Principal Commissioner of Income Tax-4 & Anr. Vs. M/s. Jupiter Capital Pvt. Ltd.
- ByPravleen Kaur --
- 15 Jun 2025 --
- 0 Comments
The Supreme Court of India, in Principal Commissioner of Income Tax-4 & Anr. v. M/s Jupiter Capital Pvt. Ltd. (2025 INSC 38), clarified the interpretation of “transfer” under Section 2(47) of the Income Tax Act, 1961, holding that a reduction of share capital constitutes a “transfer” for capital gains tax purposes.
Facts of the Case
Jupiter Capital Pvt. Ltd. held 99.88% shares in Asianet News Network Pvt. Ltd. (ANNPL). ANNPL, having incurred substantial losses and erosion of net worth, obtained Bombay High Court approval to reduce its share capital from over 153 crore shares to 10,000 shares. Consequently, Jupiter Capital’s shareholding was reduced proportionately from approximately 15.33 crore shares to 9,988 shares, with the face value per share remaining at Rs. 10. Jupiter Capital received about Rs. 3.18 crores as consideration for this reduction. The taxpayer claimed a long-term capital loss of Rs. 164 crores on this reduction, treating it as a “transfer” under the Income Tax Act. The tax authorities denied this claim, arguing no transfer occurred since the shareholding percentage and face value per share remained unchanged.
Legal Issue
The key issue was whether the reduction in share capital, leading to proportional reduction in shares held by the taxpayer, amounts to a “transfer” under Section 2(47) of the Income Tax Act, which broadly defines transfer to include sale, exchange, relinquishment, or extinguishment of rights in a capital asset.
Supreme Court’s Decision
The Supreme Court ruled in favor of Jupiter Capital, holding that:
The reduction of share capital results in the extinguishment of shareholder rights, which qualifies as a “transfer” under Section 2(47) of the Income Tax Act.
The Court emphasized that shares represent a bundle of rights—voting power, dividend entitlement, and residual participation in assets—and a capital reduction proportionately extinguishes these rights, even if the face value and percentage shareholding remain unchanged.
The expression “extinguishment of any right therein” in Section 2(47) is broad and covers any transaction that destroys or cancels any part of the rights attached to a capital asset.
Receipt of monetary consideration by the taxpayer further validated the transaction as a transfer.
The Court rejected the tax department’s argument that no transfer occurred because the taxpayer’s percentage holding and face value per share remained constant.
Implications
This ruling:
Confirms that capital losses arising from share capital reduction are allowable for tax purposes.
Broadens the scope of “transfer” under the Income Tax Act to include non-sale transactions that extinguish shareholder rights.
Harmonizes corporate law provisions (such as Section 66 of the Companies Act, 2013) permitting capital reduction with tax law, ensuring equitable treatment of shareholders.
Enables taxpayers to claim capital losses or capital gains arising from capital reduction transactions.
Summary
The Supreme Court’s judgment in Principal Commissioner of Income Tax-4 & Anr. v. M/s Jupiter Capital Pvt. Ltd. is a significant precedent affirming that a reduction in share capital, which extinguishes shareholder rights, constitutes a “transfer” under Section 2(47) of the Income Tax Act, 1961. This allows taxpayers to claim capital gains or losses on such transactions, aligning tax law with the economic realities of shareholding and corporate restructuring.
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