Facts of the Case

The Taxpayer holds unlisted shares and optionally convertible debentures (OCD) in one of the Private Limited Company (say “ABC Private Limited”). The Debentures and Shares both are held by the Taxpayer for more than 5 years. Now the ABC Pvt Ltd incurred heavy losses and became debt ridden and the company was taken into liquidation under the IBC by one of the financial creditors.

The liquidation order was passed by NCLT in February 2024 dissolving the company with immediate effect. The taxpayer received nothing on liquidation since company did not have any funds for distribution to debenture holders as well as shareholders.

Thus, now the shares and debentures both are automatically cancelled due to dissolution of the company and the taxpayer incurred loss of investment in both shares and debentures.

Queries

1. Whether the cancellation of shares and debentures would amount to Transfer u/s 2(47) of the Income tax Act 1961 due to relinquishment of the asset or extinguishment of right?

2. Whether the Full Value of Consideration u/s 48 can be taken as Nil and Long term capital loss shall be computed as per normal provisions of Act and the resultant LTCL could be set off or carry forward against other Long term capital gain?

3. Whether benefit of indexation would be allowed in the case of Unlisted shares?

4. The taxpayer has also offered some interest income on debentures on accrual basis however the same is also not received. Now since the company is dissolved the said interest will never be received and is also a loss to the taxpayer. Whether the said loss of interest can be adjusted against other interest income received during the year?