India: Capital loss arising from cancellation of shares is allowable to shareholders even if no consideration is paid

Mumbai bench of the Tribunal decision

Mumbai bench of the Tribunal decision

The Mumbai bench of the Tribunal held that the reduction of the share capital of a company by way of the cancellation of shares is an extinguishment of rights in shares and is to be treated as a “transfer” for applying capital gains tax provisions. The tribunal also held that the capital gains tax provisions will apply even if no consideration is actually payable by the company provided the consideration is otherwise conceivable or ascertainable.

The tribunal set aside the revisionary order passed by the Principal Commissioner of Income-tax (PCIT) rejecting the claim of long-term capital loss allowed by the tax officer. The tribunal observed that when there were different possible views and the tax officer had followed one possible view, the order of the tax officer could not be held as erroneous and could not be set aside or cancelled by the PCIT.

The case is: Tata Sons Limited v. CIT

Read a January 2024 report [PDF 431 KB] prepared by the KPMG member firm in India



The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.