The core issue of Supreme Court judgment is whether the reduction of share capital in a subsidiary company, which resulted in a proportionate decrease in the assessee’s shareholding, constitutes a “transfer” under Section 2(47) of the Income Tax Act, 1961. The Income Tax Department argued it did not, as the percentage of shareholding remained the same and there was no extinguishment of rights, while the assessee claimed a long-term capital loss due to the reduction. The Supreme Court upheld the High Court’s decision, confirming that a reduction in share capital leading to a decrease in the number of shares held does amount to a “transfer” as it involves the extinguishment of rights, referencing prior case law to support this interpretation.
Income Tax Act, 1961, Section 2(47), 45 – Income Tax – Expression “sale, exchange or relinquishment of the asset” – Whether on the facts and circumstances of the case, the Tribunal is right in law in setting aside the disallowance of capital loss claimed by the assessee of Rs.164,48,55,840/- by holding that there is extinguishment of rights of 153340900 shares when no such extinguishment of rights is made out by the assessee as required under section 2(47) of the Act and there is no reduction in the face value of share? – Face value per share has remained the same before the reduction of share capital and after the reduction of share capital – However, as the total number of shares have been 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 has extinguished its right of 15,33,40,900 shares, and in lieu thereof, the assessee received 9988 shares at Rs. 10 each along with an amount of Rs. 3,17,83,474 – Held that the reduction in share capital of the subsidiary company and subsequent proportionate reduction in the shareholding of the assessee would be squarely covered within the ambit of the expression “sale, exchange or relinquishment of the asset” used in Section 2(47) the Income Tax Act, 1961.
(Para 14 and 18)
Principal Commissioner Income Tax 4 V. M/S Jupiter Capital Private Limited
Supreme Court: 2025 INSC 38: (DoJ 02-01-2025)
