TMI Blog2018 (12) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... ,83,474/-. As per this judgment of Kartikeya V. Sarabhai Vs. CIT [1997 (9) TMI 2 - SUPREME COURT], there is no reference to the percentage of share holding prior to reduction of share capital and after reduction of share capital and hence, in our considered opinion, the basis adopted by the CIT(A) to hold that this judgment of Hon’ble Apex Court is not applicable in the present case is not proper and in our considered opinion, this is not proper. In our considered opinion, in the facts of present case, this judgment of Hon’ble Apex Court is squarely applicable and by respectfully following this judgment we hold that the assessee’s claim for capital loss on account of reduction in share capital in ANNPL is allowable.- Decided in favour of assessee - ITA No.445/Bang/2018 - - - Dated:- 29-11-2018 - Shri Sunil Kumar Yadav, Judicial Member And Shri Arun Kumar Garodia, Accountant Member For the Assessee : Shri S. Parthasarathi, Advocate For the Revenue : Shri D. Sudhakara Rao, CIT (DR ORDER PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER This appeal is filed by the assessee and the same is directed against the order of ld. CIT (A)-4, Bangalore dated 14.12.2017for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of authorities below. 4. We have considered the rival submissions. We find that on this issue, Para nos. 6 to 7.3 of the order of CIT(A) are containing entire facts, decision of the AO, submissions of the assessee before CIT(A) and the final decision of CIT(A) and therefore, these paras are reproduced herein below for the sake of ready reference. 6. Disallowance of Capital loss of ₹ 164,48,55,840/- :- The brief facts of the case are that, the appellant claimed an amount of ₹ 1,64.48,55,840/- as Long Term Capital loss from sale of shares. This loss was stated to accrue against the reduction in share capital of M/s Asianet News Pvt. Ltd (ANNPL) effected under a capital reduction scheme. The AO disagreed with the assessee's claim of Long Term Capital Loss, contending that, the reduction in shares of ANNPL, did not result in transfer of capital asset as envisaged u/s 2(47) of the I.T. Act. The AO came to this conclusion, in light of the finding that, even though the number of shares has reduced, the face value as well as the shareholding pattern remained the same. The assessee on the other hand. has argued that there was real transfer of asset. as the sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educed proportionately from 153505750 to 9988. The face value of the shares remained the same at ₹ 10 even after the reduction. It is pertinent to note that the shareholding pattern or the percentage of the shares of the assessee did not reduce. i.e. prior to reduction the percentage of assessee's share was 99.89% and even after reduction the percentage of assessee's shares remained unchanged at 99.89%. This means that the assessee did not relinquish its voting power or extinguish its rights in the shares as the shareholding pattern remained unaffected. This proves that there was no relinquishment or extinguishment of rights that has taken place which would have eventually resulted in a transfer of a capital asset. The following table depicts the shareholding pattern of the assessee at Asianet News Network Period Total Number of shares Number of shares held by the Assessee Value per share (Rs.) % of holding Prior to reduction 153505750 153340900 10 99.88% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s contention that there is no transfer and that the earlier shares were replaced by another kind of shares and that the percentage of shareholding immediately before the reduction of share capital and immediately after he reduction, remained the same. Even in the case of CIT V. Rasiklal Manekial (HUF)-1989 (3) TMI 3 Supreme Court: It was held that in case of exchange that one person transfers a property to another person in exchange of another property the property continues to be in existence. In the light of the above, a total capital loss claimed out of the sale of shares is hereby disallowed and added back to the return of income. 6.2 Assessee's submission:- The assessee has strongly objected to the above disallowance primarily on the ground that the duly-approved share-reduction scheme clearly resulted in transfer of asset and consequential Long Term Capital Loss. The relevant portions of the assessee's written submission dated 12.07.2017 are reproduced as under:- Disallowance of Capital Loss of ₹ 164,48.55,840/- The appellant had made an investment is the shares of Asianet News P Ltd. [ANNPLJ, the company is a subsidiary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against its paid up equity share capital. The courts have ruled that the number of shares shall be reduced, while the face value of the shares continue to remain at ₹ 10 each fully paid. There is no reduction of face value of the shares but only a reduction in number of outstanding equity shares. This would result in value of investment of Jupiter Capital in ANNPL, reduction in value of such assets is reflected as a loss. Section 45 is the charging section, Under section 45(1) of the Act, profits and gains arising from the transfer of a capital asset effected in the previous year is chargeable to tax. Section 48 outlines the methodology for computing capital gains. Existence of a capital asset owned by the assessee Section 2(14) defined a capital asset. As per the definition capital asset means property of any kind save certain specified exclusions. The expression property of any kind is of such wide amplitude so as to take in tangible and intangible assets of any kind other than those comprised in the exceptions carved out in the definition itself, equity shares are covered within the definition of Capital assets. Transfer of such assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced, the right to share in the distribution of the net assets upon liquidation is extinguished proportionately to the extent of reduction in the capital. Such reduction of the right in the capital asset would clearly amount to a transfer within the meaning of that expression in section 2(47) of the Income Tax Act,1961. Section 2(47) of the act provides that relinquishment or extinguishment of any right in the capital asset amounts to transfer of a capital asset. In the instant case, the assessee has received case in lieu of 150 shares and on receipt of that cash, there is extinguishment of the rights of the assessee in those shares. Same is one of the modes of transfer envisaged by section 2(47) of the Act. Extinguishment of the assessee's right is a transfer and any profit Or gain which arises from such transfer is liable to be taxed, under section 45 of the Act. AANPL has huge losses. The fair market value of the AANPL shares is less than face value. A sale consideration as determined has been paid. The Karnataka High Court of DCIT v BPL Sanyo Finance Ltd 312 ITR 63(Kar) held that cancellation of allotment of shares leading to forfeiture of share applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer clearly contemplates extinguishment of rights in a capital asset distinct and independent of such extinguishment consequent upon transfer thereof The court further observed that the expression extinguishment of any right there in can be extended to mean extinguishment of right independent of or otherwise than on account of transfer. Thus, even extinguishment of right in a capital asset would amount to transfer and in the case before us since the assessee 's right got extinguished proportionately, to the reduction of capital, it would amount to transfer. It was held that reduction of capital amount to transfer and accordingly capital loss was held to be allowable in the following decision too: Zyma Laboratories Ltd v Addl. CIT 7 SOT 164 [Mum] DCIT v M/s Polychem Ltd ITA No: 4212/M/07 Ginners Presser Ltd v ITO ITA No. 398/M/07 4193/M/07. Further we also wish to bring to your attention that one of the aspects considered was whether the has received consideration or not. In the case of the appellant, we state that the appellant had received a consideration. This fact is conceded in the assessment order itself We rely on the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is reduction in share capital of ANNPL under a duly approved capital reduction scheme. The scheme provides for setting-off losses incurred by the company against its paid up equity share capital. It is contended that the number of shares stood reduced, even while the face value of the shares continued to remain at ₹ 10 each fully paid. The assessee claims that since the scheme resulted in decrease in value of investment of Jupiter Capital in ANNPL, such reduction in value of assets was accordingly claimable as a loss. The Assessee has made reference to the relevant sections of the I.T. Act. It is explained that, section 45 being the charging section, under the said section, profits and gains arising from the transfer of a capital asset affected in the previous year, was therefore chargeable to tax. It is further stated that, section 48 outlines the methodology for computing capital gains. The appellant therefore claims that , the exercise of reduct ion of shares between the assessee and M/s ANNPL. was exigible to section 45 as well as the section48, involving transfer o chargeability. The appellant states that, section 2(14) defines a capital asset. As per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO, in her impugned-order. (ii) The factual position and the applicability of the judicial decisions in the present case, clearly reveals that the Assessee's claim of capital loss, is not acceptable in view of certain crucial questions, emerging for consideration in the present case. The AO has analysed the Assessee's shareholding pattern, in the impugned order, which has been perused. A comparative-analysis of the opening / closing balances of ANNPL shares and the consequent reduction in numbers / face value and the percentage ratio of share-holding, reveals a clear position that, there was no effective transfer, resulting in Long Term Capital Loss. It would be appropriate in this regard, to extract the chart, from the impugned-order, which reveals the position as under: Particulars No. of shares Amount Opening balance of investment in ANNPL 149544130 1495441300 Purchase of ANNPL shares from other parties 3806758 38067585 Loss on extinguishment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or relinquishment of the asset; or the extinguishment of any rights therein; or the compulsory acquisition thereof under any law; / others. The assessee's does not squarely fall into any one out of these conditionalities. Having considered the peculiar factual position and in background of the requirements of law laid down in section 2(47), it is clear that. Any extinguishment of rights would involve parting I sale of percentage of shares to another party or the divesting of rights therein, In the present case, the appellant has neither parted with nor sold the shares, as there was no change in the overall percentage of total-shareholding which remained at 99.88% i.e. the same percentage held prior to the implementation of the sharereduction scheme. There is also no extinguishment of rights in as much as the reduction was only in the number of shares and not the face value. I am in agreement with the AO in her finding that. there is no real-transfer as envisaged under section 2(47) as there was no effective relinquishment / extinguishment of rights as claimed by the appellant. In background of above detailed discussion and facts circumstances of the case. I am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a-6.6 above. In the peculiar facts circumstances of the present case even though there was a certain reduction in 'number of shares' yet there was no effective reduction in the face value of the shares; and more importantly the overall share-holding percentage of the assessee company in M/s ANNPL remained at 99.88% being the same figure of shareholding, prior to the implementation of the impugned-scheme. In this factual background there was no effective transfer or extinguishment of rights, as envisaged in the judgment of the Hon'ble Supreme Court (cited supra). In these facts circumstances, the said ratio does not squarely apply to the case under adjudication. 7.2 The Assessee has further drawn attention to the decisions of Gujarat High Court in the cases of CIT v Jayakrishna Harivallabha das (1998) 231 ITR 108 (Guj); and Mumbai High Court in the case of CIT v Surat Cotton Spinning Weaving Mills Pvt. Ltd; wherein it was observed that in a scheme of similar transfer full value of consideration could be nil. contending that the assessee's case involved real transfer u/s 2(47) of the I.T. Act. The assessee has also referred to the judgments of Vania Silk Mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , I am agreeable to the contention of the AO that, the appellant's case under adjudication is fairly covered to a large extent, in view of the similarity of the facts circumstances under consideration in the present case. The core arguments of the revenue in this case (Bennet Coleman Co. Ltd.) was that the scheme approved by the Hon'ble High Court in that case was on account of reduction of face value of shares for ₹ 10 to ₹ 5 and later consolidating 2 of the resultant shares into 1 equity share and to issue a fresh share of ₹ 10 each. The revenue had raised a similar ground that no shares were parted-away to anyone else and that even post-conversion, the cost of acquisition of shares had to be considered with reference to the cost of original shares. This is quite akin to the present case, where even after the share-reduction, (between the group entities), the effective shareholding percentage remained the same. The assessee's primary argument or distinguishment from the present case, is that a certain consideration was passed on to M/s ANNPL, as against the case of Bennett Coleman Co. Ltd. This argument however, does not hold ground in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee company in ANNPL remains 99.88% at the same figure of share holding prior to the implementation of the share-reduction scheme approved by Hon ble Bombay High Court. He has held that in this factual background, there was no effective transfer or extinguishment of rights as envisaged in the judgment of Hon ble Apex Court. On this basis, he held that this judgment is not applicable in the present case. Now we reproduce the relevant Para i.e. Para no. 5 from this judgment of Hon ble Apex Court rendered in the case of Kartikeya V. Sarabhai Vs. CIT (supra). The same is as under. 5. Sec. 2(47) which is an inclusive definition, inter alia, provides that relinquishment of an asset or extinguishment of any right there in amounts to a transfer of a capital asset. While, it is no doubt true that the appellant continues to remain a shareholder of the company even with the reduction of a share capital but it is not possible to accept the contention that there has been no extinguishment of any part of his right as a shareholder qua the company. It is not necessary that for a capital gain to arise that there must be a sale of a capital asset. Sale is only one of the modes of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l number of shares has been reduced from 153505750 to 10000 and out of this, the present assessee was holding prior to reduction 153340900 shares and after reduction 9988 shares. In addition to this reduction in number of shares held by the assessee company in ANNPL, the assessee received an amount of ₹ 3,17,83,474/- from ANNPL. Hence it is seen that in the facts of present case, on account of reduction in number of shares held by the assessee company in ANNPL, the assessee has extinguished its right of 153340900 shares and in lieu thereof, the assessee received 9988 shares at ₹ 10/- each along with an amount of ₹ 3,17,83,474/-. As per this judgment of Hon ble Apex Court rendered in the case of Kartikeya V. Sarabhai Vs. CIT (supra), there is no reference to the percentage of share holding prior to reduction of share capital and after reduction of share capital and hence, in our considered opinion, the basis adopted by the CIT(A) to hold that this judgment of Hon ble Apex Court is not applicable in the present case is not proper and in our considered opinion, this is not proper. In our considered opinion, in the facts of present case, this judgment of Hon ble Apex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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