FAQ on IT return claim

Mr.Sanjay purchased shares of a company, which was later barred from trading, almost seven years ago. Can he claim the loss incurred due to the same while filing his return this year? If yes, under which head should he claim it?

We have to refer Section 45 and Section 2(47) to answer the above question.

Section 45 of the Income Tax Act states that profits or gains arising from the transfer of a capital asset shall be chargeable to income tax under the head capital gain.

Section 2(47) – Transfer includes sale, exchange or relinquishment of the asset or the extinguishment of any right thereon.

Relinquishment of asset takes place when the owner of a property abandons his right in the property or withdraws from the said property.

Extinguishment means cancellation or destruction of right, often because the time for enforcement has passed.

Shares barred from trading does not result in transfer as this does not fall within the purview of sale, exchange or relinquishment of the asset. It can be treated as extinguishment of the asset itself rather than extinguishment of right of such asset and the definition of transfer does not include extinguishment of asset.

Consequently, loss on account of disbarment of trading of shares cannot be treated as a loss.

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About B E Kumar Prasad

B E Kumar Prasad
He is a Practicing Chartered Accountant in Bengaluru, India. He has 25+ years of experience in income tax, business setup, and NRI matters. He is also an Insolvency Professional and Registered Valuer (F&SA).Prasad welcomes your comments and questions. Please email him at simplifiedlaws20@gmail.com

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