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Lakshmi Vilas Bank shares were delisted. Will it be considered capital loss?

Capital gain/loss can arise only if there is a transfer of capital asset during a particular tax period. (Photo: iStock)Premium
Capital gain/loss can arise only if there is a transfer of capital asset during a particular tax period. (Photo: iStock)

  • Even though shares were delisted at the time of filing IT returns, but were listed at any time during the financial year in consideration, details of such shares will be required to be disclosed in the ITR by the taxpayer along with the PAN of the company

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Shares of Lakshmi Vilas Bank were recently delisted and there is a courtroom battle going on. Given the above scenario, is this considered as capital loss and can this be set off against capital gains while filing IT returns for financial year 2020-2021? If yes, how can this be shown in ITR? Also, what will happen if the court case turns out in favour of investors (i.e) if we show losses now and at a later point if the share value is settled to the investors by the bank?

-Name withheld on request. 

(Answer by Dr. Suresh Surana, Founder, RSM India)

As per provisions of Section 45 of the Income Tax Act, 1961, any profit or gain arising from the transfer of a capital asset shall be chargeable to tax under the head "Income from Capital gains". Further, section 2(47) of the IT Act defines the term ‘transfer’ in relation to a capital asset. As per the said section, transfer includes sale, exchange, relinquishment of the asset, extinguishment of any rights therein etc. This clearly states that capital gain/loss can arise only if there is a transfer of capital asset during a particular tax period. As such, mere delisting of a particular share does not result in transfer of a capital asset and Actual gain/loss will only arise when the share is “transferred".

As the loss is not realised in real terms, the same cannot be used to set off against the income earned during that particular tax period.

To answer your question, as mentioned above, since no capital loss would arise to the taxpayer until and unless the shares are actually disposed off or extinguished, no capital loss would be required to be shown in the ITR. However, the taxpayer would be required to disclose ‘whether you have held unlisted equity shares at any time during the previous year?’ in the ITR in accordance with Circular No. 18 of 2019 dated 8th August 2019. 

Accordingly, even though the shares are delisted at the time of filing the return but were listed at any time during the financial year in consideration, the details of such shares would be required to be disclosed in the ITR by the taxpayer along with the PAN of the company.

To address second question, in such case of a scenario, there may be a probability that the gains would be re-determined at the time of settlement after taking the capital loss previously allowed to assessee taxpayer.

(Send your queries at mintmoney@livemint.com)

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