Taxation on shares on acquisition of a foreign company.

Section 47 specifies the details of transactions which should not be treated as capital gains. It does not contain any case where a foreign company is acquired by another foreign company.

However, since it would be an issue as to what should be taken as cost of acquisition of shares at the time of actual sale of such shares, it is better that the assessee takes a stand that capital gain would arise at the time of actual sale only and not at the time of such acquisition.

And at the time of actual sale, the cost of acquisition should be taken as actual cost paid to buy the shares in company A. Also, the period of holding should be calculated from the date of buying shares in company A and not in company B.

Thanks a lot Pratik.

If X doesn't declare this as an income for this financial year (and say his colleages do declare), will he have to pay penalty (in case of a scrutiny) for not paying the taxes as well on non disclosure of income. He will be declaring the shares of company B as foreign assets though.

thanks

Priya

This will not result into a non-disclosure. But, will be a mere misinterpretation of law. So, no question of penalty would arise.

X might be have to pay normal interest for the period from date of acquisition of company A by company B till the date of actual sale.

However, looking practically, no such issues would arise.except X comes under assessment being a large tax payer. In any case, it would not be any bigger issue if tax is paid only at the time of actual sale of shares.