No cap gains on shares transferred at cost: ITAT

The Income Tax Appellate Tribunal, orITAT has ruled that no capital gains tax is applicable on shares transferred at cost, if there are no other benefits, reports CNBC-TV18. "The difference in market value and cost can't be used to determine capital gains tax." The ruling comes in rupee finance and management versus the tax department case.

Promoters of rupee finance had transferred shares at cost as part of a family settlement.

Sudhir Kapadia, the Head of Taxation at KPMG says that this judgement by the Income Tax Appellate Tribunal clarifies that if one has a situation of an internal restructuring or for that matter a family arrangement where shares are being transferred not to a third party but through an internal process - they were usually done at the book value because one does not want to record a capital gain when there is no intent to make money by sale to a third party. "Tax department had tried to attribute a notional market value based on the market value of the shares sought to be transferred and tax the seller on capital gains, which is what has been rebutted by the Tribunal."

He feels that this judgement is applicable only in a very limited sense. "It is not applied across board for the simple reason that if it is to a third party, it would be assumed that you would realize full market value and if you have not, then there is something wrong in the transaction. But this would in situation, and there are umpteen numbers of such situations where due to family arrangements or for reasons of internal restructuring, you necessarily got to transfer shares. There is no provision in the law currently, which seeks to attribute a notional capital gain. Nevertheless in practice there has always been an attempt to do so."