taxation of shares & securitiestaxation of shares & securities- … · 2017. 10. 17. ·...

Pradip Kapasi & Co. 1

Taxation of Shares & Securities-Recent Developments

Taxation of Shares & SecuritiesTaxation of Shares & Securities--Recent DevelopmentsRecent Developments

Wednesday, 2Wednesday, 2ndnd August, 2006August, 2006IMC , IMC , ChurchgateChurchgate

BCASBCAS


Business v. Capital Gains

• A billion $ question• Proposed guidelines

– Instruction 1827 dt. 31.08.1989

• FM’s observations• FICCI’s suggestion• PMS proposal• Recent judicial views

– Deepaben A. Shah, 99 ITD 219 (Ahd)– G.E. Pension Trust, 200 CTR 121 (AAR)– Revashankar A. Kothari, 283 ITR 338 (Guj)


Business v. Capital Gains-II

• Desired parameters• Intention - Period of holding• Frequency - Fund utilised• Time devoted - Set-up• Listing - PMS• Occupation - Scale • Alt. occupation - Bank account• Sales/ Purchase - Utilisation• Treatment in books - Statutory requirements• MOA/AOA - Avg. holding period• Group companies - Promoters• No. of script - Genuineness

• Applicability of s. 45(2)


Investment v. Stock• Which is beneficial

– Allowance of expenses . Concessions– Application of s. 14A– Set-off of losses– Credit for STT– C/f of losses

• Trade-off– Ramnarain & Sons, 41 ITR 534(SC)– N.S.S. Investments, 277 ITR 149(Mad)– Mysore Rolling Mills, 195 ITR 404(Karn)


Conversion into investment• Shirinbai Kooka’s principle• Sharkey’s principle• Effect of conversion

– Sir Kikabhai Premchand, 24 ITR 506(5C)– Dhanuka & Sons 124 ITR 24(Cal)– ALA firm, 189 ITR 285 (SC)

• Possibility & proofs• Cost of acquisition

– Keshavji Kaarsondas, 207 ITR 737(Bom), B.K.A.V. Birla (Cal)– Kalyani Exports & Investments, 78 ITD 95 (Pune)

• Period of holiding– S.2 (42A)– B.K.A.V. Birla 35 ITR 136 (Cal)

• Indexation– Kalyani Exports & Investments and other views– Explanation (iii) to s. 48 – Harmonious Construction

•


Portfolio Management- PMS• Types of arrangements

– Participating– Non participating

• Nature of fees– Advisory & Management– Brokerage

• Relationship & Treatement– Proposal under consideration– Deductibility of expenses– Business– Capital gains


Derivatives • Amendment in s. 43(5)(d)• Notification dated 25.01.2006• Effect of amendment

– On b/f losses– On set-off during the year– On Expl. to s. 73 for companies– On loss of other derivatives

• Effect of Notification– On losses and profits up to the date

of Notification– On commodities derivatives– Relating back


Arbitrage

• Nature of activity• Objectives• Income

– Business -Capital Gains – Other sources• Speculative transactions

– Delivery - Hedging• Losses

– S. 43(5) - Explanation to s. 73• Expenses• Credit for STT• Tax Audit


S.14A Disallowance• Expenses for dividend income• Applicability of s. 14A

– Harish Bhatt, 85 TTJ 872 (Ahd.)– Mafatlal Holdings Ltd., 85 TTJ 821 (Mum)

• Situations– Directly attributable - Common expenses– Past borrowings - Nexus– No expenses - No Dividend

• Power to make rules – Quantification• Development of case law

– Consensus for disallowance– Rajashthan Warehousing Corpn., 242 ITR

450(SC)– Escorts Ltd., 102 TTJ 522 (Del)– Maruti Udyog Ltd., 95 TTJ 778 (Del)– Eicher Motors Ltd., 101 TTJ 369 (Del)– Ever Plus Securities, 102 TTJ 120 (Del)

• Applicability of s. 14A to Losses– S.S.Thiyagrajan, 129 ITR 115 (Mad)– Royal Turf Club Ltd., 144 ITR 709 (Cal)


Cost, Delivery & Set-off• Part of cost

– Mithilesh Kumari, 92 ITR 9 (Del)– Maithreyi Pai, 152 ITR 247 (Hyd)– K. S. Gupta, 119 ITR 372 (AP)– B. Subhadra, 92 TTJ 405 (Hyd)

• Consideration in kind– Cost of shares– Heinrich de Fries GMBH, 98 ITD 292(Mum)

• Delivery – s. 43(5)– Broker’s Pool Account– Smt. Jayashree Ray Choudhary, 93 TTJ 714 (Kol)

• Right of set-off of loss– STCG against LTCG– Montgomerry Emerging Mutual Funds, – 100 ITD 217 (Mum)


Rebate for STT-s.88E

• Option to set-off losses• Speculation business’ STT• MAT

– Deduction– Applicability– Credit for STT


Stock Broker• Business Expenditures

– Nesel Holdings, 200 CTR 7 (Del)– Peerless, 94 ITD 89(Kol)(SB)

• SEBI fees– Sureshchand Jain, 102 TTJ 970 (Mum)

• Loss for constituent – Expl. to s. 73– Parkar Securities Ltd., 102 TTJ 235 (Ahd.)

• Demutualisation – s. 47(xiiia), s.55(2)(ab), s. 2(42A), Expl. (ha)

• Applicability of Explanation to s. 73– GDB Shares & Stock, 88 TTJ 352(Kol.)– SRJ Securities Ltd. 81 TTJ 484(Del.)


Demutualization

• Exchange • Exemption u/s 47(xiiia)

– STCG and s. 50 - LTCG

• Treatment in case of loss• COA of shares• DOA of shares

– Explanation (ha) to s. 2(42A)– Indexation

• Depreciation on shares• COA/DOA of trading & clearing rights • S.55(2)(ab) and Explanation (h) to s. 2(42)


Cost of controlling interest

• Part of cost of shares – Maharni Usha Devi, 131 ITR 445 (MP) – Venkatesh (Minor), 243 ITR 367 (Mad)

• Cost of controlling interest– Raghveer Narain Singh, 147 ITR 447 (Pat)– Ashok Behri Lal (HUF), 99 TTJ 513 (Del)

• Power through holding - inseparable


Explanation to s. 73

• Relevance of legislative intent– Amar Portfolio, 92 ITD 324 (Mum)– Frontline Capital Services, 96 TTJ (Del) 201– AMP Spg. & Wvg. Mills (P) Ltd., 101 TTJ 1113 (Ahd.)

• Isolated transaction– Modella Wollen Mills, 101 TTJ 1009 (Mum)– Aakrosh Inv. & Leasing, 90 ITD 287(Mum)

• Valuation loss/ No purchase– Nirvan Holdings, 35 BCAJ 399(Mum) – Paharpur Cooling Towers, 85 ITD 745(Kol)– Sun Distributors, 68 Taxman 223 (Cal)

• IPO deals– AMP Spg. & Wvg. Mills’s case


Explanation to s. 73-II• Loans and Advances company

– Venkateshwara Inv., 92 TTJ 1129(Kol) (SB) (Years)– Vakharia Fin. Ser. Ltd., 6679/M/2002 dt. 19,01.06-

’J’ (Funds)– Fortress Fin. Ser. Ltd. 4185/M/2001 dt. 23.09.05-

‘H’ (Income of other years)– Concord Commercial Co. Ltd., 94 TJ 913

(Mum)(SB)

• Negative GTI/Business income– Associated Capital Markets, 1103/M/2001 dt.

31.3.2003

• Loss & Profit– Samba trading & Inv. Co., , 58 ITD 360(Mum).


Dividend Stripping/Wearing

• Finance Act, 2001 – A.Y. 2002-03 (A.Y. 2003-04)– Securities and Units

• Position up to A.Y. 2001-02– Wallfort Shares, 96 ITD 1 (SB)

• Facts– Ignore loss - Cumulative - Listed or not – Trading included - Mutual Funds, also – Excess

loss – Multiple Distribution - Reinvestment options

• Bonus Stripping– S.94(8) – A.Y. 2005-06– Bonus units - Ignore Loss– Loading of COA on bal. Units– All sold– Misconceived amendment


Deemed Dividend

• Accumulated profits– Date of

• M.B. Stockholdings, 84 ITD 542 (Ahd)• Sujatha Venkteshwaran, 61 ITD 485 (Mad)

– Debit balance in P & L Account• Oscar Investments Ltd., 98 ITD 339 (Mum)

– ‘persons of substantial interest’

• Transfer during LIP– Kameshwari Finance, 102 TTJ 461 (Del)


Not eligible – s. 10(38), s.111A

• Sale in off market deals– Buy back . Reduction . Offers . Mergers

• Preference shares/Private companies• Debt/Index Funds• Foreign securities• Derivatives


Reorganisation

• Buy back of shares– S.77, 77A &B of Companies Act– S.2(22) and s. 46A of Income tax Act– G. Narsimhan, 236 ITR 327 (SC)– S.10(38) and s. 111A– Applicability to stock-in-trade

• Amalgamation – Tax neutral– Compliance of s. 47(vii)– FMV and Indexation

• H.F. Craig Horvey, 244 ITR 578• Demerger

– Forced application of s. 47(vid) – NBV of assets to NW– Apportionment of ‘Cost’ & Indexation

• Reduction of capital– Kartikeya Sarabhai, 228 ITR 163(SC)

• Liquidation– S. 46 and s. 2(14)– N. Bhagavathy Ammal, 259 ITR 678 (SC)


Rights/ Warrants• Period of holding

– Navin Jindal, 280 ITR 608 (P&H)– Explanation to s. 2(42A)

• Rights/Bonus by a dealer– Madeangopal Radheylal, 73 ITR 652 (SC)– Motichand Constructions (P) Ltd., 261 ITR 70 (Bom)

• Warrants– Cost of warrants

• Issued with Debentures . Separately . Rights– Asra Sales, 78 ITD 87(Pune), J.T. Holdings, 89 ITD

569(Mum.)– Bharat S. Shah, 101 TTJ 244 (Mum), Kalyani Exports(Pune),

– Whether transfer on allotment of shares• Tarnik investments , 94 ITD 183(Del.)

– Cost of acquisition of shares- s. 55(2)(aa) (A) & (B)– Date of acquisition of shares


ESOP• Statutory Provisions

– Proviso to s. 17(2)– Guidelines of Central Government/SEBI– Applicability to other Schemes/Plans– S. 47(iii) – without consideration

• Gift * Trust * Will * Inheritance

• Regular sales or transfer– S. 48 - S. 111 A - S.10(38)

• Guidelines not followed– Taxability

• Infosys Technologies Ltd., 86 ITD 312 (Bang)• Television Eighteen India Ltd., 101 TTJ 669 (Del)

– Year of taxation • Abbott v. Philbin, 44 ITR 144 (HL)• Wipro Ltd., 80 TTJ 106 (Bang)


Auction

• Failure of seller to deliver– Purchase and sell by agent– Short term capital/business loss– Effect on original holding– Buyer- Delivery at same price -compensation

• Failure of buyer to take delivery– Subsequent sale by agent– Loss recovered from buyer– Business loss/capital loss– Effect on seller - compensation


Investments Abroad

• Period of holding– Shares . Securities . Units– Amalgamation . Demerger

• Cost of Acquisition– Restructuring

• Taxable dividend– Gross or Net

• Computation of capital gains• Taxable gains• Tax credit

– DTAA . S.90, 90A and 91


Stock Lending

• Objective and utility• SLS, 1997 • ALBM, BLESS, ‘Badla’• SEBI’s restriction• Circular No. 751 dated 10th February, 1997• Section 47(xv)• Applicability to borrower• SLP off-shoots• STT• Private Lending – “Badla’


NRI Invesments

• Computation of gains– Foreign currency. Indexation

• Chapter XIIA • Concessions & Exemptions• DTAA and Tax credit


Thank You&

Good Luck

taxation of shares & securitiestaxation of shares & securities- … · 2017. 10. 17. ·...

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