2011 (9) TMI 1 - AT - Income Tax

Relinquishment of Asset - extinguishment of rights - Whether on the facts and in the circumstances of the case, the CIT(A) was justified in declaring long term capital loss of ₹ 22,21,85,693/- on account of reduction in paid up equity share capital? - basically the capital was reduced by reducing the face value of ₹ 10/- paid up of each share to ₹ 5/- paid up of each share. As a second step such shares (Rs 5/- per share) were again consolidated into ₹ 10 paid up share and number of shares were reduced to 89,93,149. - Held that:- even if a transfer had taken place, unless and until some consideration is received, the transfer of such asset would not attract the provisions of sec.45. - Unless and until a particular transaction leads to computation of capital gains or loss as contemplated by sections 45 and 48, the same would not attract capital gain tax. - assessee has not received any consideration for reduction of share capital - the loss arising on account of reduction in share capital cannot be subjected to provisions of sec.45 r.w.s. 48 and, accordingly, such loss is not allowable as capital loss. At best such loss can be described as notional loss and it is settled principle that no notional loss or income can be subjected to the provisions of the I.T. Act. - Decided in favor of assessee.