Income Tax Act, 1961 – s.2(47) – “sale, exchange or relinquishment of the asset” – Reduction in share capital, if covered within the expression “sale, exchange or relinquishment of the asset”:
Held: Yes – Reduction in share capital of the subsidiary company and subsequent proportionate reduction in the shareholding of the assessee, is squarely covered within the ambit of the expression “sale, exchange or relinquishment of the asset” used in s.2(47) – s.2(47) is an inclusive definition, inter alia, providing that relinquishment of an asset or extinguishment of any right therein amounts to a transfer of a capital asset – While the taxpayer continues to remain a shareholder of the company even with the reduction of share capital, it could not be accepted that there was no extinguishment of any part of his right as a shareholder qua the company – When as a result of the reducing of the face value of the preference share, the share capital is reduced, the right of the preference shareholder to the dividend or his share capital and 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 a reduction of the right of the capital asset amounts to a transfer within the meaning of s.2(47) – In the present case, the face value per share remained the same before the reduction of share capital and after the reduction of share capital – However, as the total number of shares were reduced from 15,35,05,750 to 10,000 and out of this the assessee was holding 15,33,40,900 shares prior to reduction and 9988 shares after reduction, it can be said that on account of reduction in the number of shares held by the assessee in the company, the assessee extinguished its right of 15,33,40,900 shares, and in lieu thereof, it received 9988 shares at Rs. 10 each along with an amount of Rs. 3,17,83,474 – No error committed by High Court in passing the impugned order dismissing the appeal filed by the Revenue and affirming the order passed by the ITAT. [Paras 9, 10, 12, 14, 18]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Divya Pandey. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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