Lakshmi Vilas Bank shares have been delisted. Will it be considered a capital loss?

Lakshmi Vilas Bank shares were recently delisted and a legal battle is ongoing. Considering the above scenario, is this considered a capital loss and can it be charged against capital gains when filing IT returns for fiscal year 2020-2021? If so, how can this be displayed in the ITR? Also, what if the lawsuit turns out in favor of the investors (i.e. if we show losses now and later if the value of the stock is settled to investors by the bank? ?

-Name withheld on request.

(Response from Dr Suresh Surana, Founder, RSM India)

In accordance with the provisions of section 45 of the Income Tax Act 1961, any profit or gain resulting from the transfer of a capital asset is taxable under the heading “Income from capital gains”. In addition, Article 2 (47) of the Information Technology Law defines the term “transfer” in relation to an asset. In accordance with said section, the transfer includes the sale, exchange, relinquishment of the asset, extinction of any rights in it, etc. This makes it clear that a capital gain / loss can only arise if there is a transfer of assets during a particular tax period. As such, the mere delisting of a particular share does not result in the transfer of a fixed asset and the actual gain / loss will only occur when the share is “transferred”.

Since the loss is not realized in real terms, it cannot be used to offset income earned during that particular tax period.

To answer your question, as mentioned above, since no capital loss would be incurred by the taxpayer until the shares are effectively sold or extinguished, no capital loss should be reported in the ITR. . However, the taxpayer would be required to report “have you held any unlisted shares at any time during the previous year?” To the RTI in accordance with Circular No.18 of 2019 of August 8, 2019.

Therefore, even if the shares are delisted at the time of filing of the return but have been listed at any time during the reporting period, the details of those shares should be disclosed in the ITR by the taxpayer with the PAN of business.

To answer the second question, in such a case of a scenario, there may be a likelihood that the gains will be re-determined at the time of settlement after taking the previously authorized capital loss from the reporting taxpayer.

(Send your questions to [email protected])

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