such a share if no trade of the share takes place in the stock exchange, despite being listed.

Valuation of such a share depends on the purpose for which the valuation is required. If you are referring to the AL schedule of form ITR 2 (applicable to those whose taxable income exceeds Rs 50 lacs), then the value of all shares for this purpose would be the cost price at which the shares were acquired, not the quoted price. This is my understanding.

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Kev Men (788 Points)
Replied 13 October 2021

If the query is regarding cost of equity shares, as per section 55, in the explanation to 'fair market value' it is the word 'listed' is used. Also the proviso states that if it is not traded on 31 Jan 2018, then the value of such asset preceding 31 Jan 2018 when such asset was traded on such exchange should be considered. So basically the last traded price before 31 Jan 2018 should be considered 'fair market value' for the purposes of calculation under section 55 in my humble opinion.

If the query is regarding some other perspective/issue, kindly ignore my reply.

Kritika (CA) (26 Points)
Replied 14 October 2021

The query is regarding application of Section 50CA, as it is applicable on transfer of capital asset being shares other than quoted shares valuation should be done at fair market value. For the purpose of above valuation Rule 11UA is prescribed. Below given explanation has been provided for the purpose of section 50CA.

Explanation.—For the purposes of this section, "quoted share" means the share quoted on any recognised stock exchange with regularity from time to time, where the quotation of such share is based on current transaction made in the ordinary course of business.

For the above mentioned purpose bifurcation of quoted or unquoted is needed. What are your thoughts?

Kev Men (788 Points)
Replied 14 October 2021

In my opinion, the words 'where the quotation of such share is based on current transactions made in the ordinary course of business' it can be interpreted that the word 'current transaction' is of importance. In the above case, the shares are not traded for the last 5 years. Hence it can be inferred that the share price which might be quoted is not based on the 'current transaction'. Hence it is not a quoted share as per the explanation to the section.