The equity shares of A Ltd. were converted into DEMAT Form in March 2004
After converting the equity shares in DEMAT form, the equity shares lose their identity & there remains no distinctive & share certificate numbers. All the equity shares go into the common pool.
The closing balance as on date in the DEMAT accounts of Promoters are as follows –
Mr. X No. of Shares Cost per Share (Rs.) Date of Acquisition/period of holding in DEMAT FORM 900000 10 March 2004 300000 2000 11-04-2009 100000 2000 25-06-2009
Mr. Y No. of Shares Cost per Share (Rs.) Date of Acquisition/period of holding in DEMAT FORM 800000 10 March 2004 300000 2000 11-04-2009 100000 2000 25-06-2009
Mr. Z No. of Shares Cost per Share (Rs.) Date of Acquisition/period of holding in DEMAT FORM 700000 10 March 2004 300000 2000 11-04-2009 100000 2000 25-06-2009
Now the Promoters intend to sell their stake to the potential investor out of the closing stake mentioned above purchased at Rs. 2000/- to reduce the Capital Gain Tax Liability.
What Income Tax Act 1961 says on this Subject :
As per Section 45(2A) of the said Act , “Where any person has had at any time during the pervious year any beneficial interest in any security, then, any profits or gains arising from transfer made by the depository or participant of such beneficial interest in respect of securities shall be chargeable to income tax as the income of the previous year in which such transfer took place & shall not be regarded as income of the depository who is deemed to be the registered owner of securities by virtue of sub section 1 of section 10 of the Depositories Act, 1996 & for the purpose of :-
i) section 48 & ii) proviso to clause (42A) of section 2,
the cost of acquisition & the period of holding of any securities shall be determined on the basis of the FIRST IN FIRST OUT method.”
Also Circular No. 704 dt. 28-04-1995 and 768 dt. 24-06-1998 confirm the adoption of FIFO method.
Opinion Required :
Now, opinion is required, keeping in view the relevant provisions of the Income Tax Act 1961, whether there is any possibility to sell the shares purchased at Rs. 2000/- (Please note that A Ltd. Is a Unlisted company and company have no plans in the near future for listing)
Possible Solutions from my view :
1. Converting the demat shares into physical form and then selling the shares purchased at Rs. 2000/- 2. Opening two fresh demat accounts and transferring the shares @ Rs.10/- and @ Rs. 2000/- separately in these demat accounts and then selling the shares. 3. Converting the demat shares into physical form and again converting them into demat form in 2 demat accounts seperately for Rs. 10/- per share and Rs. 2000/- per share.
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